What is Bank rate?

Bank Rate is the rate at which central bank of the country (in India it is
RBI) allows finance to commercial banks. Bank Rate is a tool, which central bank uses for
short-term purposes. Any upward revision in Bank Rate by central bank is an indication that
banks should also increase deposit rates as well as Prime Lending Rate. This any revision in the
Bank rate indicates could mean more or less interest on your deposits and also an increase or
decrease in your EMI.

What is Bank Rate ? (For Non Bankers) : This is the rate at which central bank (RBI) lends
money to other banks or financial institutions. If the bank rate goes up, long-term interest rates also
tend to move up, and vice-versa. Thus, it can said that in case bank rate is hiked, in all likelihood
banks will hikes their own lending rates to ensure and they continue to make a profit.

What is CRR? The Reserve Bank of India (Amendment) Bill, 2006 has been enacted and has
come into force with its gazette notification. Consequent upon amendment to sub-Section 42(1),
the Reserve Bank, having regard to the needs of securing the monetary stability in the country,
can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling
rate. [Before the enactment of this amendment, in terms of Section 42(1) of the RBI Act, the
Reserve Bank could prescribe CRR for scheduled banks between 3 per cent and 20 per cent of
total of their demand and time liabilities].

RBI uses CRR either to drain excess liquidity or to release funds needed for the economy from
time to time. Increase in CRR means that banks have less funds available and money is sucked
out of circulation. Thus we can say that this serves duel purposes i.e. it not only ensures that a portion
of bank deposits is totally risk-free, but also enables RBI to control liquidity in the system, and thereby,
inflation by tying the hands of the banks in lending money.

What is CRR (For Non Bankers) : CRR means Cash Reserve Ratio. Banks in India are
required to hold a certain proportion of their deposits in the form of cash. However, actually
Banks don’t hold these as cash with themselves, but deposit such case with Reserve Bank of
India (RBI) / currency chests, which is considered as equivlanet to holding cash with
themselves.. This minimum ratio (that is the part of the total deposits to be held as cash) is
stipulated by the RBI and is known as the CRR or Cash Reserve Ratio. Thus, When a bank’s
deposits increase by Rs100, and if the cash reserve ratio is 9%, the banks will have to hold
additional Rs 9 with RBI and Bank will be able to use only Rs 91 for investments and
lending / credit purpose. Therefore, higher the ratio (i.e. CRR), the lower is the amount that
banks will be able to use for lending and investment. This power of RBI to reduce the
lendable amount by increasing the CRR, makes it an instrument in the hands of a central bank
through which it can control the amount that banks lend. Thus, it is a tool used by RBI to
control liquidity in the banking system.

What is SLR? Every bank is required to maintain at the close of business every day, a minimum
proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold
and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities
is known as Statutory Liquidity Ratio (SLR). Present SLR is 24%. (reduced w.e.f. 8/11/208,
from earlier 25%) RBI is empowered to increase this ratio up to 40%. An increase in SLR also
restrict the bank’s leverage position to pump more money into the economy.
What is SLR ? (For Non Bankers) : SLR stands for Statutory Liquidity Ratio. This term is
used by bankers and indicates the minimum percentage of deposits that the bank has to
maintain in form of gold, cash or other approved securities. Thus, we can say that it is ratio of
cash and some other approved to liabilities (deposits) It regulates the credit growth in India.

What are Repo rate and Reverse Repo rate?

Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks. When
the repo rate increases borrowing from RBI becomes more expensive. Therefore, we can say
that in case, RBI wants to make it more expensive for the banks to borrow money, it increases the repo
rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate

Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the RBI.
The RBI uses this tool when it feels there is too much money floating in the banking system. An increase
in the reverse repo rate means that the RBI will borrow money from the banks at a higher rate of
interest. As a result, banks would prefer to keep their money with the RBI

Thus, we can conclude that Repo Rate signifies the rate at which liquidity is injected
in the banking system by RBI, whereas Reverse repo rate signifies the rate at which
the central bank absorbs liquidity from the banks.
Equity (finance)
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Accountancy

Key concepts
Accountant · Bookkeeping · Cash and accrual basis · Constant
Item Purchasing Power Accounting · Cost of goods sold ·
Debits and credits · Double-entry system · Fair value
accounting · FIFO & LIFO · GAAP / International Financial
Reporting Standards · General ledger · Historical cost ·
Matching principle · Revenue recognition · Trial balance
Fields of accounting
Cost · Financial · Forensic · Fund · Management · Tax
Financial statements
Balance sheet · Statement of cash flows · Statement of
changes in equity · Statement of comprehensive income ·
Notes · MD&A
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In accounting and finance, equity is the residual claim or interest of the most junior class of
investors in assets, after all liabilities are paid. If valuations placed on assets do not exceed
liabilities, negative equity exists. In an accounting context, Shareholders' equity (or
stockholders' equity, shareholders' funds, shareholders' capital or similar terms) represents the
remaining interest in assets of a company, spread among individual shareholders of common or
preferred stock.

At the start of a business, owners put some funding into the business to finance operations. This
creates a liability on the business in the shape of capital as the business is a separate entity from
its owners. Businesses can be considered to be, for accounting purposes, sums of liabilities and
assets; this is the accounting equation. After liabilities have been accounted for, the positive
remainder is deemed the owner's interest in the business.

This definition is helpful in understanding the liquidation process in case of bankruptcy. At first,
all the secured creditors are paid against proceeds from assets. Afterward, a series of creditors,
ranked in priority sequence, have the next claim/right on the residual proceeds. Ownership equity
is the last or residual claim against assets, paid only after all other creditors are paid. In such
cases where even creditors could not get enough money to pay their bills, nothing is left over to
reimburse owners' equity. Thus owners' equity is reduced to zero. Ownership equity is also
known as risk capital, liable capital or simply, equity.

Contents
[hide]

• 1 Equity investments
• 2 Accounting
o 2.1 Book value
• 3 Shareholders' equity
• 4 Market value of shares
• 5 Real estate equity
• 6 See also
• 7 Notes
• 8 References

• 9 External links

[edit] Equity investments

An equity investment generally refers to the buying and holding of shares of stock on a stock
market by individuals and firms in anticipation of income from dividends and capital gains, as
the value of the stock rises. It may also refer to the acquisition of equity (ownership)
participation in a private (unlisted) company or a startup company. When the investment is in
infant companies, it is referred to as venture capital investing and is generally understood to be
higher risk than investment in listed going-concern situations.
The equities held by private individuals are often held via mutual funds or other forms of
collective investment scheme, many of which have quoted prices that are listed in financial
newspapers or magazines; the mutual funds are typically managed by prominent fund
management firms, such as Schroders, Fidelity Investments or The Vanguard Group. Such
holdings allow individual investors to obtain the diversification of the fund(s) and to obtain the
skill of the professional fund managers in charge of the fund(s). An alternative, which is usually
employed by large private investors and pension funds, is to hold shares directly; in the
institutional environment many clients who own portfolios have what are called segregated
funds, as opposed to or in addition to the pooled mutual fund alternatives.

A calculation can be made to assess whether an equity is over or underpriced, compared with a
long-term government bond. This is called the Yield Gap or Yield Ratio. It is the ratio of the
dividend yield of an equity and that of the long-term bond.

[edit] Accounting
In financial accounting, it is the owners' interest on the assets of the enterprise after deducting all
its liabilities.[1] It appears on the balance sheet / statement of financial position,[2] one of the four
primary financial statements.

Ownership equity includes both tangible and intangible items (such as brand names and
reputation / goodwill).

Accounts listed under ownership equity include (example):

• Share capital (common stock)

• Preferred stock
• Capital surplus
• Retained earnings
• Treasury stock
• Stock options
• Reserve

[edit] Book value

The book value of equity will change in the case of the following events:

• Changes in the firm's assets relative to its liabilities. For example, a profitable firm
receives more cash for its products than the cost at which it produced these goods, and so
in the act of making a profit, it is increasing its assets.
• Depreciation - Equity will decrease, for example, when machinery depreciates, which is
registered as a decline in the value of the asset, and on the liabilities side of the firm's
balance sheet as a decrease in shareholders' equity.
• Issue of new equity in which the firm obtains new capital increases the total shareholders'
equity.
 • Share repurchases, in which a firm gives back money to its investors, reducing on the
asset side its financial assets, and on the liability side the shareholders' equity. For
practical purposes (except for its tax consequences), share repurchasing is similar to a
dividend payment, as both consist of the firm giving money back to investors. Rather
than giving money to all shareholders immediately in the form of a dividend payment, a
share repurchase reduces the number of shares (increases the size of each share) in future
income and distributions.
• Dividends paid out to preferred stock owners are considered an expense to be subtracted
from net income[citation needed](from the point of view of the common share owners).
• Other reasons - Assets and liabilities can change without any effect being measured in the
Income Statement under certain circumstances; for example, changes in accounting rules
may be applied retroactively. Sometimes assets bought and held in other countries get
translated back into the reporting currency at different exchange rates, resulting in a
changed value.

[edit] Shareholders' equity

When the owners are shareholders, the interest can be called shareholders' equity;[3] the
accounting remains the same, and it is ownership equity spread out among shareholders. If all
shareholders are in one and the same class, they share equally in ownership equity from all
perspectives. However, shareholders may allow different priority ranking among themselves by
the use of share classes and options. This complicates both analysis for stock valuation and
accounting.

The individual investor is interested not only in the total changes to equity, but also in the
increase / decrease in the value of his own personal share of the equity. This reconciliation of
equity should be done both in total and on a per share basis.

• Equity (beg. of year)

• + net income inter net money you gained
• − dividends how much money you gained or lost so far
• +/− gain/loss from changes to the number of shares outstanding.more or less
• = Equity (end of year) if you get more money during the year or less or not anything

[edit] Market value of shares

In the stock market, market price per share does not correspond to the equity per share calculated
in the accounting statements. Stock valuations, which are often much higher, are based on other
considerations related to the business' operating cash flow, profits and future prospects; some
factors are derived from the accounting statements. Thus, there is little or no correlation between
the equity seen in financial statements and the stock valuation of the business.

[edit] Real estate equity

 Individuals can also use market valuations to calculate equity in real estate. An owner refers to
his or her equity in a property as the difference between the market price of a property and the
liability attached to the property (mortgage or home equity loan).

Corporate finance
Main article: Corporate finance

Managerial or corporate finance is the task of providing the funds for a corporation's activities.
For small business, this is referred to as SME finance (Small and Medium Enterprises). It
generally involves balancing risk and profitability, while attempting to maximize an entity's
wealth and the value of its stock.

Long term funds are provided by ownership equity and long-term credit, often in the form of
bonds. The balance between these elements forms the company's capital structure. Short-term
funding or working capital is mostly provided by banks extending a line of credit.

Another business decision concerning finance is investment, or fund management. An

investment is an acquisition of an asset in the hope that it will maintain or increase its value. In
investment management – in choosing a portfolio – one has to decide what, how much and when
to invest. To do this, a company must:

• Identify relevant objectives and constraints: institution or individual goals, time horizon,
risk aversion and tax considerations;
• Identify the appropriate strategy: active v. passive – hedging strategy
• Measure the portfolio performance

Financial management is duplicate with the financial function of the Accounting profession.
However, financial accounting is more concerned with the reporting of historical financial
information, while the financial decision is directed toward the future of the firm.

Date : 16 Sep 2010

Mid-Quarter Monetary Policy Review: September 2010
Monetary Measures

On the basis of the Reserve Bank’s assessment of macroeconomic situation, it has been decided to:

increase the repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 5.75 per cent to 6.0 per cent with immediate effect.

increase the reverse repo rate under the LAF by 50 basis points from 4.5 per cent to 5.0 per cent with immediate effect.

The Global Scenario

The Reserve Bank’s First Quarter Review of Monetary Policy on July 27, 2010 expressed concerns over the global outlook. Indicators of economic activity in advanced economies continue to suggest that the
recovery is slowing and that the second half of 2010 will post slower growth than the first, although expectations have generally not been revised downwards since end-July. Belying earlier apprehensions, Europe
has demonstrated remarkable resilience in the face of the sovereign debt pressures that severely threatened the recovery a few months ago. The European Central Bank has revised its forecast for second-half
growth upwards. China, after showing some signs of slowdown in the second quarter of 2010, appears to have bounced back, with industrial production and trade numbers reviving sharply.

Overall, even as the global environment continues to be a cause for caution, the big picture has not worsened significantly since July.
The Domestic Scenario

Growth in Q1 of 2010-11 was estimated at 8.8 per cent. Although some of this is attributable to a favourable base effect, the growth rate indicates that the recovery is consolidating and the economy is rapidly
converging to its trend rate of growth. The index of industrial production (IIP) showed some slippage in the last month of the quarter (June 2010) with the revised numbers showing growth to be a relatively
sluggish 5.8 per cent. The trend was sharply reversed in July, with growth surging to 13.8 per cent, led by capital goods, which grew by 63 per cent. Although the year-on-year growth rate for the first four months
of the year remains robust at 11.4 per cent, the high volatility over the past two months raises some doubts about how effectively the index reflects the underlying momentum in the industrial sector.

Growth prospects in agriculture have clearly been boosted by the monsoon, which, by virtue of substantial replenishment of reservoirs and ground water, will also contribute to a good rabi harvest. Virtually all
leading indicators of service sector activity point to sustained growth.

Inflation remains the dominant concern in macroeconomic management. The published wholesale price index (WPI) inflation rate for August 2010 was based on the new series (base year: 2004-05=100) for the
first time. The new series has better coverage of items and the manufacturing products group has a slightly higher weight. Both the old and the new series, however, indicate similar broad trend of inflation. For
instance, average monthly WPI inflation for Q1 of 2010-11, based on either series, is in double digits. However, the monthly average of WPI inflation for Q1 of 2010-11 under the new series at 10.6 per cent was
about 50 basis points lower than the rate of 11.1 per cent under the old series. In July 2010, there was a slight moderation in the provisional WPI inflation under both the series. There has been further moderation
in the provisional WPI inflation to 8.5 per cent in August from 9.8 per cent in July 2010 as per the new series. The direction of the inflation rate movement is consistent with the Reserve Bank’s projection made in
the July review, though the magnitude could be slightly different.

Inferences from both the series are similar. Essentially, inflation rates have reached a plateau, but are likely to remain at unacceptably high levels for some months. While prices of food articles, which according to
the new series, rose by over 14 per cent in August, are still contributing to the pressure, about two-thirds of the August inflation can be attributed to items other than food articles and products. Notwithstanding
slight moderation in August 2010, the headline inflation remains significantly above the trend of 5.0–5.5 per cent in the 2000s. There is, therefore, need for continued policy response to contain inflation and
anchor inflationary expectation.

Another aspect of the concern with inflation is its implications for real interest rates. The policy actions taken over the past three quarters have been partly motivated by the need to end the prevalence of negative
real interest rates. This was sought to be accomplished by a combination of increasing policy rates in a non-disruptive manner and declining inflation rates. Both factors are at work, but the process is still
incomplete. One important consequence of negative real rates is that banks have seen a deceleration of deposit growth, as savers look for higher returns elsewhere. If bank credit is not to become a constraint to
growth, real rates need to move in the direction of encouraging bank deposits.

With reference to government finances, the fiscal deficit appears to be conforming to the estimates made in the Union Budget for 2010-11. Higher than expected realisations on 3G and broadband wireless
access (BWA) auctions combined with buoyant tax revenues have virtually eliminated the risk of the fiscal deficit overshooting the targeted 5.5 per cent, even after the supplementary demand for grants is taken
into account. This will help stabilise market expectations of liquidity and interest rate movements.

Liquidity has been a significant factor in monetary policy considerations in recent months. The lead-up to the July policy review saw the liquidity situation transit from a large surplus to a mainly deficit one, making
the repo rate the operative policy rate. Consequent on this transition, the transmission from policy rates to market rates has strengthened, with 40 banks raising their deposit rates and 26 raising their lending
rates. These circumstances are expected to prevail, maintaining the repo rate as the effective policy rate and sustaining the strength of the transmission mechanism.

On the external front, the continuing sluggishness of the global economy constrains export growth while the strong domestic recovery has increased demand for imports. As a result, the trade deficit, and with it
the current account deficit, are widening. In its July policy review, the Reserve Bank had highlighted the risks associated with a widening current account deficit in the face of increasingly volatile capital inflows.
The apparent stabilisation in advanced economies visible over the past few weeks appears to have improved global investor sentiment, resulting in a steady increase in capital inflows into EMEs, including India. If
this trend continues, the risks on the external front will clearly abate despite exports remaining sluggish.

Overall, our assessment is that growth remains steady, though the recent volatility in industrial production raises some concerns. Inflation also appears to have stopped accelerating though the rate may remain
high for some months. The early signs of a downturn in non-food manufacturing inflation suggest that recent monetary actions are having an impact on both inflationary expectations and demandin a non-
Should the global situation stabilise, it will help contain volatility in capital flows. But the flip side of that will be possible firming of commodity prices and consequent inflationary pressures.

Expected Outcome

The measures undertaken in this review should:

contain inflation and anchor inflationary expectations without disrupting growth.

reduce the volatility in overnight call money rates, thereby strengthening the monetary transmission mechanism.

continue the process of normalisation of the monetary policy instruments.

The Reserve Bank’s rate and liquidity actions since October 2009 have been driven by two considerations: normalisation of the monetary policy stance as the crisis abated and inflation management. The
Reserve Bank believes that the tightening that has been carried out over this period has taken the monetary situation close to normal. Consequently, the role of normalisation as a motivation for further actions is
likely to be less important. Current and expected macroeconomic conditions will be the more important considerations going forward. The Reserve Bank will continue to monitor these conditions, particularly the
price situation, and take further action as warranted.

Alpana Killawala
Chief General

Press Release : 2010-2011/389