Essential Banking Terms You Need to Know
A regular payment made out of a current account which is of a set account and is originated by the account holder.
Account payee :-
Also ‘account payee only’. Words written on the face of a cheque between two parallel lines. The purpose is to ensure that the cheque may only be paid into an account in the name of the payee-the person to whom the cheque is made payable. This means that the payee cannot sign it in names of another person.
Asset – Liability Mismatch in banks
In finance, an asset–liability mismatch occurs when the financial terms of an institution’s assets and liabilities do not correspond.
If banks mobilize short term deposits to provide short-term loans or long term deposits to provide long-term loans, it is an ideal situation. But if banks mobilize short-term deposits and lend loans on longer terms, that results in an asset-liability mismatch situation.
Ideally banks should borrow short and lend long, and keep the margin. Usually banks’ deposits are mobilized (that is they are borrowing) for periods of up to 5 years only. But their loan portfolios (they are lending) – specially those relating to auto loans and housing – have a far longer duration. This borrow short and lend long means that they have to roll over their liabilities (deposits) faster than their assets (loans).
Personal Identification Number (PIN):-
An account holder has a secret number or code to authorise a transaction or obtain information regarding his or her account often used in conjunction with a plastic card (ATM or Debit Card), online account access or with a telephone voice response system.
A request made to a bank to not pay a specific cheque. If requested soon enough, the cheque will not be debited from the payer’s account.
Inactive Account:-Transactions house not occurred on a bank account for an extended period of time.
A cheque issued by a bank drawn on its own funds rather than on the funds its depositors.
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.
Prime Lending Rate (PLR)
The rate at which banks lend to their best (prime) customers.It is usually less than normal interest rate.
: 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
National Electronic Funds Transfer System (NEFT)—
RBI introduced an electronic funds transfer system to facilitate an efficient, secure,econo- mical, reliable and expeditious system of funds transfer and clearing in the banking sector throughout India, and to relieve the stress on the existing paper-based funds transfer and clearing system called National Electronic Funds Transfer System (NEFT System).
Capital Market –
The capital market is designed to finance the long-term investments. The transactions taking place in this market will be for periods over a year.
Money Market –
The money market is a wholesale debt market for low-risk, highly-liquid, short-term instrument. Funds are available in this market for periods ranging from a single day up to a year. This market is dominated mostly by government, banks and financial institutions.
National Electronic Clearing Services (NECS)
—The objective of National Electronic Clearing Services (NECS) is to facilitate centralised processing for repetitive and bulk payment instructions. Sponsor banks shall submit NECS data at a single centre viz. at Mumbai. While NECS (Credit) shall facilitate multiple credits to beneficiary accounts at destination branch against a single debit of the account of a User with the sponsor bank, the NECS (Debit) shall facilitate multiple debits to destination account holders against single credit to user account.
Transfer of an interest in specific immovable property for the purpose of offering a security for taking a loan or advance from another. It may be existing or future debt or performance of an agreement which may create monetary obligation for the transferor (mortgagor).
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.
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.
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 . Many banks issue Debit-Cum-ATM Cards.
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’ .
It is a payment made by public authority other than one made in exchange for goods or services produced. Transfer payments are not the part of National Income. Examples includes unemployment benefit and child benefits.
It is a state of the economy in which economic activity is slowing down, but wages and prices continue to rise. The term is blend of the words stagnation and inflation.
NPA Account :
If interest and instalments 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.
When a bank provides to a customer various types of financial services lik 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.
Reverse Repo Rate :
This is exact opposite of Repro Rate. Reverse Repo rate is the rate at which commercial bank charge on there surplus funds with RBI.RBI used it tool when it feels there is too much money floating in the banking system.Banks are always happy to keep money in RBI since there money is in safe hand with goods interest rate. An increase in reverse repo rate can cause the bank to transfer more funds to RBI due to these attractive interest rates.
Demand Deposits :
Deposits which are withdrawn on demand by customers.E.g. savings bank and current account deposits.
Special Drawing Rights (SDRs):-It is a reserve asset (known as ‘Paper Gold’) created within the framework of the International Monetary Fund in an attempt to increase international liquidity, and now forming a part of countries official forex reserves along with gold, reserve positions in the IMF and convertible foreign currencies.
Term Deposit Rate:
-A deposit held at a financial institution that has a fixed term. These are generally short-term with maturities ranging anywhere from a month to a few years. When a term deposit is purchased, the lender (the customer) understands that the money can only be withdrawn after the term has ended or by giving a predetermined number of days notice.
CRR Rate :
is the amount of cash funds that the bank have to maintain with RBI .If the RBI want to increase the percentage of it the available amount with the bank comes down .RBI is using this methods to drain out excessive money from the bank.
The Base Rate is the minimum interest rate of a Bank below which it cannot lend, except for DRI advances, loans to bank’s own employees and loan to banks’ depositors against their own deposits. (i.e. cases allowed by RBI) .
A loan made by a bank for a short period to make up for a temporary shortage of cash. On the part of borrower, mostly the companies for example, a business organization wants to install a new company with new equipments etc. while his present installed company/equipments etc. are not yet disposed off. Bridge loan covers this period between the buying the new and disposing of the old one.
HDI:-A tool developed by the United Nations to measure and rank countries’ levels of social and economic development based on four criteria: Life expectancy at birth, mean years of schooling, expected years of schooling and gross national income per capita. The HDI makes it possible to track changes in development levels over time and to compare development levels in different countries.
Clearing Bank:-Clearing bank is one, which settles the debits and credits of the commercial banks. Even of the cash balances are lesser, clearing bank facilitates banking operation of the commercial bank.
Equity and Debts Raisers
Companies wishes to raise equity or debts through stock exchange have to approach a capital market regulator with the prescribed application and a proforma prospectus for permission to raise equity and debts and to ger them on a stock exchange.
Universal Banking:- Universal Banking refers to those services offered by banks beyond traditional banking service such as saving accounts and loans and includes Pension Funds Management, undertaking equipment leasing, hire purchase business and factoring services, Primary Dealer-ship .
Moral Suasion:-Moral Suasion is just as a request by the RBI to the commercial banks to take so and so action and measures in so and so trend of the economy. RBI may request commercial banks not to give loans for unproductive purpose which does not add to economic growth but increases inflation.
Investment Bankers or Merchant Bankers undertake a number of activities such as undertaking the issue of stocks fund raising and management .They also provide advisory services and counsel on mergers and acquisition etc. They are licensed by the capital market regulators.
Wholesale Banking : Wholesale banking is different from Retail Banking as its focus is on providing for financial needs of industry and institutional clients.
Clearing house is an institutions which helps to settle the mutual indebtedness that occurs among the members of its organization.
FII (Foreign Institutional Investor) used to denote an investor, mostly in the form of an institution. An institution established outside India, which proposes to invest in Indian market, in other words buying Indian stocks. FII’s generally buy in large volumes which has an impact on the stock markets. Institutional Investors includes pension funds, mutual funds, Insurance Companies, Banks etc.