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BANKING TERMINOLOGIES

1) What Is KYC Before any new deposit account is opened or loan is granted, banks have to follow KNOW YOUR CUSTOMER (KYC) policy and procedures formulated by RBI. The objectives of the know your customer policy of RBI is as follows: 1) Protect banks from financial frauds and from being used by criminals who are engaged in money laundering. 2) Make bank employee understand their customer better and their financial dealings and to manage any associated risk prudently. 3) To strengthen customer identification monitoring of accounts. Under KYC procedure, banks follows RBI policies of customer acceptance; Customer identification and maintaining the account.

What Is Bank
Bank is financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities either directly or through capital market. A bank connect customer that have capital deficits to the customer with capital surpluses.

REPO RATE Bank facing shortage of fund can borrow from RBI through a repo transaction. The Transaction backed by approved securities has legs: 1) In a fist leg; the bank sells the required value of approved securities to RBI. RBI will release fund to the bank against this transaction. 2) In the second leg; Bank buys back the same securities. The price for buying them back (higher than the price for first leg) is pre decided when the repo transaction is agreed upon.

The difference between the prices for the two legs thus is the borrowing cost for borrowing cost for borrowing bank. A repo transaction is meant to meet only the short term requirements of bank. A reverse repo is the opposite of repo.

Repo Rate