Glossary Of Financial Terms starting with N

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List of Financial Terms (Alphabet Wise)

NABARD An acronym for the National Bank for Agricultural and Rural Development. Set up in 1982, it is the apex institution for agricultural and rural credit, though primarily, a REFINANCE extension institution. Accordingly, NABARD interacts with commercial banks, state co-operative banks, REGIONAL RURAL BANKS and others, for the development of agriculture, small-scale industries, village industries, handicrafts and other sectors in rural areas, all over India. Besides refinance assistance, NABARD gives loans to banks and state governments which are channeled to the rural sector.

According to the proposals of the Union Budget 1996-97, NABARD's share capital will quadruple to Rs.2000 crore in the coming five years. This is one of the measures aimed at doubling the flow of credit to agriculture and agro-industries. Accordingly, NABARD's share capital has been progressively enhanced to Rs.1500 crore, as announced in the SLACK SEASON credit policy of 1997-98 by the Reserve Bank of India.

Narasimham Committee (1991) A committee appointed by the Government of India in August 1991, to examine all aspects of the financial system, in terms of its structure, organization functions and procedures. The committee was headed by M. Narasimham, former Governor, Reserve Bank of India (RBI). Some of the recommendations offered by the committee, in its report submitted in November 1991, are :
  • A reduction, phased over five years in the STATUTORY LIQUIDITY RATIO (SLR) to 25 percent, synchronized with the planned contraction in FISCAL DEFICIT.
  • A progressive reduction in the CASH RESERVE RATIO (CRR).
  • Gradual deregulation of interest rates.
  • All banks to attain CAPITAL ADEQUACY OF 8 percent in a phased manner.
  • Banks to make substantial provisions for bad and doubtful debts.
  • Profitable and reputed banks be permitted to raise capital from the public.
  • Instituting an ASSETS RECONSTRUCTION FUND to which the bad and doubtful debts of banks and FINANCIAL INSTITUTIONS could be transferred at a DISCOUNT.
  • Facilitating the establishment of new private banks, subject to RBI norms.
  • Banks and financial institutions to classify their ASSETS into four broad groups, viz, Standard, Sub-standard, Doubtful and Loss.
  • RBI to be primarily responsible for the regulation of the banking system.
  • Larger role for SEBI, particularly as a market regulator rather than as a controlling authority.
As a sequel to the report, the government has acted upon many of the suggestions. These actions include reductions in CRR and SLR, stipulation of capital adequacy norms for banks and announcement of guidelines for new private banks. (See HEALTH CODE SYSTEM).

NASDAQ An acronym for National Association of Security Dealers Automated Quotations System, which is a nationwide network of computers and other electronic equipment that connects dealers in the over-the-counter market across the U.S. The system provides the latest BID and ASKING PRICES quoted for any security by different dealers. This enables an investor to have his or her transaction done at the best price. Due to NASDAQ, the over-the-counter market in the U.S. is like a vast but convenient trading floor on which several thousand stocks are traded.

National Stock Exchange (NSE) It is a nationwide screen-based trading network using computers, satellite link and electronic media that facilitate transactions in securities by investors across India. The idea of this model exchange (traced to the Pherwani Committee recommendations) was an answer to the deficiencies of the older stock exchanges as reflected in settlement delays, price rigging and a lack of transparency.

Efforts to get the exchange going began with its incorporation in November 1992. The sponsors, mainly FINANCIAL INSTITUTIONS, include IDBI, GIC and LIC with IDBI playing the lead role. In the earlier stages, it was contemplated that the NSE would function primarily as a wholesale debt market (WDM) and that for EQUITY SHARES, it would play a complementary role to the Bombay Stock Exchange (BSE). However, NSE's active operations in stocks have unleashed competitive pressures on the BSE and the latter has consequently streamlined its outmoded trading system. BSE members seek to extend their new on-line system (BOLT) to other towns and cities. The magnitude of NSE's impact can be gauged from the fact that in February 1996, daily turnover in equity shares on the exchange had crossed Rs.1000 crore, albeit temporarily. It WDM segment involves transactions in TREASURY BILLS, GOVERNMENT SECURITIES, PSU BONDS, COMMERCIAL PAPER, CERTIFICATE OF DEPOSIT and DEBENTURES. Other distinct features of the NSE include :
  • Separation of the ownership (and management) of the exchange from the right to trade on the exchange.
  • Membership of the exchange is based on professional merit and financial soundness.
  • A fully automated screen-based trading system that will connect members across the length and breadth of India. The system is 'order driven' and provides flexibility to users as to the kinds of orders that may be placed. Additionally, it furnishes voluminous market information on-line, upon request.
Net Asset Value (NAV) The net value of a MUTUAL FUND'S PORTFOLIO, expressed on a per share basis. Thus NAV per share is :
Total Net Assets
Total number of shares outstanding

To calculate the 'Total Net Assets', investments are periodically valued at market prices (although DEBENTURES may be valued at cost or at prevailing yields) and added to other assets; from this figure, LIABILITIES including fund expenses, are deducted, in order to arrive at the total net assets.

A vexatious matter that the Securities and Exchange Board of India (SEBI) has been wrestling with is the need for uniformity in calculation of the NAV. Differences in valuation and accounting policies with respect to quoted and unquoted or unlisted shares, CONVERTIBLES, debentures, interest, DIVIDEND, expenses, etc., make a comparison of net asset values of different funds difficult. An expert committee, set up by SEBI to examine this matter, has suggested specific valuation norms for debt and equity securities. In its report released in January 1996, the committee has made some other suggestions, that include the following :
  • Fees payable to an ASSET MANAGEMENT COMPANY to comprise a 'Basic Annual Fee' and a performance-linked component.
  • Reporting of NAV on a weekly basis.
OPEN-END FUNDS set their sales and repurchase prices on the basis of their net asset values. However, the prices of CLOSED-END FUND shares, as for instance, UTI Mastershare, are determined by the forces of supply and demand operating in securities transactions, besides the NAV.

Net Present Value (NPV) A DISCOUNTED cash flow measure to evaluated the viability of an investment proposal. It serves to determine whether the PRESENT VALUE of estimated future cash flows exceeds the investment on a project. The net present value is the difference of the sum of discounted cash flows and the outlay, i.e.
Where CFt represents cash flow in year t, k is the DISCOUNT RATE and 1 is the outlay.

Net Worth The funds belonging to the shareholders of a company. Ordinarily, the term 'Net Worth' is synonymous with the funds belonging to the equity shareholders. However, a wider meaning of the term is as follows :

Net Worth = SHAREHOLDERS' EQUITY + PREFERENCE SHARE CAPITAL Shareholder's equity is the sum of PAID-UP equity CAPITAL and reserves.

Non-Banking Financial Company (NBFC) A financial intermediary that is engaged in certain financing activities other than banking. These activities are specified in the Non-Banking Financial Companies (Reserve Bank) Directions, 1977 and amendments thereto. They include equipment leasing, HIRE-PURCHASE, housing finance and investments in financial securities; however, insurance companies and stock broking enterprises and excluded. Many of these intermediaries offer other FUND-BASED products too, as for instance bill DISCOUNTING and FACTORING; also offered are fee-based services such as security issues management and advice on MERGERS and ACQUISITIONS, capital restructuring etc. The activities of NBFCs are both complementary and competitive to banks. Incidentally, in view of the new areas of financial services that NBFCs have charted, the SHAH COMMITTEE has suggested redefining NBFCs by amending the relevant law.

There have been other developments of import concerning NBFCs. An expert group was constituted by the Reserve Bank of India (RBI), to develop an appropriate supervisory framework for those NBFCs that purvey credit. It is headed by P.R. Khanna, a member of the Advisory Council to the BOARD FOR FINANCIAL SUPERVISION. Among other recommendations, it has prescribed a system of off-site surveillance, a supervisory rating system as well as legislation that would enable the RBI to effectively regulate NBFCs and deal with their financial health and viability. Further, as per RBI's new regulatory framework introduced in January 1998, the focus of regulatory and supervisory attention is on those NBFCs that accept public deposits. Further, for new NBFCs incorporated in April 1999 or later, the eligibility norm for registration has been made more stringent.

Non-performing Asset (NPA) A credit facility which ceases to generate income for a bank. Generally, it is one on which interest or any amount to be received has remained 'past due' for a period of two quarters as on March 31, 1995. An amount under a credit facility is past due when it has not been paid within 30 days from the due date. For CASH CREDIT and OVERDRAFT facilities, there are some specified criteria for identifying NPAs. Income from NPAs cannot be taken to the profit and loss accounts of banks, as per Reserve Bank of India's directive.