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JNANA VARDHINI
SIBSTC MONTHLY NEWSLETTER -COVERING
CONTEMPORARY BANKING RELATED TOPICS
14TH ISSUE
SEPTEMBER- 2011
SOUTHERN INDIA BANKS’ STAFF
TRAINING COLLEGE
No.531, Faiz Avenue, 11th Main, 32nd Cross
IV Block, Jayanagar, BANGALORE-560 011
Website: www.sibstc.edu.in
Email:
[email protected]
[email protected]
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ATM (Automated Teller Machine)
Definition of ATM:
ATM is a computerized machine that provides the customers of banks the facility of
accessing their account for dispensing cash and to carry out other financial & nonfinancial transactions without the need to actually visit their bank branch.
Kinds of Cards that can be used in ATM:
The ATM debit cards, credit cards and prepaid cards (that permit cash withdrawal) issued
by banks can be used at ATMs for various transactions.
Services/Facilities available at ATMs:
In addition to cash dispensing, ATMs may have many services/facilities enabled by the
bank owning the ATM such as:
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Account information
Cash Deposit
Regular bills payment
Purchase of Re-load Vouchers for Mobiles
Mini/Short Statement
Loan account enquiry etc.
Transactions at an ATM:
For transacting at an ATM, the customer inserts /swipes his/her Card in the ATM and
enters his/her Personal Identification Number (PIN) issued by his/her bank.
Minimum and Maximum Cash withdrawal limit per day:
The withdrawal limits are set by the card issuing banks. This limit is displayed at the
respective ATM locations
Personal Identification Number (PIN):
PIN is the numeric password which is separately mailed / handed over to the customer by
the bank while issuing the card. Most banks require the customers to change the PIN on
the first use.
Use of Cards at any bank ATM in the country:
The cards issued by banks in India may be used at any bank ATM within India. However
the savings bank account holders can transact a maximum of five transactions free at
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other bank ATMs in a month, which is inclusive of all types of transactions, financial and
non-financial, beyond which the customer can be charged by his/her bank.
Action if card is lost/stolen:
The customer may contact the card issuing bank immediately on noticing the loss so as
to enable the bank to block the card.
Steps to be taken in case of failed ATM transaction at other bank ATMs, where the
account is debited:
The customer should lodge a complaint with the card issuing bank at the earliest. This
process is applicable even if the transaction was carried out at another bank’s ATM.
Time limit for the card issuing banks for recrediting the customers account for a
failed ATM transaction:
As per the RBI instructions (DPSS.PD.No. 2632/02.10.002/2010-2011 dated May 27,
2011), banks have been mandated to resolve customer complaints by recrediting the
customers account within 7 working days from the date of complaint.
Compensation for delays beyond 7 working days:
Effective from July 1, 2011, banks have to pay customers Rs. 100/- per day for delays
beyond 7 working days. The compensation has to be credited to the account of the
customer without any claim being made by the customer. If the complaint is not lodged
within 30 days of transaction, the customer is not entitled for any compensation for delay
in resolving his / her complaint.
Action for the customer if the complaint is not addressed by his/her bank within the
stipulated time:
The customer can take recourse to the local Banking Ombudsman in such situations.
(Source: RBI FAQ Series updated till 30.09.2011)
RTGS SYSTEM
Definition:
RTGS stands for Real Time Gross Settlement, which can be defined as the continuous
(real-time) settlement of funds transfers individually on an order by order basis (without
netting). 'Real Time' means the processing of instructions at the time they are received
rather than at some later time. 'Gross Settlement' means the settlement of funds transfer
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instructions occurs individually (on an instruction by instruction basis). Considering that
the funds settlement takes place in the books of the Reserve Bank of India, the payments
are final and irrevocable.
Minimum / Maximum amount stipulation for RTGS:
The RTGS system is primarily meant for large value transactions. The minimum amount
to be remitted through RTGS is ` 2 lakh. There is no upper ceiling for RTGS transactions.
Time taken for effecting funds transfer from one account to another under RTGS:
Under normal circumstances the beneficiary branches are expected to receive the funds in
real time as soon as funds are transferred by the remitting bank. The beneficiary bank has
to credit the beneficiary's account within two hours of receiving the funds transfer
message.
Refund of Money in case the money is not credited to the beneficiary's account:
It is expected that the receiving bank will credit the account of the beneficiary instantly.
If the money cannot be credited for any reason, the receiving bank would have to return
the money to the remitting bank within 2 hours. Once the money is received back by the
remitting bank, the original debit entry in the customer's account is reversed.
RTGS Timings:
The RTGS service window for customer's transactions is available from 9.00 AM to 4.30
PM on week days and from 9.00 AM to 1.30 PM on Saturdays for settlement at the RBI
end. However, the timings that the banks follow may vary depending on the customer
timings of the bank branches.
Processing Charges / Service Charges for RTGS transactions:
With a view to rationalize the service charges levied by banks for offering funds transfer
through RTGS system, a broad framework has been mandated as under:
a) Inward transactions – Free, no charge to be levied.
b) Outward transactions –
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Rs 2 lakh to Rs 5 lakh- Not exceeding Rs 30 per transaction.
Above Rs 5 lakh – Not exceeding Rs 55 per transaction.
Essential information required to be furnished by customer remitting the Amount:
The remitting customer has to furnish the following information to a bank for effecting a
RTGS remittance:
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Amount to be remitted
Remitting customer’s account number which is to be debited
Name of the beneficiary bank
Name of the beneficiary customer
Account number of the beneficiary customer
Sender to receiver information, if any
The IFSC Number of the receiving branch
Whether all bank branches in India provide RTGS service:
No. All the bank branches in India are not RTGS enabled. As on September 29, 2011,
there are more than 78,000 RTGS enabled bank branches. The list of such branches is
available on RBI website
Information to the Remitting Customer:
It would depend on the arrangement between the remitting customer and the remitting
bank. Some banks with internet banking facility provide this service. Once the funds are
credited to the account of the beneficiary bank, the remitting customer gets a
confirmation from his bank either by an e-mail or SMS.
(Source: RBI FAQ Series updated till 30.09.2011)
NEFT
Definition:
National Electronic Funds Transfer (NEFT) is a nation-wide payment system facilitating
one-to-one funds transfer. Under this Scheme, individuals, firms and corporates can
electronically transfer funds from any bank branch to any individual, firm or corporate
having an account with any other bank branch in the country participating in the Scheme.
For being part of the NEFT funds transfer network, a bank branch has to be NEFTenabled. The list of bank-wise branches which are participating in NEFT is provided in
the RBI website.
Eligibility for Transfer Funds using NEFT:
Individuals, firms or corporates maintaining accounts with a bank branch can transfer
funds using NEFT. Even such individuals who do not have a bank account (walk-in
customers) can also deposit cash at the NEFT-enabled branches with instructions to
transfer funds using NEFT. However, such cash remittances will be restricted to a
maximum of Rs.50,000/- per transaction. Such customers have to furnish full details
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including complete address, telephone number, etc. NEFT, thus, facilitates originators or
remitters to initiate funds transfer transactions even without having a bank account.
Receivers of funds through the NEFT system:
Individuals, firms or corporates maintaining accounts with a bank branch can receive
funds through the NEFT system. It is, therefore, necessary for the beneficiary to have an
account with the NEFT enabled destination bank branch in the country.
The NEFT system also facilitates one-way cross-border transfer of funds from India to
Nepal. This is known as the Indo-Nepal Remittance Facility Scheme. A remitter can
transfer funds from any of the NEFT-enabled branches in to Nepal, irrespective of
whether the beneficiary in Nepal maintains an account with a bank branch in Nepal or
not. The beneficiary would receive funds in Nepalese Rupees. Further details on the
Indo-Nepal Remittance Facility Scheme are available on the RBI website.
Limit for NEFT Transactions:
There is no limit – either minimum or maximum – on the amount of funds that can be
transferred using NEFT. However, maximum amount per transaction is limited to
Rs.50,000/- for cash-based remittances and remittances to Nepal.
NEFT Timings:
Presently, NEFT operates in hourly batches - there are eleven settlements from 9 am to 7
pm on week days (Monday through Friday) and five settlements from 9 am to 1 pm on
Saturdays.
NEFT system operation:
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An individual / firm / corporate intending to originate transfer of funds through
NEFT has to fill an application form providing details of the beneficiary (like
name of the beneficiary, name of the bank branch where the beneficiary has an
account, IFSC of the beneficiary bank branch, account type and account number)
and the amount to be remitted. The application form will be available at the
originating bank branch. The remitter authorizes his/her bank branch to debit his
account and remit the specified amount to the beneficiary. Customers enjoying net
banking facility offered by their bankers can also initiate the funds transfer
request online. Some banks offer the NEFT facility even through the ATMs.
Walk-in customers will, however, have to give their contact details (complete
address and telephone number, etc.) to the branch. This will help the branch to
refund the money to the customer in case credit could not be afforded to the
beneficiary’s bank account or the transaction is rejected / returned for any reason.
The originating bank branch prepares a message and sends the message to its
pooling centre (also called the NEFT Service Centre).
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The pooling centre forwards the message to the NEFT Clearing Centre (operated
by National Clearing Cell, Reserve Bank of India, Mumbai) to be included for the
next available batch.
The Clearing Centre sorts the funds transfer transactions destination bank-wise
and prepares accounting entries to receive funds from the originating banks
(debit) and give the funds to the destination banks(credit). Thereafter, bank-wise
remittance messages are forwarded to the destination banks through their pooling
centre (NEFT Service Centre).
The destination banks receive the inward remittance messages from the Clearing
Centre and pass on the credit to the beneficiary customers’ accounts.
What is IFSC?
IFSC or Indian Financial System Code is an alpha-numeric code that uniquely identifies a
bank-branch participating in the NEFT system. This is an 11 digit code with the first 4
alpha characters representing the bank, and the last 6 characters representing the branch.
The 5th character is 0 (zero). IFSC is used by the NEFT system to identify the originating
/ destination banks / branches and also to route the messages appropriately to the
concerned banks / branches.
Processing or Service charges for NEFT transactions:
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Inward transactions at destination bank branches (for credit to beneficiary
accounts) -– Free, no charges to be levied from beneficiaries
Outward transactions at originating bank branches (charges for the remitter) - For transactions up to Rs 1 lakh – not exceeding Rs 5 (+ Service Tax)
- For transactions above Rs 1 lakh and up to Rs 2 lakhs – not exceeding Rs
15 (+ Service Tax)
- For transactions above Rs 2 lakhs – not exceeding Rs 25 (+ Service Tax)
- Charges applicable for transferring funds from India to Nepal using the
NEFT system (under the Indo-Nepal Remittance Facility Scheme) is
available on the RBI
With effect from 1st July 2011, originating banks are required to pay a nominal charge of
25 paise each per transaction to the clearing house as well as destination bank as service
charge. However, these charges cannot be passed on to the customers by the banks.
Timelines for Credit to Beneficiary Account:
The beneficiary can expect to get credit for the first nine batches on week days (i.e.,
transactions from 9 am to 5 pm) and the first four batches on Saturdays (i.e., transactions
from 9 am to 12 noon) on the same day. For transactions settled in the last two batches on
week days (i.e., transactions settled in the 6 and 7 pm batches) and the last batch on
Saturdays (i.e., transactions handled in the 1 pm batch) beneficiaries can expect to get
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credit either on the same day or on the next working day morning (depending on the type
of facility enjoyed by the beneficiary with his bank).
Position where credit is not afforded to the account of the beneficiary:
If it is not possible to afford credit to the account of the beneficiary for whatever reason,
destination banks are required to return the transaction (to the originating branch) within
two hours of completion of the batch in which the transaction was processed. For
example, if a customer submits a fund transfer request at 12.05 p.m. to a NEFT-enabled
branch, the branch in turn forwards the message through its pooling centre to the NEFT
Clearing Centre for processing in the immediately available batch which (say) is the 1.00
pm batch. If the destination bank is unable to afford the credit to the beneficiary for any
reason, it has to return the transaction to the originating bank, not later than in the 3.00
pm batch. On receiving such a returned transaction, the originating bank has to credit the
amount back to account of the originating customer. To conclude, for all uncredited
transactions, customers can reasonably expect the funds to be received back by them in
around 3 to 4 hours time.
Applicability of NEFT to NRE and NRO accounts:
NEFT can be used to transfer funds from or to NRE and NRO accounts in the country.
This, however, is subject to the adherence of the provisions of the Foreign Exchange
Management Act, 2000 (FEMA) and Wire Transfer Guidelines. Remittances cannot be
sent abroad using NEFT. However, a facility is available to send outward remittances to
Nepal under the Indo-Nepal Remittance Facility Scheme.
Other transactions that could be initiated using NEFT:
Besides personal funds transfer, the NEFT system can also be used for a variety of
transaction including payment of credit card dues to the card issuing banks. It is
necessary to quote the IFSC of the beneficiary card issuing bank to initiate the bill
payment transactions using NEFT.
Acknowledgement to the Funds Remitter:
In case of successful credit to the beneficiary's account, the bank which had originated
the transaction is expected to send a confirmation to the originating customer (through
SMS or e-mail) advising of the credit as also mentioning the date and time of credit. For
the purpose, remitters need to provide their mobile number / e-mail-id to the branch at the
time of originating the transaction.
Pre-requisites for originating a NEFT transaction:
Following are the pre-requisites for putting through a funds transfer transaction using
NEFT –
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Originating and destination bank branches should be part of the NEFT network
Beneficiary details such as beneficiary name, account number and account type,
name and IFSC of the beneficiary bank branch should be available with the
remitter
For net banking customers, some banks provide the facility to automatically popup the IFSC once name of the destination bank and branch is highlighted / chosen
/ indicated / keyed in.
Benefits of using NEFT:
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The remitter need not send the physical cheque or Demand Draft to the
beneficiary.
The beneficiary need not visit his / her bank for depositing the paper instruments.
The beneficiary need not be apprehensive of loss / theft of physical instruments or
the likelihood of fraudulent encashment thereof.
Cost effective.
Credit confirmation of the remittances sent by SMS or email.
Remitter can initiate the remittances from his home / place of work using the
internet banking also.
Near real time transfer of the funds to the beneficiary account in a secure manner.
AMERICAN DEPOSITORY RECEIPTS (ADR) & GLOBAL
DEPOSITORY RECEIPTS (GDRs)
Depository Receipts (DRs) are negotiable securities issued outside India by a Depository
bank, on behalf of an Indian company, which represent the local Rupee denominated
equity shares of the company held as deposit by a Custodian bank in India.
DRs are traded on Stock Exchanges in the US, Singapore, Luxembourg, London, etc.
DRs listed and traded in the US markets are known as American Depository Receipts
(ADRs) and those listed and traded elsewhere are known as Global Depository Receipts
(GDRs).
In the Indian context, DRs are treated as FDI.
Indian companies can raise foreign currency resources abroad through the issue of
ADRs/GDRs, in accordance with the Scheme for issue of Foreign Currency Convertible
Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and
guidelines issued by the Government of India thereunder from time to time.
A company can issue ADRs / GDRs, if it is eligible to issue shares to person resident
outside India under the FDI Scheme. However, an Indian listed company, which is not
eligible to raise funds from the Indian Capital Market including a company which has
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been restrained from accessing the securities market by the Securities and Exchange
Board of India (SEBI) will not be eligible to issue ADRs/GDRs.
Unlisted companies, which have not yet accessed the ADR/GDR route for raising capital
in the international market, would require prior or simultaneous listing in the domestic
market, while seeking to issue such overseas instruments. Unlisted companies, which
have already issued ADRs/GDRs in the international market, have to list in the domestic
market on making profit or within three years of such issue of ADRs/GDRs, whichever is
earlier.
ADRs/ GDRs are issued on the basis of the ratio worked out by the Indian company in
consultation with h the Lead Manager to the issue. The proceeds so raised have to be kept
abroad till actually required in India.
Pending repatriation or utilization of the proceeds, the Indian company can invest the
funds in:
Deposits with or Certificate of Deposit or other instruments offered by banks who
have been rated by Standard and Poor, Fitch, ICRA or Moody's, etc. and such
rating not being less than the rating stipulated by the RBI from time to time for
the purpose;
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Deposits with branch/es of Indian Authorized Dealers outside India; and
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Treasury bills and other monetary instruments with a maturity or unexpired
maturity of one year or less.
There are no end-use restrictions except for a ban on deployment / investment of such
funds in real estate or the stock market. There is no monetary limit up to which an Indian
company can raise ADRs / GDRs.
The ADR / GDR proceeds can be utilised for first stage acquisition of shares in the
disinvestment process of Public Sector Undertakings / Enterprises and also in the
mandatory second stage offer to the public in view of their strategic importance.
Voting rights on shares issued under the Scheme shall be as per the provisions of
companies Act, 1956 and in a manner in which restrictions on voting rights imposed on
ADR/GDR issues shall be consistent with the Company Law provisions
The pricing of ADR / GDR issues including sponsored ADRs / GDRs should be made at
a price determined under the provisions of the Scheme of issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism)
Scheme, 1993 and guidelines issued by the Government of India and directions issued by
the Reserve Bank, from time to time.
Sponsored ADR/GDR issue:
An Indian company can also sponsor an issue of ADR / GDR.
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Under this mechanism, the company offers its resident shareholders a choice to submit
their shares back to the company so that on the basis of such shares, ADRs / GDRs can
be issued abroad.
The proceeds of the ADR / GDR issue is remitted back to India and distributed among
the resident investors who had offered their Rupee denominated shares for conversion.
These proceeds can be kept in Resident Foreign Currency (Domestic) accounts in India
by the resident shareholders who have tendered such shares for conversion into ADRs /
GDRs.
Dividend: The dividend paid by the company is in rupees only. But the depository
converts Rupee into USD and pays to the ultimate investors after withholding tax.
GDR- Advantages to the Issuer Company
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Collects the issue proceeds in foreign currency and thus able to utilise the same
for meeting the foreign exchange component of the project cost, repayment of
foreign currency loan, etc.
Large amounts can be raised in the global market without much of a problem.
The issue proceeds can be retained outside India and can be used for permitted
purposes.
Dividend payable in Rupees only.
Restrictive/ No Voting rights and hence does not lose the control of the company.
More than one foreign equity issue can be floated in the market in a year.
Issuer Company can use 25% of the proceeds for corporate restructuring.
Banks/FIs/ NBFCs can raise funds through GDR issues and use the same for
domestic lending.
Become a part of the global entrepreneurs and can be used for business expansion
or for restructuring,etc.
Advantages for the Investors
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It is denominated in foreign currency and hence acceptable to global investors.
Global investors do not need to get registered with SEBI.
The identity of GDR holders are kept confidential since they are freely
transferable.
Quick settlement of the amounts.
Provides one more opportunity for the global investors to scout for investment
options in different economies so as to disperse concentration and country risk.
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INDIAN DEPOSITORY RECEIPTS (IDRs)
Indian Depository Receipts (IDRs) can be issued by non resident companies in India
subject to the terms and conditions of Companies (Issue of Depository Receipts) Rules,
2004 and subsequent amendment made thereto and the SEBI Guidelines.
These IDRs can be issued in India through Domestic Depository to residents in India as
well as SEBI registered FIIs and NRIs.
In case of raising of funds through issuances of IDRs by financial / banking companies
having presence in India, either through a branch or subsidiary, the approval of the
sectoral regulator(s) should be obtained before the issuance of IDRs.
The FEMA Regulations shall not be applicable to persons resident in India for investing
in IDRs and subsequent transfer arising out of transaction on a recognized stock
exchange in India.
FIIs and NRIs may invest, purchase, hold and transfer IDRs of eligible companies
resident outside India and issued in the Indian capital market, subject to the FEMA
Regulations.,
Further, NRIs are allowed to invest in the IDRs out of funds held in their NRE /
FCNR(B) account, maintained with an Authorised Dealer / Authorised bank.
IDRs shall not be redeemable into underlying equity shares before the expiry of one year
period from the date of issue of the IDRs.
At the time of redemption / conversion of IDRs into underlying shares, the Indian holders
(persons resident in India) of IDRs shall comply with the provisions of the FEMA.
The IDRs issued should be denominated in Indian Rupees.
A company incorporated outside India can issue IDRs subject to the following:
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Paid up capital and free reserves of issuing company shall be at least USD 100
million, with an average turnover of USD 500 million during preceding 3
financial years.
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The company has been making profits for the last 5 years and declaring dividend
of not less than 10% in each year.
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The pre-issue debt-equity ratio is not more than 2:1.
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The IDR issuing company will have to engage a domestic depository who against
the foreign shares of the issuing company will issue ADRs.
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IDR is not redeemable till 1 year after issue.
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IDRs shall not exceed 15% of the paid up capital / free reserves of the company.
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IDRs will have to be issued in Indian rupees. IDRs are listed in the stock
exchanges in India and freely traded.
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LIBOR (LONDON INTER BANK OFFER RATE)
LIBOR is defined as: "the rate at which an individual Contributor Panel bank could
borrow funds, were it to do so by asking for and then accepting inter-bank offers in
reasonable market size, just prior to 11.00 London time."
The definition of “funds” is: unsecured interbank cash or cash raised through primary
issuance of interbank Certificates of Deposit.
The LIBOR is a daily reference rate based on the interest rates at which banks borrow
unsecured funds from other banks in the London wholesale money market (or interbank
lending market). Alternatively, the banks making the 'offers', as the interest rate at which
the banks will lend to each other: that is 'offer' money in the form of a loan for various
time periods (maturities) and in different currencies.
On account of growing international business, in October 1984, the British Bankers
Association (BBA) fixed a reference rate for interbank activities, which later in 1986
became BBA LIBOR or LIBOR.
The LIBOR is widely used as a reference rate for world wide financial instrument and
provide the basis for some of the world's most liquid and active interest-rate markets.
LIBOR is calculated and published by Thomson Reuters on behalf of the British Bankers
Association (BBA) after 11:00 AM (and generally around 11:45 AM) each day (London
time).
It is a trimmed average of interbank deposit rates offered by designated contributor
banks, for maturities ranging from overnight to one year. LIBOR is calculated for 10
currencies. There are eight, twelve, sixteen or twenty contributor banks on each currency
panel, and the reported interest is the mean of the middle values. The rates are a
benchmark rather than a tradable rate; the actual rate at which banks will lend to one
another continues to vary throughout the day.
LIBOR are provided in 10 currencies
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Pound Sterling
USD
Japanese Yen
Swiss Franc
Canadian Dollar
Australian Dollar
Euro
Danish Krona
Swedish Krona
Newzealand Dollar
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EURIBOR
The Euro Interbank Offered Rate (Euribor) is a daily reference rate based on the
averaged interest rates at which banks offer to lend unsecured funds to other banks in the
Euro wholesale Money market (or interbank market).
Euribors are used as a reference rate for Euro denominated finance deals in very much the
same way as LIBOR is commonly used for Sterling and US Dollar denominated
instruments. They thus provide the basis for some of the world's most liquid and active
interest rate markets.
A representative panel of banks provide daily quotes provide daily quotes of the rate, for
interbank term deposits within the Euro zone, for maturity ranging from one week to one
year. Every Panel Bank is required to directly input its data before 10:45 a.m on each day
and at 11:00 a.m. Reuters will process the Euribor calculation and instantaneously publish
the reference rate on Reuters pages which will be made available to all its subscribers and
to other data vendors.
Euribor was first published on 30 December 1998 for value 4 January 1999.
TIBOR
TIBOR stands for the Tokyo Interbank Offered Rate and is a daily reference rate based
on the interest rates at which banks offer to lend unsecured funds to other banks in the
Japan wholesale money market (or interbank market). TIBOR is published daily by the
Japanese Bankers Association (JBA).
TIBOR is calculated based on the quotes for different maturities provided by reference
banks at about 11.00 a.m. each business day. There are two forms of TIBOR rates:
Japanese Yen TIBOR rate (introduced in November1995, it reflects rates in unsecured call
market) and Euroyen TIBOR rate (introduced in March1998, it reflects rates in offshore
market).
LIBID
The London Interbank Bid Rate (LIBID) is a bid rate submitted by banks on
Eurocurrency deposits (i.e., the rate at which a bank is willing to borrow from other
banks). It is "the opposite" of the LIBOR (an offered, hence "ask" rate, the rate at which a
bank will lend).
MIBOR (MUMBAI INTERBANK OFFER RATE)
MIBOR - Mumbai Inter-Bank Offer Rate
MIBID - Mumbai Inter-Bank Bid Rate
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NSE has developed and launched the NSE Mumbai Inter-bank Bid Rate (MIBID) and
NSE Mumbai Inter-bank Offer Rate (MIBOR) for the overnight money market on June
15, 1998 as a benchmark rate for the call money market. The success of the Overnight
NSE MIBID/ MIBOR encouraged the Exchange to develop a benchmark rate for the term
money market. NSE launched the 14-day NSE MIBID MIBOR on November 10, 1998
and the longer term money market benchmark rates for 1 month and 3 months on
December 1, 1998. Further, the exchange introduced a 3 Day FIMMDA-NSE MIBIDMIBOR on all Fridays with effect from June 6, 2008 in addition to existing overnight
rate.
The MIBID/MIBOR rate is used as a bench mark rate for majority of deals struck for
Interest Rate Swaps, Forward Rate Agreements, Floating Rate Debentures and Term
Deposits.
Fixed Income Money Market and Derivative Association of India (FIMMDA) have been
in the forefront for creation of benchmarks that can be used by the market participants to
bring uniformity in the market place.
SONIA:
SONIA is the acronym for Sterling Overnight Index Average.
It is the reference rate for overnight unsecured transactions in the Sterling market. It has
been launched in March 1997 by the Wholesale Markets Brokers’ Association (WMBA),
and is endorsed by the British Bankers Association (BBA).
Each London business day the Sonia fixing is calculated as the weighted average rate of
all unsecured overnight sterling transactions brokered in London by WMBA members
between 00:00 and 15.15 GMT in a minimum deal size of 25 million GBP with all
counterparties.
Prime Rate:
Prime rate or prime lending rate is a term applied in many countries to a reference
interest rate used by banks. The term originally indicated the rate of interest at which
banks lent to favored customers, i.e., those with high credibility, though this is no longer
always the case. Some variable interest rates may be expressed as a percentage above or
below prime rate.
Interbank Lending Market
The interbank lending market is a market in which banks extend loans to one another
for a specified term. Most interbank loans are for maturities of one week or less, the
majority being overnight. Such loans are made at the interbank rate (also called the
overnight rate if the term of the loan is overnight).
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The interbank lending market refers to the subset of bank-to-bank transactions that take
place in the money market. Banks are required to hold an adequate amount of liquid
assets such as cash to manage any potential withdrawals from clients. If a bank cannot
meet these liquidity requirements, it will need to borrow money in the interbank market
to cover the shortfall. Some banks, on the other hand, have excess liquid assets above and
beyond the liquidity requirements. These banks will lend money in the interbank market,
receiving interest on the assets.
The interbank rate is the rate of interest charged on short-term loans between banks.
Banks borrow and lend money in the interbank lending market in order to manage
liquidity and satisfy regulations such as reserve requirements. The interest rate charged
depends on the availability of money in the market, on prevailing rates and on the
specific terms of the contract, such as period, etc.
Present RBI policy Rates:
SLR
CRR
Bank Rate
Repo
Reverse Repo
Marginal Standing
Facility Rate
24%
6%
6%
8.25%
7.25%
9.25%
16