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Commonly used Banking terms and their meanings

Admin — Tue, 14 Feb 2012 04:34:24 +0000

Payee

This refers to the person a payment is made to. The term is often used in connection with cheques. The payee receives the cheque while the person or company who wrote the cheque is known as the payer.

Payer

This refers to the person making a payment. The term is used in connection with cheques. The writer of the cheque is the payer while the recipient is the payee.

Security for Loans

This refers to the guarantee requested by a lending institution before giving out large loans. This is usually a large item of capital outlay which is owned or partly owned by the borrower. It is required that the amount owned be at least equivalent to the loan requested.

Internet Banking

This is also known as online banking. Via this system of banking, customers are able to access their accounts and conduct financial transactions on a secure website of the bank.

Credit Card

This represents a system of payment that has been named after the small plastic card issued to users. With this card, the individual is able to purchase goods and services with the promise or assurance of payment.

Debit Card

The debit card enables its bearer to directly withdraw funds from his or her bank account. There is usually a spending limit determined by the available balance in the individual’s account.

Loan

This is a type of debt where the individual borrows an amount of money, known as the principal, from a lender, and is expected to pay back the money, usually together with an accrued interest, over a period of time. Loans come in different forms such as house loan, auto loan etc.

Bank Rate

This refers to the rate at which the central bank of India (RBI) lends money to the other financial institutions. Long-term interest rates go up with increasing bank rate, and vice versa.

CRR

Cash Reserve Ratio refers to the amount of funds that the other banks have to keep with RBI. Following an increase in the percent of this, the available amount with the banks comes down accordingly. By means of this method, RBI is able to drain out the excessive money from the banks.

SLR

This stands for Statutorily Liquidity Ratio. It is statutorily required of each bank to maintain a prescribed minimum proportion of its demand and time liabilities in the form of designated liquid asset. In other words, it is required of every bank to maintain a percentage of its demand and time liabilities by way of cash, gold etc.

ATM

By means of the Automated Teller Machine (ATM), a computerised telecommunications device, the individual is able to access his of her account for financial transactions in a public space without the need for the services of a cashier, human clerk or bank teller. Usually, the customer is identified by the insertion of a plastic ATM card with a magnetic stripe or a plastic smart card with a chip containing a unique card number as well as some security information. The security information includes an expiration date and CVV. The customer gains authentication by entering the correct personal identification number (PIN).

REPO Rate

This stands for repurchase option or repurchase agreement. Repo transaction involves the borrower placing with the lender certain acceptable securities against funds received and agreeing to reverse this transaction on a predetermined future date at agreed interest cost.

Reverse REPO Rate

This refers to the interest rate that a bank earns for lending money to the RBI in exchange of government securities. It can also be described as a situation where the lender buys securities with agreement to sell them back at a predetermined rate.

Cash Reserve Ratio

This is used for indicating the percentage of total deposits the commercial banks must keep with the central bank or RBI. When the Cash Reserve Ratio goes higher, the capacity of banks to create credit becomes lower.

Prime Lending Rate

This refers to the rate at which loans are given to prime customers of the commercial banks.

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Some more Banking terms

Admin — Tue, 14 Feb 2012 04:34:16 +0000

RBI

This refers to the Reserve Bank of India. It is the central bank of the country, and was constituted under the RBI Act in 1934 to regulate the affairs of the other banks. It is charged with securing monetary stability in the country via the issue of bank notes and maintenance of reserves.

Demand Deposit

A bank deposit subject to withdrawal without any prior notice to the bank. It could be money deposited in one’s checking account or savings account.

Time Deposit

A bank deposit that cannot be withdrawn until after a particular “term” or period of time. When the term is due, it can either be withdrawn or held at the bank for another term.

Fixed Deposits

These are deposits that are repayable on fixed maturity date along with the accrued interest for the period. Higher interest rates are paid on Fixed Deposits than the Savings Bank Account.

Recurring Deposits

Also called cumulative deposits. Recurring deposits require you to compulsorily deposit certain amounts of savings at specific intervals for a specified period of time.

Savings Account

A bank account that allows retail customers to deposit money, and have the money together with the accrued interest withdrawn at any time. However, Savings Account attracts low interest rates.

Current Accounts

Current Accounts are held by corporate clients, and allow unlimited number of operations in a day. However, account holders pay some amount of maintenance fee to the bank for certain facilities enjoyed. For instance, account holders enjoy easy handling and overdraft facility.

FCNR Accounts

This refers to Foreign Currency Non-Resident accounts; they are held by NRIs in foreign currencies such as USD, GBP, JPY, EUR, CAD and AUD. Term deposits are held in these accounts and the interest rates are linked to the international interest rates of the respective currencies.

NRE Accounts

With Non-Resident External Accounts, money remitted by NRIs in any permitted foreign currency is converted to Indian Rupees and credited to NRE accounts. These accounts can be held as Current, Saving, Fixed Deposits or Recurring Deposits. The interest rates applied and the other terms used with these accounts are subject to the RBI directives.

Check Book

It is a small, bound booklet of cheques; while a cheque is a piece of paper provided by a bank and has the account number, sort-code and cheque number printed on it. The account number serves to distinguish a customer’s account from the other accounts, and the sort-code is a special code which serves to distinguish the bank from any other bank.

Cheque Clearing

This refers to the process by which funds are transferred from the cheque- writer’s account into the cheque receiver’s account.

Clearing Bank

It refers to a bank that is capable of clearing funds between banks. The bank is usually a commercial bank that forms part of a network of banks and can clear cheques for its clients regardless of whether or not the cheque originates from that very bank.

Bounced Cheque

This refers to the situation where a cheque is returned to the account holder due to insufficient funds in the relevant account. A cheque can also be bounced upon the request of the account holder.

Credit Rating

It refers to the rating given to an individual or company by the credit industry. This results from the individual’s credit history, and the details of this history can be obtained from specialist organizations like CRISIL in India.

Credit Worthiness

This refers to an organization’s assessment of an individual as to whether to take him on as a customer or not. Though one organization may consider an individual credit-worthy, the same person may not be considered so by a different organization. The assessment greatly depends on whether the organization is involved with high risk customers or not.

Interest

This is the amount charged on borrowed money over time. You tend to pay interest on loans taken from a financial institution, while interest is likewise paid on money invested by you.

Overdraft

Overdraft is a loan facility that allows the holder of a current account to overdraw up to a certain agreed limit for an agreed period. The interest paid is only for the amount of loan taken.

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Admin — Mon, 23 Jan 2012 09:35:45 +0000

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Banking News of the Day – 6th Dec 2011

Admin — Tue, 06 Dec 2011 04:36:38 +0000

Top news of the day

1) Aviation ministry okays 26% FDI in private airlines
2) Indian banks’ exposure to European banks limited
3) SBI Cards embarks on initiatives to create new standards
4) Won an online lottery? Inform nodal agencies immediately
5) Action Unlikely; Direction to Change
6) Positive changes to PO savings schemes
7) Integrity – Then Ethical Behaviour