Basic Economics Series Part 6 (Banking and economics terminology part 2)

Already we have discussed about basic banking terms in Part 2 of this series. If you are regularly following this series, then you will not have any problem.  Else please refer part 2 f this series before Proceeding

Non Performing Assets(NPA): NPA is any assets of bank or financial institution for which it receives no income. If you get a loan from bank and you are not paying interest for 180 days, loan amount provided to you becomes NPA. According to RBI, a non payment of interest or installment for term loan or EMI provided by bank or financial institution for more than 180 days is NPA. Similarly a non payment of interest  for agricultural loan provided by bank or financial institution for two harvest seasons but for a period not exceeding two and half years is considered as NPA.

Prime lending rate(PLR) or Prime rate: PLR is interest rate offered by banks to its most trustworthy or important customers. It is usually less than interest rate offered by bank to his ordinary customer. Hence, PLR is lowest interest rate offered by a bank.

Base Rate: Base rate is minimum interest rate offered by Scheduled Commercial bank. It is used as reference to fix interest rate for all types of loans.  It was introduced in 2010 to replace Benchmark prime lending rate which was introduced in 2003. Base rate is introduced to increase Transparency in deciding interest rate for a particular loan  .

Capital Adequacy Ratio(CAR): CAR is the ratio of bank’s capital to its risk assets. When a company has more capital, it can recover from any type of future loss and When a company has less capital, it cannot recover from any type of future loss. SLR,CRR  and CAR norms are created to prevent bankruptcy of any bank and to increase chances of recovery from future losses.

Willful Defaulter: A lender who has deliberately not paid the loan amount and interest even if he is capable of doing that or a lender who borrows money from bank by submitting fake documents to bank is called Willful Defaulter.

Equity Shares: Equity share is a share of ownership in company. Member holding equity share can vote in General meetings. They will get equal share in profit or the loss of a company.

Mortgage: Asset pledged by lender while lending loan is called Mortgage.

Balance of Payment(BOP):It is a summary of economic transaction of a country with the rest of world. If BOP is in surplus, then country credit more to the rest of the world and vice versa. More BOP means country is in more debt.

Balance of Trade(BOT): It is a summary of goods and service transaction of a country with the rest of world. Simply it is summary of a country’s import and export.

Fiscal Deficit: It is simply difference between government’s expenditure and revenues during Fiscal Year.Fiscal Deficit will not exist in the country which spends less than its revenue.

Current Account Deficit(CAD):It is simply difference between the value of country’s import of goods and service and value of country’s export. CAD will not exist in the country which exports more than that of its import.

Demat or dematerialized  Account: It is a mandatory to have Demat amount in order to buy/sell Shares and security in India.

Disinvestment: It is the process of selling PSU’s shares to private companies or individuals.

Foreign Direct Investment(FDI):FDI is a investment made by a company based in a particular country into another country

Foreign Institutional Investor(FII): FII is used to represent investing company of foreign origin.



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