BANKING TERMS

RBI – The Reserve Bank of India is the apex bank of the country, which was constituted under the RBI Act, 1934 to regulate the other banks, issue of bank notes and maintenance of reserves with a view to securing the monetary stability in India.

Demand Deposit – A Demand deposit is the one which can bewithdrawn 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institution that cannot be withdrawn for a certain "term" or period of time. When the term is over it can be withdrawn or it can be held for another term.

BANKDRAFT – An instrument issued by one branch of a bank on another branch of the bank containing an order to pay a certain sum on demand to the person named on the draft. It is used to transfer funds and to settle outstanding balances between banks, or to provide a

customer with funds payable at a bank in a different location.

Bank drafts are valid for certain period, generally, for 6 months, as indicated over face of draft.

 ASSET –  Cash or anything you own that can be turned into cash. This includes property, goods, savings or investments. These are things that people own such as buildings, vehicles,

shares and money in the bank. The opposite is liabilities. For a bank, its assets are mainly the loans it makes

BAD CREDIT – A term used to describe a poor credit rating including an account in default. Common practices which can damage your credit rating include late or missed payments, exceeding the limit on cards, defaulting on loans or declaring bankruptcy. "Bad Credit" can

result in the denial of future credit.

Budget – The financial record you use to keep track of the money you earn, how much you spend and what you spend it on. Your budget also includes savings and how much you pay to your creditors.

Canceled cheque – A cheque that has been not paid and cancelled by the drawer Account holder.

Certificate of Deposit {CD} – A time deposit that is payable at the end of a specified term. CDs generally pay a fixed interest rate and generally offer a different interest rate than other types of deposit accounts. If an early withdrawal from the CD prior to the end of the term is permitted, a penalty is usually assessed. CD is sold at discount value and being a money market instrument, can be transferred to other person through negotiaion.

Drawee – The person or entity on whom a draft/bill is drawn by the drawer.

Drawer – The party who draws or issues the draft/bill. In a Letter of Credit it is the Beneficiary. The person who makes or draws a bill of exchange or cheque is called drawer.

EMI – This refers to the Equated Monthly Installment (EMI) to be paid to the Bank towards the loan taken by the borrowers on a monthly basis. The EMI comprises of Interest and Principal component.

Floating rate – Floating rate or variable interest rate as it is also called doesn't remain fixed for the entire tenure of the loan. It varies according to the market conditions. This rate is linked to an external, market determined benchmark e.g. LIBOR. The lending is expressed with a spread above or below the benchmark rate. Repricing takes place after a predetermined period say, 6 months when the lending rate will be revised with reference to the benchmark rate as on that day.

MICR Code – A unique 9-digit code assigned to each Bank branch by Reserve Bank of India to facilitate sorting in clearing of instruments using the Magnetic Ink Character Recognition Technology.

Money Laundering – Money laundering means acquiring, owning, possessing or transferring any proceeds (or money) of crime or knowingly entering into any transaction related to proceeds of the crime either directly or indirectly or concealing or aiding in the concealment of the proceeds or gains of cirme, within or outside India. It is a process for conversion of money obtained illegally to appear to have originated from legitimate sources.

Interest – Interest is the periodic amount credited/debited to a deposit/loan account by a Bank based on accepted agreed terms and conditions by the depositor and the Bank / the loanee and the Bank. Interest is calculated at a specified percentage of the principal amount.

Money Order – A financial instrument, issued by a bank or other institutions like post office, allowing the individual named on the order to receive a specified amount of cash on demand. Often used by people who do not have saving accounts.

Multicity Cheque – Cheque issued by a customer under a pre - approved arrangement with the Bank whereby the Bank agrees to pay them at designated centres and branches in the country.

NEFT {National Electonic Fund Transfer} – An Electronic Payment System in which payment instructions between banks are processed and settled on deferred net settlement

(DNS) basis, which settles transactions in batches at fixed times during the day.

RBI acts as the service provider and transfers the credit to the other bank's account. Customer can send funds from any bank branch to other bank-branches, which have IFS Code, and joined in NEFT network. NEFT is enabled only in specific bank branches across India. A list of these branches is available in the RBI website.

White labelled ATM – An ATM or cash machine that does not prominently display a bank's name or logo. Fees generally apply to cash withdrawals at non-bank ATMs. Non-bank ATMs generally do not accept deposits. In India Non-banks ATMs are not permitted

NPA { Non Performing Assets} – Any loan account that has been classified by a bank or financial institution as sub-standard, doubtful or loss assets in terms of asset classification norms of RBI.

Online Banking – A service that allows the account holder to access their account information and conduct a set of pre defined banking transactions, such as bill payment, fund transfer using the Internet facility. However, a customer needs to have Customer ID and a unique Net

Banking Password in order to undertake this facility.

RTGS {Real Time Goss Settlement} – RTGS is a system through which electronic instructions can be given by banks to transfer funds from their account to the account of another bank. The RTGS system is maintained and operated by the RBI and provides a means of efficient and faster funds transfer among banks facilitating their financial operations. As the name

suggests, funds transfer between banks takes place on a ‘real time’ basis. Therefore, money can reach the beneficiary instantaneously and the beneficiary’s bank has the responsibility to credit the beneficiary’s account within two hours.

Repo Rate – Repo Rate is the interest rate for secured overnight or short term financing involving the sale and repurchase of securities. It is basically the rate at which RBI lends to commercials banks for meeting the short term deficits. RBI varies Repo rate from time to

time to achieve its monetary policy objectives.

Joint Account – Any account owned by two or more people. Joint accounts can be operated jointly or by any one/more or survivor(s) or any other mode mandated by the accountholders. Change in the mode of operation requires the mandate of all accountholders

Fixed Deposits – FDs 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.

Savings Account – Savings account is an account generally maintained by retail customers that deposit money (i.e. their savings) and can withdraw them whenever they need. Funds in these accounts are subjected to low rates of interest.

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.

Cheque Book - A small, bound booklet of cheques. A cheque is a piece of paper produced by your bank with your account number, sort-code and cheque number printed on it. The account number distinguishes your account from other accounts; the sort-code is your bank's special code which distinguishes it from any other bank.

Cheque Clearing - This is the process of getting the money from the cheque-writer's account into the cheque receiver's account.

Clearing Bank - This is a bank that can clear funds between banks. For general purposes, this is any institution which we know of as a bank or as a provider of banking services.

Bounced Cheque - when the bank has not enough funds in the relevant account or the account  holder requests that the cheque is bounced (under exceptional circumstances) then the bank will return the cheque to the account holder.

Credit Rating - This is the rating which an individual (or company) gets from the credit industry. This is obtained by the individual's credit history, the details of which are available from specialist organisations like CRISIL in India.

Credit-Worthiness - This is the judgement of an organization which is assessing whether or not to take a particular individual on as a customer. An individual might be considered credit-worthy by one organisation but not by another. Much depends on whether an organization is involved with high risk customers or not.

Interest - The amount paid or charged on money over time. If you borrow money interest will be charged on the loan. If you invest money, interest will be paid (where appropriate to the investment).

Overdraft - This is when a person has a minus figure in their account. It can be authorized (agreed to in advance or retrospect) or unauthorized (where the bank has not agreed to the overdraft either because the account holder represents too great a risk to lend to in this way or because the account holder has not asked for an overdraft facility).

Payee - The person who receives a payment. This often applies to cheques. If you receive a cheque you are the payee and the person or company who wrote the cheque is the payer.

Payer - The person who makes a payment. This often applies to cheques. If you write a cheque you are the 

payer and the recipient of the cheque is the payee.

Security for Loans - Where large loans are required the lending institution often needs to have a guarantee that the loan will be paid back. This takes the form of a large item of capital outlay (typically a house) which is owned or partly owned and the amount owned is at least equivalent to the loan required.

Internet Banking - Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by the bank.

Credit Card - A credit card is one of the systems of payments named after the small plastic card issued to users of the system. It is a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services.

Debit Card – Debit card allows for direct withdrawal of funds from customers bank accounts. The spending limit is determined by the available balance in the account.

Loan - A loan is a type of debt. In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. There are different kinds of loan such as the house loan, auto loan etc.

Bank Rate - This is the rate at which central bank (RBI) lends money to other banks or financial institutions. If the bank rate goes up, long-term interest rates also tend to move up, and vice-versa.

CRR - 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.

SLR - SLR stands for Statutory Liquidity Ratio. This term is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. Thus, we can say that it is ratio of cash and some other approved to liabilities (deposits). It regulates the credit growth in India.

ATM - An automated teller machine (ATM) is a computerised telecommunications device that provides the clients with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic smart card with a chip, that contains a unique card number and some security information such as an expiration date or CVV. Authentication is provided by the customer entering a personal identification number (PIN)

REPO RATE: - Under repo transaction the borrower places with the lender certain acceptable securities against funds received and agree to reverse this transaction on a predetermined future date at agreed interest cost. Repo rate is also called (repurchase agreement or repurchase option).

REVERSE REPO RATE: - is the interest rate earned by the bank for lending money tothe RBI in exchange of govt. securities or "lender buys securities with agreement to sell them back at a predetermined rate".

CASH RESERVE RATIO: - specifies the percentage of their total deposits the commercial bank must keep with central bank or RBI. Higher the CRR lower will be the capacity of bank to create credit.

SLR: - known as Statutorily Liquidity Ratio. Each bank is required statutorily maintain a prescribed minimum proportion of its demand and time liabilities in the form of designated liquid asset OR  "Every bank has to maintain a percentage of its demand and time liabilities by way of cash, gold etc".

BANK RATE: - is the rate of interest which is charged by RBI on its advances to commercial banks. When reserve bank desires to restrict expansion of credit it raises the bank rate there by making the credit costlier to commercial bank.

OVERDRAFT:- It is the loan facility on customer current account at a bank permitting him to overdraw up to a certain agreed limit for a agreed period ,interest is payable only on the amount of loan taken up.

PRIME LENDING RATE: It is the rate at which commercial banks give loan to its prime customers.