COMMON BANKING TERMINOLOGY

1. Accounting: Accounting is the systemic process of identifying, classifying, recording,

summarizing, verifying and communicating the financial information.
2. Accounting Equation: Accounting equation makes the relationship among assets,
liabilities and owner’s equity. The formula of Accounting Equation is
A = L + OE
Here, A = Assets, L = Liabilities and OE = Owner’s Equity
3. Accrued Income: Accrued income is an amount that has been earned, right to receive the
amount, and has not yet been recorded in the general ledger accounts.
4. Asset: Asset means resources that is owned by an organization.
5. Asset-Liability Management: Asset-Liability Management refers to management of
assets (advances) and liabilities (deposits) of a bank from the point of view of safety,
liquidity and above all profitability.
6. Authorized Share Capital: The authorized share capital of a company is the maximum
amount of share capital that the company authorized as per Memorandum of Association
and approved by the Security Exchange Commission (SEC).
7. Automated Teller Machine (ATM): Automated Teller Machine (ATM) is a machine
that automatically provides cash and performs other banking services on insertion of a
special card by the account holder.
8. Bad Debts: Bad Debt or Uncollectible Account means which determined that a specific
receivable cannot be collectable.
9. Bank: Bank is a financial institution that collects money as a form of deposits and
disburse that deposits as a form of loan thus mobilizing money from surplus group to
deficit group in an economy.
10. Bank Draft: Bank Draft or Demand Draft is an order to pay money drawn by one office
of a bank upon another office of the same bank for a sum of money payable to order on
demand.
11. Bank Rate: This is the official rate of interest charged by Bangladesh Bank as the lender
of the last resort. Central Bank discounts the bill of the commercial banks at this rate.
12. Bill of Exchange: Bill of Exchange is a written acknowledgement of a debt, written by
the creditor and accepted by the debtor to make a specified payment to the signatory.
There are three parties to it: drawer, drawee and payee.
13. Bonus Shares: A bonus issue is an offer of free additional shares to existing
shareholders. A company may distribute further shares as an alternative to increase the
dividend payout.
14. Bounced Cheque: A cheque that cannot be processed because the account holder has
non-sufficient funds.
15. Bridge Financing: A bridge financing is a type of short-term loan, typically taken out for
a period of 2 weeks to 3 years pending the arrangement of larger or longer-
term financing.

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16. Call Money: Money loaned by a bank or other institution which is repayable on demand.
17. Capital Market: Capital Market the part of a financial system concerned with raising
capital by dealing in shares, bonds, and other long-term investments.
18. Cash Reserve Ratio (CRR): Cash Reserve Ratio (CRR) is a specified minimum fraction
which commercial banks have to hold as reserves either in cash or as deposits in central
bank. It is a part of liquidity of the bank. CRR was 4 percent of total deposits as in
December, 2003.
19. Central Bank: A central bank, reserve bank, or monetary authority is an institution that
manages a state’s currency, money supply, and interest rates.
20. Cheque: An order to a bank to pay a stated sum from the drawer's account, written on a
specially printed form.
21. Clearing House: Clearing House is an agreement for the banks to mutually settle their
claims over each other arising out of deposit transfer from one bank to another bank by
their representative.
22. Commercial Bank: A commercial bank is a financial institution that collects deposits
and issues loan for people and organizations with a view to earning profit.
23. Consortium Finance: A consortium is usually governed by a legal contract that
delegates responsibilities among its members. In the financial world, a consortium refers
to several lending institutions that group together to jointly finance a single borrower.
24. Crossed Cheque: Crossed cheques are to be deposited into the accounts maintained in a
bank which collects the proceeds on behalf of the customers.
25. Dividend: Dividend is the return on share capital paid to the shareholders. It may be vary
year to year.
26. Electronic Fund Transfer: Electronic Fund Transfer involves credit transfer from one
place to another through computerized system.
27. Foreign Direct Investment (FDI): Foreign Direct Investment (FDI) is foreign private
investor’s investment directly in the commercial or industrial concerns of a country.
Developing countries prefer FDI to portfolio investment which refers to investment by
the foreigners in the capital market.
28. Free on Board (FOB): Free on Board (FOB) means that the goods are barded on ship on
buyer’s risks and the buyer will bear the freight.
29. Garnishee Order: It is an order upon bank by court by which someone’s bank account
or asset can be ceased. When creditor fails to realize his dues from a debtor, he can apply
to the court to issue a garnishee order on the debtor’s bank.
30. Grameen Bank: A bank in Bangladesh that pioneered modern microfinance. Grameen
Bank makes very small loans to extremely poor persons to help them achieve self-
employment so they are able to lift themselves out of poverty.
31. Hard Currency: Hard currency is a currency widely accepted around the world as a
form of payment for goods and services.
32. Initial Public Offering (IPO): Initial Public Offering (IPO) is a new share of a limited
company open for public subscription.

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33. Lock Box: Lock box is a service provided by banks to companies for the receipt of
payment from customers. Under the service, the payments made by customers are
directed to a special post office box instead of going to the company.
34. Micro-Credit: Micro-Credit refers to small credit specially credit for the poor,
agriculture, rural development and other types of credit for poverty alleviation.
35. Mobile Banking: Mobile banking is the act of doing financial transactions on
a mobile device such as monitoring account balances, transaction funds between accounts
etc.
36. Money: A current medium of exchange in the form of coins and banknotes.
37. Money at Call and Short Notice: Money at call is money that must be repaid on
demand and money at short notice is money borrowed for 24 hours. It is also called Near
Money.
38. Negotiable Instrument: A negotiable instrument is a document guaranteeing the
payment of a specific amount of money, either on demand, or at a set time, with the payer
named on the document.
39. Nostro Account: Nostro account refers to an account that a bank holds in a foreign
currency in another bank. Nostros, a term derived from the Latin word for "ours," are
frequently used to facilitate foreign exchange and trade transactions.
40. Promissory Note: A signed document containing a written promise to pay a stated sum
to a specified person or the bearer at a specified date or on demand. There are eight
elements to be a promissory note: 1. Instrument in writing, 2. Promise to pay, 3.
Unconditional undertaking, 4. Duly signed by the maker, 5. Maker to be certain, 6. Payee
must be certain, 7. Promise to pay money, and 8. Amount should be certain.
41. Retail Banking: Retail Banking operations include acceptance of smaller deposits, loan
operations of smaller size and other banking activities suitable for low net worth people.
42. Spread: Cost of fund and administrative cost deducted from the yield on fund.
43. Statutory Liquidity Ratio (SLR): Liquidity which is required to be maintained by the
scheduled banks. Currently SLR is 16 percent of deposit liabilities.
44. Value Added Tax (VAT): A tax on the amount by which the value of an article has been
increased at each stage of its production or distribution.
45. Voucher: Voucher is the evidence of the transaction authenticated by the authorized
officer.
46. Wholesale Banking: Wholesale banking is the provision of services by banks to
organizations such as Mortgage Brokers, large corporate clients, mid-sized companies,
real estate developers and investors, international trade finance businesses etc.

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