Important Banking Terms

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Important Banking Terms

 Banking Ombudsman: Banking Ombudsman is a quasi-judicial authority, which functions under India’s Banking Ombudsman Scheme 2006. It was created by Government of India with a purpose to deal with the complaints of customers of the banks related to various services rendered by the banks.

 Deflation: It is a decrease in the general price level of goods and services.

 Inflation: It can be defined as a sustained increase in the general level of prices for goods and services.

 Liquidity: Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price.

 Merchant Banking: It is a combination of Banking and consultancy services.

Monetary Policies: It refers to the use of instruments by Reserve Bank of India (RBI) to regulate the availability, cost and use of money and credits.

 Plastic Money: It is a term used in reference to the hard plastic cards we use every day in place of actual bank notes.

 

Direct Instruments:-

 Cash Reserve Ratio (CRR): Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI.

 Refinance Facilities: RBI offers refinance facility to help out the exporters by replacing an existing debt obligation with another.

 Statutory liquidity ratio (SLR): SLR is the minimum proportion of their Net Demand and Time Liabilities, which every bank maintains in the form of cash, gold and securities, at the close of business every day.

Indirect Instruments:-

 Bank rate: The rate of interest which the RBI charges on the loans and advances to a commercial bank.

 Liquidity adjustments facility (LAF): It’s a monetary policy tool which allows banks to borrow money through repurchase agreements and adjusting the day to day mismatches in liquidity.

 Marginal standing facility (MSF): It’s a window for banks to borrow from the RBI in an emergency situation when inter-bank liquidity finishes completely.

 Market Stabilization scheme (MSS): Securities that are issued with the objective of providing a stock of securities to the RBI to intervene in the market for managing liquidity.

 Open Market Operations (OMO): It’s an activity by a RBI to give or take liquidity in its currency to or from a bank or a group of banks.

 Repo rate: The rate at which the RBI lends money to commercial banks in the event of any shortfall of funds.

 Reverse Repo Rate: The rate at which the RBI borrows money from commercial banks within the country.

 Term Repo: A repurchase agreement with a term of more than one day.

Money Market Instruments:-

 Authorized Capital: The authorized capital/ registered capital/nominal capital of a company is the maximum amount of share capital that the company is authorized by its constitutional documents to issue to shareholders.

 Bonds: It is an instrument of indebtedness of the bond issuer to the holders.

 Call Money: Money loaned by a bank or other institution which is repayable on demand.

 Commercial Bills: A bill of exchange issued by a commercial organization to raise money for short-term needs.

 Commercial Papers: An unsecured, short-term debt instrument issued by a corporation for the financing of accounts receivable, inventories and meeting short-term liabilities.

 Certificates of deposits (CD): A savings certificate entitling the bearer to receive interest.

 Dated government securities: These are long-term securities and a fixed or floating coupon/interest rate which is paid on the face value, payable at fixed time periods.

 Debentures: A long-term security bearing a fixed rate of interest, issued by a company and secured against assets.

 Issued Capital: The share capital that has been issued to shareholders.

 Mutual Funds: It is a professionally managed investment fund that pools money from many investors to purchase securities.

 Net Asset Value (NAV): A mutual fund’s price per share or exchange-traded fund’s (ETF) per-share value.

 Paid up Capital: The amount of a company’s capital that has been funded by shareholders.

 Treasury bills: A short-dated UK/US government security, bearing no interest but issued at a discount on its redemption price.

Negotiable Instruments:-

 Bill of Exchange: A bill of exchange is a binding agreement by one party to pay a fixed amount of cash to another party as of a predetermined date or on demand.

 Cheques: An order to a bank to pay a stated sum from the drawer’s account, written on a specially printed form.

 Ante Dated Cheque: Cheques which have been written by the maker, and dated at some point in the past.

 Bounced Cheque: Check that cannot be processed because the writer has insufficient funds.

 Crossed Cheque: These cheques can only be deposited directly into a bank account and cannot be immediately cashed by a bank or any other credit institution.

 Post Dated Cheque: Cheque that is written by the drawer (payer) for a date in the future.

 Stale Cheque: A cheque which a bank will not accept and exchange for money or payment because it was written more than a certain number of months ago.

 Cheque Truncation: It is the conversion of a physical cheque into a substitute electronic form for transmission to the paying bank.

 Promissory Note: A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.

Various Types of Accounts:-

 Current Account/Demand deposit Account: An active account catering for frequent deposits and withdrawals by cheque.

 DeMat Account: This account is opened by the investor while registering with an investment broker (or sub-broker).

 Fixed deposit account or time deposit account: It is a financial instrument provided by banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date.

 NOSTRO Account: A bank account held by a UK bank with a foreign bank, usually in the currency of that country.

 Recurring Deposit Account: It is opened by those who want to save regularly for a certain period of time and earn a higher interest rate.

 Saving Account: A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate. 

Foreign Trade:-

 Current Account Deficit: A current account deficit is when a country’s government, businesses and individuals import more goods, services and capital than they export.

 Financial Inclusion: Financial inclusion is the delivery of financial services at affordable costs to massive sections of disadvantaged and low income groups.

 Fiscal Deficit: When a government’s total expenditures exceed the total revenue.

 Foreign Direct Investment (FDI): It is a controlling ownership in a business enterprise in one country by an entity, based in another country.

 Foreign Institutional Investors (FII): FIIs are those institutional investors which invest in the assets belonging to a different country other than that where these organizations are based.

 General Anti-Avoidance Rules (GAAR): A GAAR is a statutory rule that empowers a revenue authority to deny taxpayers the benefit of an arrangement that they have entered into for an impermissible tax-related purpose.

 Money Laundering: Any act to hide the identity of illegally obtained proceeds so that they appear to have originated from genuine sources.

 Participatory notes or P-Notes: These are instruments, issued by registered foreign institutional investors (FII) to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India (SEBI).

 Quantitative easing and tapering: A monetary policy in which RBI purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.

Electronic Payment Systems in Banks:-

National Payments Corporation of India (NPCI): NPCI is an umbrella organization for all retail payments system in India.

 Clearing Corporation of India Limited (CCIL): It is a joint stock company with share capital contribution by major banks and financial institutions.

 Electronic Clearing Service (ECS): ECS is an electronic mode of funds transfer from one bank account to another and can be used for both

 Electronic Funds Transfer (EFT): It is a system of transferring credit and debit purposes.money from one bank account directly to another without any paper money changing hands.

 National Electronic Funds Transfer (NEFT) System: It is an Indian system of electronic transfer of money from one bank or bank branch to another.

 Real Time Gross Settlement (RTGS) System: These are specialist funds transfer systems where the transfer of money or securities takes place from one bank to another on a “real time” and on “gross” basis.

Important Organizations:-

 International Bank for Reconstruction and Development (IBRD): An international financial institution that offers loans to middle-income developing countries.

 International Monetary Fund (IMF): An international organization that foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

 Bank for International Settlements (BIS): An international company, limited by shares owned by central banks which look after international monetary and financial cooperation and serves as a bank for central banks.

 Asian Development Bank (ADB): A regional development bank to promote social and economic development in Asia.

 EXIM Bank: A premier export finance institution that works as both a catalyst and a key player in the promotion of cross border trade and investment.

 Reserve Bank of India (RBI): The central bank of India that is charged with regulating the country’s currency and credit systems.

 National Bank for Agriculture and Rural Development (NABARD): An apex development bank that review arrangements for institutional credit for agriculture and rural development.

 Industrial Development Bank of India (IDBI): An Indian government-owned financial service company to provide credit and other financial facilities for the development of the fledgling Indian industry.

 Institute of Banking Personnel Selection (IBPS): An autonomous agency in India enhancing human-resource development through personnel assessment selection and recruitment of Officers and Clerks in Indian banks.

 Indian Banks’ Association (IBA): A representative body of management of banking in India operating in India.

 Securities Exchange Board of India (SEBI): The regulatory body for the investment/securities market in India.

 National Housing Bank (NHB): An apex financial institution for housing.

 Small Industries Development Bank of India (SIDBI): An independent financial institution aimed to aid the growth and development of micro, small and medium-scale enterprises (MSME) in India.

Other Essential Terms of Banking

 Acquiring Bank: A bank or financial institution that processes credit or debit card payments on behalf of a merchant.

 Adjustable-Rate Mortgages (ARMS): The initial interest rate is normally fixed for a period of time after which it is reset periodically, often every month.

 Amortization: It is an accounting term that refers to the process of allocating the cost of an intangible asset over a period of time.

 Annuity: A fixed sum of money paid to someone each year, typically for the rest of their life.

 Arbitrage: It is basically buying in one market and simultaneously selling in another, profiting from a temporary difference.

 Automated Teller Machine (ATM): A machine that automatically provides cash and performs other banking services on insertion of a special card by the account holder.

 Authorization: A document giving official permission.

 Bancassurance: The selling of life assurance and other insurance products and services by banking institutions.

 Banker’s Lien: Type of charge that gives a bank automatic claim over a borrower’s property or assets that come in bank’s possession in the normal course of its business.

 BASEL Committee: A committee established by the Central Bank governors of the Group of ten countries in 1974 that seeks to improve the supervisory guidelines that central banks or similar authorities impose on both wholesale and retail banks.

 Basis Point: One hundredth of one percentage point, basically used in expressing differences of interest rates.

 Blue Chips: They generally sell high-quality, widely accepted products and services.

 Bull Markets: A market in which share prices are rising, encouraging buying.

 CAMELs rating system: An international bank-rating system where bank supervisory authorities rate institutions according to six factors. The six factors are represented by the acronym “CAMELS”.

C – Capital adequacy

A – Asset quality

M – Management quality

E – Earnings

L – Liquidity

S – Sensitivity to Market Risk

 Capital Adequacy Ratio: It is the ratio of a bank’s capital to its risk.

 Capital Gain: A profit from the sale of property or an investment.

 Credit Rating Agencies of India: An independent company that evaluates the financial condition of issuers of debt instruments.

 Collateral: Property that a borrower offers a lender to secure a loan.

  CORE Banking Solution (CBS): It is networking of branches, which enables Customers to operate their accounts, and avail banking services from any branch of the Bank on CBS network, regardless of where he maintains his account.

 Coupon Frequency: The yield paid by a fixed income security.

 Debtor: A person, country, or organization that owes money.

 Derivative Instrument: Financial instruments whose value is derived from the value of something else.

 Demand Deposits: A deposit of money that can be withdrawn without prior notice.

 Earnings per Share (EPS): The portion of a company’s profit allocated to each outstanding share of common stock.

 Earnings Yield: The quotient of earnings per share divided by the share price.

 Equity: The value of an asset less the value of all liabilities on that asset.

 Ex-dividend (XD): A security which no longer carries the right to the most recently declared dividend.

 Face Value: The nominal value of a security stated by the issuer.

 Forfeiting: The purchasing of an exporter’s receivables at a discount by paying cash.

 Forgery: It is the process of making, adapting, or imitating objects, statistics, or documents with the intent to deceive for the sake of altering the public perception.

 Garnishee Order: A legal procedure by which a creditor can collect what a debtor owes by reaching the debtor’s property when it is in the hands of someone other than the debtor.

 General Lien: The right to take another’s property if an obligation is not discharged.

 Hedge: An investment to reduce the risk of adverse price movements in an asset.

 Hypothecation: Refers to securities in a margin account that an investor uses as collateral to borrow funds from a brokerage.

 Indemnity: Security against a loss or other financial burden.

 Initial Public Offering (IPO): It is a type of public offering in which shares of a company usually are sold to institutional investors [1] that in turn, sell to the general public, on a securities exchange, for the first time.

 Insolvent: Insufficient to meet all debts, as an estate or fund.

 Intrinsic Value: A value which exists as part of something, such as the value of an option.

 JHF (Joint Hindu Family) Account: JHF is account of a firm whose business is carried out by Karta of the Joint family, acting for all the family members.

 Joint Account: Bank account in the name of two or more individuals who jointly share its concomitant rights and liabilities. Joint holders of an account are regarded in law as together making up the ‘owner.’

 Junk Bond: The first sale of stock by a private company to the public.

 Karta: Karta means manager of joint family and joint family properties.

 Kiosk Banking: It is self-service solutions, allowing customers to service themselves with computer based touchscreen and making different sort of transactions.

 KYC Norms: The process of Banks verifying the identity of its clients.

 Lease Financing: A legal document outlining the terms under which one party agrees to rent property from another party.

 Leverage Ratio: Ratio that measures a company’s leverage.

 Libor: The interest rate that the banks charge each other for loans.

 Listing: Reference of the Initial Public Offering Company’s shares on the stock exchange for public trading.

 Margin Call: A broker’s demand on an investor using margin to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin.

 Mandate: Written authorization by a person, group, or organization (the ‘mandator’) to another (the ‘mandatary’) to take a certain course of action.

 Micro credit/micro finance: The lending of small amounts of money at low interest to new businesses.

 Moratorium: The suspension of repayment of DEBT, or INTEREST, for a specified period of time.

 Non-Performing Assets (NPA): It is defined as a credit facility in for which the interest and/or installment of Bond finance principal has remained “past due” for a specified period of time.

 Negotiation: An act of transferring or assigning a money instrument from one person to another person in the course of business.

 Non-Resident Accounts: These are accounts maintained by Indian nationals and Persons of Indian origin resident abroad, foreign nationals and foreign companies in India.

 Notary Public: It is a public officer constituted by law to serve the public in non-contentious matters usually concerned with estates, deeds, powers-of-attorney, and foreign and international business.

 Open Offer: It is an exit route, which is given to the existing shareholders by the acquirer of shares through a public announcement.

 Option: A financial derivative that represents a contract sold by one party to another party.

 Par Value: The nominal value of a bond.

 Personal Identification Number (PIN): A number allocated to an individual and used to validate electronic transactions.

 Pledge: It’s a kind of charge created when the lender (pledgee) takes actual possession of assets.

 Power of Attorney: It is a legal document that allows someone else to act on your behalf.

 Portfolio: Refers to any collection of financial assets such as cash.

 Preference Shares: It is a share which entitles the holder to a fixed dividend, whose payment takes priority over that of ordinary share dividends.

 Premium: The amount of money that an individual or business must pay for an insurance policy.

 Prime Lending Rate (PLR): The interest rate charged by banks to their largest, most secure, and most creditworthy customers on short-term loans.

 Privatization: The transfer of ownership, property or business from the government to the private sector is termed privatization.

 Provisioning: Can be defined as loss in the profit and loss account while finalizing accounts of banks.

 Relative Strength Index (RSI): It is a technical indicator used in the analysis of financial markets.

 Rights Issue: An issue of shares offered at a special price by a company to its existing shareholders in proportion to their holding of old shares.

 Rate of Return: The gain/loss on an investment, expressed as a percentage increase over the initial investment cost, over a specified period.

 Real Interest Rate: An interest rate that is adjusted for inflation.

 Self Help Groups (SHGs): It is a village-based financial intermediary committee usually composed of 10–20 local women or men.

 Speculation: The act of trading in an asset, or conducting a financial transaction, expecting a substantial gain, but with a risk of losing most or all of the initial outlay.

 Stock Splits: A corporate action in which a company/Bank divides its existing shares into multiple shares.

 Substantial Shareholder: A person, who acquires an interest in relevant share capital equal to, or exceeding, 10% of the share capital.

 Teller: A person employed to deal with customers’ transactions in a bank.

 Time Horizon: The length of time over which an investment is made or held before it is liquidated.

 Trust Deed: A formal document which outlines the terms of a trust agreement.

 Time Horizon: The length of time over which an investment is made or held before it is liquidated.

 Underwriting: The process by which investment banks raise investment capital from investors on behalf of corporations and governments by issuing securities.

 Underlying Security: It is a financial instrument whose price is derived from a different asset.

 Universal Banking: A banking system in which banks provide a wide variety of financial services, including both commercial and investment services.

 Valuation: The process of determining the current worth of an asset or property.

 Virtual Banking: Handling all transactions of banks via the Web, e-mail, mobile check deposit and ATM machines.

 Warrant: Official guarantee by a bank.

 Wholesale Banking: Banking services between merchant banks and other financial institutions.

 Window Dressing: It refers to actions taken prior to issuing financial statements in order to improve the appearance of the financial statements.

 Yield to Maturity: It is the internal rate of return of an investment in a bond if the investor holds the bond until maturity and if all payments are made as scheduled.

 Zero Coupon Bond: A debt security that doesn’t pay interest but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.