BANKING TERMINOLOGY DEFINITIONS FOR PO INTERVIEW -3

1. What major factors drive mergers and acquisitions?

mergers and acquisitions are the tool of corporate restructuring ...... so any company before opting for this mechanism considers .......tax benefits, market capitalisation, synergy, technological advancement ,quality employee, goodwill, profit sharing ratio, etc........valuation  of shares is important part.

2.What is goodwill? How does it affect net income?

ANS-goodwill is an intangible asset....means they don’t have physical existence but plays an important role in calculating companies worth........for finding the amount of goodwill ....

for eg----  company  A wants to buy company B now .........B have assets worth rs 1 lakh and liabilities worth 50000.....so net assets becomes 1 lakh -- 50k===50k but company A paid rs 75k.......so this means the differnec ie 75 k-- 50 k ====25 k is amount of goodwill.

(OR)

Goodwill can be defined as a process, or set of tools a business has used over the years to distinguish itself in the marketplace, to generate sales and to produce top-quality items consistently .e.g If you conduct a survey to figure out where customers stand on things such as product quality, customer service and corporate perception, the company that tops the list generally has high customer goodwill. Net income, also known as bottom line, is the number a company shows at the bottom of its statement of profit and loss, also known as a statement of income. Goodwill affects net income through amortization, the practice that gradually spreads the value of goodwill ( or any intangible assets). Non-physical assets include patents, copyrights and exclusivity rights.i.e amortization reduces the value of net income.

3)"WHAT DO YOU UNDERSTAND BY CAPITAL ADEQUACY RATIO,CRAR,BASEL II AND III?

ANS-Capital adequacy rato is the risk capital means it is to kept by bank in case of any risk so that bank don’t collapse like that happened in usa......basel 2 is concerned with risk managment and car was developed there only

(OR)

Capital Adequacy ratio is the amount of capital a bank should have as a percentage of the total risk weighted assets. Its (tier I capital+ tier II capital)/risk weighted assets *100. Basel is the name of the place where the Basel Committee for Banking Supervision holds its meetings. The BCBS has G10+G20 and some countries like Luxemburg as members. Basel II is the current regulation. Was mandated in India in 2008(though banks had applied the rules much earlier than 2008). Basel II introduced the three pillars of CAR, assessment of CAR and the mandatory disclosures. Basel III was organised after the global crisis of 2008, and some of the measures it has recommended includes increased reqdmnt for common equity for 2% to 4.5% (basel II to Basel III), Tier I capital from 4% to 6%, and a new mandatory buffer for capital conservation; plus an optional cyclical buffer of 2.5%. OECD has forecasted  that Basel II recommendations will slow down the global economy's growth rate.

 Tier I capital is Common stocks plus retained profits. Tier II is Undisclosed profits, total perpetual shares, 

subordinated loans, provisions, investment fluctuations, andrid debt capitals.