Monthly Archives: December 2013

Since 1991- Snippets of time

There was a time when India was truly

socialistic democratic republic. Where

angst of youth was seen in Amitabh

Bacchan and not on facebook, where

points of talking were Chaiwala stalls and

not CCDs, where there were bazzars not

big or star but just bazaars and where

foreign country and its stuff were seen with

wide eyes.

 

All that and much more changed when a

reticent finance minister opened up the

Indian shores to Liberalisation,

Privatisation and Globalisation. Thus

began India’s second tryst with destiny. In

this book we have captured the growth of

India on economic front since 1991. 20

years have passed since then, A whole

new generation has taken the centre

stage.

 

This is New India with Dreams, aspiration,

and even money. This is the India which

the world is watching. No matter how

embattled we remain in corruption,

inefficiency, and talks of crony capitalism,

the last 20 decades have brought a sea

change to us, to India.

We present you brief snippets of it. They will excite you, en light you and are extremely enjoyable.

Happy reading

https://www.dropbox.com/s/dhqldgg1lihg89v/since%201991%20%281%29.pdf

Securitisation-All about it

What is securitization?

It’s a process by which a single asset or a pool of assets is transferred from the balance sheet of the originator (bank) to a bankruptcy remote SPV (trust) in return for an immediate cash payment.

To explain through a simple example, suppose there are 100 home loans of 20 years given to 100 borrowers having different credit rating. These 100 assets are pooled and sold to a securitization or Asset reconstruction company (ARC) for immediate cash payment by the Bank. Bank will auction these loan assets (Remember loans are assets for banks and deposits are liability!!) and ARC will buy them. The bank which sells these assets is called originator. Continue reading Securitisation-All about it

Basel in Nut Shell

Basel Committee on Banking Supervision has given certain guidelines with a view to strengthen the Banking Sector. First Basel accord was done in 1988.

There are three Kinds of Risk which have been categorized:

  1. Credit Risk: Risk that counterparty will default and will not pay back the amount due.eg a borrower who has taken a loan fails to repay it
  2. Market Risk: Risk that value of securities held by bank will reduce in value because banks are exposed to markets. For e.g. bank holds bonds whose value fluctuates daily.
  3. Operational Risk: Risk caused due to people or failed or inadequate processes and systems. For e.g. internal Fraud, external fraud, failure of compute system/ATM

Continue reading Basel in Nut Shell

Revaluation Reserve

Revaluation  reserves  are  a  part  of Tier-II  capital. These reserves arise  from  revaluation of assets  that are undervalued on  the  bank’s  books,  typically  bank  premises  and marketable securities. The extent to which the revaluation reserves  can be  relied upon  as  a  cushion  for unexpected losses depends mainly upon  the  level of certainty  that can be placed on  estimates of  the market  values of  the  relevant assets  and  the  subsequent  deterioration  in  values  under difficult market  conditions or  in a  forced  sale.

Base Rate of Banks: Meaning Explained

Base rate is the rate below which a Bank cannot give loans. Introduced on 1st July 2010 on the directive of RBI, Base rate replaced the old system of BPLR (Benchmark Prime Lending rate)

Why it was needed?

Before base rate a system of BPLR was in place.  However almost all banks lent below BPLR to its corporate customers and charged high rate from its retail and SME borrowers, which meant that big corporates kept on getting cheaper credit at the expense of small and retail customers.

Thus RBI directed banks to move to a system of Base rate, below which banks can not lend. Continue reading Base Rate of Banks: Meaning Explained