BANKING TERMS

IMPORTANT BANKING TERMS

BANK RATE : Bank Rate is the rate at which central bank of the country (RBI) allows finance to commercial banks. Bank Rate is a tool, which RBI uses for short-term purposes. Any upward revision in Bank Rate by RBI is an indication that banks should also increase deposit rates as well as Base Rate / Benchmark Prime Lending Rate. Thus any revision in the Bank rate indicates that it is likely that interest rates on your deposits are likely to either go up or go down. Bank Rate in India is decided by RBI. CRR RATE : Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks. REPO RATE : Repo Rate is the rate at which commercial banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive. REVERSE REPO RATE : Reverse Repo rate is the rate of interest at which Reserve Bank of India (RBI) borrows money from commercial banks in the short term.. Commercial Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to high interest rates. It can cause the money to be drawn out of the banking system. Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse Repo. ACCOUNT : Refers to a running record of transactions which are taking place between two transactors, who may be in two departments of one business and a basic element in all systems of recording business transactions. In retail trading it refers to the credit facility which is automatically extended to a customer with whom an account is operated. MFN : MFN stands for Most Favoured Nation. The principle, fundamental to the GATT, of treating imports from a country on the same basis as that given to the most favored other nation. That is, and with some exceptions, every country gets the lowest tariff that any country gets, and reductions in tariffs to one country are provided also to others.

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BANKING TERMS

GOLD STANDARD : A monetary standard under which the basic unit of currency is equal in value to and exchangeable for a specified amount of gold.The exchange rate under the gold standard monetary system is determined by the economic difference for an ounce of gold between two currencies.The gold standard was first adopted in Britain in 1821. Germany, France, and the U.S. instituted it in the 1870s, prompted by North American gold strikes that increased the supply of gold.The gold standard was mainly used from 1875 to 1914 and also during the interwar year. BALANCE OF TRADE : The value of a countrys exports minus the value of its imports. Unless specified as the balance of merchandise trade, it normally incorporates trade in services, including earnings (interest, dividends, etc.) on financial assets. BALANCE OF PAYMENTS : A list of all of a countrys international transactions for a given time period, usually one year. Payments into the country (receipts) are entered as positive numbers, called credits; Payments out of the country (payments) are entered as negative numbers called debits. A single numbers summarize all of a countrys international transactions: the balance of payments surplus. BALANCED BUDGET : A government budget surplus that is zero, thus with net tax revenue equaling expenditure. A balanced budget changes in policy or behavior is one which a component of the government budget, usually taxes, is adjusted as necessary to maintain a balanced budget. BALANCED GROWTH OF AN ECONOMY : Growth of an economy in which all aspects of it, especially factors of production, grow at the same rate. FISCAL DEFICIT : A deficit in the government budget of a country and represents the excess of expenditure over income. So this is the amount of borrowed funds require by the government to meet its expenditures completely. DIRECT TAX : A direct tax is that which is paid directly by someone to taxing authority. Income tax and property tax are an examples of direct tax. They are not shifted to somebody else. INDIRECT TAX :

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BANKING TERMS

This type of tax is not paid by someone to the authorities and it is actually passed on to the other in the form of increased cost. They are levied on goods and services produced or purchased. Excise Tax, Sales Tax, Vat, Entertainment tax are indirect taxes. Demand Deposit A Demand deposit is the one which can be withdrawn at any time, without any notice or penalty; e.g. money deposited in a checking account or savings account in a bank. Time Deposit Time deposit is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time. When the term is over it can be withdrawn or it can be held for another term. Fixed Deposits Fixed deposits are the deposits that are repayable on fixed maturity date along with the principal and agreed interest rate for the period. Banks pay higher interest rates on FDs than the savings bank account. Recurring Deposits These are also called cumulative deposits and in recurring deposit accounts, a certain amounts of savings are required to be compulsorily deposited at specific intervals for a specified period. Current Accounts These accounts are maintained by the corporate clients that may be operated any number of times in a day. There is a maintenance charge for the current accounts for which the holders enjoy facilities of easy handling, overdraft facility etc. FCNR Accounts Foreign Currency Non-Resident accounts are the ones that are maintained by the NRIs in foreign currencies like USD, DM, and GBP etc. The account is a term deposit with interest rates linked to the international rates of interest of the respective currencies. NRE Accounts Non-Resident External accounts are the ones in which NRIs remit money in any permitted foreign currency and the remittance is converted to Indian rupees for credit to NRE accounts. The accounts can be in the form of current, saving, FDs, recurring deposits. The interest rates and other terms of these accounts are as per the RBI directives. NOSTRO ACCOUNT : A Nostro account is maintained by an Indian Bank in the foreign countries.
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BANKING TERMS

OR A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts are used to facilitate settlement of foreign exchange and trade transactions. The term is derived from the Latin word for "ours." Conversely, accounts that are held by the domestic bank in its home country for foreign banks are called vostro accounts, derived from the Latin word for "yours." For example, a U.S. bank may have nostro accounts with one or more Canadian banks. These accounts will be denominated in Canadian dollars, which enables efficient settlement of transactions that are Canadian dollar denominated. Nostro accounts also minimize the exposure of the U.S. bank to undue exchange rate risk. VOSTRO ACCOUNT : A Vostro account is maintained by a foreign bank in India with their corresponding bank. OR The account that a correspondent bank, usually located in the United States or United Kingdom, holds on behalf of a foreign bank. A vostro account is one in which the domestic bank (from the point of view of the currency in which the account is held) acts as custodian or manages the account of a foreign counterpart. Also known as a loro account. For instance, if a Spanish life insurance company approaches a U.S. bank to manage funds in an account for the Spanish life insurer's behalf, the account would be deemed a vostro account of the insurer. The term vostro is Latin for "yours," thus when translated literally, it means "your account." SDR : SDR (Special Drawing Rights) are new form of International reserve assets, created by the International Monetary Fund in 1967. The value of SDR is based on the portfolio of widely used countries and they are maintained as accounting entries and not as hard currency or physical assets like Gold. BROWN LABEL ATM : The ATM is named under the brand of the sponsor bank but the ATM machine is not owned by the bank. At present, banks allow customers of other banks five free-of-charge cash withdrawals at their ATMs every month but end up paying around Rs 3,000 crore a year to settle inter-bank transaction costs. In such cases, the hardware as well as lease is under the ownership of the service provider, while connectivity and cash handling and management is the responsibility of the sponsor bank.
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BANKING TERMS

SCHEDULED BANKS : Which is registered under IInd Schedule of RBI act, 1934. Three eligibility criteria exist for scheduled banks in India, the first of which entails carrying on the business of banking in India, which all banks ostensibly meet. All scheduled banks must maintain a reserve capital of 5 lakhs rupees in the Reserve Bank of India. A lakh constitutes 100,000. In 2011, 5 lakhs rupees, or 500,000 rupees, equates approximately $11,156. Any commercial bank, cooperative bank, nationalized bank, foreign bank, rural regional bank institution, State Bank of India branch or other private sector bank meeting these criteria qualifies as a scheduled bank. Thus all commercial banks in India qualify as scheduled banks, though not all scheduled banks qualify as commercial banks. NON SCHEDULED BANKS : The other commercial banks which do not part of the second schedule of the RBI act are known as the non scheduled banks. They are not entitled to the privileges and facilities extended by RBI to scheduled banks. SUSPENSE ACCOUNT : In accounting, the section of a company's books where unclassified debits and credits are recorded. The suspense account temporarily holds unclassified transactions while a decision is being made as to their classification. Transactions in the suspense account will still appear in the general ledger, giving the company an accurate indication of how much money it has. In investing, a suspense account is a brokerage account where an investor places cash or shortterm securities temporarily while deciding where to invest them for a longer term. CALL DEPOSIT ACCOUNT : A bank account for investment funds that offers the advantages of both a savings and a checking account. A call deposit account, like a checking account, has no fixed deposit period, provides instant access to funds and allows unlimited withdrawals and deposits. Like a savings account, a call deposit account pays interest. The rate of interest a call deposit account pays depends on the amount of money in the account, a system commonly referred to as banded interest rates. Also, different currencies may earn different interest rates. Depositors may have to meet a minimum balance threshold before they earn any interest. MARGIN ACCOUNT : A brokerage account in which the broker lends the customer cash to purchase securities. The loan in the account is collateralized by the securities and cash. If the value of the stock drops sufficiently, the account holder will be required to deposit more cash or sell a portion of the stock. In a margin account, you are investing with your broker's money. By using leverage in such a way, you magnify both gains and losses MONEY MARKET ACCOUNT :
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BANKING TERMS

This type of bank account pays interest at a higher rate than the rate paid on interest-bearing savings and checking accounts. Often, money market accounts impose a minimum balance for the account to start earning interest. The minimum required balance on a money market account is usually higher than that imposed on a checking or savings account. With a money market account, withdrawals are limited to six per month. No more than three of these withdrawals can be by check. DEFLATION : Deflation is totally reverse process of inflation. In deflation the prices of goods and services are continuous decreased. Deflation occurs when the inflation rate becomes negative (below zero) and stays there for a longer period. INFLATION : Inflation is as an increase in the price of bunch of Goods and services that projects the Indian economy, usually it measured by the CPI /WPI or by the implicit price deflator. An increase inflation figures occurs when there is an increase in the average level of prices Goods and services. Inflation happens when there are less Goods and more buyers, this will result increase the price of Goods, since there is more demand and less supply of the goods. - The characteristics of inflation are as follows: Inflation involves a process of the persistent rise in prices. It involves rising trend in price level. It is a state of disequilibrium. It is scarcity oriented. It is dynamic in nature. Inflationary price rise is persistent and irreversible. Inflation is caused by excess demand in relation to supply of all types of goods and services. It is a purely monetary phenomenon. It is a post full employment phenomenon. It is a long-term process.

National Income:National Income is the money value of all goods and services produced in a country during the year. Per Capita Income:The national income of a country, or region, divided by its population. Per capita income is often used to measure a country's standard of living. Per capita income during 2008-09 estimated by CSO: Rs.25, 494.
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BANKING TERMS

Vote on Account:A vote-on account is basically a statement ,where the government presents an estimate of a sum required to meet the expenditure that it incurs during the first three to four months of an election financial year until a new government is in place, to keep the machinery running. Difference between Vote on Account and Interim Budget Vote-on-account deals only with the expenditure side of the government's budget, an interim Budget is a complete set of accounts, including both expenditure and receipts. SDR:The SDR (Special Drawing Rights) is an artificial currency created by the IMF in 1969. SDRs are allocated to member countries and can be fully converted into international currencies so they serve as a supplement to the official foreign reserves of member countries. Its value is based on a basket of key international currencies (U.S. dollar, euro, yen and pound sterling). SEZ:SEZ means Special Economic Zone is the one of the part of governments policies in India. A special Economic zone is a geographical region that economic laws which are more liberal than the usual economic laws in the country. The basic motto behind this is to increase foreign investment, development of infrastructure, job opportunities and increase the income level of the people. FII:FII (Foreign Institutional Investor) used to denote an investor, mostly in the form of an institution. An institution established outside India, which proposes to invest in Indian market, in other words buying Indian stocks. FII's generally buy in large volumes which has an impact on the stock markets. Institutional Investors includes pension funds, mutual funds, Insurance Companies, Banks, etc. FDI:FDI (Foreign Direct Investment) occurs with the purchase of the physical assets or a significant amount of ownership (stock) of a company in another country in order to gain a measure of management control (Or) A foreign company having a stake in a Indian Company. IPO:IPO is Initial Public Offering. This is the first offering of shares to the general public from a company wishes to list on the stock exchanges. Disinvestment:Page | 7

BANKING TERMS

The Selling of the government stake in public sector undertakings. Fiscal Deficit:It is the difference between the governments total receipts (excluding borrowings) and total expenditure. Fiscal deficit in 2009-10 is proposed at 6.8% of GDP. Revenue deficit:It defines that, where the net amount received (by taxes & other forms) fails to meet the predicted net amount to be received by the government. Revenue deficit in 2009-10 is proposed at 4.8% of GDP. GDP:The Gross Domestic Product or GDP is a measure of all of the services and goods produced in a country over a specific period; classically a year. GDP during 2008-09 is 6.7%. GNP:Gross National Product is measured as GDP plus income of residents from investments made abroad minus income earned by foreigners in domestic market. Core Banking Solutions (CBS) :Core Banking Solutions is a buzz word in Indian banking at present, where branches of the bank are connected to a central host and the customers of connected branches can do banking at any breach with core banking facility. Crossing of Cheques :Crossing refers to drawing two parallel lines across the face of the cheque. A crossed cheque cannot be paid in cash across the counter, and is to be paid through a bank either by transfer, collection or clearing. A general crossing means that cheque can be paid through any bank and a special crossing, where the name of a bank is indicated on the cheque, can be paid only through the named bank. Dishonor of Cheque :Non-payment of a cheque by the paying banker with a return memo giving reasons for the nonpayment. EFT :- (Electronic Fund Transfer) EFT is a device to facilitate automatic transmission and processing of messages as well as funds from one bank branch to another bank branch and even from one branch of a bank to a branch of another bank. EFT allows transfer of funds electronically with debit and credit to relative accounts.
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BANKING TERMS

Interest Warrant :When cheque is given by a company or an organization in payment of interest on deposit, it is called interest warrant. Interest warrant has all the characteristics of a cheque. Recession :A true economic recession can only be confirmed if GDP (Gross Domestic Product) growth is negative for a period of two or more consecutive quarters. FUND TRANSFER SYSTEMS :There are two ways for transferring funds RTGS (Real Time Gross Settlement) NEFT (National Electronic Fund Transfer)

1.Real Time Gross Settlement (RTGS) RTGS is one of the fastest mode of fund transfer in India through banking channel. RTGS is nothing but transferring of money in real time on gross basis from one bank to other without netting. This RTGS is mainly used for large transactions, Minimum amount to be remitted through this RTGS is 2 Lakhs and there is no any upper limit Through RTGS system, money will be remitted for beneficiary account within 2 hours of receiving the fund transfer message Main advantage of fund transferring through RTGS is remitting bank will receive the conformation message from RBI that money have been transferred to beneficiarys account Timings for Transferring Funds through RTGS: Normal Days: 09:00 hours to 16:30 hours Week Days: 09:00 hours to 14:00 hours

Processing/Service Charges for RTGS Fund Transfer Inward Transactions: No Charge Outward Transactions: Rs.2lakhs to Rs.5lakhs: Rs.30/Above Rs.5lakhs: Rs.55/Essential Information for RTGS Fund Transfer *Amount to be remitted *Remitting Customers account number which is to be debited *Name of the beneficiary bank and branch *Name of the beneficiary customer *Account number of the beneficiary customer
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BANKING TERMS

*Sender to receiver information *IFSC (Indian Financial System Code) of the receiving branch

This RTGS fund transfer is not available for all branches of banks in India 2.National Electronic Fund Transfer (NEFT) NEFT is an electronic fund transfer system on DNS (Deferred Net Settlement) basis through netting. This NEFT will be done in 12 settlements Timings for Transferring Funds through NEFT: Normal Days: 08:00 am to 07:00 pm Week Days: 08:00 am to 01:00 pm

Processing/Service Charges for NEFT Fund Transfer *Inward Transactions: No Charge *Outward Transactions: Up to Rs.10, 000: Rs.2.50/- + Service Tax Rs.10, 000 to RS.1lakh: Rs.5/- + Service Tax RS.1lakh to RS.2lakhs: Rs.15/- + Service Tax Above RS.2lakhs: Rs.25/- + Service Tax

ADVANTAGES:

*Remitter need not send the cheque or DD to the beneficiary *Beneficiary need not visit the bank for depositing *Beneficiary need not to worry about the loss / theft of physical instruments *Cost effective *Credit confirmation of the remittances sent by SMS or email *Remitter can initiate the remittances from home/ place of work through Internet Banking also *Secure

Essential Things for NEFT Fund Transfer: *Both originating and destination bank branches should be a part of the NEFT system *Name of the beneficiary bank and branch *Name of the beneficiary customer *Account number of the beneficiary customer *Account type of the beneficiary customer *IFSC (Indian Financial System Code) of the beneficiary bank
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BANKING TERMS

MFN (Most Favoured Nation): The principle, fundamental to the GATT, of treating imports from a country on the same basis as that given to the most favoured other nation. That is, and with some exceptions, every country gets the lowest tariff that any country gets, and reductions in tariffs to one country are provided also to others. Cheque: Cheque is a Bill of Exchange drawn on a specified banker ordering the banker to pay a certain sum of money to the drawer of cheque or another person. Money is generally withdrawn by clients by cheques. Cheque is always payable on demand. Cheque Truncation: Cheque truncation, truncates or stops the flow of cheques through the banking system. Generally truncation takes place at the collecting branch, which sends the electronic image of the cheques to the paying branch through the clearing house and stores the paper cheques with it. Collecting Banker: Also called receiving banker, who collects on instruments like a cheque, draft or bill of exchange, lodged with himself for the credit of his customer's account. Consumer Protection Act: It is implemented from 1987 to enforce consumer rights through a simple legal procedure. Banks also are covered under the Act. A consumer can file complaint for deficiency of service with Consumer District Forum for amounts up to Rs.20 Lacs in District Court, and for amounts above Rs.20 Lacs to Rs.1 Crore in State Commission and for amounts above Rs.1 Crore in National Commission. Co-operative Bank: An association of persons who collectively own and operate a bank for the benefit of consumers / customers, like Saraswat Co-operative Bank or Abhyudaya Co-operative Bank and other such banks. Co-operative Society : When an association of persons collectively own and operate a unit for the benefit of those using its services like Apna Bazar Co-operative Society or Sahakar Bhandar or a Co-operative Housing Society. Core Banking Solutions (CBS):

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BANKING TERMS

Core Banking Solutions is a buzz word in Indian banking at present, where branches of the bank are connected to a central host and the customers of connected branches can do banking at any breach with core banking facility. Creditworthiness: It is the capacity of a borrower to repay the loan / advance in time along with interest as per agreed terms. Crossing of Cheques: Crossing refers to drawing two parallel lines across the face of the cheque. A crossed cheque cannot be paid in cash across the counter, and is to be paid through a bank either by transfer, collection or clearing. A general crossing means that cheque can be paid through any bank and a special crossing, where the name of a bank is indicated on the cheque, can be paid only through the named bank. Current Account: Current account with a bank can be opened generally for business purpose. There are no restrictions on withdrawals in this type of account. No interest is paid in this type of account. Customer: A person who maintains any type of account with a bank is a bank customer. Consumer Protection Act has a wider definition for consumer as the one who purchases any service for a fee like purchasing a demand draft or a pay order. The term customer is defined differently by Laws, softwares and countries. Debit Card: A plastic card issued by banks to customers to withdraw money electronically from their accounts. When you purchase things on the basis of Debit Card the amount due is debited immediately to the account . Many banks issue Debit-Cum-ATM Cards. Debtor: A person who takes some money on loan from another person. Demand Deposits: Deposits which are withdrawn on demand by customers.E.g. savings bank and current account deposits. Demat Account: Demat Account concept has revolutionized the capital market of India. When a depository company takes paper shares from an investor and converts them in electronic form through the
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BANKING TERMS

concerned company, it is called Dematerialization of Shares. These converted Share Certificates in Electronic form are kept in a Demat Account by the Depository Company, like a bank keeps money in a deposit account. Investor can withdraw the shares or purchase more shares through this demat Account. Anytime Banking : With introduction of ATMs, Tele-Banking and internet banking, customers can conduct their business anytime of the day and night. The 'Banking Hours' is not a constraint for transacting banking business. Anywhere Banking: Refers to banking not only by ATMs, Tele-Banking and internet banking, but also to core banking solutions brought in by banks where customer can deposit his money, cheques and also withdraw money from any branch connected with the system. All major banks in India have brought in core banking in their operations to make banking truly anywhere banking. ATM: ATMs are Automatic Teller Machines, which do the job of a teller in a bank through Computer Network. ATMs are located on the branch premises or off branch premises. ATMs are useful to dispense cash, receive cash, accept cheques, give balances in the accounts and also give ministatements to the customers. Bank Ombudsman: Bank Ombudsman is the authority to look into complaints against Banks in the main areas of collection of cheque / bills, issue of demand drafts, non-adherence to prescribed hours of working, failure to honour guarantee / letter of credit commitments, operations in deposit accounts and also in the areas of loans and advances where banks flout directions / instructions of RBI. This Scheme was announced in 1995 and is functioning with new guidelines from 2007. This scheme covers all scheduled banks, the RRBs and co-operative banks. Bancassurance: Bancassurance refers to the distribution of insurance products and the insurance policies of insurance companies which may be life policies or non-life policies like home insurance - car insurance, medi-policies and others, by banks as corporate agents through their branches located in different parts of the country by charging a fee. Banker's Lien: Bankers lien is a special right of lien exercised by the bankers, who can retain goods bailed to them as a security for general balance of account. Bankers can have this right in the absence of a contract to the contrary.
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BANKING TERMS

Banking: Accepting for the purpose of lending or investment of deposits of money from Public, Repayable on demand or otherwise and withdraw able by cheques, drafts, order, etc. Basel-II: The Committee on Banking Regulations and Supervisory Practices, popularity known as Basel Committee, submitted its revised version of norms in June, 2004. Under the revised accord the capital requirement is to be calculated for credit, market and operational risks. The minimum requirement continues to be 8% of capital fund (Tier I & II Capital) Tier II shall continue to be not more than 100% of Tier I Capital. Brick & Mortar Banking: Brick and Mortar Banking refers to traditional system of banking done only in a fixed branch premises made of brick and mortar. Now there are banking channels like ATM, Internet Banking, tele banking etc. Business of Banking: Accepting deposits, borrowing money, lending money, investing, dealing in bills, dealing in Foreign Exchange, Hiring Lockers, Opening Safe Custody Accounts, Issuing Letters of Credit, Travelers Cheques, doing Mutual Fund business, Insurance Business, acting as Trustee or doing any other business which Central Government may notify in the official Gazette. Bouncing of a cheque: Where an account does not have sufficient balance to honour the cheque issued by the customer, the cheque is returned by the bank with the reason "funds insufficient" or "Exceeds arrangement". This is known as 'Bouncing of a cheque' . Certificate of Deposit: Certificate of Deposits are negotiable receipts in bearer form which can be freely traded among investors. This is also a money market instrument, issued for a period ranging from 7 days to f one year .The minimum deposit amount is Rs. 1 lakh and they are transferable by endorsement and delivery.

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