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Call Money/ Notice Money Market: Refers to a segment of money market where participants lend and borrow money on an overnight basis. The notice money market provides for lending and borrowing of money at a short notice for periods up to 14 days. Since 1992 many financial institutions like IDBI, NABARD, mutual funds, GIC and subsidiaries were allowed to participate in the call money market. On the recommendations of the Narasimham committee 1998, the non-bank participation in the market has been phased out in order to make it a pure inter-bank call/notice money market including primary dealers.
Call Option: The right to buy the underlying securities at a specified exercise price on or before a specified expiration date.
Callable Bonds: Bonds that give the issuer the right to redeem the bonds before their stated maturity.
Capital: It refers to assets which are capable of generating income and which have themselves been produced. Capital is one of the four Factors of Production, and consists of the machines, plant and buildings that made production possible, but excludes raw materials, land and labour. In more general usage, it refers to any assets or stock of assets (financial or physical) capable of generating income.
Capital Account Convertibility (CAC): Convertibility means the ability of the domestic residents to convert the local currency to any foreign currency at will. The Report of the Committee on Capital Account Convertibility (Tarapore Committee) (RBI, 1997) provided the following working definition of CAC: "freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange. It is associated with changes of ownership in foreign / domestic financial assets and liabilities and embodies the creation and liquidation of claims on, or by, the rest of the world. CAC can be, and is, coexistent with restriction other than on external payments". Broadly it would mean freedom for firms and residents to buy overseas assets such as equity, bonds, property and acquire ownership of overseas firms, besides free repatriation of proceeds by foreign investors.
Capital Adequacy: In the context of growing size and variety of banking transactions the prescription of minimum fixed capital for banks (as well as financial institutions) was considered inadequate The Committee on Banking Regulation and Supervisory Practices, set up by the Bank for International Settlements (BASEL COMMITTEE) prescribed certain capital adequacy standards taking into account the element of risk in various types of assets in the balance sheet and off-balance sheet business. Under this system, the funded and non-funded items and other off-balance sheet exposures are assigned weights according to the risk perception and banks are required to maintain unimpaired minimum capital funds to the prescribed ratio on the risk weighted assets. In India the Capital adequacy norms were adopted in 1992, following the Basel Accord of 1988. This accord exclusively focussed on credit risk. In the context of financial innovations and growing complexity of financial transactions a new Capital Accord known as Basel II was released by the Basel Committee on Banking Supervision. The revised framework helps banks to determine the capital requirement for credit risk, market risk and operational risk. This involves a 3-pillar approach of Minimum Capital Requirements, Supervisory Review Process and Market Discipline.
CAPITAL ADEQUACY, ASSET QUALITY, MANAGEMENT, EARNINGS, LIQUIDITY, SYSTEM & CONTROLS (CAMELS): Banks incorporated in India are supervised and awarded supervisory ratings under CAMELS model. The foreign banks operating in India are rated under CALCS which stand for Capital Adequacy, Asset Quality, Liquidity & Compliance and Systems. A system of supervisory rating based on CAMELS is being used to assess the performance and strength and soundness of banks.
Capital Accords (Related to Basel Norms): The Basel Committee on Banking Supervision published the first Basel Capital Accord in July, 1988 prescribing minimum capital adequacy requirement in banks and the signatory countries fully implemented the accord by the end of 1992. In the subsequent years, increased market volatility as well as incidents such as the Asian crisis, the near collapse of a significant hedge fund in the US and the crisis in several Latin American and emerging economies prompted a new look at the 1988 Capital Accord. Therefore, in July 1999, the Basel Committee released the first proposal to replace the 1988 Capital Accord with a more risk sensitive capital adequacy framework. Capital Accord aims to strengthen the soundness and stability of the International Banking System and diminish existing source of competitive inadequacy among international banks. The framework will be applied on a consolidated basis to internationally active banks. The scope of application will also include, on a fully consolidated basis, any holding company that is the parent entity within a banking group, to ensure that it captures the risk of the whole banking group. As one of the principal objectives of supervision is the protection of depositors, supervisors have to test that individual banks are adequately capitalized on a standalone basis.
CAPITAL EXPENDITURE: It is the purchase of fixed assets (e.g. plant and equipment), expenditure on Trade Investments, acquisitions of other businesses and expenditure on current assets (e.g. stocks).
CAPITAL MARKET: Capital market deals with long term funds which can be raised either through issue of securities or by borrowing from certain institution. Capital market can be divided into two parts viz, for corporate securities and other gilt edged securities (securities issued by Central Government, State Government and quasi-govt. Bodies).
CAPITAL FORMATION: Refers to that part of a country's current output and imports which is not consumed or exported during the accounting period but set aside as additions to its stock of capital goods for use in future productive process - machinery, equipment, plants, buildings, stock of raw material, semi-finished goods, etc. Net capital formation is distinguished from gross capital formation in that it is measured after allowances are made for depreciation, obsolescence and accidental damage to fixed capital.
CAPITAL FUNDS OF BANKS: Capital Funds comprise of Tier I capital and Tier II capital as defined under Capital Adequacy Standards. Tier I capital mainly consists of Capital, Statutory reserves, Capital reserves etc, reduced by equity investments in subsidiaries, intangible assets etc. Tier II capital consists of undisclosed reserves, revaluation reserves, general provision and loss reserve, subordinate debt instruments etc.
CASH RESERVE RATIO (CRR): Cash reserve Ratio (CRR) is the amount of Cash(liquid cash like gold) that the banks have to keep with RBI. This Ratio is basically to secure solvency of the bank and to drain out the excessive money from the banks. If RBI decides to increase the percent of this, the available amount with the banks comes down and if RBI reduce the CRR then available amount with Banks increased and they are able to lend more.
CENTRAL BANK: Conducting a special class of business distinct from commercial banking, the primary function of Central Bank is to serve as a lender of last resort so as to stabilise the banking system. In order to ensure monetary discipline and healthy growth of economy the Central Bank has been entrusted with function of monopoly of note issue, keeping the nation's gold and foreign exchange reserves, providing banking services to the government and other banks. The central bank is an important source of advice on economic policy matters to the government. As the monetary authority it conducts monetary policy to influence economic trends through the cost and availability of credit and regulates the operations of banks and non-banking financial companies.
CENTRAL RECORD AND DOCUMENTATION CENTRE (CRDC): This was established in August 1981 in Pune with the object of serving as a repository of non-current permanent records and as the central archives of the Reserve Bank of India for research purposes. It maintains an archival of RBI library, and provides for repairs and rehabilitation of records of RBI in a scientific manner and research facilities for the staff of the Bank as well as students from other institutions.
CERTIFICATE OF DEPOSIT: It is a negotiable claim issued by a bank in return for a Term Deposit. CDs are securities which are purchased for less than their face value, which is the bank’s promise to repay the deposit and thus offer a yield to maturity (YTM). The secondary market in CDs is made up by the Discount Houses and the banks in the Inter-Bank Market. Where a depositor knows that he can, if necessary, sell his CD he will be willing to place his funds with a bank for long periods.
CHANNELS OF INFLUENCE OF INTERVENTION IN EXCHANGE RATES: CHANNELS OF INFLUENCE OF INTERVENTION IN EXCHANGE RATES: The four channels of influence of intervention in exchange rates are: 1) Monetary Policy Channel - Effect on domestic interest rates, when intervention is not fully sterilized; 2) Portfolio Balance Channel - Composition of domestic and foreign assets held by the main market participants changes as a result of sterilized intervention; 3) Signalling or Expectations Channel - Sterilized intervention changes private agents' exchange rate expectations by giving signals about the future stance of monetary policy and 4) Order Flow or Micro Structure Channel - impact of intervention on buy or sell orders of traders who follow past market trends.
Cheque: Cheque is a bill of exchange drawn on a specified banker ordering the banker to pay a certain sum of money to the drawer of cheque or another person. Money is generally withdrawn by clients by cheques. Cheque is always payable on demand.
Cheque Truncation: Cheque truncation truncates or stops the flow of cheques through the banking system. Generally truncation takes place at the collecting branch, which sends the electronic image of the cheques to the paying branch through the clearing house and stores the paper cheques with it.
CLEARING CORPORATION OF INDIA LTD (CCIL): This was set up in November 2002 to serve as an industry-wise organisation for clearing and settlement of trades in foreign exchange government securities and other debt instruments. The CCIL manages various risks and reallocates risks among the participants. CCIL reduces the liquidity requirements of the market and thereby liquidity risk of the system. Major commercial banks, financial institutions and primary dealers own it.
Closed-end (Mutual) Fund: A fund with a fixed number of shares issued, and all trading is done between investors in the open market. The share prices are determined by market prices instead of their net asset value.
Collateral: A specific asset pledged against possible default on a bond. Mortgage bonds are backed by claims on property. Collateral trusts bonds are backed by claims on other securities. Equipment obligation bonds are backed by claims on equipment.
Commercial Paper: Short-term and unsecured promissory notes issued by corporations with very high credit standings.
Common Stock: Equity investment representing ownership in a corporation; each share represents a fractional ownership interest in the firm.
Compound Interest: Interest paid not only on the initial deposit but also on any interest accumulated from one period to the next.
Contract Note: A note which must accompany every security transaction which contains information such as the dealer’s name (whether he is acting as principal or agent) and the date of contract.
Controlling Shareholder: Any person who is, or group of persons who together are, entitled to exercise or control the exercise of a certain amount of shares in a company at a level (which differs by jurisdiction) that triggers a mandatory general offer, or more of the voting power at general meetings of the issuer, or who is or are in a position to control the composition of a majority of the board of directors of the issuer.
Convertible Bond: A bond with an option, allowing the bondholder to exchange the bond for a specified number of shares of common stock in the firm. A conversion price is the specified value of the shares for which the bond may be exchanged. The conversion premium is the excess of the bond’s value over the conversion price.
Corporate Bond: Long-term debt issued by private corporations.
Coupon: The feature on a bond that defines the amount of annual interest income.
Coupon Frequency: The number of coupon payments per year.
Coupon Rate: The annual rate of interest on the bond’s face value that a bond’s issuer promises to pay the bondholder. It is the bond’s interest payment per dollar of par value.
Covered Warrants: Derivative call warrants on shares which have been separately deposited by the issuer so that they are available for delivery upon exercise.
Credit Rating: An assessment of the likelihood of an individual or business being able to meet its financial obligations. Credit ratings are provided by credit agencies or rating agencies to verify the financial strength of the issuer for investors.
Collecting Banker: Also called receiving banker, who collects on instruments like a cheque, draft or bill of exchange, lodged with himself for the credit of his customer's account.
CODE OF BANKS COMMITMENT TO CUSTOMERS: A code evolved by the Indian Banks' Association and Banking Codes and Standard Board of India to provide a framework for minimum standard of banking services which individual customers can legitimately expect. It sets out a minimum standard of customer service with reliability, transparency and accountability and outlines how each bank expects to deal with the customers day to day requirements and accordingly what each customer should reasonably expect from his bank. The code was released in July 2006.
COINAGE: Coins are minted in the denominations of 10paise, 20paise, 25paise, 50paise, 1rupee, 2rupees, and 5rupees. Coins up to 50paise are called small coins and other coins are termed as rupee coins As per the provisions of Coinage Act 1906, coins can be issued up to denominations of Rs 1000/-. The responsibility for coinage vests in the Government of India in terms of Coinage Act 1906.
COLLATERALISED BORROWING AND LENDING OBLIGATION (CBLO): CBLO is a money market instrument. Conceptually, it is (1) an obligation by the borrower to return the money borrowed, at a specified future date, (2) an authority to the lender to receive money lent, at a specified date and (3) an underlying charge on securities held in the custody with Clearing Corporation of India Limited (CCIL) for amount borrowed. CBLO is a new money market instrument developed by CCIL. It is a hybrid of repo (backed by securities) and call money products (short term). Consistent with the move to phase out non-bank participants from the call money market, CBLO was introduced to facilitate participation of non-bank entities in money market. Borrowing under CBLO is against the collateral of Government securities. CBLO also has certain other features such as maturity period ranging from 1day to 1year and is issued in electronic book entry form only. The CCIL provides the trading platform and market participants (Banks, Financial Institutions, Insurance Companies, Mutual Funds, Primary Dealers, Non-Banking Financial Companies, and Corporations etc) decide the rate at which it is issued and traded.
CONSUME PRICE INDEX (CPI): It is a measure estimating the average price of consumer goods and services purchased by households.
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 upto 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.
CONSOLIDATED SUPERVISION: Consolidated Supervision refers to system whereby the RBI undertakes consolidated supervision of bank groups (with related to entities) where the controlling entity is an institution (banks, financial institution or NBFCs) which comes under the regulatory/supervisory purview of the RBI. The components of consolidated supervision are (1) Consolidated financial statements (CFs) (2) consolidated prudential reports (CPR) and (3) application of certain prudential regulations like capital adequacy, large exposure, risk concentration etc. on group basis. CFs would include consolidated balance sheet, profit and loss account and other statements including cash flow statements
Co-operative Bank : An association of persons who collectively own and operate a bank for the benefit of consumers / customers, like Saraswat Co-operative Bank or Abhyudaya Co-operative Bank and other such banks.
Co-operative Society : When an association of persons collectively own and operate a unit for the benefit of those using its services like Apna Bazar Co-operative Society or Sahakar Bhandar or a Co-operative Housing Society.
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.
CORPORATE GOVERNANCE: The concept of Corporate Governance is differently defined. It means doing every thing better to improve relationship between companies or organisations and their shareholders and other stakeholders. It is also defined as a system by which business operations are directed and controlled. It specifies the distribution of rights and responsibilities among different participants in the corporation such as the board, managers, shareholders and other stakeholders and spells out the rules and procedures for making decision on corporate affairs. According to the World Bank, Corporate Governance is about promoting corporate fairness, transparency, and accountability. Corporate governance is becoming crucial for banks and financial institutions to promote effective risk management and financial stability. As part of financial sector reforms banks are required to follow due diligence procedures for appointment of directors on the boards of private sector banks and regarding role and responsibilities of independent directors. Banks are also required to take steps to strengthen risk management framework and constitute various committees in conformity with corporate governance. The purpose is to ensure that owners and managers of banks are persons of sound integrity so as to protect the interest of depositors and integrity of financial system.
Credit worthiness: It is the capacity of a borrower to repay the loan / advance in time along with interest as per agreed terms.
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.
CREDIT: The term refers to the use of someone else's funds in exchange for a promise to pay (usually with interest) at a later date e.g. short term loans from a bank. In balance of payments accounting, it denotes an item such as exports that earns a country foreign currency. Bank credit is an important variable affecting consumption and capital formation.
CREDIT POLICY: Refers to the policy of using central banking instruments for varying the cost, availability and direction of credit or "loans and discounts" extended by the banks to their customers. The capacity of banks to provide credit depends on their cash reserves (cash in hand and balances with Reserve Bank of India; substantial portion of the reserves is held in the form of balance with RBI). These reserves increase through a rise in the deposits of banks or their borrowings from Reserve Bank or a sale of their investments. Regulations of credit essentially means regulation of quantum of reserves of banks. If the RBI desires to bring about credit expansion it would adopt measures to help augment reserves; if credit expansion is to be restricted, measures to curtail the reserves are adopted.
CREDIT INFORMATION BUREAU OF INDIA LTD (CIBIL): This is an agency for compilation and dissemination of credit information covering data on defaults to the financial system. Banks and financial institutions are required to submit periodical requisite data to CIBIL and report to the RBI. With a view to strengthen the legal mechanism and facilitating credit information bureau to collect, process and share credit information on borrowers of banks /FIs the Credit Information Companies' Regulation Act was passed and came into vogue with the President of India giving assent in June 2005. The Act empowers CIBIL to collect information relating to all borrowers and confers upon the RBI the power to determine policy in respect of functioning of credit information companies.
CREDIT RISK MEASUREMENT: The Basel Accord permit Banks a choice between two broad methodologies for calculating their capital requirements for credit risk. i) Standardised Approach: One alternative will be to measure credit risk in a standardised manner, supported by external credit assessment. ii) Internal Rating Based Approach: Subject to certain minimum conditions and disclosure requirements, banks that have received supervisory approval to use IRB approach may rely on their own internal estimates of risk components in determining the capital requirement for a given exposure. The risk components include measures of the probability of default (PD), loss given default (LGD), the exposure at default (EAD) and effective maturity (M). Under IRB Approach, the accord has made available two broad approaches: a foundation and an advanced. Under the foundation approach, as a general rule, banks provide their own estimates of PD and rely on supervisory estimates for other risk components. Under the advanced approach, banks provide for more of their own estimates of PD, LGD and EAD and their own calculation of M, subject to meeting minimum standards.
CURRENCY: Paper currency, a medium of exchange, stands out as an important landmark in the evolution of payment system for various transactions, from the primitive barter of early societies to coins, credit cards and electronic money. As against physical coins possessing intrinsic value, the paper currency represents a promise to pay the physical equivalent or the underlying value. In the West, currency was introduced around the 17th century. In India up to 1861 from the latter part of the 18th century, banks were free to issue currency notes which were payable to bearer on demand. These promissory notes, convertible into coins on demand were termed as bank notes. Issue of official Government of India paper currency commenced in 1861 with the enactment of Paper Currency Act. With the formal inauguration of the Reserve Bank of India on 1-4-1935, the RBI took over the function of issuing notes. The Indian currency is called Indian rupee and sub-denomination is called the paise.
CURRENCY BOARD: Currency Board issues currency in accordance with certain strict rules; the Board prints domestic currency and commits itself to converting it on demand to a specified currency at fixed rate of exchange. To make this commitment credible the board holds reserves of foreign currency (or of gold or some other liquid asset) equal to at least 100%of the domestic currency issue at the fixed rate of exchange. The Board issues currency only when there are enough foreign assets to back it. And it does little else; no open market operations; no lending to the Government; no guarantee of banking system. The main advantage of Currency Board Systems is it is easy to run. More over a Currency Board compels Governments to adopt a responsible fiscal policy. If the budget is not balanced the government has to persuade private banks to lend to it. Bullying the Central bank to print money is no longer an option; the currency board therefore will tend to produce more prudent fiscal policies than a malleable Central bank will.
CURRENCY CHESTS: Currency chests are storehouses where bank notes and rupee coins are stocked on behalf of the Reserve Bank of India. The Reserve Bank of India has authorised selected branches of banks to establish Currency Chests in order to facilitate distribution of notes and coins across the country through other bank branches in their area of operation. The currency chest is like a miniature Issue Department and notes held in the chests are not deemed to be in circulation and the coins held in chest form part of Issue Department.
CURRENCY MANAGEMENT: This function involves designing of currency notes, issue and distribution of fresh notes and coins, management of inventory of notes and accounting withdrawal of soiled notes from circulation and their destruction, note exchange facilities and anti-counterfeit measures.
CURRENCY OPTIONS: A contract where the purchaser of the option has the right but not the obligation to either purchase (call option) or sell (put option) and the seller (or writer) of the option agrees to sell (call option) or purchase (put option) an agreed amount of a specified currency at a price agreed in advance and denominated in another currency (known as the strike price) on a specified date (European Option) or by an agreed date (American Option) in the future.
CURRENCY RISK: The possibility that exchange rate changes will alter the expected amount of principal and return of the lending or investment.
CURRENCY VERIFICATION AND PROCESSING SYSTEM: This is an electronic mechanical device designed for examination, authentication, counting, sorting and online destruction of notes which are misfit for further circulation. The system is capable of sorting the notes on the basis of denomination, design and level of shortage. Notes are sorted into fit, unfit, reject and suspect categories.
CURRENT ACCOUNT: It is the most common type of bank account, on which deposits do not earn interest, but can be withdrawn by cheque at any time. The bank charges according to the number of cheques through the account and the credit balance. If the average balance is high, the customer may pay no bank charges
CURRENT ACCOUNT CONVERTABILITY: Refers to the process of easing restrictions on current international transactions and liberalisation for payment of current transactions involving foreign exchange. This is formalised by the country accepting the obligations of Article (Vii) of the International Monetary Fund to refrain from imposing restrictions on the making of payments and transfers for current international transactions. With the introduction of Current account convertibility, Authorised Dealers have been delegated extensive powers to provide foreign exchange for current account transactions purposes.
Customer: A person who maintains any type of account with a bank is a bank customer. Consumer Protection Act has a wider definition for consumer as the one who purchases any service for a fee like purchasing a demand draft or a pay order. The term customer is defined differently by Laws, softwares and countries.
Current Yield: A return measure that indicates the amount of current income a bond provides relative to its market price. It is shown as: Coupon Rate divided by Price multiplied by 100%.
Custody of Securities: Registration of securities in the name of the person to whom a bank is accountable, or in the name of the bank’s nominee; plus deposition of securities in a designated account with the bank’s bankers or with any other institution providing custodial services.

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