Important Banking Terminologies

Banking:
Acceptance of the deposits for the purpose of lending
Liability:
Money accepted from public as deposit
Assets:
Money lent to public
Demand Deposits:
Money repayable on demand. Such money are deposited in current A/C, Saving bank A/C
Time Deposits:
Money accepted for fixed term payable on maturity of period. Ex: Fixed Deposits, Recurring Deposits.
Negotiable Instrument:
Bill of Exchange (B.E.), Promissory Note (P.N.), Cheque, Draft
Negotiation:
Transfer by endorsement and delivery
Drawer:
One who makes a B.E. / P.N. one who draws a cheque Customer/ Depositor
Drawee:
One who is directed to pay a B.E. / P.N. / Cheque
Payee:
One who received amount mentioned in B.E./P.N./Cheque
Endorsee:
One in whose favor the B.E. / P.N. / Cheque is endorsed

Modes of Loans and Advances

Overdrafts:
Advance granted on current A/C
Cash Credit:
Advance granted for business purpose as working capital, payable in 12 months
Term Loan:
Loan granted for purchase of fixed assets, repayable in instruments ranging from 1year to 7 year

Charge
Lien:
Marking a charge on paper security like fixed deposit receipt, NSC, KVP, LIC policy
Hypothecation:
Noting Banks Charge on raw material, Semi finished goods, finished goods. The possession is with the
borrower
Pledge:
Noting of banks charge on raw material, semi finished goods, finished goods. The possession of the good
is with bank.
Mortgage:
Charge created by bank on immovable property such as land and building.
Tangible Security:
Security can be realized easily by sale or transfer.
Primary Security:
It is the principal security for an advance. It is created / acquired with banks finance.
Collateral Security:
It is additional security. Serve the purpose of cushion to fall bank in cash of need.

Standard Asset:
It is not on NPA (Non Performing Assets). It does not disclose any problem and does not carry more than
normal risk.
Sub standard asset:
It is on NPA for a period not exceeding 2 years
Doubtful Assets:
Remained NPA for more than 2 years
Loss Assets:
Asset in which Bank has identified 100% loss
NPA:
An asset which ceases to yield income is Non Performing Asset.

Income
Interest:
Income received by bank on loan and advance. Expanses paid by bank to the customer for keeping
deposits.
Exchange:
Income received on remittance i.e., transfer of money from one place to another, issuance of draft etc.
Commission:
Income earned on services rendered by bank i.e., locker, safe deposits, any other service.
Discount:
Income received on discounting of bills
Bank Rate:
It is the rate at which RBI buys or rediscounts payable bills/ securities of commercial banks at the bank
rate.
CRR (cash reserve ratio):
Mentioned by each bank in term of cash with RBI in a special current account the rate is addressed by
RBI from time to time.

SLR (Statutory Liquidity Ratio):

It is maintained by each bank with RBI in the form of Government Securities.
Repo Rate:
It is the rate at which RBI lend money to other commercial banks
Reverse Repo Rate:
It is the rate at which RBI borrows money from commercial banks
Call Money Rate:
It is the interest rate paid by the banks for lending and borrowing for daily funds requirements.

Priority Sector
Priority Sectors are identified by National Credit Council. The finance minister is the chairman of NCC
and the Governor of RBI is Vice chairman.
Loans to small business, small scale industries, Agriculture

Clearing Instruments:
Cheques drown on other banks, payable locally, received from customer for deposits in the account.
Clearing House:
It is governed by RBI and managed by SBI at the particular center. Other local banks are member of
clearing house. Cheques are exchanged and amount is settled here.
MICR:
Magnetic ink character recognition
MICR Technology:
It is the device which recognize characters written with special magnetic ink

Transfer of Funds Remittance

Modes:
Drafts:
Draft is issued by a banker, payable on demand to the payee or to the order of payee, drawn on branch.
The validity of draft is 6 month.
T.T. (Telegraphic Transfer):
Fund are remitted from one branch of bank to its another branch telegraphically in coded language.
EFT (Electronic Fund Transfer):
It is computer based system used to perform financial transaction electronically. It is a system of
transferring money from one bank account directly to another without any paper money.
NEFT (National Electronic Fund Transfer):
NEFT system is a nationwide fund transfer system to facilitate transfer of fund from one bank branch to
any other bank branch.
The funds are routed through Reserve Bank. Both the bank should be member for NEFT
ECS (Electronic Clearing System):
It is a mode of electronic fund transfer from one bank A/C to another bank A/C using the service of
clearing house.
ECS (Credit):
Used for affording credit to a large number of beneficiaries by raising a single debt to an account. E.g.:
Salary payment, Dividend interest payment.
ECS (Debit):
Used for raising debit to a number of account of customers/ account holders for crediting a particular
institution. E.g.: Electric bills, Telephone bills.

Currency Chest:
1) A Go-down where notes are stored
2) Ownership with RBI
3) Daily reporting of cash deposit and withdraws to/ from current chest to RBI
4) Only custody with the Bank maintaining currency chest
5) Rs. 2/- and above denominations notes are issued by RBI
6) Rs. 1/- denomination note is issued by Government of India

Small Coin Depot:

1) Small coins issued by Government of India are stored in small coin depot.
2) The transaction in small coin depot are separately reported to Government of India through RBI
3) Small coin of denominations 50 ps. And below are deposited in small coin depot
4) Remittance of incurrent coin is sent to master of mint.

Mutilated Note:
The note torn in pieces is called mutilated note
Soiled Note:
The note which can not be brought in circulation is called soiled note. These notes are returned to RBI
destruction
Factoring:
Factoring is buying the receivable of a company for a value.
Factoring is a debt collection and finance service designed to improve the clients cash flow by turning his
sales invoices into ready cash
Securitization:
It is the process of conversion of existing assets or future cash flows into marketable securities. It deals
with conversion of assets which are not marketable into marketable ones. It is also known as freeing of
blocked assets of bank.