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Banking Important Terms

Banking Important Terms

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Published by Ankit Nischal
Contains some of the frequently used basic banking terms.
Contains some of the frequently used basic banking terms.

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Published by: Ankit Nischal on Jan 19, 2013
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************** Repo Rate: Repo rate is the rate at which our 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. Or the rate at which the RBI lends money to commercial banks is called Repo rate. Current Repo Rate: 8% (As on 09-January-2013)

********************* Reverse Repo Rate: Rate at which the RBI borrows money from commercial banks. Banks are always happy to lend money to the RBI since their money are in safe hands with a good interest. Current Reverse Repo Rate: 7% (As on 09-January-2013)

**************** Bank Rate: The interest rate charges by a central bank to commercial banks for very short term loans. Current Bank Rate: 7% (As on 09-January-2013)

****************************** Cash Reserve Ratio (CRR): CRR is the amount of funds that the banks have to keep with the RBI. If the central bank decides to increase the CRR, the available amount with the banks comes down. The RBI uses the CRR to drain out excessive money from the system. Current Cash Reserve ratio (CRR): 4.25% (As on 09-January-2013)

********************************** SLR (Statutory Liquidity Ratio): SLR refers to the amount that the commercial banks require to maintain in the form gold or govt. approved securities before providing credit to the customers. Statutory Liquidity Ratio (SLR) is determined and maintained by the Reserve Bank of India (RBI) in order to control the expansion of bank credit. Current SLR: 23% (As on 09-January-2013)

. Euro. The Foreign Exchange Dealers Association of India better known as FEDAI decides the currency rate of the country. along with relevant information like data on the MICR band. etc.g. truncates or stops the flow of cheques through the banking system. GB Pounds. and Japanese Yen are the few examples of other Foreign Currencies.Cheque Truncation system ********************************* process of stopping the flow of the physical cheque issued by a drawer at some point with the presenting bank en-route to the drawee bank branch.50. e. presenting bank.50.**************** Base Rate: **************** The Base Rate is the minimum interest rate of a Bank below which it cannot lend. and removes reconciliation-related and logistics-related problems. ***************** Currency Rate ***************** Currency Rate is the exchange rate of Other Currency with the home currency. The rate at which we can purchase or sale these foreign currencies are the currency rate. except in cases allowed by RBI. US Dollar. And it is denominated in Indian Rupees. Here the currency rate is 45. lowers the cost of collection of cheques. 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. In its place an electronic image of the cheque is transmitted to the drawee branch by the clearing house. reduces the scope for clearing-related frauds or loss of instruments in transit. Current Base rate: 9% (As on 09-January-2013) ********************************* CTS. 1 USD = INR 45. OR Cheque Truncation : Cheque truncation. date of presentation. In the instance case the home currency is Indian Rupee. It’s useful because it results in better service to customers.

Essentially. etc. Every bank has to mandatorily provide all the credit information and updates to cibil regularly as per the rbi guidelines.. interest. *********************************** Marginal Standing Facility (MSF) *********************************** What is the marginal standing facility? The Reserve Bank of India in its monetary policy for 2011-12. This measure has been introduced by RBI to regulate short-term asset liability mismatches more effectively. Lien gives banker only a right to retain the possession of the goods and not the power to sell. Banks can borrow funds through MSF when there is a considerable shortfall of liquidity.e.******** CIBIL ******** CIBIL is the credit information bureau of India ltd. ECS is used by institutions for making bulk payment of amounts towards distribution of dividend. It keeps the credit information of the customers of the bank primarily with the PAN details. loan installment repayments. ****** Lein ****** Lien :. cess / tax collections. or for bulk collection of amounts towards telephone / electricity / water dues. ************************************** Electronic Clearing Service (ECS) ************************************** ECS is an electronic mode of payment / receipt for transactions that are repetitive and periodic in nature. Under the MSF scheme the banks can borrow overnight upto 1 per cent of their net demand and time liabilities (NDTL) i. under which banks could borrow funds overnight from RBI against pledging government securities. salary. 1 per cent of the aggregate deposits and other liabilities of the banks. pension. introduced the marginal standing facility (MSF). ECS facilitates bulk transfer of monies from one bank account to many bank accounts or vice versa. insurance premium etc.A lien is the right to retain property in its possession till its banker’s dues are cleared by the borrower. periodic investments in mutual funds. Whenever you make a loan application or ask for credit facility your bank sends the information about you to cibil and asks for your credit history and related info. .

it shows the financial position of a business.****************** Atm/debit card ****************** 1. you dont have to go through the rush and hustle of branch 6. brokers. on the basis of their financial performances. 2. investment bankers etc. 3. can be used to pay bills *************** Balance sheet *************** is a financial statement prepared with assets and liabilities. can be used for fund transfer. can be used with any banks atm. OR Particularly to those who are not able to avail banking services due to high transaction cost. special emphasis on women etc ******************************************************************* 3 major Credit rating agencies in India 1) ICRA 2) CARE 3) CRISIL ******************************************************************* They mainly grade different companies as well as there differnt debt instruments. This grading/ratings can be used by investors.small enterprises. any time money. can be used anywhere and anytime 4. 7. individuals with small business. can be used in online and pos shopping 5. ************************************************************ Micro credit is given to which type of people or class? ************************************************************ It’s given to small scale industries like farmers then weavers and handicrafts to promote small scale industries mainly the traditional Indian industries. .

Also bank earns from mf. it is calculated in terms of us$.S. **************** Revenue deficit **************** is the excess of current revenue expenditure over current revenue receipt. Investment etc. We earn forex by export. lic etc. ******************************************* Difference between banking and finance? ******************************************* Finance is a broader term and includes many aspects where money is concerned. The more forex we have.. .it may include accounting.P. better our position is there in international market. in case of Saving accounts etc. Whereas banking is everything that happens in a bank only. deficit financing is done to fill this gap **************** Fiscal deficit: is budget deficit plus other borrowings and liabilities. nd in such cases name nd signs of both the persons r req.. insurance.. dis zz more of a practicle example. indicating that govt cannot meet its current expenditure from its current revenue **************** Budget deficit **************** is overall deficit.. **************** Primary deficit : means fiscal deficit minus the interest payments...it includes both capital and revenue items in receipt and expenditure ..***************** Forex reserves ***************** Is the foreign exchange that is available with our country. as they get details on lower rate of interest and loan(when re-paid) generates higher interest. excess of total expenditure over total revenue. insurances. tourists and banks earn profit from loans. fdi fii. nri. policies.. You can say banking is one part of finance ********* Mandate ********* is the authorization given by a person to another person to use services being availed by him such as internet banking mobile banking etc.

*********************** "Green Revolution' *********************** that happened in India in the late 1960's. While shares are for those who like to take risks for the sake of high returns. tomato 11. Round Revolution: Potato 12. Red Revolution: Meat. pulses etc. Blue Revolution: Fishing and marine products 3. Debentures are different from stocks and bonds. The company pays you interest on the money you lend it until the maturity period. Horticulture 13. you become one of the owners of the company. Brown Revolution: Cocoa/Leather 8. Dr M. although all three are types of investment. rice. Rainbow Revolution: Fruits/breeding of ornamental fish 7. 1. onion 6. the genius. the higher the rewards you get. The interest is the profit you make from debentures. in the sense that you are guaranteed payments with high interest rates.S Swaminathan. In case of bankruptcy or financial difficulties. Grey Revolution: Fertilizer 10. Your fortunes rise and fall with that of the company. The higher the risk you take. White Revolution: Milk and Dairy products 2. whatever you invested in the company is paid back to you. your investment pays off high dividends. Debentures are more secure than shares. but if the shares decrease in value. Yellow revolution: Oil seeds/edible oil especially mustard. the investments are low paying. Below are descriptions of the different types of investment options for small investors and entrepreneurs. was the man behind this silent revolution. debentures are for people who want a safe and secure income. It was the increased production of agricultural products especially wheat. If the stocks of the company soar in value. Pink Revolution: Prawns. cereals. Black Revolution: Petroleum 9. but pays a higher rate of interest to its creditors. sunflower etc. Golden Revolution: Honey. The company does not give any collateral for the debenture. Debentures and Shares When you buy shares. 4.****************************************** Difference between share and debenture ****************************************** A debenture is an unsecured loan you offer to a company. Golden fiber: Jute 14. Silver: Eggs (Poultry) 5. Silver fiber: Cotton . after which. the debenture holders are paid later than bondholders.

.Lower prices of goods and services.. $5.800 and held it until maturity. the government pays the holder the full par value. If the return you specify is too high. which pay interest semi-annually.000.000 and $1 million.Lower inflation ******************************* Decrease in crr and slr This cycle goes: ..Decrease Interest Rate – Higher demand of money-Higher demand of goods and servicesHigher prices of goods and services. government backs them.Higher inflation . They are issued with three-month. IN BANK RATE = USED TO DECREASE INFLATION. six-month and one-year maturities. T-bills are usually issued in denominations of $1. DECREASE IN BANK RATE = USED TO INCREASE MONEY SUPPLY. if you bought a 90-day T-bill at $9.. In fact.. they are considered risk-free. your interest is the difference between the purchase price of the security and what you get at maturity. ***************************************************************** ******************************* Increses in crr and slr . The biggest reason that T-Bills are so popular is that they are one of the few money market instruments that are affordable to the individual investors. For example..000.Increase Interest Rate – Money becomes costlier-Lower demand of money-Lower demand of goods and services. This differs from coupon bonds.. $100. With competitive bidding. you might not receive any securities.. $25.000. you would earn $200 on your investment. Treasury bills (as well as notes and bonds) are issued through a competitive bidding process at auctions.. MONEY SUPPLY.... you submit a bid that is prepared either n-competitivelyor competitively. In non-competitive bidding.************************************ T Bills & Treasury Bills ************************************ -bills are short-term securities that mature in one year or less from their issue date.DEC. or just a portion of what you bid for. when they mature. $10.. you'll receive the full amount of the security you want at the return determined at the auction.000. Other positives are that T-bills (and all Treasuries) are considered to be the safest investments in the world because the U. If you want to buy a T-bill. ***************************************************************** INC.. you have to specify the return that you would like to receive. Effectively.S. $50.000. T-bills are purchased for a price that is less than their par (face) value.

) Forex Facilities 4. RBI says: "The stance of monetary policy is.) Insurance facilities 6. with neither a large surplus diluting monetary transmission nor a large deficit choking off fund flows. The scheme has been introduced by RBI with the main aim of reducing volatility in the overnight lending rates in the inter-bank market and to enable smooth monetary transmission in the financial system.. In the recent times. But.arvind mayaram Disinvestment secretary .  In the annual policy statement. RBI at its discretion can announce the measures at any point of time. to manage liquidity to ensure that it remains broadly in balance.) Payment of Bills  FDI waale direct PSUs me invest karte hain n govt institution me invest karte hain. RBI is reviewing it's policy in between quarterly reviews also.sumit bose Financial services secretary . BUT jo FII hote hain woh indian share market n securities main invest karte hain.rajiv takru ****************************************************************************** Services are being offered these days by banks other than deposit and loan ****************************************************************************** 1. This is followed by three quarterly Reviews in July." . which has lower rate of interest in comparison with the MSF. n both FDI N FII .) Online banking facilities 2."  The MSF would be the last resort for banks once they exhaust all borrowing options including the liquidity adjustment facility by pledging through government securities..rs gujral.) Selling Gold Coins 3.************************************** Finance ministry has 5 secretaries ************************************** Finance secretary .are invested in foreign countries.) Mutual Fund 5.  The MSF(Marginal Standing Facility) rate is pegged 100 basis points or a percentage point above the repo rate. Economic secretary. among other things.  Reserve Bank of India announces Monetary Policy every year in the Month of April.. The MSF would be a penal rate for banks and the banks can borrow funds by pledging government securities within the limits of the statutory liquidity ratio. October and January.ravi mathur Revenue secretary ....

If your Pledge expires before you have made a decision on the property you want to buy. why GOI publishes it? 2) While opening a new bank account y does one must deposit minimum cash. Answer 5) Pledge: Pledge indicates a loan amount that we may lend you to buy a home. is available subject to the prevailing lending and product criteria. you will have to apply for a new one. The RBI prints currency notes using this unit measure. The Pledge.. 1) Why doesn’t RBI publish 1rupee note. y nt a cheque payable on his account? 3) Why interest rate is high for senior citizens? 4) 5 benefits of ATM/debit card that are printed on the letter which comes with ATM card? 5) What is PLEDGE? 6) Why are co-operative banks non-scheduled? 7) What is the difference between public limited company and private limited company? Why some governors/deputy governors of RBI are appointed for 5/3 years if the tenure is 4 years? 8) Why monetary policy is made twice a year if budget is made once a year? y cant monetary policy made once a year? 9) What’s the full form of CORE in CORE BANKING SOLUTION-CBS? Answer 1) The One Rupee Note signifies one unit measure of currency note consisting of 100 paise which can be determined and decided by the Government of India ONLY. which is valid for two months from the date of issue. 2010. We do not charge a fee for issuing a Pledge. for eg. if the RBI wants to print a Rs. Answer 2) I think it is for avoiding the closure of A/c if the cheque is dishonored.1 X 5..5/. it has to accept the determined value of Rs.as Re. and also for the prevention fraud so that u may not en-cash the cheque of some other person by opening a fresh A/c fraudulently in the name of the payee mentioned on cheque. Answer 9) Centralized online real-time environment (CORE) banking .note.5/. The Base Rate system has replaced the Benchmark Prime Lending Rate (BPLR) system with effect from July 1.

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