Question on Some Banking Terminology
1. What is Sub-prime crisis?
Borrowers are classified into two categories Prime and Sub-prime
Prime borrowers are those with a good credit score
Sub-prime borrowers are those with a less credit score
Credit score is calculated based on number of factors like timely loan repayments (if previously taken),credit card limit.
Lenders lend loans to sub-prime borrowers typically at the higher interest rates since the probability of defaults is high in such a case.
2. What is KYC?
KYC means “Know Your Customer”. It is a process by which banks obtain information about the identity and address of the customers. This process helps to ensure that banks’ services are not misused. The KYC procedure is to be completed by the banks while opening accounts. Banks are also required to periodically update their customers’ KYC details.
The KYC guidelines of RBI mandate banks to collect proofs from their customers. They are-
1. Proof of identity
2. Proof of address
3. What is SWIFT?
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) provides a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment.
SWIFT does not facilitate funds transfer, rather it sends payment orders, which must be settled by correspondent accounts that the institutions have with each other. Each financial institution, to exchange banking transactions, must have a banking relationship by either being a bank or affiliating itself with one (or more) so as to enjoy those particular business features.
India was 74th Nation to join SWIFT Network.
A majority of FOREX related message are sent to correspondent banks abroad through SWIFT.
SWIFT Code consist 8 or 11 character when code is 8 digit, It is referred to primary office
First 4 – bank code
Than 2 – country code
Than 2 – location code
Last 3 – branch code (optional).
4. What is NOSTRO and VOSTRO account?
A nostro is our account of our money, held by the other bank where as a vostro is our account of other bank money, held by us.
NOSTRO account is maintained by an Indian bank in the foreign countries.
VOSTRO account is maintained by a foreign bank in India with their corresponding bank.
5. What is RuPay Card?
RuPay is the Indian domestic card payment network set up by National Payments Corporation of India (NPCI) at the behest of banks in India. The RuPay project had been conceived by Indian Banks Association (IBA) and had the approval of Reserve Bank of India (RBI).
RuPay Logo National Payments Corporation of India (NPCI) has a plan to provide a full range of card payment services including the RuPay ATM, RuPay Micro ATM, Debit, Prepaid and Credit Cards which will be accepted in India and abroad, across various channels like POS, Internet, IVR and mobile etc.
The initial focus of NPCI would be to approach those banks who have not been issuing any payment card at all more specifically – Regional Rural Banks (RRBs) and urban co-operative banks.
All Public Sector Undertakings (PSU) banks set to join RuPay system by the end of year 2012. RuPay-based debit cards can be used by the consumers on the Internet from September, 2012.
The government of India had launched India’s first domestic payment card network, RuPay, to compete with Visa Inc and MasterCard Inc.
6. What is foreign exchange reserve?
Foreign exchange reserves (also called Forex reserves) are the foreign currencies held by a country's central bank and its member banks. They are also referred to as foreign currency reserves or foreign reserves.
The reserves are labeled as reserve assets under assets by functional category. In terms of financial assets classifications, the reserve assets can be classified as Gold bullion, Unallocated gold accounts, Special drawing rights, currency, Reserve position in the IMF, interbank position, other transferable deposits, other deposits, debt securities, loans, equity (listed and unlisted), investment fund shares and financial derivatives, such as forward contracts and options.
7. What is Bancassurance?
Bancassurance also sometimes known as the bank insurance model (BIM) or allfinanz, is the partnership or relationship between a bank and an insurance company, or a single integrated organization arrangement which allow insurance company can sell its products to the bank's client base. This partnership arrangement can be profitable for both companies. Banks can earn additional revenue by selling the insurance products, while insurance companies are able to expand their customer bases without having to expand their sales forces or pay commissions to insurance agents or brokers.
8. What is Money Laundering ?
Money laundering is the processes of concealing the source of obtain money. Money or funds obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source.
9. What are NPA?
A nonperforming asset (NPA) refers to a classification for loans on the books of financial institutions that are in default or are in arrears on scheduled payments of principal or interest. Once the borrower has failed to make schedule principal or interest payments for 90 days the loan is considered to be a NPA.
Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.
1. Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.
2. Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
3. Loss assets: As per RBI, "Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value."