BANKING AWARENESS- IBPS-PO 2018

BANKING AWARENESS

IBPS-PO 2018

1. What is the Banking Ombudsman Scheme?

The Banking Ombudsman Scheme is an expeditious and inexpensive forum for bank customers for resolution of complaints relating to certain services rendered by banks. The Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI with effect from 1995. 

2. Who is a Banking Ombudsman?

The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services covered under the grounds of complaint specified under Clause 8 of the Banking Ombudsman Scheme 2006 (As amended upto July 1, 2017).

3. How many Banking Ombudsmen have been appointed and where are they located?

As on date, twenty Banking Ombudsmen have been appointed with their offices located mostly in state capitals. The addresses and contact details of the Banking Ombudsman offices have been provided under Annex I of the Scheme.

4. Which are the banks covered under the Banking Ombudsman Scheme, 2006?

All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are covered under the Scheme.

5. What are the grounds of complaints?

The Banking Ombudsman can receive and consider any complaint relating to the following deficiency in banking services:

non-payment or inordinate delay in the payment or collection of cheques, drafts, bills etc.;

non-acceptance, without sufficient cause, of small denomination notes tendered for any purpose, and for charging of commission in respect thereof;

non-acceptance, without sufficient cause, of coins tendered and for charging of commission in respect thereof;

non-payment or delay in payment of inward remittances ;

failure to issue or delay in issue of drafts, pay orders or bankers’ cheques;

non-adherence to prescribed working hours ;

failure to provide or delay in providing a banking facility (other than loans and advances) promised in writing by a bank or its direct selling agents.



Q6. What is KYC? Why is it required?

Response: 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.

Q7. What are the KYC requirements for opening a bank account?

Response: To open a bank account, one needs to submit a ‘proof of identity and proof of address’ together with a recent photograph.

Q8. What are the documents to be given as ‘proof of identity’ and ‘proof of address’?

Response: The Government of India has notified six documents as ‘Officially Valid Documents’ (OVDs) for the purpose of producing proof of identity. These six documents are Passport, Driving Licence, Voters’ Identity Card, PAN Card, Aadhaar Card issued by UIDAI and NREGA Job Card. You need to submit any one of these documents as proof of identity. If these documents also contain your address details, then it would also be accepted as ‘proof of address’. If the document submitted by you for proof of identity does not contain address details, then you will have to submit another officially valid document which contains address details.

Banking Awareness- Basics and RBI (IBPS-PO)

Banking Awareness- Basics of Banking  

IBPS-PO

Role of Banking

1. It is an intermediary between the surplus money holders and funds needed people, farmers, and businessmen.

2. It also financially facilitate by providing import-export transactions and by balancing economic development in the country.

Central Bank (RBI)


To regulate the banking system and to maintain the balance between government revenue and expenditure of a country, there is a central Bank in a country. In India, the RBI (Reserve Bank of India) is the central bank that formulates the guidelines for the other banks.

Commercial Banks

For accepting deposits and grant loans and advances to the customers

Types of Commercial Bank

1. Public Sector Bank- State Bank of India, Bank of Baroda, Corporation Bank, Dena Bank

2. Private Sector Bank-Axis Bank, ICICI Bank, HDFC Bank

3. Foreign Bank- HongKong and Shanghai Banking Co-operation Bank (HSBC), American Express Bank, Standard and Charted Bank, Citibank

Development Bank

The Financial assistance to businesses for equipment for using latest technology is provided by development banks.

They also facilitate by subscribing to the shares and debentures issued by companies, in the case under subscription of the issue by the public, Industrial Financial Corporation of India (IFCI) and State Financial Corporation of India (SFCs).


Co-operative Banks

When a co-operative Society (People who come together to jointly serve their common interest) involved in banking business then it is known as Cooperative Bank.

Types

State Co-operative Bank – The highest level banks in all the states of the country. The money reaches the individual through the central co-operative society and the primary credit societies.

Central Co-operative Banks – These banks operate at the district level. These act as an intermediary between the State co-operative banks and primary credit societies.

Primary Credit Societies- These societies are at the village or town level. The operations are restricted to the small town areas.


Specialized Bank

EXIM BANK: (Export-Import Bank of India)

1982

Help in Export/Import Business
SIDBI (Small Industries Development Bank of India)

1990

To establish a small scale business unit and industry and to facilitate the modernization of small-scale industry and market activity

INDIAN BANKING SYSTEM

MINISTERY OF FINANCE

RBI

COMMERCIAL BANK

· (SBI, IDBI, NATIONALIZED BANKS, RRB, PRIVATE BANKS – INDIAN BANK, FOREIGN BANK)

CO-OPERATIVE BANK

· STATE CO-OPERATIVE SOCIETY, CENTRAL CO-OPERATIVE SOCIETY , PRIMARY CREDIT SOCIETIES

DEVELOPMENT BANKS

· EXIM, SIDBI, NABARD, BMB



SBI History

1881- OUDH Commercial Bank

1894- PNB

1913-17 -BANK CRISIS

1949- BANK REGULATION ACT

1955-IMPERIAL BANK (NATIONALIZED SBI)

1959 – 8 Associate Banks (SBI)

1963- SB of BIKANER + SB of JAIPUR

2008- SB of Saurashtra + SB of Indore

RRB (1975)

Initially 5 RRB

1. MORADABAD(U.P)

2. GORAKHPUR (U.P)

3. BHIWANI (HARYANA)

4. JAIPUR (RAJASTHAN)

5. MALDA (WEST BENGAL)

PRATHMA (Ist RRB of India- established 1975 Moradabad (U.P) sponsored by Syndicate Bank)



NABARD: National Bank for Agriculture and Rural Development

(Credit Functions, Development and Promotional Function, Role in Training, Supervisory Functions)

· B. SHIVRAMAN COMMITTEE

· 12-July -1982

· Mumbai

· HEAD- H. K. Bhanwala

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GENERAL AWARENESS...

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How a bank works? -Banking Awareness-

How a Bank works? 

Banking Awareness-

HOW BANK WORKS: ASSETS AND LIABILITY

LIABILITIES:
Current Account Deposit: 0%

Saving Account Deposit: 4%

Fixed/Recurring Account Deposit 8%-9%

Bulk Deposit

The average interest of all these deposits put together is COST OF FUNDS, should be as low as possible.

CA/SA- Should be more.

But CA/ SA are volatile deposit (can withdraw anytime)

FD- have fixed terms, Banks can plan their activities (Stable deposit)



Assets: The internal /income which banks get is yield/income.

· Home Loan

· Mortgage Loan

· Co-operate Loan

· Personal Loan





Net Interest Margin (NIM) = ≥ 3

With this NIM –Banks have to pay (SALARY, RENT ON PREMISES, and PAY FOR OPERATION AND PROFIT)

This is known as Viable Banking.

Banks require the NIM of 3% to ensure profitability.




TYPES of ACCOUNT

SAVING ACCOUNT

Age≥ 18

10-18 (with some restrictions)

< 10 (Minor, with guardian)

Minimum balance- No FRILL ACCOUNT (BSBDA- BASIC SAVING BANK DEPOSIT ACCOUNT)

PMJDY

Rate: calculated on Daily Basis taking into account minimum balance available (SA rate are 4%)



CURRENT ACCOUNT

-Overdraft

-Nomination (×)



Why new generation Private Sector banks have more numbers of current accounts then Public Sector banks.

· Improved Hospitality

· Personalized Service

· Portfolio Management

· Technology Up-gradation



CASA RATIO =  Fixed Deposit/Recurring Deposit/Bulk Deposit:

TIME DEPOSIT
· No withdraw before agreed period

· Penalty of withdraw before

· No Cheque Book



FIXED DEPOSIT

UPTO 10 Years

NOMINATION

Interest Rate HIGHER -For Senior

TIME ∝Interest rate

Loan Facility -Available

But if interest income > 10,000

Bank will deduct TDS

If you are not income tax payee then you have to give bank a 15 G Form.

FIXED DEPOSIT

· STANDARD FD- (Interest in every 3/6/12 months)

· CUMULATIVE FD

Interest Rate varies with time and age not with the amount of deposit.

RECURRING DEPOSIT:

Deposit at regular interval

TDS



BULK DEPOSIT

Amount > 1 Crore

Rate> FD Rate

Ø Corporate

Ø High Network Individuals( HNI)



Amount 500 Crore – 10%

Amount 1000 Crore – 12 %





Priority Sector Lending

· Sectors

· Agriculture

· Small-scale industry

· Small Business, Small Enterprise

· Micro Credit

· Education Loan



Priority Sector Lending (PSL)

Commercial Bank must provide loan – 40%

18% -Agriculture

Penalty for not achieving PSL Target

INDIAN BANK – deposit shortfall amount with NABARD under RIDF (Rural Infrastructure Development Fund)

FOREIGN BANK - deposit shortfall amount with SIDBI under IDF (Industrial Development Fund)

NEFT-(National Electronic Fund Transfer)

Max- 50,000/Transaction

Indo-Nepal Remittance Facility Scheme-

Monday-Friday – 8 a.m. to 7 p.m.

Saturday – 8 a.m. to 1 p.m.

RTGS (Real Time Gross Settlement)

Min: 2 Lakhs/Transaction ( Real Time –Upto 2 Hrs)

DeMat – Dematerialized Account

DPs – Depository Participants

Buy/Sell- Stocks

PAN





IMF- 189 Members (Nauru)

IMF – July -22-1944 initially 45 members

WORLD BANK (American)

IBRD- International Bank for Reconstruction and Development

IDA- International Development Association

Asian Development Bank – 1966

SWIFT –Society for Worldwide Interbank Financial Telecommunication.

NOSTRO Account- [Our Account with you in foreign currency].

VOSTRO Account- [Your Account with us in Indian currency].

LORO Account- [Third Party Account]

NOSTRO – is a current account that a bank holds with another bank, in a foreign country such account is operated in the currency of a foreign country.

VOSTRO – Current Account for foreign bank in a domestic bank.

LORO- is used when NOSTRO and VOSTRO account by a bank other than account maintaining Banks and the tank with which the account is maintained.

CHEQUE

Drawer-Owner

Payee- Receiver

Drawee- Bank

Post Dated – Date later then today

You can’t cash it until today’s date, after 3 month –stale cheque

ANTI-DATED

It is regular cheque

Dated earlier then today and can be cashed immediately

Stale Cheque: If any Change issued by holder doesn’t get withdrawn from the bank till 3 month.

Cross Cheque:

Not in Cash

Endrossed

Account pay cheque

When 2 along with cross made and word account payee written between these lines.

Can’t be endorsed

Engrossment:

Sec. 15 –Negotiable Instrument Act- 1881

There can be any number of endorsement

Banking Awareness- Money Market- IBPS-PO 2018

Banking Awareness- IBPS-PO 2018 

Topic: Money Market

Money market instruments are those instruments, which have a maturity period of less than one year. Money Markets are regulated by both RBI.

Money Market does not deal in cash; it provides a market for credit instruments such as bills of exchange, promissory notes, Commercial paper, treasury bills, etc. These financial instruments are close substitute of money.

The various instruments traded in the money market are:
Call Money/ Notice Money/ Term Money
Treasury Bills
Certificate of Deposits
Commercial Paper

Regulated By: RBI 

Money Market:

· Organized (Banking Market, Sub Market)

· Unorganized (NBFC, Money Lender)

Sub- Market

1. T- Bill

2. Certificate of Deposit

3. Commercial Paper

4. Call Money



Call Money: (Fully Inter Bank Market) Only 1 Day

Notice Money: 2-14 Days

Term Money: 14 Days- 1year



No Security is needed to cover these transactions

Interest Rate is Market Determined

Borrowing Bank – 2% of Capital

Lending Bank – 50 % of Capital



T-Bill – are lowest risk category instrument, RBI on behalf of GoI.

Types:

· 91 days

· 182 days

· 364 days

Issued at discount –Redeem at per face value

Denomination: 25,000/ and multiples of 25,000/

Any individual can buy this.



Certificate of Deposit

Issued by Scheduled Commercial Banks except RRB, Co-operative Bank

Min. Period: 7 Days

Max. Period: 1 year

Denomination: 1 lakh and multiple of lakh

Commercial Paper:

Commercial Paper is issued by corporate

Grade> A1

Net worth >5 crores

Minimum 7 days

Maximum 1 year

Denomination: 5 Lakh and above

HIGHEST RISK





1. Call money

Call money is used by the banks to meet their temporary requirement of cash.

It is repayable on demand and its maturity period varies in between one day to 14 days. The rate of interest paid on call money loan is known as call rate.

Maturity Period:
Call Money –1 day only
Notice Money-2 days to 14 days
Term Money-15 days to 1 Year

2. Treasury Bills (T-Bills)

T-Bills are auctioned by Reserve Bank of India at regular intervals and issued at a discount to face value. So this is considered as the lowest risk instrument.

Any person in India including Individuals, Firms, Companies, Corporate bodies, Trusts and Institutions can purchase Treasury Bills.

Denominations: Rs. 25,000 and in multiples of Rs. 25,000

Maturity Period:

· 91 days

· 182 days

· 364 days

3. Certificate of Deposit

Certificates of Deposit is short-term instrument issued by Scheduled Commercial Banks (excluding Regional Rural Banks and Local Area Banks) and Financial Institutions.

Denominations:

Rs.1 lakh and in multiples of Rs. 1 lakh

CDs can be issued to individuals, corporations, companies (including banks and PDs), trusts, funds, associations, etc.

Maturity Period:

7 days – 1 year

The Financial Institutions can issue CDs for a 1 year -3 years



4. Commercial Paper

Commercial Paper is short term instrument issued by the corporate. It is issued at a discount to face value.

A company would be eligible to issue CP if the net worth of the company is not less than Rs.4 crore. Only corporate who get an investment grade rating can issue CPs, as per RBI rules.

Denominations:

Rs.5 lakh and in multiples of Rs. 5 lakh

Maturity Period:

14 days – 1 year

Individuals, banks, other corporate bodies (registered or incorporated in India) and unincorporated bodies, Non-Resident Indians and Foreign Institutional Investors (FIIs) shall be eligible to invest in CP.

FIIs shall be eligible to invest in CPs subject to (i) such conditions as may be set for them by Securities Exchange Board of India (SEBI) and (ii) compliance with the provisions of the Foreign Exchange Management Act, 1999, the Foreign Exchange (Deposit) Regulations, 2000 and the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended from time to time.

Banking Awareness- Basics of NPA

Banking Awareness- Basics of NPA 

NPA (Non –Performing Asset)

When a person does not repay the loan after 90 days then it is known as NPA.

The asset account of the borrower –which has been classified by banks,

1. Standard –Regulatory

2. Sub Standard- 3 months-12 months

3. Doubtful -12 months-36 months

4. Loss Assets > 36 months



NPA: Interest/Installment of Principle remain overdue for > 90 days

Overdraft/Cash Credit –Amount remains out of order > 90 days

Bill Discounting – bill remains overdue > 90 days

For Farmers- > 2 Harvest Season









SARFAESI ACT -2002


Securitization and Restructuring of Financial Assets and Enforcement of Security Interest Act 2002

It allows banks to take possession, lease to sale these securities.

Bank gives notice of Possession to à Customer

60 Days

15 Days 45 Days

(Customer talks to bank) Customer approaches DRT for taking stay

Mutual Understanding Debt Recovery Appellate Tribunal



Ø DRT (Debt Recovery Tribunal)

Ø DRAT (Debt Recovery Appellate Tribunal) -50% Amount Deposit

Ø Loans < 1 lakh (not eligible under SARFAESI)

Ø Agriculture Lands cannot be sold

Ø The amount due is less than 20% of Principle and Interest



On a bank’s balance sheet, loans made to customers are listed as assets. The biggest risk to a bank is when customers who take out loans stop making their payments, causing the value of the loan assets to decline.

NPA is any asset of a bank which is not producing any income.
Term Loan: It means once the borrower has failed to make interest or principal payments for 90 days, the loan is considered to be a non-performing asset.
Overdraft/Cash Credit: Overdraft remains continuously in excess of the sanctioned amount.

According to RBI, terms loans on which interest or installment of principal remains overdue for a period of more than 90 days from the end of a particular quarter is called a Non-performing Asset.

However, in terms of Agriculture / Farm Loans; the NPA is defined as under For short duration crop agriculture loans such as paddy, Jowar, Bajra etc. if the loan (installment/interest) is not paid for 2 crop seasons, it would be termed as an NPA.


Types of NPA:

Sub-standard: If the borrower does not pay dues for 90 days after the end of a quarter; the loan becomes an NPA and it is termed as “Special Mention Account”. If this loan remains SMA for a period less than or equal to 12 months; it is termed as Sub-standard.

Doubtful: If sub-standard asset remains so for a period of 12 more months; it is “Doubtful asset”.

Loss Assets: If the loan is not repaid even after it remains a sub-standard asset for more than 3 years than it is Lost Assets.

SARFAESI Act -2002

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act have provisions for the banks to take legal recourse to recover their dues.

When a borrower makes any default in repayment and his account is classified as NPA; the bank has to issue notice to the borrower giving him 60 days to pay his dues.

If the dues are not paid, the bank can take possession of the assets and can also give it on lease or sell it; as per provisions of the SARFAESI Act

Bank can use this for their own purpose like opening a new branch on it, installing of ATM’s etc.

Reselling of NPA:

If a bad loan remains NPA for at least two years, the bank can also resale the same to the Asset Reconstruction Companies such as Asset Reconstruction Company (India) (ARCIL).

They purchase such loans on low amounts and try to recover as much as possible from the defaulters.

Their revenue is the difference between the purchased amount and recovered the amount.



Government of India has constituted 33 Debt Recovery Tribunals and 5 Debt Recovery Appellate Tribunal across the country.

Debt Recovery Tribunals:

Narasimhan Committee Report I (1991) recommended the setting up of Special Tribunals to reduce the time required for settling cases. Accepting the recommendations, Debt Recovery Tribunals (DRTs) were established.

Debts Recovery Appellate Tribunal (DRAT)

DRAT is the appellate authority to hear and dispose of appeals arising out of the decisions of the DRTs. A person qualified to be a judge of the High Court or who has been a Member of the Indian Legal Service and his held a post in Grade-I of the service for at least three years or who has held the post of Presiding Officer of DRT for a minimum period of three years can be appointed as the Chairperson of DRAT.

Banking Awareness for IBPS-PO 2018-BASEL

Banking Awareness 

IBPS-PO 2018

BASEL

BASEL: A committee on banking supervision, authorities that was established by Central Bank Governors of 10 countries in 1974.


1. USA


2. UK


3. ITALY


4. JAPAN


5. CANADA


6. SWITZERLAND


7. SWEDEN


8. BELGIUM


9. GERMANY


10. FRANCE


BASEL (A City of Switzerland)


HQ of BIS (Bank for International Settlement – BASEL)


Ø World’s Oldest International Financial Organization


Ø Established: 17 May 1930


Ø VC – Raghu Ram Rajan


Ø Representative Office- Hong Kong /Mexico


BCBS: (BASEL COMMITTEE FOR BANKING SUPERVISION)


Provide a forum for Regular Co-operation on Banking Supervisory Matter (Review)


RISK


1. CREDIT RISK


2. OPERATIONAL RISK


3. MARKET RISK


BASEL –to reduce the risk of Loans provided by banks


BASEL


BASEL 1


Introduced and apply on: 1988


In India: 1992


MCR (Marginal Capital Requirement)


CAR -4%-8%


CAPITAL ADEQUACY RATIO


BASEL 2










Introduced and apply on: 2003


Apply: 2006


In India: 2009


CAR -8%


In India 9 %


Tier 1 -7%


Tier 2 -2%


Pillars- P1, P2, P3


P1: MCR
























BASEL 3


Introduced 2010


Apply 2013


In India: 31 March 2019


CAR- 10.5%


In India: 11.5%


CCB (Capital Conservation Buffer) - 2.5%


Pillars:


P1: MCR


P2: SRP (Supervisory Review Process)


RBI will supervise CAR for Banks.


P3: Market Discipline


(Government and Public will ask bank to discipline)


CRWA: Capital to Risk Weighted Asset Ratio


Total Capacity: Tier1+ Tier2


Tier1: owned permanent- Capital of Banks


Tier1: 7%


5.5% (Core Capital)


1.5% (Additional)


Tier 2: Borrowing + Liabilities


BASEL 3:


2008 Lehman’s Brother Bank US


CCB (Capital Conservative Buffer)


CAR –is a ratio of Bank’s Capital and Risk


A Bank can absorb a reasonable amount of loss and complies with statutory capital requirements.


DSIB (Dynamically Systematically Important Bank)


Bucket Bank


1% -


0.8% -


0.6% SBI


0.4% -


0.2 % ICICI






If these banks maintain their respective buckets CCB then they will be DSIB.










HDFC is also a DSIB now.

FINANCIAL AWARENESS - BUDGET BASICS

FINANCIAL AWARENESS - BUDGET BASICS 

 

BUDGET

World Budget -1^st introduced by Sir Robert Valpaul -1733

A list of Revenue and Expense from French word –Bougette Purse

In 07/04/1860 introduced BUDGET in India.

Father of BUDGET- JAMES WILSON

Financial Year- 1^st April -31th March

RECEIPT

Revenue Receipt (Non-Refundable Recurring – Neither increase Liability nor decrease Assets)

Capital Receipt (Refundable or Non-Recurring – Either increase Liability or decrease Assets)

RECEIPT –

·         Revenue receipt

·         Capital receipt

Revenue Receipt:

Tax Revenue – Direct Tax (Income Tax) Indirect Tax (Sales Tax)

Non Tax Revenue-

·         Challan

·         Penalty

·         Licence

·         Dividend

·         Interest

Donation

Capital Receipt

Borrowing –World Bank, IMF

Disinvestment – GoI  PSU

Recovery of Loan –

State Govt. - Central Govt.

Direct Tax- Right to pay transfer (×)

Indirect Tax – Right to pay transfer

OUT FLOW-

EXPENDITURE

Planned

Revenue Expenditure (Salaries, Interest Payment, Govt. pay to RBI)

Capital Expenditure (Bridge, Road)

Non Planned

Natural Calamities

Subsidies

Defence

L.K.Jha committee in 1867 Report changes the FY( 1 May -30 April ).

Railway Budget was separated from general budget in 1924 on recommendation of Acworth’s Committee.

 Morarji Desai – present Budget –maximum time

10 times (8 general, 2 interim) present on 1964-1968

on his Birth Anniversary -29 Feb.

The Union Budget of Independent India

1947- R.K. ShanMukhan Shetty

John Mthai - Ist after Republic India.

1950-51 Budget FM – John Methai announced the creation of Planning Commission.

Article 112 – of commission require the Government to present “Statement of Estimated Receipt and Expenditure” in parliament in respect to every FY.

Annual FY Report

·         Consolidated Fund

·         Contingency Fund (Natural Disaster)

·         Public Account Fund( Liability)

Before 1997, there is Budgetary Deficit

E-R Deficit is taken RBI

GoI don’t repay it (Setoff)

then after 1997

Fiscal Deficit

Expenditure –Receipt – So GoI has to pay interest.

Interim Budget

It is prepared in case of special situation, like Natural Calamity and War etc.

This is valid only for 6 months, Revenue is not specified only expenditure as specified for a FY.

DEFECIT:

1.    REVENUE DEFECIT (RD): RE-RR

2.    BUDGETRY DEFECIT (BD): TE –TR

3.    FISCAL DEFECIT (FD): BD + Borrowing + Other Liability

4.    PRIMARY DEFECIT (PD): FD –Interest Payment

BUDGET

·         OUTCOME BUDGET – Feedback from last FY

·         ZERO BUDGET          – New Budget

·         GENDER BUDGET    – Women Empowerment

****

Budget can be divided into two parts

• Receipt
• Expenditure

Receipt

Revenue receipts – Receipts from the following sources:

(a) Direct and indirect taxes

(b) Interest

 (c) Dividends

 (d) Profits from investments

(e) Fees and other receipts from services rendered by the Govt.

Capital receipts – Receipts from the following sources:

 (a) Loans raised from the market

 (b) Borrowing from RBI

 (c) External assistance from the foreign government.

 (d) Recoveries of loans and advances.

Expenditure

Revenue expenditure –These are expenses incurred for the

(i)  Normal running of the Govt. departments

 (ii) Interest charges on debt and subsidies.

Capital expenditure – It is the expenditure incurred on

(i) Acquisition of assets and investments

(ii) Loans and advances to State governments.

Balanced Budget: If the estimated receipts (revenue and capital both) are equal to the estimated expenditure, then it is a Balanced Budget.

Balanced Budget= Estimated Govt. Receipts = Estimated Govt. Expenditure

Unbalanced Budget: When the expected revenue is not equal to the estimated expenditure, in this case, the budget is unbalanced. 

Surplus Budget:

When estimated income exceeds estimated expenditure i.e. when the government estimated receipts are more than the government expected expenditure in the budget, then it is called a surplus budget.

Deficit Budget:

When estimated expenditure exceeds estimated income i.e. when the government expected expenditure are more than the government estimated revenue in the budget, then it is called a deficit budget.

Types of Budget

1. Zero Budget – When the budget is prepared every year on the assumption that there was no budget in the past. Each item in the budget is allocated on the merits rather than with reference to the allocation made in the previous years.

2. Outcome Budget –

It is a system of performance budgeting by Ministries handling development programmes. It comprises scheme /project –wise outlays for all central ministries department and organizations. It was first made in 2005 -06.

3. Gender Budget– 

Its objective is to mainstream gender perspective in all sectoral policies and programmes, in order to create enabling environment for gender justice and empowerment of women. Gender Budget was first introduced in India 2005 -2006. 

Deficit

• Budget Deficit = Total Expense – Total Receipt 
• Revenue Deficit = Revenue Expense – Revenue Receipt 
• Fiscal Deficit = Total Expense – Revenue Receipt + Non–debt creating Capital Receipt (Borrowings)

 IMPORTANT FACTS:

• Mr. Morarji Desai presented the budget ten times, the most by any Finance Minister.
• India’s first budget was presented on February 18, 1860, by James Wilson, a Finance Member of the India Council.
• Initially, the Railway budget was part of the general budget. On the basis of recommendations Acworth Committee, the Rail Budget was separated in 1924.
• The first budget of Independent and united India was presented by John Mathai in 1949-50.