Concepts of Capital and Capital maintenance

A financial concept of capital is adopted by most entities in preparing their financial statements. Under a financial concept of capital, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the entity. Under a physical concept of capital, such as operating capability, capital is regarded as the productive capacity of the entity based on, for example, units of output per day.

The selection of the appropriate concept of capital by an entity should be based on the needs of the users of its financial statements. Thus, a financial concept of capital should be adopted if the users of financial statements are primarily concerned with the maintenance of nominal invested capital or the purchasing power of invested capital.

If, however, the main concern of users is with the operating capability of the entity, a physical concept of capital should be used. The concept chosen indicates the goal to be attained in determining profit, even though there may be some measurement difficulties in making the concept operational.

Concepts of capital maintenance and the determination of profit

The capital maintenance concept states that the business net worth is said to have been maintained if net assets at the end of the period are equal to or more than net assets at the beginning of the accounting period keeping aside any withdrawal during the said period. In other words, it states that the company must book net income only when it has recovered its capital or the cost, i.e., an adequate amount of capital has been maintained.

Financial capital maintenance. Under this concept a profit is earned only if the financial (or money) amount of the net assets at the end of the period exceeds the financial (or money) amount of net assets at the beginning of the period, after excluding any distributions to, and contributions from, owners during the period. Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.

All the inflows such as the sale of stock to shareholders, the addition of capital from owners, and payment of dividends to shareholders payment of bonus to shareholders are excluded. The two measurement units of financial capital maintenance theory are constant purchasing power units and nominal monetary units.

Financial capital maintenance is affected only by the entire amount of funds available at the starting of the year and the funds available at the end of the year. Therefore, this concept is least concerned with any other capital assets transaction undertaken during the financial year.

Physical capital maintenance. Under this concept a profit is earned only if the physical productive capacity (or operating capability) of the entity (or the resources or funds needed to achieve that capacity) at the end of the period exceeds the physical productive capacity at the beginning of the period, after excluding any distributions to, and contributions from, owners during the period.

This method books profit only when the physical production capacity of the business at the end of the year is more than or equal to the physical production capacity of the business at the beginning of the year except any amount adjusted towards any amount paid to owners during the year or any amount raised by the owner. The main use of this method is for checking and maintaining the operational business capacity.

Capital Maintenance and Inflation

Inflation is the increase in any product/service cost or decrease in purchasing capacity. When the inflation rate is high, which has occurred in a short duration of time can affect the business’s ability to determine if it has achieved capital maintenance or not accurately. Due to inflation, the purchase price of assets gets increased accordingly, the value of the company’s net assets also increases. But the increase due to this inflation misrepresents the original value of the company’s assets.

Capital maintenance is distorted at the time of inflation as the pressure of inflation will increase the net assets even if their original value is unchanged. Due to this reason, at the time of inflammation, the companies must adjust the value of their assets to determine whether they have achieved capital maintenance. This is very important if the business operates in a hyperinflationary  economy.

Measurement of the elements of financial statements

Financial position

The financial position of an enterprise is primarily provided in a balance sheet. The main purpose of financial statements is to provide financial information to the users to assist them in their economic decisions. The financial statements basically present the financial information in such form that it is not only understandable but also useable. That is why financial statements present the financial effects of different business events that also includes business transactions.

In order to enhance the quality of information in financial statements, business transactions are grouped in different classes or categories on the basis of their economic characteristics. The broad classes or categories are called elements of financial statements.

The elements of a balance sheet or the elements that measure the financial position are as follows:

Asset: An asset is a resource:

  • Controlled by the enterprise as a result of past events, and
  • From which future economic benefits are expected to flow to the enterprise.

Liability: A liability is a present obligation of the enterprise arising from the past events, the settlement of which is expected to result in an outflow from the enterprise’ resources, i.e., assets.

Equity: Equity is the residual interest in the assets of the enterprise after deducting all the liabilities. Equity is also known as owner’s equity.

Financial performance

The financial performance of an enterprise is primarily provided in an income statement or profit and loss account. The elements of an income statement or the elements that measure the financial performance are as follows:

Income:

  • Increases in economic benefit during an accounting period in the form of inflows or enhancements of assets, or
  • Decrease of liabilities that result in increases in equity.

However, it does not include the contributions made by the equity participants, i.e., proprietor, partners and shareholders.

Expenses:

Expenses are:

  • Decreases in economic benefits during an accounting period in the form of outflows, or
  • Depletions of assets or incurrences of liabilities that result in decreases in equity.

Measurement of the Elements of Financial Statements

According to the Framework of IAS, the term ‘measurement’ has been defined in the following words:

“Measurement is the process of determining the monetary amounts at which the elements of the financial statements are to be recognised and carried in the balance sheet and income statement.”

There are a number of measurement basis that are employed in different degrees and in varying combinations in financial statements. They are listed below:

  • Historical cost: Historical cost is the most common measurement basis adopted by enterprises in preparing their financial statements. This is usually combined with other measurement basis, such as current cost basis, realisable basis, etc., which are discussed later in this section. Under historical cost measurement basis, assets are originally recorded at their costs or purchasing price or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation.
  • Current cost: Under current cost basis, assets are carried at the amount of cash that would have to be paid if the same or an equivalent asset was acquired currently. Liabilities are carried at the undiscounted amount of cash that would be required to settle the obligations currently.
  • Realisable value: Assets are carried at the amount of cash that could currently be obtained by selling the asset in an orderly disposal. Liabilities are carried at their settlement values; that is, the undiscounted amount of cash expected to be paid or satisfy the liabilities in the normal course of business.
  • Present value: Assets are carried at the present discounted value of the future net cash inflows that the item is expected to generate in the normal course of business. Liabilities are carried at the presented discounted value of the future net cash outflows that are expected to be required to settle the liabilities in the normal course of business.

Recognition of the elements of financial statements

Recognised” means reported on, or incorporated in amounts reported on, the face of the financial statements of the entity (whether or not further disclosure of the item is made in notes thereto).

Reporting of information about assets, liabilities, equity, revenues and expenses in financial reports may be by way of recognition and/or by disclosure in notes in the financial report. An item may be recognised as an element either singly or in combination with other items. For example, a particular asset may be recognised by incorporation in the carrying amount of a class of assets reported in the statement of financial position. In addition, where assets and liabilities have been set off against each other, or where revenues and expenses have been netted off, in the presentation of those items in financial statements, those elements would nonetheless have been recognised. The manner in which recognised elements should be presented in financial statements, including the circumstances in which they may be set off or netted off, are matters of display which are beyond the scope of this Statement. Inclusion of an element only in notes in the financial report does not constitute recognition.

The main elements of financial statements are as follows:

Assets. These are items of economic benefit that are expected to yield benefits in future periods. Examples are accounts receivable, inventory, and fixed assets.

Criteria for Recognition of Assets 38 39 40 An asset should be recognised in the statement of financial position when and only when:

  • It is probable that the future economic benefits embodied in the asset will eventuate.
  • The asset possesses a cost or other value that can be measured reliably.

Liabilities. These are legally binding obligations payable to another entity or individual. Examples are accounts payable, taxes payable, and wages payable.

Criteria for Recognition of Liabilities 65 66 67 68 69 A liability should be recognised in the statement of financial position when and only when:

  • It is probable that the future sacrifice of economic benefits will be required.
  • The amount of the liability can be measured reliably.

Revenue. This is an increase in assets or decrease in liabilities caused by the provision of services or products to customers. It is a quantification of the gross activity generated by a business. Examples are product sales and service sales.

A revenue should be recognised in the operating statement, in the determination of the result for the reporting period, when and only when:

  • It is probable that the inflow or other enhancement or saving in outflows of future economic benefits has occurred.
  • The inflow or other enhancement or saving in outflows of future economic benefits can be measured reliably.

Equity. This is the amount invested in a business by its owners, plus any remaining retained earnings.

Recognition of Equity Since equity is the residual interest in the assets of an entity and the amount assigned to equity will always correspond to the excess of the amounts assigned to its assets over the amounts assigned to its liabilities, the criteria for the recognition of assets and liabilities provide the criteria for the recognition of equity.

If the aggregate amount assigned to an entity’s liabilities exceeds the aggregate amount assigned to its assets there would be no amount recognised as equity.  What would be reported is a deficiency of reported assets compared with reported liabilities.  As with the reported amount of equity, the reported amount of any deficiency would depend on the bases on which the entity’s assets and liabilities are recognised and measured. It is possible for the reported liabilities of an entity to exceed its reported assets and for the ownership group or, where there is an absence of an ownership group, some other party or parties with residual rights, to have an interest of some value in the entity. For example, assets may exist but not have been recognised, or a measurement basis may have been adopted which does not report the current value of the reported assets and liabilities. Notwithstanding this, the existence of legal restrictions, for example, may inhibit the ability of an entity that reports a deficiency to make distributions to owners.

Expenses. This is the reduction in value of an asset as it is used to generate revenue. Examples are interest expense, compensation expense, and utilities expense.

An expense should be recognised in the operating statement, in the determination of the result for the reporting period, when and only when:

  • It is probable that the consumption or loss of future economic benefits resulting in a reduction in assets and/or an increase in liabilities has occurred.
  • The consumption or loss of future economic benefits can be measured reliably.

Users of financial statements

Customers

When a customer is considering which supplier to select for a major contract, it wants to review their financial statements first, in order to judge the financial ability of a supplier to remain in business long enough to provide the goods or services mandated in the contract.

Company Management

The management team needs to understand the profitability, liquidity, and cash flows of the organization every month, so that it can make operational and financing decisions about the business.

Competitors

Entities competing against a business will attempt to gain access to its financial statements, in order to evaluate its financial condition. The knowledge they gain could alter their competitive strategies.

Governments

A government in whose jurisdiction a company is located will request financial statements in order to determine whether the business paid the appropriate amount of taxes.

Investment Analysts

Outside analysts want to see financial statements in order to decide whether they should recommend the company’s securities to their clients.

Investors

Investors will likely require financial statements to be provided, since they are the owners of the business and want to understand the performance of their investment.

Debenture Holders

The debenture holders are interested in the short-term as well as the long-term solvency position of the company. They have to get their interest payments periodically and at the end the return of the principal amount.

Rating Agencies

A credit rating agency will need to review the financial statements in order to give a credit rating to the company as a whole or to its securities.

Employees

A company may elect to provide its financial statements to employees, along with a detailed explanation of what the documents contain. This can be used to increase the level of employee involvement in and understanding of the business.

Suppliers

Suppliers will require financial statements in order to decide whether it is safe to extend credit to a company.

Prospective Investors

Prospective Investors are interested in the future prospects and financial strength of the company.

Unions

A union needs the financial statements in order to evaluate the ability of a business to pay compensation and benefits to the union members that it represents.

Shareholders

Divorce between ownership and management and broad-based ownership of capital due to dispersal of shareholdings have made shareholders take more interest in the financial statements with a view to ascertaining the profitability and financial strength of the company.

Applicability of Ind AS in India

Phase I

Mandatory applicability of IND AS to all companies from 1st April 2016, provided: 

  • It is a listed or unlisted company
  • Its Net worth is greater than or equal to Rs. 500 crore*

*Net worth shall be checked for the previous three Financial Years (2013-14, 2014-15, and 2015-16). 

Phase II

Mandatory applicability of IND AS to all companies from 1st April 2017, provided:

  • It is a listed company or is in the process of being listed (as on 31.03.2016)
  • Its Net worth is greater than or equal to Rs. 250 crore but less than Rs. 500 crore (for any of the below mentioned periods).

Net worth shall be checked for the previous four Financial Years (2014-14, 2014-15, 2015-16, and 2016-17)

Phase III

Mandatory applicability of IND AS to all Banks, NBFCs, and Insurance companies from 1st April 2018, whose:

  • Net worth is more than or equal to INR 500 crore with effect from 1st April 2018.

IRDA (Insurance Regulatory and Development Authority) of India shall notify the separate set of IND AS for Banks & Insurance Companies with effect from 1st April 2018. NBFCs include core investment companies, stock brokers, venture capitalists, etc. Net Worth shall be checked for the past 3 financial years (2015-16, 2016-17, and 2017-18)

Phase IV

All NBFCs whose Net worth is more than or equal to INR 250 crore but less than INR 500 crore shall have IND AS mandatorily applicable to them with effect from 1st April 2019.

Ind AS 101 First time adoption of Indian Accounting Standards
Ind AS 102 Share Based Payment
Ind AS 103 Business Combinations
Ind AS 104 Insurance Contracts
Ind AS 105 Non-Current Assets Held for Sale and Discontinued Operations
Ind AS 106 Exploration for and Evaluation of Mineral Resources
Ind AS 107 Financial Instruments: Disclosures
Ind AS 108 Operating Segments
Ind AS 109 Financial Instruments
Ind AS 110 Consolidated Financial Statements
Ind AS 111 Joint Arrangements
Ind AS 112 Disclosure of Interests in Other Entities
Ind AS 113 Fair Value Measurement
Ind AS 114 Regulatory Deferral Accounts
Ind AS 115 Revenue from Contracts with Customers
Ind AS 116 Leases
Ind AS 1 Presentation of Financial Statements
Ind AS 2 Inventories
Ind AS 7 Statement of Cash Flows
Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors
Ind AS 10 Events occurring after Reporting Period
Ind AS 12 Income Taxes
Ind AS 16 Property, Plant, and Equipment
Ind AS 19 Employee Benefits
Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance
Ind AS 21 The Effects of Changes in Foreign Exchange Rates
Ind AS 23 Borrowing Costs
Ind AS 24 Related Party Disclosures
Ind AS 27 Separate Financial Statements
Ind AS 28 Investments in Associates
Ind AS 29 Financial Reporting in Hyperinflationary Economies
Ind AS 32 Financial Instruments: Presentation
Ind AS 33 Earnings per Share
Ind AS 34 Interim Financial Reporting
Ind AS 36 Impairment of Assets
Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets
Ind AS 38 Intangible Assets
Ind AS 40 Investment Property
Ind AS 41 Agriculture

Ind AS Compliances

1) Once the Ind AS becomes applicable, whether due to voluntary adoption or otherwise, the companies shall adhere to the compliances of Ind AS applicable to them. The financial statements under the Companies Act, 2013 are governed by Schedule III. There are 3 divisions in Schedule III:

  • Division-I: Applicable to companies to whom accounting standards are applicable.
  • Division-II: Applicable to companies to whom Ind AS compliance are applicable
  • Division-III: Applicable to Non-Banking Financial Companies to whom Ind AS are applicable.

2) All the companies (excluding banks, NBFCs and insurance companies) preparing financial statements as per Ind AS shall do so in accordance with the Division-II of Schedule-III (also known as the Ind AS Schedule-III) as well as the Guidance Note on Division-II of Schedule-III of the Companies Act, 2013 (also known as Ind AS Guidance Note). In the case of NBFCs, Division-III shall become applicable.

However, companies referred to in Section 129(1) of the Companies Act, 2013 are not required to comply with the requirements of Ind AS Schedule III. This includes an insurance company, banking company, or company engaged in the generation or supply of electricity for which the form for presentation of financial statements has been specified under any other act that governs such class of companies.

However, in the case of companies engaged in the generation and supply of electricity, the Electricity Act, 2003 has not specified any format for the presentation of Financial Statements. Therefore, Ind AS Schedule-III can be followed by such companies till any other format is being prescribed by the relevant act.

3) The listed companies shall follow the guidelines issued by way of a circular by SEBI that prescribes the format for publishing quarterly, half-yearly, and annual financial results that are guided by the provisions of Ind AS and Ind AS Schedule-III. The companies may make suitable modifications.

4) The components of financial statements prepared in accordance with Ind AS compliance include:

  • Balance Sheet
  • Statement of Profit & Loss
  • Statement of Cash Flows
  • Statement of Changes in Equity
  • Notes

Benefits and Limitations of Accounting Standards

Benefits of Accounting Standards

Accounting Standards are the ruling authority in the world of accounting. It makes sure that the information provided to potential investors is not misleading in any way. Let us take a look at the benefits of AS.

Improves Reliability of Financial Statements

There are many stakeholders of a company and they rely on the financial statements for their information. Many of these stakeholders base their decisions on the data provided by these financial statements. Then there are also potential investors who make their investment decisions based on such financial statements.

So, it is essential these statements present a true and fair picture of the financial situation of the company. The Accounting Standards (AS) ensure this. They make sure the statements are reliable and trustworthy.

Attains Uniformity in Accounting

Accounting Standards provides rules for standard treatment and recording of transactions. They even have a standard format for financial statements. These are steps in achieving uniformity in accounting methods.

Prevents Frauds and Accounting Manipulations

Accounting Standards (AS) lay down the accounting principles and methodologies that all entities must follow. One outcome of this is that the management of an entity cannot manipulate with financial data. Following these standards is not optional, it is compulsory.

As described above, there is a set format of the financial statement no one can manipulate or commit fraud in the whole accounting process. Therefore, the accounting standard has already reduced the chances of manipulation and fraud and made the accounting system more effective and reliable.

So, these standards make it difficult for the management to misrepresent any financial information. It even makes it harder for them to commit any frauds.

Comparability

This is another major objective of accounting standards. Since all entities of the country follow the same set of standards their financial accounts become comparable to some extent. The users of the financial statements can analyze and compare the financial performances of various companies before taking any decisions.

Also, two statements of the same company from different years can be compared. This will show the growth curve of the company to the users.

Assists Auditors

Now the accounting standards lay down all the accounting policies, rules, regulations, etc in a written format. These policies have to be followed. So if an auditor checks that the policies have been correctly followed he can be assured that the financial statements are true and fair.

Determining Managerial Accountability

The accounting standards help measure the performance of the management of an entity. It can help measure the management’s ability to increase profitability, maintain the solvency of the firm, and other such important financial duties of the management.

Management also must wisely choose their accounting policies. Constant changes in the accounting policies lead to confusion for the user of these financial statements. Also, the principle of consistency and comparability are lost.

Disadvantages of Accounting Standards

Compromise the standard: Sometimes, the accounting standard is compromised due to lobbying or government pressure. This is because the government or powerful authority wants to give advantages only to the big powerful companies. Therefore, standards are compromised and cannot be relied on.

Rigid or inflexible: The policies are already made and have to be followed by the entity at any cost; thus, making the financial statement is rigid no one can change it according to their convenience. The format is already set, which has to be followed. Thus, it lacks flexibility.

Cost is high for maintenance: The cost is high for maintaining the books of account according to the format set by the accounting standard. The detailed paperwork and the use of standard equipment also increase the cost of maintaining books of accounts.

Time-consuming process: The whole process of following accounting standards takes time as every note and schedule according to the format must be produced by the user and has to go through a lengthy, time-consuming process.

Scope is restricted: Accounting standard has to be framed according to the rules set presently in the nation. They cannot override the statute. Thus, the scope for providing policies gets restricted.

Difficulty in choosing the alternative: There are many methods to record the transaction in the books of account; thus, it becomes difficult to choose which method to adopt and what not to. And also, sometimes, due to restrictions on the method of choice, the entity has to forgo its best convenient method and adopt the secondary method of recording transactions.

Need for Convergence Towards Global Standards

The convergence of accounting standards refers to the goal of establishing a single set of accounting standards that will be used internationally. Convergence in some form has been taking place for several decades, and efforts today include projects that aim to reduce the differences between accounting standards.

Convergence is driven by several factors, including the belief that having a single set of accounting requirements would increase the comparability of different entities’ accounting numbers, which will contribute to the flow of international investment and benefit a variety of stakeholders. Criticisms of convergence include its cost and pace, and the idea that the link between convergence and comparability may not be strong.

Need for Convergence

  • To make the financial statements reliable, comparable & transparent.
  • To ensure a general understanding of best accounting practices.
  • To standardize financial accounting & reporting across the globe.
  • To eliminate information barriers for users of financial statements.
  • To promote foreign Investment & spur Industrial growth.

Benefits of Convergence

Beneficial to Investors

Convergence is a boon for investors who wish to invest in foreign markets or economies. It makes it much easier for them to study and compare the financial statements of foreign companies. Since the financial statements are made using the same set of standards it is also easier for the investors to understand and analyze them.

Beneficial to the Economy

If the accounting standards are converged it will promote international business and increase the influx of capital into the country. This will help India’s economy grow and expand. International investing will also mean more capital for domestic companies as well.

Beneficial to the Industry

With globally accepted standards the industry can also surge ahead. So convergence is important for the industry as well. It will allow the industry to lower the cost of foreign capital. If companies are not burned by adopting two different sets of standards it will allow them easier entry into the market.

Cost Saving

Firstly it will exempt companies from maintaining separate accounting books according to separate standards. This will save a lot of work hours and money for the finance department. And also planning and executing auditing will also become easier.

It will be especially helpful for those companies that have subsidiaries in many countries. And the cost of capital will also reduce since capital would be more accessible and easily available.

More Transparency

Convergence will benefit the users of the financial statements as well. It will make it easier for them to understand the financial statements. And this will generate better transparency and raise the confidence of the investors to invest funds.

Challenges

Changes in Indian regulation: Current regulations governing the financial regulation would need a complete overhaul to implement the IFRS standards. The Companies Act 1956, SEBI act 1992, IT Act 1962 etc. will have to be amended to bring them in line with IFRS regulations. These legal hurdles is a major constraint in the path of IFRS convergence.

Training & Awareness: Many do not know the IFRS standards & lack of knowledge & awareness makes it a difficult task of implementation. Finance professionals will have to be adequately trained and then the standards can be implemented consistently and uniformly in right spirit.

Fair Value system of measurement: The IFRS considers the fair value system of asset measurement and the Indian GAAP recognizes historical system. This divergence of system would create volatility and subjectivity in financial statements. This would lead to different results for performance & earnings of the Company.

Small & Medium businesses: The SME sector in India is comparatively larger than other Countries. The cost of convergence far outweigh the advantages of convergence for these small businesses. The dearth of resource and skills in financial knowledge adds up to the problem of implementation in this sector. In addition, SME’s cannot be ignored, considering the role they play in the Indian economy.

IT systems: Financial accounting software and tools used for reporting would have to be completely changed resulting in substantial investment in IT infrastructure for Indian Companies. Indian companies are habitually reluctant when any proposal involves cost, time & effort.

Quantum Computing in banking

Quantum computing is a technology based on the principles of quantum theory. Quantum computing harnesses the laws of quantum mechanics to carry out complex data operations. Quantum mechanics pertains to the realm of sub-atomic particles where the laws of classical physics breakdown. It shows how particles and waves have a dual nature. Particles like electrons tend to behave like waves, whereas light waves also display particle nature.

A quantum processor has millions of qubits that explore all possible combinations to find the best answer. A qubit (or quantum bit) is the basic unit of quantum information (quantum version of the classical binary bit). Quantum entanglement (perfect correlation between quantum particles) allows qubits to communicate with each other even if they are miles (or even millions of miles) apart.

Optimal arbitrage, credit scoring, derivative pricing; all these financial procedures involve many mathematical calculations and become even more complicated and resource-intensive as the number of variables increases. At some point, people have to settle for less-than-optimal solutions, because the complexity of the problem surpasses the capabilities of current technology and methods.

Over time, financial institutions will grow their quantum technology capacity and ability and will grow the number of specific business applications. As a result, the hybrid quantum-HPC computer will lie at the basis of their core business. Those that don’t join in could be running serious commercial risk and financial organizations know this.

Quantum has a bright future, with the potential to make the sector more profitable and less risky. One day it might even make the global economy more stable, as fiscal risks can be better predicted with quantum computers. But quantum computing is not the only quantum technology. What would Finance look like once we have a quantum internet that allows for instantaneous, faster-than-light, correlations? Will we again change the statistics of algorithmic trading, as the rules of the game change? Nobody knows, but it is interesting to consider.

Non Resident Indians Accounts, Pigmy Deposit Accounts, Other Special Accounts

Non Resident Indians Accounts

The NRE account is an Indian rupee-denominated account, offering complete security. These accounts can be in the form of savings, current, recurring, or fixed deposits. The foreign currency you deposit into the account is converted to INR. You can transfer your funds (Principal & Interest amount) to a foreign account from an NRE account without any complications and restrictions. You need to note that the amount you deposit into these accounts must be earned outside India. The international debit card enables you to transact and withdraw money 24*7. Also, mutual fund investments to become effortless and instant if you link your NRE account number to the investment account. NRE account is primarily used for carrying out business, personal banking and making investments in India.

An NRO account is a savings or current account held by NRIs in India to manage their income earned in India. Account-holders can deposit and manage their accumulated rupee funds without any hassle. The account allows you to receive funds in Indian or Foreign currency. You can apply for an NRO account jointly with a resident Indian or even an NRI. It is even feasible to transfer money from your current NRE account. However, the interest you earn in this account is subject to TDS (Tax Deducted at Source). Tax Deducted at Source (TDS).

FCNR (B) Account

FCNR or Foreign Currency Non-Residential Account facilitates deposits made by Non-Residential Indians (NRIs) or Persons of Indian Origin (POI). NRIs or POI can make these deposits in the currency of their country of residence and shall be held in that account in any one of the foreign currencies prescribed by RBI.

The currencies in which deposits can be held in an FCNR (B) Account are – US Dollars (USD), Canadian Dollar (CAD), Australian Dollar (AUD), Euro (EUR), Great Britain Pound Sterling (GBP), Singapore Dollar (SGD), Hong Kong Dollar (HKD), Japanese Yen (JPY) and Swiss Franc (CHF).

Hence, for instance, if an individual has earnings in any of these currencies, their deposits in an FCNR (B) Account shall not be subject to conversion. On the other hand, if an individual earns in any other currency, deposits made in it shall be converted to any one of the prescribed currencies mentioned above.

Pigmy Deposit Accounts

Pigmy Deposit Scheme is a monetary deposit scheme introduced by Syndicate Bank, India.

Money in amounts as small as five rupees can be deposited into an account on a daily basis, by a bank agent collecting the money from the account holder’s doorstep. The scheme was introduced to help daily wage earners, small traders and farmers begin saving, as a means to fund their bigger capital requirements such as weddings or purchases of homes or vehicles.

The account is for daily wage earners or tiny businessmen, who would like to put aside a little of their days earnings and accumulate it for a year or two. Even if Rs. 10/- is saved a day for 365 days, the saved amount together with interest could reach a figure like Rs. 4000/-

In about 5 years,

First Year Contribution Rs 3650 Interest 350 Say Rs 4000/-

Second year Contribution Rs 3650 Interest 350 Say Rs 4000/- + Rs. 400/-

Third year Contribution Rs 3650 Interest 350 Say Rs 4000/- + Rs. 1200/-

Fourth year Contribution Rs 3650 Interest 350 Say Rs 4000/- + Rs. 2000/-

Fifth year Contribution Rs 3650 Interest 350 Say Rs 4000/- + Rs. 3000/

Nearly Rs 25–26000 would be saved by the person.

This account is most useful to very small earners. They cannot command credit even from banks as their earning capacity is lowest.

Other Special Accounts

Retail Banking Services: Home loans, Auto Loans, Personal loans

Home Loan

A Home Loan is a form of financial assistance extended by banks and financial institutions. Such banks or financial institutions can help increase your budget to purchase a house with the loan amount offered. You can avail of the loan by meeting certain Home Loan eligibility criteria for a specific tenure. You must return the loan amount borrowed over the course of the tenure along with interest according to predetermined interest rates. You repay the Home Loan in monthly instalments, just like you would repay any other loan. Today, most banks offer Home Loans that not only help you purchase ready-made homes, but also facilitate the construction of a house from scratch. In addition, you can also seek Home Loans for renovation or repair purposes.

This is the most common type of home loan availed to purchase a house. There are many housing finance companies, public banks, and private banks that offer housing loans where you borrow money to purchase the house of your choice and repay the loan in monthly instalments.

You can get up to 80%-90% of the house’s market price in the form of financing. The lender will hold the house until you completely repay the loan.

Home Construction Loan

This is the right home loan type if you already have a plot of land and you need financing to construct a house in that land.

Home Extension Loan

Say you already own a house and you would like to extend the house with another room or another floor to accommodate the growing family. Home extension loan provides financing for this purpose.

Home Improvement Loan

A home improvement loan provides financing for renovating or repairing the house if there’s any fault in the existing system, such as painting the house’s interior or exterior, plumbing, upgrading the electrical system, waterproofing the ceiling, and more.

Home Loan Balance Transfer

The current home loan interest rate may be overwhelming, or you may not be happy with your current lender’s service; you can transfer the home loan’s outstanding balance to a different lender who offers a lower interest rate and better service. Upon transfer, you can even check out the possibilities of a top-up loan on your existing one.

Composite Home Loan

This type of home loan provides financing for purchasing the plot of land where you would like to construct a house and for the construction, both within a single loan.

Benefits of Taking a Home Loan

Tax benefits

The foremost benefit of a home loan is the income tax deduction you can claim on the interest and principal repayments. You can claim up to Rs.1.5 lakh on principal repayments u/s 80C, up to Rs.2 lakh on interest repayments u/s 24B, up to Rs.2 lakh on interest repayment in special circumstances u/s 80EE and 80EEA, and up to Rs.1.5 lakh on stamp duty expenses u/s 80C.

Due diligence of property

When you go through a bank to purchase a house, the bank will conduct thorough checks on the property from the legal perspective and check if all the documents produced are valid.

This due diligence check from the bank’s end will reduce the risk of you being scammed. If the bank approves the property, that means you and your house are safe.

Lower interest rate

The home loan interest rate is much lower as compared to any other loan types available. If you come across a cash crunch, you may get a top-up on the existing home loan at a lower interest rate than a personal loan to solve the issue.

Balance transfer facility

You can transfer the home loan from one lender to another for several reasons, such as the interest rate, service charges, customer service experience, and others.

Auto Loans

An auto loan is a loan that allows you to buy a desired four wheeler, and pay the vehicle off in equated monthly installments for a set tenure instead of having to pay the full price upfront. The terms of an auto loan depend on various factors, including your income and credit history.

Though everybody may not have enough cash to purchase the auto with a lump-sum payment, numerous lenders can help you realise your dream of buying the auto through a auto loan.

Applying for a auto loan is now hassle-free, easy, and paperless. Just make a few clicks, and you can submit the auto loan application form online. Almost every bank today offers auto loans at attractive interest rates. Based on one’s affordability, it is now quite easy to take a auto loan and then pay EMIs without really biting into a person’s finances.

Features and Benefits of Auto Loan

  • Get financing for purchasing new and used autos.
  • The financing can go up to 85%-90% of the on-road price of the auto. Some banks offer up to 100% financing on the vehicle’s on-road price to certain conditions.
  • The loan tenure can range from one year up to seven years.
  • The loan amount can be up to three times the annual income of the applicant.
  • Some lenders offer instant financing facilities for autos.
  • You may get additional discounts and offers if you choose to purchase a auto from the dealer or manufacturer the bank has a tie-up with.
  • The auto purchased through financing will be held as collateral until the loan is repaid.
  • The repayment structure most commonly followed for a auto loan is equated monthly instalments (EMI).

Personal loans

Personal Loan is an unsecured credit provided by financial institutions based on criteria like employment history, repayment capacity, income level, profession and credit history. Personal Loan, which is also known as a consumer loan is a multi-purpose loan, which you can use to meet any of your immediate needs.

Benefits

  • With various financial institutions offering Personal Loan online services, the loan amount is disbursement within a few hours provided the lender is convinced of your repayment capacity.
  • Unlike other types of loans like Home Loan or Gold Loan, where you must provide several documents, Personal Loans require minimum documents and the approval process is quick.
  • Another significant feature of Personal Loan is that the lenders offer you the flexibility to choose your loan tenure. Usually, Personal Loan tenure ranges from one to five years. So, you can select the loan term based on your repayment capacity. You should opt for a shorter loan, so that you can save on the interest payment and repay the amount faster.
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