A
Account Statement
Periodic statement of all the debit and credit transactions on an account for a given statement cycle.
Active Account
A bank account in which there are regular transactions. A bank account that is not dormant or inoperative or under an attachment order of the court or enforcement authorities.
ALCO
Asset-Liability Management Committee (ALCO) is a strategic decision making body, formulating and overseeing the function of asset liability management (ALM) of a bank.
ALM
Asset Liability Management (ALM) is concerned with strategic balance sheet management involving all market risks. It also deals with liquidity management, funds management, trading and capital planning.
Amortization
Amortization is the repayment of Principal and Interest components of a Loan, over a period of time. Certain category of expenses or charges are also amortized over a period of time.
Anytime Banking
With introduction of ATMs, Tele-Banking and internet banking, customers can conduct their business anytime of the day and night. The ‘Banking Hours’ is not a constraint for transacting banking business
Anywhere Banking
Refers to banking not only by ATMs, Tele-Banking and internet banking, but also to core banking solutions brought in by banks where customer can deposit his money, cheques and also withdraw money from any branch connected with the system. All major banks in India have brought in core banking in their operations to make banking truly anywhere banking.
APR
Annual Percentage Rate (also commonly referred to as Annualized Rate) is the annual rate that is charged for borrowing expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. The purpose of the number is to function as a reference and comparison of similar rates. APR assumes significance because lenders/banks may quote interest rates in different ways to customers and the period of investment may vary from one day to many years.
APY
Annual percentage yield (APY) is the percentage rate reflecting the total amount of interest paid on a deposit account (savings, CDs etc.), based on the interest rate and the effect of interest compounding for one year.
AQB
Average Quarterly Balance (AQB) is the sum of the end of the day balances in the quarter divided by total number of days in the quarter
ATM
ATMs are Automatic Teller Machines, which do the job of a teller in a bank through Computer Network. ATMs are located on the branch premises or off branch premises. ATMs are useful to dispense cash, receive cash, accept cheques, give balances in the accounts and also give mini-statements to the customers.
Available for Sale(AFS)
The securities available for sale are those securities where the intention of the bank is neither to trade nor to hold till maturity. These securities are valued at the fair value which is determined by reference to the best available source of current market quotations or other data relative to current value.
B
Bancassurance
Bancassurance refers to the distribution of insurance products and the insurance policies of insurance companies which may be life policies or non-life policies like home insurance – car insurance, medi-policies and others, by banks as corporate agents through their branches located in different parts of the country by charging a fee.
Bank Draft
An instrument issued by one branch of a bank on another branch of the bank containing an order to pay a certain sum on demand to the person named on the draft. It is used to transfer funds and to settle outstanding balances between banks, or to provide a customer with funds payable at a bank in a different location. Bank drafts are valid for certain period, generally, for 3 months, as indicated over face of draft
Banking Book
The banking book comprises assests and liabilities, which are contracted basically on account of relationship or for steady income and statutory obligations and are generally held till maturity.
Banker’s Cheque
A cheque issued by a branch of a bank against consideration received. Banker’s cheque are valid for a certain period as indicated on the face of the cheque. (also called Pay Order).
Banker’s Lien
Bankers lien is a special right of lien exercised by the bankers, who can retain goods bailed to them as a security for general balance of account. Bankers can have this right in the absence of a contract to the contrary
Banking Ombudsman
Banking Ombudsman is the authority to look into complaints against Banks in the main areas of collection of cheque / bills, issue of demand drafts, non-adherence to prescribed hours of working, failure to honour guarantee / letter of credit commitments, operations in deposit accounts and also in the areas of loans and advances where banks flout directions / instructions of RBI. This Scheme was announced in 1995 and is functioning with new guidelines from 2007. This scheme covers all scheduled banks, the RRBs and co-operative banks.
BASEL Committee on Banking Supervision
The BASEL Committee is a committee of bank supervisors consisting of members from each of the G10 countries. The Committee is a forum for discussion on the handling of specific supervisory problems. It coordinates the sharing of supervisory responsibilities among national authorities in respect of banks’ foreign establishments with the aim of ensuring effective supervision of banks’ activities worldwide
Basis Point
Is one hundredth of one percent. 1 basis point means 0.01%. Used for measuring change in interest rate/yield
Bouncing of a cheque
Where an account does not have sufficient balance to honour the cheque issued by the customer , the cheque is returned by the bank with the reason “funds insufficient” or “Exceeds arrangement”. This is known as ‘Bouncing of a cheque’
Business of Banking
Accepting deposits, borrowing money, lending money, investing, dealing in bills, dealing in Foreign Exchange, Hiring Lockers, Opening Safe Custody Accounts, Issuing Letters of Credit, Traveller’s Cheques, doing Mutual Fund business, Insurance Business, acting as Trustee or doing any other business which Central Government may notify in the official Gazette.
C
Capital Funds
Equity contribution of owners. The basic approach of capital adequacy framework is that a bank should have sufficient capital to provide a stable resource to absorb any losses arising from the risks in its business. Capital is divided into different tiers according to the characteristics / qualities of each qualifying instrument. For supervisory purposes capital is split into two categories: Tier I and Tier II.
Capital reserves
That portion of a company’s profits not paid out as dividends to shareholders. They are also known as undistributable reserves and are ploughed back into the business.
CASA Deposit
Deposit in bank in current and Savings account.
Certificate of Deposit
Certificate of Deposits are negotiable receipts in bearer form which can be freely traded among investors. This is also a money market instrument, issued for a period ranging from 7 days to f one year .The minimum deposit amount is Rs. 1 lakh and they are transferable by endorsement and delivery.
Cheque
Cheque is a Bill of Exchange drawn on a specified banker ordering the banker to pay a certain sum of money to the drawer of cheque or another person. Money is generally withdrawn by clients by cheques. Cheque is always payable on demand
Cheque Truncation
Cheque truncation, truncates or stops the flow of cheques through the banking system. 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.
Credit risk mitigation
Techniques used to mitigate the credit risks through exposure being collateralised in whole or in part with cash or securities or guaranteed by a third party.
CRAR(Capital to Risk Weighted Assets Ratio)
Capital to risk weighted assets ratio is arrived at by dividing the capital of the bank with aggregated risk weighted assets for credit risk, market risk and operational risk. The higher the CRAR of a bank the better capitalized it is
Co-operative Bank
An association of persons who collectively own and operate a bank for the benefit of consumers / customers, like Saraswat Co-operative Bank or Abhyudaya Co-operative Bank and other such banks
Co-operative Society
When an association of persons collectively own and operate a unit for the benefit of those using its services like Apna Bazar Co-operative Society or Sahakar Bhandar or a Co-operative Housing Society.
Collecting Banker
Also called receiving banker, who collects on instruments like a cheque, draft or bill of exchange, lodged with himself for the credit of his customer’s account.
Convexity
This represents the rate of change of duration. It is the difference between actual price of a bond and the price estimated by modified duration.
Core Banking Solutions (CBS)
Core Banking Solutions is a buzz word in Indian banking at present, where branches of the bank are connected to a central host and the customers of connected branches can do banking at any branch with core banking facility.
Creditworthiness
It is the capacity of a borrower to repay the loan / advance in time along with interest as per agreed terms.
Crossing of Cheques
Crossing refers to drawing two parallel lines across the face of the cheque.A crossed cheque cannot be paid in cash across the counter. It is to be paid through a bank either by transfer, collection or clearing.A general crossing means that cheque can be paid through any bank and a special crossing, where the name of a bank is indicated on the cheque means it can be paid only through the named bank.
CRR
Cash reserve ratio is the cash parked by the banks in their specified current account maintained with RBI
Current Account
Current account with a bank can be opened generally for business purpose. There are no restrictions on withdrawals in this type of account. No interest is paid in this type of account.
Current Exposure Method
The credit equivalent amount of a market related off-balance sheet transaction is calculated using the current exposure method by adding the current credit exposure to the potential future credit exposure of these contracts. Current credit exposure is defined as the sum of the positive mark to market value of a contract. The Current Exposure Method requires periodical calculation of the current credit exposure by marking the contracts to market, thus capturing the current credit exposure. Potential future credit exposure is determined by multiplying the notional principal amount of each of these contracts irrespective of whether the contract has a zero, positive or negative mark-to-market value by the relevant add-on factor prescribed by RBI, according to the nature and residual maturity of the instrument.
CVV
Card verification value (CVV) is an anti-fraud security feature that helps verify that you are in possession of your credit card and making the transaction. CVV is usually a three-digit number printed on the signature panel at the back of your credit card. You need this number when shopping online or over the phone.
D
Debit Card
A plastic card issued by banks to customers to withdraw money electronically from their accounts. When you purchase things on the basis of Debit Card the amount due is debited immediately to the account. You can use debit cards at ATMs, Shopping Outlets, Online Purchase and at many points where debit card is accepted.
Debtor
A person who takes some money on loan from another person
Demand Deposits
Deposits which are withdrawn on demand by customers. E.g. savings bank and current account deposits.
Demat Account
Demat Account concept has revolutionized the capital market of India. When a depository company takes paper shares from an investor and converts them in electronic form through the concerned company, it is called Dematerialization of Shares. These converted Share Certificates in Electronic form are kept in a Demat Account by the Depository Company, like a bank keeps money in a deposit account. Investor can withdraw the shares or purchase more shares through this demat Account.
Deferred Tax Assets
Unabsorbed depreciation and carry forward of losses which can be set-off against future taxable income which is considered as timing differences result in deferred tax assets. The deferred Tax Assets are accounted as per the Accounting Standard 22.
Deferred Tax Liabilities
Deferred tax liabilities have an effect of increasing future year’s income tax payments, which indicates that they are accrued income taxes and meet definition of liabilities
Dishonour of Cheque
Non-payment of a cheque by the paying banker with a return memo giving reasons for the non-payment.
Doubtful Asset
An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, – on the basis of currently known facts, conditions and values – highly questionable and improbable.
E
EFT – (Electronic Fund Transfer)
EFT is a device to facilitate automatic transmission and processing of messages as well as funds from one branch to another branch of the same bank and even from one branch of a bank to a branch of another bank. EFT allows transfer of funds electronically with debit and credit to relative accounts.
Either or Survivor
Refers to operation of the account opened in two names with a bank. It means that any one of the account holders has powers to withdraw money from the account, issue cheques, give stop payment instructions etc. In the event of death of one of the account holder, the surviving account holder gets all the powers of operation.
Electronic Commerce (E-Commerce)
E-Commerce is the paperless commerce where the exchange of business takes place by Electronic means.
EMI
Equated Monthly Installment (EMI) refers to the monthly payment a borrower makes on his loan. Though it is a combination of interest payment and principal repayment, the total monthly amount is calculated in such a way that it remains constant all through the repayment tenure.
Endorsement
When a Negotiable Instrument contains, on the back of the instrument an endorsement, signed by the holder or payee of an order instrument, transferring the title to the other person, it is called endorsement.
Endorsement in Blank
Where the name of the endorsee or transferee is not mentioned on the instrument.
Endorsement in Full
Where the name of the endorsee or transferee appears on the instrument while making endorsement.
Execution of Documents
Execution of documents is done by putting signature of the person, or affixing his thumb impression or putting signature with stamp or affixing common seal of the company on the documents with or without signatures of directors as per articles of association of the company.
F
Factoring
Business of buying trade debts at a discount and making a profit when debt is realized and also taking over collection of trade debts at agreed prices.
Foreign Banks
Banks incorporated outside India but operating in India and regulated by the Reserve Bank of India (RBI),. e.g., Barclays Bank, HSBC, Citibank, Standard Chartered Bank, etc.
Foreign Currency Convertible Bond
A bond issued in foreign currency abroad giving the investor the option to convert the bond into equity at a fixed conversion price or as per a pre-determined pricing formula.
Forfaiting
In International Trade when an exporter finds it difficult to realize money from the importer, he sells the right to receive money at a discount to a forfaiter, who undertakes inherent political and commercial risks to finance the exporter, of course with assumption of a profit in the venture.
Forgery
when a material alteration is made on a document or a Negotiable Instrument like a cheque, to change the mandate of the drawer, with intention to defraud.
Funding Volatility Ratio
Liquid assets [as above] to current and savings deposits – (Higher the ratio, the better)
G
Garnishee Order
When a Court directs a bank to attach the funds to the credit of customer’s account under provisions of Section 60 of the Code of Civil Procedure, 1908.
General Lien
A right of the creditor to retain possession of all goods given in security to him by the debtor for any outstanding debt.
Guarantee
A contract between guarantor and beneficiary to ensure performance of a promise or discharge the liability of a third person. If promise is broken or not performed, the guarantor pays contracted amount to the beneficiary.
H
Held for Trading(HFT)
Securities where the intention is to trade by taking advantage of short-term price / interest rate movements.
Held Till Maturity(HTM)
The securities acquired by the banks with the intention to hold them up to maturity.
High Cost Deposit
Deposits accepted above card rate (for the deposits) of the bank.
Holder in due course
A person who receives a Negotiable Instrument for value, before it was due and in good faith, without notice of any defect in it, he is called holder in due course as per Negotiable Instrument Act.
Holder of cheque
Holder means any person entitled in his own name to the possession of the cheque, bill of exchange or promissory note and who is entitled to receive or recover the amount due on it from the parties.
Hybrid debt capital instruments
In this category, fall a number of capital instruments, which combine certain characteristics of equity and certain characteristics of debt. Each has a particular feature, which can be considered to affect its quality as capital. Where these instruments have close similarities to equity, in particular when they are able to support losses on an ongoing basis without triggering liquidation, they may be included in Tier II capital
Hypothecation
Charge against property for an amount of debt where neither ownership nor possession is passed to the creditor. In pledge, possession of property is passed on to the lender but in hypothecation, the property remains with the borrower in trust for the lender.
I
Identification
When a person provides a document revealing his identity or is being identified by another person, who is known to the bank, it is called identification. Banks ask for identification before paying an order cheque or a demand draft across the counter.
IFSC
India Financial System Code (IFSC) is an 11-digit alphanumeric (letters and numbers) code that helps identify bank branches. The first four numbers represent the bank’s code (alphabetic), the fifth number is a control character (0), and the next six numbers denote a bank branch. For example, the IFSC for Federal Bank Ltd’s Angamally branch reads as FDRL0001002. This code is mentioned on your cheque. Different banks mention it at different places on the cheque.
Indemnifier
A person who indemnifies or guarantees to make good any loss caused to the lender from his actions or others’ actions
Indemnity
Indemnity is a bond where the indemnifier undertakes to reimburse the beneficiary from any loss arising due to his actions or third party actions.
Insolvent
Insolvent is a person who is unable to pay his debts as they mature, as his liabilities are more than the assets . Civil Courts declare such persons insolvent. Banks do not open accounts of insolvent persons as they cannot enter into contract as per law.
Interest Warrant
When cheque is given by a company or an organization in payment of interest on deposit , it is called interest warrant. Interest warrant has all the characteristics of a cheque.
Internal Capital Adequacy Assessment Process (ICAAP)
In terms of the guidelines on BASEL II, the banks are required to have a board-approved policy on internal capital adequacy assessment process (ICAAP) to assess the capital requirement as per ICAAP at the solo as well as consolidated level. The ICAAP is required to form an integral part of the management and decision-making culture of a bank. ICAAP document is required to clearly demarcate the quantifiable and qualitatively assessed risks. The ICAAP is also required to include stress tests and scenario analyses, to be conducted periodically, particularly in respect of the bank’s material risk exposures, in order to evaluate the potential vulnerability of the bank to some unlikely but plausible events or movements in the market conditions that could have an adverse impact on the bank’s capital.
International Banking
Involves more than two nations or countries. If an Indian Bank has branches in different countries like State Bank of India, it is said to do International Banking.
Introduction
Banks insist for the introduction of a prospective customer by an existing account holder or a staff member or by any other person known to the bank for opening of account. If bank does not take introduction, it will amount to negligence and will not get protection under law.
J
Joint Account
When two or more individuals jointly open an account with a bank.
K
Karta
Manager of a Hindu Undivided Family (HUF) who handles the family business. He is usually the eldest male member of the undivided family.
Kiosk Banking
Doing banking from a cubicle from which food, newspapers, tickets etc. are also sold.
KYC Norms
Know your customer norms are imposed by R.B.I. on banks and other financial institutions to ensure that they know their customers and to ensure that customers deal only in legitimate banking operations and not in money laundering or fraud.
L
Lease Financing
Financing for the business of renting houses or lands for a specified period of time and also hiring out of an asset for the duration of its economic life. Leasing of a car or heavy machinery for a specific period at specific price is an example
Letter of Credit
A document issued by importers bank to its branch or agent abroad authorizing the payment of a specified sum to a person named in Letter of Credit (usually exporter from abroad). Letters of Credit are covered by rules framed under Uniform Customs and Practices of Documentary Credits framed by International Chamber of Commerce in Paris.
LIBOR
London Inter Bank Offered Rate. The interest rate at which banks offer to lend funds in the interbank market.
Liquid Assets
Liquid assets consists of: cash, balances with RBI, balances in current accounts with banks, money at call and short notice, inter-bank placements due within 30 days and securities under “held for trading” and “available for sale” categories excluding securities that do not have ready market
Loss Asset
A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.
Leverage
Ratio of assets to capital
Limited Companies Accounts
Accounts of companies incorporated under the Companies Act, 1956 . A company may be private or public. Liability of the shareholders of a company is generally limited to the face value of shares held by them.
M
Mandate
Written authority issued by a customer to another person to act on his behalf, to sign cheques or to operate a bank account
Market Discipline
Market Discipline seeks to achieve increased transparency through expanded disclosure requirements for banks.
Market Liability Ratio
Inter-bank and money market deposit liabilities to Average Total Assets
MCC
Multi-city cheques are denoted as MCC. MCC cheques can be en-cashed anywhere in India, irrespective of the city they were issued in. They are treated as local clearing cheques across the country. The amount is credited in the account the same day and there are no inter-city collection charges associated with a normal cheques being en-cashed in another city. A cheque issued at a branch in Chennai, can be en-cashed at a branch in Mumbai as if it were a local cheque. There would be a notation on the top or the bottom of a cheque indicating its status as as PAP or MCC cheque
Merchant Banking
When a bank provides to a customer various types of financial services like accepting bills arising out of trade, arranging and providing underwriting, new issues, providing advice, information or assistance on starting new business, acquisitions, mergers and foreign exchange.
MICR Code
Magnetic Ink Character Recognition (MICR code (pronounced my-ker) is a nine-digit number printed on banking instruments such as a cheque or a demand draft using a special type of ink made of magnetic material. The first three digits denote the city. The fourth to sixth digits denote the bank, while the last three digits denote the branch number. The code is read by a machine, minimizing the chances of error in clearing of cheques, thereby making funds transfer faster. You will find the number on the right of the cheque number at the bottom of the cheque leaf. MICR code allows money to drop directly into your bank account for payments such as salaries and dividends. Your tax refund will come to you faster if you remember to mention this on the refund form. Refunds of unwanted money in initial public offers, too, drop back if you put down your code on the application form.
Micro Finance
Micro Finance aims at alleviation of poverty and empowerment of weaker sections in India. In micro finance, very small amounts are given as credit to poor in rural, semi-urban and urban areas to enable them to raise their income levels and improve living standards.
Minor Accounts
A minor is a person who has not attained legal age of 18 years. As per Contract Act a minor cannot enter into a contract but as per Negotiable Instrument Act, a minor can draw, negotiate, endorse, receive payment on a Negotiable Instrument so as to bind all the persons, except himself. In order to boost their deposits many banks open minor accounts with some restrictions.
Mobile Banking
With the help of M-Banking or mobile banking customer can check his bank balance, order a demand draft, stop payment of a cheque, request for a cheque book and have information about latest interest rates.
Money Laundering
When a customer uses banking channels to cover up his suspicious and unlawful financial activities, it is called money laundering.
Money Market
Money market is not an organized market like Bombay Stock Exchange but is an informal network of banks, financial institutions who deal in money market instruments of short term like CP, CD and Treasury bills of Government.
Moratorium
R.B.I. imposes moratorium on operations of a bank; if the affairs of the bank are not conducted as per banking norms. After moratorium R.B.I. and Government explore the options of safeguarding the interests of depositors by way of change in management, amalgamation or take over or by other means.
Mortgage
A minor is a person who has not attained legal age of 18 years. As per Contract Act a minor cannot enter into a contract but as per Negotiable Instrument Act, a minor can draw, negotiate, endorse, receive payment on a Negotiable Instrument so as to bind all the persons, except himself. In order to boost their deposits many banks open minor accounts with some restrictions.
Mortgage Back Security
A bond-type security in which the collateral is provided by a pool of mortgages. Income from the underlying mortgages is used to meet interest and principal repayments
N
NACH
National Automated Clearing House (NACH), introduced by National Payments Corporation of India, is a centralised clearing service that aims at providing interbank high volume, low value transactions that are repetitive and periodic in nature.
NEFT
National Electronic Fund Transfer enables funds transfer from one bank to another but works a bit differently than RTGS since the settlement takes place in batches rather than individually, making NEFT slower than RTGS. The transfer is not direct and RBI acts as the service provider to transfer the money from one account to another. You can transfer any amount through NEFT, even a rupee. You won’t have to pay any fee for inward transfer of funds, but outward transactions are chargeable.
Negotiation
In the context of banking, negotiation means an act of transferring or assigning a money instrument from one person to another person in the course of business.
Net NPA
Gross NPA – (Balance in Interest Suspense account + DICGC/ECGC claims received and held pending adjustment + Part payment received and kept in suspense account + Total provisions held).
Non-Fund Based Limits
Non-Fund Based Limits are those type of limits where banker does not part with the funds but may have to part with funds in case of default by the borrowers, like guarantees, letter of credit and acceptance facility.
Non Performing Assets (NPA)
An asset, including a leased asset, becomes non performing when it ceases to generate income for the bank
Non-Resident
A person who is not a resident of India is a non-resident.
Non-Resident Accounts
Accounts of non-resident Indian citizens opened and maintained as per R.B.I. Rules.
NPA Account
If interest and installments and other bank dues are not paid in any loan account within a specified time limit, it is being treated as non-performing assets of a bank.
O
Online Banking
Banking through internet site of the bank which is made interactive
P
PAP
PAP cheques means those cheques which are Payable at par. PAP cheques can be en-cashed anywhere in India, irrespective of the city they were issued in. They are treated as local clearing cheques across the country. The amount is credited in the account the same day and there are no inter-city collection charges associated with a normal cheques being en-cashed in another city. There would be a notation on the top or the bottom of a cheque indicating its status as as PAP cheque.
Pass Book
A record of all debit and credit entries in a customer’s account. Generally all banks issue pass books to Savings Bank/Current Account Holders.
Personal Identification Number (PIN)
Personal Identification Number is a number which an ATM card holder has to key in before he is authorized to do any banking transaction in an ATM .
Phishing
Phishing is the fraudulent attempt to obtain sensitive information or data, such as usernames, passwords and credit card details or other sensitive details, by impersonating oneself as a trustworthy entity in a digital communication.
Plastic Money
Credit Cards, Debit Cards, ATM Cards and International Cards are considered plastic money as like money they can enable us to get goods and services.
Pledge
A bailment of goods as security for payment of a debt or performance of a promise, e.g pledge of stock by a borrower to a banker for a credit limit. Pledge can be made in movable goods only.
Post-Dated Cheque
A Cheque which bears the date which is subsequent to the date when it is drawn. For example, a cheque drawn on 8th of February, 2007 bears the date of 12th February, 2007
Power of Attorney
A minor is a person who has not attained legal age of 18 years. As per Contract Act a minor cannot enter into a contract but as per Negotiable Instrument Act, a minor can draw, negotiate, endorse, receive payment on a Negotiable Instrument so as to bind all the persons, except himself. In order to boost their deposits many banks open minor accounts with some restrictions.
Premature Withdrawals
Term deposits like Fixed Deposits, Call Deposits, Short Deposits and Recurring Deposits have to mature on a particular day. When these deposits are sought to be withdrawn before maturity, it is premature withdrawal.
Priority Sector Advances
Consist of loans and advances to Agriculture, Small Scale Industry, Small Road and Water Transport Operators, Retail Trade, Small Business with limits on investment in equipments, professional and self employed persons, state sponsored organisations for lending to SC/ST, Educational Loans, Housing Finance up to certain limits, self-help groups and consumption loans.
Promissory Note
Promissory Note is a promise / undertaking given by one person in writing to another person, to pay to that person, a certain sum of money on demand or on a future day.
Provisioning
Provisioning is made for the likely loss in the profit and loss account while finalizing accounts of banks. All banks are supposed to make assets classification and make appropriate provisions for likely losses in their balance sheets.
Public Sector Bank
A bank fully or partly owned by the Government
R
Rescheduling of Payment
Rearranging the repayment of a debt over a longer period than originally agreed upon due to financial difficulties of the borrower.
Restrictive Endorsement
Where endorser desires that instrument is to be paid to particular person only, he restricts further negotiation or transfer by such words as “Pay to Ashok only”. Now Ashok cannot negotiate the instrument further.
Restructuring of account
A restructured account is one where the bank, grants to the borrower concessions that the bank would not otherwise consider. Restructuring would normally involve modification of terms of the advances/securities, which would generally include, among others, alteration of repayment period/ repayable amount/ the amount of instalments and rate of interest. It is a mechanism to nurture an otherwise viable unit, which has been adversely impacted, back to health.
Revaluation reserves
Revaluation reserves are a part of Tier-II capital. These reserves arise from revaluation of assets that are undervalued on the bank’s books, typically bank premises and marketable securities. The extent to which the revaluation reserves can be relied upon as a cushion for unexpected losses depends mainly upon the level of certainty that can be placed on estimates of the market values of the relevant assets and the subsequent deterioration in values under difficult market conditions or in a forced sale.
Right of Appropriation
As per Section 59 of the Indian Contract Act, 1972 while making the payment, a debtor has the right to direct his creditor to appropriate such amount against discharge of some particular debt. If the debtor does not do so, the banker can appropriate the payment to any debt of his customer.
Right of Set-Off
When a banker combines two accounts in the name of the same customer and adjusts the debit balance in one account with the credit balance in the other account, it is called right of set-off. For example, the debit balance of Rs.50,000/- in an overdraft account can be set off against the credit balance of Rs.75,000/- in a Savings Bank Account of the same customer, leaving a balance of Rs.25,000/- credit in the savings account.
Risk Weighted Asset
The notional amount of the asset is multiplied by the risk weight assigned to the asset to arrive at the risk weighted asset number. Risk weight for different assets vary e.g. 0% on a Government Dated Security and 20% on a AAA rated foreign bank etc.
RTGS
Real Time Gross Settelement(RTGS) is a fund transfer mechanism that enables money to move from one bank to another on a real time and gross basis. Simply put, real time means the transaction is settled instantly without any waiting period and gross means that it is not bunched with any other transaction.You can transfer a minimum of Rs. 2 lakh through RTGS; there is no upper ceiling though. RTGS is the fastest inter-bank money transfer facility available through secure banking channels in India.
S
Safe Custody
When articles of value like jewellery, boxes, shares, debentures, Government bonds, Wills or other documents or articles are given to a bank for safe keeping in its safe vault,it is called safe custody.. Bank charges a fee from its clients for such safe custody.
Savings Bank Account
A minor is a person who has not attained legal age of 18 years. As per Contract Act a minor cannot enter into a contract but as per Negotiable Instrument Act, a minor can draw, negotiate, endorse, receive payment on a Negotiable Instrument so as to bind all the persons, except himself. In order to boost their deposits many banks open minor accounts with some restrictions.
Securitization
A process by which a single asset or a pool of assets are transferred from the balance sheet of the originator (bank) to a bankruptcy remote SPV (trust) in return for an immediate cash payment.
Scenario Analysis
A method in which the earnings or value impact is computed for different interest rate scenario.
SLR
Statutory liquidity ratio is in the form of cash (book value), gold (current market value) and balances in unencumbered approved securities.
Special Purpose Vehicle (SPV)
An entity which may be a trust, company or other entity constituted or established by a ‘Deed’ or ‘Agreement’ for a specific purpose
Stress testing
Stress testing is used to evaluate a bank’s potential vulnerability to certain unlikely but plausible events or movements in financial variables. The vulnerability is usually measured with reference to the bank’s profitability and /or capital adequacy.
Subordinated debt
Refers to the status of the debt. In the event of the bankruptcy or liquidation of the debtor, subordinated debt only has a secondary claim on repayments, after other debt has been repaid.
Substandard Assets
A substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. Such an asset will have well defined credit weaknesses that jeopardize the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.
Supervisory Review Process (SRP)
Supervisory review process envisages the establishment of suitable risk management systems in banks and their review by the supervisory authority. The objective of the SRP is to ensure that the banks have adequate capital to support all the risks in their business as also to encourage them to develop and use better risk management techniques for monitoring and managing their risks.
T
Trading Book
Investments in trading book are held for generating profits on the short term differences in prices/yields. Held for trading (HFT) and Available for sale (AFS) category constitute trading book.
Teller
Teller is a staff member of a bank who accepts deposits, cashes cheques and performs other banking services for the public.
Tier I Capital
A term used to refer to one of the components of regulatory capital. It consists mainly of share capital and disclosed reserves (minus goodwill, if any). Tier I items are deemed to be of the highest quality because they are fully available to cover losses Hence it is also termed as core capital.
Tier II Capital
Refers to one of the components of regulatory capital. Also known as supplementary capital, it consists of certain reserves and certain types of subordinated debt. Tier II items qualify as regulatory capital to the extent that they can be used to absorb losses arising from a bank’s activities. Tier II’s capital loss absorption capacity is lower than that of Tier I capital.
Trading Book
Investments in trading book are held for generating profits on the short term differences in prices/yields. Held for trading (HFT) and Available for sale (AFS) category constitute trading book.
U
Underwriting
Is an agreement by the underwriter to buy on a fixed date and at a fixed rate, the un-subscribed portion of shares or debentures or other issues. Underwriter gets commission for this agreement.
Universal Banking
When Banks and Financial Institutions are allowed to undertake all types of activities related to banking like acceptance of deposits, granting of advances, investment, issue of credit cards, project finance, venture capital finance, foreign exchange business, insurance etc. it is called Universal Banking.
V
Value at Risk (VAR)
VAR is a single number (currency amount) which estimates the maximum expected loss of a portfolio over a given time horizon (the holding period) and at a given confidence level. VaR is defined as an estimate of potential loss in a position or asset/liability or portfolio of assets/liabilities over a given holding period at a given level of certainty. The following are the three main methodologies used to calculate VaR: Parametric Estimates – Estimates VaR using parameters such as volatility and correlation. Accurate for traditional assets and linear derivatives, but less accurate for non linear derivatives. Monte Carlo simulation- Estimates VaR by simulating random scenarios and revaluing positions in the portfolio. Appropriate for all types of instruments, linear and nonlinear. Historical simulation- Estimates VaR by reliving history; takes actual historical rates and revalues positions for each change in the market
Venture Capital Fund
A fund set up for the purpose of investing in startup businesses that is perceived to have excellent growth prospects but does not have access to capital markets.
Virtual Banking
Virtual banking is also called internet banking, through which financial and banking services are accessed via internet’s world wide web. It is called virtual banking because an internet bank has no boundaries of brick and mortar and it exists only on the internet.
W
Wholesale Banking
Wholesale banking is different from Retail Banking as its focus is on providing for financial needs of industry and institutional clients.
Y
Yield to maturity (YTM)
The Yield to maturity (YTM) is the yield promised to the bondholder on the assumption that the bond will be held to maturity and coupon payments will be reinvested at the YTM. It is a measure of the return of the bond.