Important Banking Terminologies For Bank Exams PDF Download | Bank Important Terms pdf | List of banking Terminology | Famous Banking Terms | Banking Terms for Bank Exams | Banking Terms for SSC CGL, CHSL, Railway, Defence, SBI, IBPS | Banking Term Full Form PDF
Aspirants must read the below at a regular basis to get a good score in your competitive exams. Most of the questions in exam comes from below bank terminology.
Bank rate is the rate at which central bank of the country (e.g. RBI in India) allows finance to commercial banks. Bank Rate is a tool, which central bank uses for short-term purposes. Any upward revision in Bank Rate by central bank 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 customer’s deposits are likely to either go up or go down, and it can also indicate an increase or decrease in customer’s EMI.
It is the increase in interest rates in percentage terms. For instance, if the interest rate increases by 50 basis points (bsp), then it means that interest rate has been increased by 0.50%. One percentage point is broken down into 100 basis points. Therefore, an increase from 2 to 3% is an increase of one percentage point or 100 basis points.
CRR (Cash Reserve Ratio)
CRR is the amount of funds that the banks have to keep with RBI. If RBI increases CRR, the available amount with the banks comes down. RBI is using this method (increase of CRR), to drain out the excessive money from the banks.
SLR (Statutory Liquidity Ratio)
SLR is the amount a commercial banks needs to maintain in the form of cash, or gold, or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by RBI in order to control the expansion of the bank credit.
Need of SLR
With the SLR, the RBI can ensure the solvency of a commercial bank. SLR is used to control inflation and propel growth. Through SLR rate, the money supply in the system can be controlled effectively.
Repo Rate is the interest rate at which commercial banks borrows rupees from RBI (short-term period 1 to 90 days). A reduction in the repo rate will help banks to get money at cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive.
Reverse Repo Rate
Reverse Repo rate is the rate at which RBI borrows money from commercial banks. Banks are always happy to lend money to RBI since their money is in good hands with a good interest. An increase in reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. Reverse Repo Rate is always 1 percent less than the Repo Rate.
NEFT (National Electronic Fund Transfer)
NEFT enables fund transfer from one bank to another but works a bit differently than RTGS. NEFT is slower than RTGS. The transfer is not direct and RBI acts as the service provider to transfer the money from one account to another. You can transfer any amount through NEFT, even a rupee.
RTGS (Real Time Gross Settlement)
RTGS system is funds transfer system where transfer of money or securities takes place from one bank to another on a ‘real time’ and on ‘gross’ basis. Settlement in ‘real time’ means payments transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. Minimum and Maximum Limit of RTGS : 2 Lakh and no upper limit.
Liquidity Adjustment Facility (LAF)
Liquidity Adjustment Facility is a monetary policy tool which allows banks to borrow money through repurchase agreements. LAF is used to aid banks in adjusting the day to day mismatches in liquidity. LAF consists of repo and reverse repo operations.
Marginal Standing Facility (MSF)
MSF rate is the rate at which banks borrow funds overnight from the Reserve Bank of India (RBI) against approved government securities. MSF is always 1 percent more than the Repo Rate.
A Nostro account is maintained by an Indian Bank in the foreign countries.
A Vostro account is maintained by a foreign bank in India with their corresponding bank.
DEMAT account stands for Dematerialized Account. This type of bank account exists in India for citizens to trade in stocks or debenture market i.e. stock market.It is same as saving account (SA) as SA contains saved money whereas a demat account contains saved stock.
RAFA is a term deposit account and stands for Recurring Deposit Account (RD) and Fixed Deposit (FD) Account. RAFA Ratio indicates that what amount of deposit bank has in the form of Recurring and fixed deposits.
Full form of CASA account is Current Account Saving Account.It is a demand deposit account. CASA Ratio denotes the ratio of deposits maintained in a bank in the form of current and saving account to the total deposits of all accounts. If a bank has higher CASA ratio, it means that the bank’s operating efficiency is very good.
NDTL (Net Demand Time Liability)
Full form of NDTL is Net Demand Time Liability. CASA + RAFA = NDTL
Full form of MIBOR in banking terminology is Mumbai Interbank Offered Rate. It is the interest rate at which banks can borrow funds in a marketable size from other banks in Mumbai Indian Interbank market. National Stock Exchange of India (NSEIL) calculates the MIBOR everyday as a weighted average of lending rates of a group of banks, on funds lent to first-class borrower.
Full form of LIBOR in banking terminology is London Interbank Offered rate. It is also an interest rate at which bank can borrow in a marketable size from other banks in London Interbank market. It is administrated by the ICE Benchmark Administration (IBA) and is based on 5 currencies (USD, EUR, GBP, JPY, CHF).
CRAR (Capital to Risk Weighted Assets Ratio)
Capital to risk weighted assets ratio is arrived at by dividing the capital of the bank with aggregated risk weighted assets for credit risk, market risk and operational risk.
SDR (Special Drawing Rights)
SDR 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.
Publicly traded long term debt securities issued by corporations and governments, whereby the issuer agrees to pay a fixed amount of interest over a specified period of time and to repay a fixed amount of principal maturity.
Non Performing Assets (NPA)
An asset (loan), including a leased asset, become non performing when it stops generating income for the bank. Once the borrower has failed to make interest or principle payments for 90 days, the loan is considered to be non-performing asset.
Retail banking is a kind of banking where direct dealing with retailer customer is take place. It is also called consumer or personal banking. This is the visible face of banking to the public.
UPI (Unified Payment Interface)
As the name suggests, UPI integrates the entire payment systems in India. Single application programme interface with a series of Application Programming Interface (API’s). Primary source of all kind payment is mobile device. Read More
Green Banking defines as promoting environmentally friendly practices and reduces the carbon footprints from banking operations. If every household were able to switch to paperless bank billing, this would save an estimated 16,500,000 trees per year or about a 46,000 acre forest, 396,000 tonnes of CO2 a year, and 495,000 tonnes of air pollution per year and gain almost 2,145,000 tonnes of oxygen per years.
It aims to improve the banking and its operations, technologies for social as well as environmental factors for protecting environment.
Negative Interest Rate
Whenever there is less loan demand, the bank give their excess fund with central bank (i.e. RBI) by which they receive an interest. Negative Interest Rate Policy (NIRP) means the central bank charges negative interest on deposits made by commercial banks with central bank. On other hand, commercial bank will also do the same with common people. In end, the effect is that the people will have to pay the negative interest money to bank to hold their cash in account.
Call money is the borrowing or lending of funds for 1 day.
Money borrowed or lent with a maturity period of 2 days to 14 days is known as Notice Money.
Money borrowed or lent for a period of 15 days to 1 year.
Financial Market has two types – (a) Money Market (b) Capital Market
A money market is an organised market which provides short-term (i.e. less than 1 year)finance for business. Example – certificate of deposit, commercial paper, repurchase agreement etc. Money market is inter banking lending occurs. Money market is regulated by Reserve Bank of India (RBI). Money market is also a kind of a saving account but return is more in money market account and minimum account balance requirement for money market account is more than saving account.
Capital Market are those institution for which companies raise the money for long-term (i.e. more than 1 years). Example – stocks, bonds. Capital Market is regulated by Securities and Exchange Board of India. More risk and return exists in capital market than money market. Capital market has two types (a) Primary Market and (b) Secondary Market
In primary market, new shares and bonds have been issued. Direct transaction occurs between company and investors. When we invest money in primary market, it directly go to company. Price of share is declared and settled in primary market by company.
In secondary market, trading has been done on already issued shares and bonds. Direct transaction occurs between investors, no company involves in these transactions. Share price in secondary market depends on demand and supply.
Money laundering is the process of converting the illegal money obtained from various other unlawful sources to showcase it as legitimated money. Various sources of illegal money are bribe, smuggling, tax evasion etc.
Cash Reserve Ratio
Each public and private sector bank keep certain amount of percentage from their total deposits with RBI in the form of Net demand and Time Liability. Current CRR is 4%. Each bank has to pay the amount to RBI on every 15th days. Rupee vs Dollar
Micro ATM is mini version of an ATM. It is a small POS type machine and has an additional feature of Biometric scanning. These machine can be connected to banking network through mobile GPRS to perform banking operation.
Masala bonds are bonds issued outside India but denominated in Indian Rupees, rather than local currency. These bonds are provided and settled in US dollar to hike Indian rupee in international market. International Financial Corporation (IFC) converts the dollar into Indian rupee in International market.These bonds are helpful for raising Indian Rupees from International investors for infrastructure development in India. Currently, this bond is being traded only at London Stock Exchange (LSE).
Banking Ombudsman Scheme
Banking Ombudsman actually is a senior official appointed by the RBI to redress customer complaints against pitfalls in the stipulated banking service covered by the Banking Ombudsman Scheme 2006 (modifications are made in 2017). This scheme was introduced under the section 35A of Banking Regulation Act, 1947 by RBI with effect from 1995.
Legal tender is a medium of payment recognized by a legal system to be valid for meeting a financial obligation. Coin and paper currency are common form of legal tender in many countries. According to provision of coinage Act 1996, coins and currency notes (Re. 1 and above) are legal tender for the unlimited amount. Issue of 1,2, and 3 paisa coins has discontinuous w.e.f. Sep 16, 1981. Personal cheques, credit cards and similar non-cash methods of payment are not usually legal tender.
CAMELS Rating System
CELS rating or Camels rating is a supervisory rating system originally developed in the U.S. to classify a bank’s overall performance. It is applied to every bank and credit union in the U.S. (approximately 8,000 institutions) and is also implemented outside the U.S. by various banking supervisory regulators.
The components of a bank’s condition are assessed based on weight – Capital adequacy (20%), Asset quality (20%), management (25%), Earnings (15%), Liquidity (10%) and Sensitivity (10%).
Amortization is a periodic payment of a debt like a loan or a mortgage. In other words, Amortization is a method of spreading the cost of an intangible asset over a specific period of time, which is usually the course of its useful life. Intangible assets are non-physical assets that are nonetheless essential to a company, such as patents, trademarks, and copyrights. The goal in amortizing an asset is to match the expense of acquiring it with the revenue it generates.
Like amortization, depreciation is a method (practice) of spreading the cost of an asset over a specified period of time, typically the asset’s useful life. The purpose of depreciation is to match the expense of obtaining an asset to the income it helps a company earn. Depreciation is used for tangible assets, which are physical assets such as manufacturing equipment, business vehicles, and computers. Depreciation is a measure of how much of an asset’s value has been used up at a given point in time.
Capital expense is either amortized or depreciated depending upon the type of assets acquired through the expense.
Currency Chest is a storage place where the RBI kept all the excess money of banks under its custody. Whenever RBI prints new currency notes, these currency notes goes firstly to currency chest and then currency chest deliver these new currency notes to banks.
In other words, currency chest is a depository of RBI. It is not possible for RBI to reach everywhere so it authorized PSU banks to operate curency chest on its behalf. However, each PSU bank must maintain separate account independently of the chest which is monitored by RBI. According to March 2016 year, there were 4102 currency chest and 3783 Small coin depots.
Bankruptcy is a legal term for when a person or business cannot repay their outstanding debts. In generally, there is two types of bankruptcy – (a) Reorganization bankruptcy- debtor should restructure their bill plans to make them more easily met. (b) Liquidation bankruptcy – debtor has to sell their assets to make money so that they can pay off their creditors.
Bancassurance, is a relationship between a bank and an insurance company, aimed at offering insurance products or insurance benefits to the bank’s customers. In this partnership, bank staff and tellers become the point of sale and point of contact for the customer.
Bank acts as an agent and promotes Banca (Bancassurance) products under section 6(1)(o) of the Banking Regulation Act, 1949. This was originated in Europe in the 1980s and was successful. Bancassurance business model is a globally accepted profitable business.
Clean Note Policy of RBI
In our country, lots of people have a bad habit of folding currency note, writing something on the currency note, also somebody staple it which spoils the Note and reduces notes durability. To avoid this kind of bad occurrence, RBI introduced the Clean Note Policy in 2001 in an order to increase the life of currency notes. Main aim of this Clean Note Policy is to provide good quality currency notes and coins to the citizens of our country.
Bill of Exchange
A bill of exchange is a written order used primarily in international trade that binds one party to pay a fixed sum of money to another party on demand or at a predetermined date. This bill is signed by the creditor and accepted by a debtor.
Core Banking Solution
Core Banking Solution (CBS) 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. The customer is no more the customer of a Branch. He becomes the Bank’s customer.
A credit crunch is a condition in which there is an immediate decline in the availability of a loan or the credit. It is also called Credit Squeeze or Credit Crisis. A credit crunch makes it nearly impossible for companies to borrow because lenders are scared of bankruptcies or defaults, resulting in higher rates. Sometimes it can be done by reverse actions like by strict rules and regulations to avail the fund from the financial institutions like banks, NBFCs, and many other lenders.
A Balance of Payments
Balance of Payments (BOP) of a country is the record of all economic transactions between the residents of the country and the rest of world (countries) in a particular period of time (over a quarter of a year or more commonly over a year). The balance of payments is a summary of all monetary transactions between a country and rest of the world. These transactions are made by individuals, firms and government bodies. Payments into the country (receipts) are entered as positive numbers, called credits. Payout out of the country (payments) are entered as negative numbers called debts. This single number summarises the country’s international transactions: the balance of payments surplus.
Letter of Credit
A letter of credit (LC) is a letter (i.e. negotiable instrument) from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. The use of letters of credit has become a very important aspect of international trade.
A blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it in proper or chronological order, it allows market participants to keep track of digital currency transactions without central record keeping. Each node (a computer connected to the network) gets a copy of the blockchain, which is downloaded automatically. Example – Bitcoin isn’t regulated by a central authority. Eliminate the need for a third party to process or store payments during transactions.
Each time transaction is completed, it recorded in block publicly and eventually in the blockchain. Anonymous online ledger (collection of financial accounts) has been made which uses the data structure to simplify transactions is called blockchain technology.
Skimming is a method used by identity thieves to capture information from a cardholder. Several approaches can be used by fraudsters to procure card information with the most advanced approach involving a small device called a skimmer.
Card trapping is a form of skimming. Fraudsters don’t use card trapping to copy the card data, but to make sure your card is trapped in the cash dispenser. They will seize the opportunity of you leaving and looking for help to get hold of your card. In this case also, they will try to see your secret code (PIN Code).
A mortgage is a transfer of a right to stable property for the security purpose of a loan amount. So a balloon mortgage is a type of loan that requires a borrower to fulfil repayment in a lump sum. It is just for short term and has fixed rate mortgage. In balloon mortgage, a monthly payment is lower because of large payment at the end of a term. A balloon payment is only for the honest and qualified borrowers who have the good credit history.
Insolvency is a state of financial distress in which someone is unable to pay their bills. It can lead to insolvency proceedings, in which legal action will be taken against the insolvent entity, and assets may be liquidated to pay off outstanding debts. One of the most common solutions for insolvency is bankruptcy.
Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by the person who has deposited money with the banker, requiring him to pay on demand a certain sum of money only to or to the order of certain person or to the bearer of instrument. Type of cheque – (a) Bearer Cheque (b) Order (c) Uncrossed/ Open Cheque (d) Anti-dated Cheque (e) Post-Dated Cheque (f) Stale Cheque
Bearer cheques are the cheques which withdrawn to the cheque’s owner.These types of cheques normally used for a cash transaction.
Order cheques are the cheques which are withdrawn for the payee(the cheque withdrawn for whose person).Before withdrawn to that payee, banks cross check the identity of the payee.
On that type of cheques two parallel line made on the upper part of the cheques, then that cheques formed to crossed cheques.This type of cheques payment does not formed in cash while the payment of that type pf cheques transferred to the payee account and the normal person’s account who recommend by the holder on the cheque.
Account Payee Cheque
When two parallel lines along with a crossed made on the cheque and the word ‘ACCOUNT PAYEE’ written between these lines, then that types of cheques are called account payee cheque.The payment of the account payee cheque taken place on the person, firm or company on which name the cheque issue.
When any cheque issued by a holder does not get withdrawn from the bank till three months, then that type of cheques are called stale cheque.
Post Dated Cheque
When any cheque issued by a holder to the payee for the upcoming withdrawn date, then that type of cheques are called post-dated cheque.
Anti Dated Cheque
When any cheque issue for the upcoming withdrawn date but it withdraw before the date printed on the cheque, then that type of cheques are called anti dated cheques.
Bouncing of a Cheque
When 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’.
Minimum Reserve system of RBI
The relationship between note issue and its reserve backing is usually done on the basis of a reserve system by central banks across the world. The reserve system provides guidelines for the issue of new currencies. Current system of the Indian government to issue notes is “Minimum Reserve System”. This system was introduced in 1956 replacing the proportional reserve system. The minimum reserves to be maintained in the form of gold and foreign exchange should consist of rupees 200 crores. Out of this reserve, the value of gold to be maintained is rupees 115 crores.
The Balance of Trade (BOT)
The balance of trade is the difference between the value of a country’s imports and exports for a given period. It includes earnings (interest, dividends, etc.) on financial assets. It also normally incorporates trade in services unless mentioned as the balance of merchandise trade.
A cash credit is a short-term cash loan to a company. A bank provides this type of funding, but only after the required security is given to secure the loan. Once a security for repayment has been given, the business that receives the loan can continuously draw from the bank up to a certain specified amount.
An overdraft allows the individual to continue withdrawing money even if the account has no funds in it or not enough to cover the withdrawal. Basically,overdraft means that the bank allows customers to borrow a set amount of money.
A direct debit or direct withdrawal is a financial transaction in which one person withdraws funds from another person’s bank account.Direct debits are typically used for recurring payments, such as credit card and utility bills, where the payment amounts vary from one payment to another.
Banks incorporated outside India but operating in India and regulated by the Reserve Bank of India (RBI). Example – Barclays Bank, HSBC, Citibank, Standard Chartered Bank, etc.
The Reserve Bank of India (RBI) defines financial inclusion as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost. In the essence of financial inclusion, KIOSK banking is an important concept and basically developed for rural areas of country where less number of banks are and people can’t reach to the bank to use their services.
In International Trade when an exporter finds it difficult to realize money from the importer, he sells the right to receive money at a discount to a forfaiter, who undertakes inherent political and commercial risks to finance the exporter, of course with assumption of a profit in the venture. (medium-long term)
Initial Public Offering (IPO)
An event where a company sells its shares to the public for the first time. The company can be referred to as an IPO for a period of time after the event.
The value of a financial instrument as stated on the instrument. Interest is calculated on face/nominal value.
Fiscal deficit The value of a financial instrument as stated on the instrument. Interest is calculated on face/nominal value.
Monetary Policy is the central government policy w.r.t. the quantity of money in the economy, the exchange rate and the rate of interest.
A book issued by a bank to an account holder for recording all the transaction i.e. withdrawal and deposit. It is given generally to both current and saving holders.
White Label ATM
Also called Non-bank ATM and that does not prominently display a bank’s name or logo. A small fee will be charged for cash withdrawals in these ATMs. These ATMs does not accept deposits. These ATMs are owned and operated by non-banking entities but there is no outsourced contract from a particular bank. Non-banking entity or WLAs operator operates the ATM machine, pay rent, electricity supply, telecom bill etc. Cash to load in ATM is provided by the sponsor bank. RBI directly involved because non-banking entity have to get license/ permission to run such ATMs.
Brown Label ATM
Bank outsource the operation of ATM to a third party such as cash management, lease agreement, power supply etc.In this also, service provider takes out such responsibilities.ATM has logo of that bank which has outsourced the work. The bank which has outsourced the operation supply the cash for ATM. In this, RBI is not involved directly. The outsourcing company have contractual obligation with their respective bank.
SDR (Special Drawing Rights)
Special Drawing Rights are reserve assets (Paper Gold) created within the framework of the International Monetary Fund in an attempt to increase international liquidity.
It is a name given to Credit/Debit Cards, ATM and International Card.
Opened for business purpose with no limit on restrictions of withdrawals and no interest paid.
Opened for common people with an interest on the deposits.
These are kind of investment schemes. It pools in money from various investors in order to purchase securities.
Electronic Fund Transfer
Here, we uses the ATM, wire transfer (internet banking) and computer to move fund between different accounts in same or different banks.
Recurring Deposit (RD) is a special kind of Term Deposit offered by banks in India which help people with regular incomes to deposit a fixed amount every month into their Recurring Deposit account and earn interest at the applicable rate.
A fixed deposit (FD) is a financial instrument provided by banks or NBFCs which provides investors a higher rate of interest than a regular savings account, until the given maturity date.
Important Banking Terminologies For Bank Exams PDF Download
Candidates can download the Important Banking Terminologies for Bank Exams PDF by clicking on below link.
All the best for your upcoming exam!
Read more articles….