Banking Terms/ Important Definations for bank exams/ Terms used in banking
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 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withdrawn at any time, without any notice or penalty; e.g. money deposited in a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institution that cannot be withdrawn for a certain "term" or period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 When the term is over it can be withdrawn or it can be held for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 – 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 Account – 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.
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.
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.
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.
