This document discusses various financial instruments and methods. It defines financial instruments as contracts that create financial assets and liabilities. It describes the main types of financial instruments as cash instruments like securities and loans, and derivative instruments whose value is based on underlying assets. It also discusses various classification of instruments like debt, equity and foreign exchange. The document then explains four common financial methods used by banks - overdraft, cash credit, fixed loans, and discounting bills of exchange. It provides details on how the Kisan Credit Card scheme works for farmers in India and the features of core banking systems and e-banking/internet banking services.

1. FINANCIAL INSTRUMENTS
AND METHODS
Prepared By:
BINDU H A
M.Sc.(Agri.)

2. FINANCIAL INSTRUMENTS
It is any contract that give rise to a
financial asset of one entity and a financial
liability or equity instrument of another entity.
They can be created, traded,
modified and settled. They can be in
cash(currency), evidence of an ownership
interest in an entity(share), or a contractual
right to receive or deliver cash(bond).

3. TYPES
Financial instruments can be either
cash or derivative instruments:
 CASH INSTRUMENTS:
Instruments whose value is determined
directly by the markets. They can be
securities, which are readily transferable,
loans and deposits where both borrower and
lender have to agree on a transfer.
 DERIVATIVE INSTRUMENTS:
Instruments which derive their value
from the value and characteristics of one or
more entities such as an asset, index, or

4. CLASSIFICATION OF INSTRUMENTS
ASSET
CLASS
SECURITIES OTHER CASH
Debt(long term
) >1 year Bonds Loans
Debt(short
term) < 1 year Bills, ex: Commercial paper Deposits certificate
Equity Stock
Foreign
exchange
Spot foreign
exchange

5. FINANCIAL METHODS
There are four reliable methods of
advancing loans:
1.Overdraft
2.Cash credit
3.Fixed loans
4.Discounting bills of exchange

6. 1.OVERDRAFT:
 This allows reliable customers to draw over
and above the money actually deposited In
the accounts.
 These advances are given on the basis of
personal securities.
 Interest is charged based on the amount
drawn.
 It is an easiest method of advancing loan.

7. 2.CASH CREDIT
 In this method a customer is granted an
advance up to a certain limit, which can be
drawn from time to time when required.
 The interest is charged on the amount
actually utilized.
 It is a short term commercial loan, which is
advanced to businessmen and industrialists
against tangible securities.

8. 3.FIXED LOANS
 In this method the bank advances in fixed
amount repayable either in fixed monthly or
yearly installments or in lump sum.
 It is usually borrowed to meet the long term
requirements for capital.
 Interest is charged on the full amount of the
loan sanctioned for whole of the period.
 These loans are granted against securities
like gold ornaments, machinery, stock and
bonds.
 It includes consumer loans, industrial and
commercial loans, agricultural loans for ST,

9. 4.DISCOUNTING BILLS OF
EXCHANGE
 Bank discount the bills of exchange held by
the businessmen, which are payable after a
certain period of time.
 The amount of value of bill after deduction
of interest at the market rate for the period
bill has to mature.
 Bills of exchange are very liquid assets as
they can be easily turned into cash after
their maturity.

10. KISANCREDITCARD
 KCC was initially proposed by the Financial
Minister, Yashwanth Sinha in the financial year
1998-99 budget, with the objective of providing
easily accessible short term credit to farmers to
meet their immediate credit needs during the
crop seasons.
 RBI and NABARD took up the cause and
initiated the introduction of KCC.
 It was also introduced to reduce the
dependence of farmers on the informal banking
sector.
 KCC works as a single credit facility that the
farmers can use to fulfill all the agricultural
needs.

11. RATIONALE BEHIND KCC
The rationale is to remove the
following complications:
 Long drawn-out documentation and
processing.
 Complicated procedures followed bt the
banking institutions.
 Delay in processing loans and also lack of
awareness among farmers regarding
banking practices and benefits.
 To deviate farmers to borrow from non-
institutional sources of credit which is costly.

12. FEATURES
 All RRBs, Cooperative Banks and Public
Sector Commercial Banks have
implemented KCC scheme.
 It provides credit to meet all financial
requirements of agriculture and allied
activities.
 Insurance coverage for KCC holders.
 The farmers have to provide collateral
security In some cases i.e., if loan amount is
above Rs.1,00,000, then the cardholder has
to pledge the land as mortgage and
hypothecate the crops raised on it.

13. OTHER FEATURES
 Based on annual review, the card is valid for 3
years.
 The credit limit is fixed based on the individual’s
land holding, scale of finance, annual
production credit needs etc.,
 Credit limits will be increased when there is
change in cropping pattern, increase in costs,
etc., as an incentive for good record on credit
card usage
 Repayment period is up to 12 months.
 Conversion or rescheduling of loans also
permissible in case of damage to crops, due to
natural calamities.

14. INTEREST AND OTHER CHARGES ON KCC
 KCC interest rates as well as credit limits varies
from bank to bank.
 Generally the interest rate per annum is 9 per
cent for a credit limit of Rs.3 lakh .
 Central government allows certain subsidies on
interest rate based on the credit history of card
holder.
 A subsidy of 2 per cent is given for card holder
with sound track record of three years.
 Other charges include insurance premium,
processing fees, charges on land mortgage
deed etc.

15. INSURANCE UNDER KCC SCHEME
 Personal accident insurance is provide for
farmers with KCC.
 The individual gets a personal accident
cover of Rs.50,000 on the event of death
and Rs.25,000.
 The insurance is provided for the cardholder
if he is below 70 years of age.

16. CORE BANKING
It is a banking service provided by a
group of networked bank branches where
customers may access their bank account
and perform basic transactions from any of
the member branch offices.
Core banking functions include
transaction accounts, loans, mortgages and
payments. Banks makes these services
available through ATMs, internet banking,
mobile banking and through branches etc.

17.  Earlier each branch had local servers, data
from the server in each branch was sent in a
batch to the servers in the data centers for a
transaction to reflect in the real account.
 With the advent of computer and
telecommunication technology , it has become
possible for banks to allow information to be
shared between bank branches quickly and
efficiently.
 This helps in recording transactions, passbook
maintenance, interest calculations on loans
and deposits, customer records, balance of
payments and withdrawal.

18. e-banking
It is also known as internet
banking, online banking, virtual banking.
It is an electronic payment system
that enables customers of a bank to conduct a
range of a bank or other financial institutions to
conduct a range of financial transactions
through the financial institution’s website.

19. The type of financial transactions
which a customer may transact through online
banking includes the following:
1.Obtaining account balances.
2.Obtaining a list of recent transactions.
3.Availing electronic bill payments.
4.Transfering funds between a customer’s
or another’s account.
5.Download copies of bank statements.
6.Enables customers to order a cheque
book, statements.
7.Helps report loss of credit card, stop
payment of a cheque and advise change of
address etc.