Banking terms that you should k
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Banking terms that you should know!
As per RBI, the banking sector in India is well regulated with 12 public sector banks, 22 private banks, 46 foreign banks, 56 regional rural banks, 1485 urban cooperative banks and 96,000 rural cooperative banks. This signifies that as an Indian citizen, you will definitely come across multiple banking terminologies that are difficult to comprehend. Nesto the best Bank Coaching Institute in Chennai provides the details about the banking terms to you.
So here are some of the top banking terms that you should know before visiting any bank:
1. KYC (Know your customer): KYC is a key principle process for the identification of an individual/corporate opening a bank account. Customer identification entails verification through an introductory reference from an existing account holder/a person known to the bank or on the basis of documents provided by the customer. This establishes the correct identity of customers and ensures that no fraudulent activity is taking place.
2. MICR (Magnetic Ink Character Recognition): MICR is a 9-digit code printed on cheques that uniquely identifies the bank & branch participating in Electronic Clearing System (ECS). It comprises of 3 parts:
i. First 3 digits represents the city code.
ii. Middle 3 digits represents the bank code. Iii. Last 3 digits represents the branch code
3. IFSC (Indian Financial System Code): IFSC is used as an electronic payment system for National Electronic Fund Transfer (NEFT) and Real Time Gross Settlement (RTGS). IFSC is an 11- character code where the first 4 alphabetic character presents the bank name, and the last 6 characters (can be numeric or alphabetic) represent the bank branch. The 5th character is zero
(0) and is currently reserved for future use.
4. NEFT (National Electronic Fund transfer): NEFT is an electronic fund transfer system that was introduced & managed by the Reserve Bank of India (RBI). It allows quick electronic transfer of money between banks throughout India. Earlier, RBI had fixed timings for processing NEFT but from 2020, NEFT transactions can be processed 24×7. There is no limit on NEFT transactions but a fee is applicable depending on the amount being transferred.
5. RTGS (Real Time Gross Settlement): RTGS allows transfer of money and/or securities instantaneously across the banking system in India. It is safe, secure, reliable & maintained by Reserve Bank of India (RBI). RTGS is used for high value transactions with minimum RTGS limit of Rs 2 lakh. A nominal fee or charges are applicable depending on the transaction amount.
6. IMPS (Immediate Payment Service): IMPS is an immediate payment service for inter-bank electronic fund transfer which is available 24/7/365 in India. With IMPS you can send money via your mobile number, MMID or bank account number & IFSC.
7. Savings account: It is an interest-bearing bank account that keeps your money safe and allows you to earn interest on your funds. A savings account comes with add on benefits like debit card facility, low balance requirement, internet banking, mobile banking & attractive interest rates.
8. Current account: It is a non-interest-bearing bank account for businesses that have a high number of transactions. A current account comes with no restriction on the number of transactions (amount deposited or withdrawn) with add-on benefits of chequebook, debit card, mobile & internet banking.
9. NPA (Non-Performing Assets): NPA is any advance or loan that is overdue for more than 90 days. As per RBI, “An asset becomes non-performing when it ceases to generate income for the bank”. For a bank or lender, the interest is the earning or main source of income therefore when the borrower starts defaulting on his payment it becomes a problem for the lender.
10. Overdraft: When a bank allows the execution of a transaction even when the customer bank account lacks funds is termed as overdraft. It helps customers to pay bills even when there are insufficient funds.
11. Credit History: It is a record of debt repayments such as credit card & loan. A credit history shows whether you paid your bills or EMI on time, with delayed fees or defaulted.
12. Fixed-rate interest: It is a kind of an interest rate on a loan or borrowing that does not fluctuate during a fixed period of time.
13. Floating rate interest: It is also known as variable or adjustable interest rate in which debt instruments like loan or borrowing does not have a fixed rate of interest.
14. Collateral: When an asset is pledged as security for the repayment of a loan or borrowing then it is termed as collateral. This can be forfeited by the lender in case of default.
15. Liquidity: In financial markets when an asset can be sold without impacting its fair price is termed as liquidity.
16. Capital Gain: Any profit or gain realized by the sale of an asset like stock, bond or real estate is known as capital gain.
17. ATM (Automatic Teller Machines): A specialized computer that smoothens banking transactions like withdrawal or deposit of funds, printing account statements and checking account balance is known as ATM (automatic teller machines).
18. Debit card: When a payment card is allowed to deduct money for the purchase of goods or services directly through your bank account then it is termed as debit card. A debit card eases the need for carrying cash & can be used for cash withdrawal from ATM.
19. Credit card: It is a financial instrument for payment that is issued by commercial bank through which the card holder can borrow funds to pay for goods or services. This credit card comes with a condition for card holders to pay back the borrowed money at the time of billing date or over time with interest on principle borrowing.
20. Repo rate: Rate at which Reserve Bank of India lends money to commercial banks in the event of any shortfall of funds is termed as repo rate.
21. Reverse repo rate: When commercial banks have surplus of funds then they can lend it to Reserve Bank of India to earn interest on it. This interest rate is termed as reverse repo rate.
22. Basis point: In finance domain the standard measure of interest rates is basis point where one basis point is equal to 1/100th of 1% or 0.01%.
23. Solvency: The ability of a company to ful fill its liabilities and other financial obligations in order to carry the business is termed solvency. It is a representation on of the financial health of the
company. When a company is unable to generate enough cash from its business operations to fulfill the debt obligations then it is at risk of insolvency.
24. Bank ombudsman: Reserve Bank of India has created a body named Bank ombudsman an to address and resolve the grievances and complaints of the bank customers. An ombudsman is usually a senior official appointed by the Reserve Bank of India who addresses the complaints & grievances of customers. You can submit your grievances related to IndusInd bank here.
25. Processing fees: A pre set fee charged by the financial service provider for execution of any financial transaction is termed as processing fees. It may be fixed flat fee or a % of transaction value.
26. Add-on Card : Extend the benefits of your primary credit card to your family. Get an additional card for their use that is linked to your primary credit card.
27. Advisory Services :We provide you with recommendations and advice that will help you make better decisions.
28. AML : Anti-Money Laundering (AML) is a set of procedures, laws or regulations designed to stop the practice of generating income through illegal actions.
29. AOD / AOF :Account opening documents (AOD) are a set of documents that you must submit along with an account opening form (AOF) when you want to open a new account. These documents usually comprise identity and address proof.
30. AQB :The average balance that must be maintained over a quarter.
31. Arbitrage Funds: Funds that take advantage of price discrepancies in the same asset across different markets.
32. Assay Certification :Certifies the purity of gold. The gold bars that have Assay Certification are the finest you can get.
33. Assessee :A person liable to pay tax.
34. Balanced funds :A fund that combines stocks, bonds and sometimes money market instruments in a single portfolio.
35. Bullion market :A place where precious metals such as gold, silver, platinum and palladium can be traded 24 hours a day.
36. CDMA Mobile : CDMA stands for Code Division Multiple Access and is a channel access communication technology.
37. Certicard : CertiCard is used for the packaging of gold bars and precious stones. It is a tamper- proof security case with two levels of protection or seals. It is a means to guarantee the authenticity of the product it holds.
38. Challan Identification Number : The Challan Identification Number (CIN) is an 18-digit number. It is a cyber receipt or acknowledgement of your tax payment. You must quote your CIN in your tax returns as a proof of payment.
39. Chip :This is a small microchip embedded in your debit card. It is encrypted so your debit card transactions are more secure.
40. Collateral:Collateral is security or guarantee that a borrower must provide to a lender to get a loan. Property, gold, investment securities are common examples of a collateral.
41. Collecting Bank :A bank into which a person has deposited a cheque, and must collect the money from the account of the writer of the cheque.
42. Compound Interest :Compound interest is the accumulation of interest that is generated on the interest of a principal amount, over time.
43. Cumulative interest: Interest calculated on the initial principal and the accumulated interest of prior periods.
44. Cut-off time: In the forex market, a point in time specified by a forex dealer to stand as the end of the current trading day and the beginning of a new trading day is known as the daily cut-off time.
45. CVV:The CVV (Card Verification Value) on credit or debit cards is a 3-digit code at the back of VISA, MasterCard and Discover branded credit and debit cards, and a 4 digit code on American Express credit and debit cards.
46.E-com :E-com is short for of electronic commerce or ecommerce. Ecommerce is an umbrella term that covers the buying and selling of goods online through shopping portals and a variety of other channels. You can use your HDFC Bank credit and debit cards to purchase goods online.
47. ECS :Stands for Electronic Clearing Service. It is a mode by which funds are automatically debited to your account every month to pay recurring bills or fees. ECS is activated by giving standing instructions to the bank.
48. EDC Machine :EDC is short for Electronic Draft Capture machine. It is a computerised system that collects data when you swipe your Debit or Credit Card. This is how money is either debited from your account or added to your credit card statement after you have used your cards.
49. ELSS:ELSS are equity-linked saving schemes. ELSS funds have a lock-in of 3 years; the lock-in period prevents ad-hoc withdrawals and helps your money grow over time. This allows you to ride the short-term slumps and stay invested for a longer period.
50. Entry load :Entry load is the commission that an investor has to pay while purchasing units of a mutual fund. Mutual funds no longer charge entry loads.
51. EPFO:EPFO is the Employees Provident Fund Organisation. It is a statutory body of the Government of India under the Ministry of Labour and Employment. It administers a compulsory contributory Provident Fund Scheme, Pension Scheme and Insurance Scheme. It is one of the largest social security organisations in the world in terms of the number of covered beneficiaries and the volume of financial transactions undertaken.
52 .FAMA model :The FAMA model expands the capital asset pricing model (CAPM) by adding size, value and market risk factors to CAPM. This model considers the fact that value and small cap stocks outperform markets regularly.
52. Fastrack a loan :A loan application that gets processed quicker than normal without too many actions from the applicant.
53. FC Charges : FC or Foreclosure charges are to be paid when a loan is closed before the tenure is completed. The bank will levy a certain percentage on outstanding loan amount as the penalty for foreclosing the loans. These penalty rates vary from bank to bank.
54. First In, First Out :This means that fund transfer requests received after 10 PM on one banking day will be dealt with on the next banking day based on the time they are received. The first request after 10 PM will be dealt with first and so on till the last request received is dealt with.
55. Fixed Rate :An interest rate that remains at a predetermined rate for the entire term of the loan.
56. Floating rate:An interest rate that moves up or down with the rest of the market or an index.
57 .FMP :A Fixed Maturity Plan is a type of mutual fund which has a set maturity date and can have an indicative return on your investment. FMPs are generally used by companies and large investors as a substitute to bank FDs. FMPs are close ended funds. This means that you can enter only when it is launched and exit when the term is over.
58. Foreclosure charges :Foreclosure charges are to be paid when a loan is closed before the tenure is completed. The bank will levy a certain percentage on outstanding loan amount as the penalty for foreclosing the loans. This rate varies from bank to bank.
59. Franking Charges :The fees to be paid for applying an identification mark on documents to quality them to be postally serviced are called Franking Charges.
60. Gold ETF :An ETF is an Exchange Traded Fund, which means that it is traded on the stock exchange. Through a Gold ETF, you can purchase a large amount of gold in the form of shares, maintaining the physical metal in storage. Gold ETF is a way of removing logistical hassles of purchasing gold physically, such as insurance, storage, moving, and reselling.
61. Guaranteed Surrender Period :The amount of time an investor must wait until he or she can withdraw money from the plan without facing a penalty. Withdrawing money before the agreed- upon holding period can result in a surrender charge.
62. Guarantor :A guarantor is a person who guarantees payment by another. The guarantor becomes a co-endorser and assumes liability in event of default.
63. Half Yearly Payable interest :Interest that is payable every six months.
64 .Hindu Undivided Families :HUF, or Hindu Undivided Family, is a legal term related to the Hindu Marriage Act. HUF refers to a joint family descended from a common ancestor.
65 .Home Location :Includes all Branches in the same city (Clearing End Points)
66. Hotlisting :You can hotlist your credit or debit card if it has been stolen by informing your bank. Hotlisting means that the bank will cancel your card and no one else can use it.
67. IDV:The Insured Declared Value is the maximum ‘Sum Insured’ fixed by the insurer, which is the
Insurer’s Maximum Liability in the event of a claim. It is the current market value of the vehicle
which is calculated as per the manufacturer’s listed selling price less the depreciation.
Registration and insurance costs are excluded from IDV.
68. Incidental Charges :Expenses that are not budgeted or specified but are incurred by the bank on behalf of the customer.
69. Initial Pay-in :Initial Pay-in is the first amount that you need to deposit while opening an account.
70. Inter Branch Banking :Banking between different branches of the same bank.
71. IPIN:IPIN is the Internet Personal Identification Number. It is a code or password that the customer sets to access NetBanking.
72. ISIN: Stands for International Securities Identification Number (ISIN). It is a unique 12-character alpha-numerical code for securities such as bonds, commercial paper, equities and warrants.
73. VR :Interactive Voice Response (IVR) is a technology that allows a computer to interact with humans through voice and keypad inputs.
74. KYC :Know Your Customer (KYC) is a form and a process by which a bank gets to know its customers better – and seeks details such as a customer’s address and financial and occupational status.
75. Letter of Credit (LC) :A Letter of Credit is a payment term used for international sales transactions. It is a documentary evidence that allows importers/buyers to offer secure terms of payment to exporters/sellers in which a bank (or more than one bank) gets involved.
76. Liquid Funds :These are investments in short-term vehicles that mature in less than one year. You can access your money in liquid funds any time you need it with no penalty.
77. Loan Reschedulment :Loan Reschedulement refers to the revised timetable for loan repayments, usually granting longer repayment periods.
78. Money Laundering :Money Laundering is the process of converting black money, accumulated through criminal activities, into white money.
79. Moratorium Period :In an education loan, a repayment moratorium (also called a repayment holiday) is the period when a borrower does not have to make any repayments. This is usually the course period + 1 year or 6 months after the student gets a job or starts earning, whichever is earlier.
80. NAV:Net Asset Value (NAV) is a mutual fund’s price per share or exchange-traded fund’s (ETF) per-share value. In both cases, the per-share rupee amount of the fund is calculated by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of shares outstanding.
81. NEFT :National Electronic Funds Transfer (NEFT) is a system that facilitates an individual or company to electronically transfer funds from any bank branch to any individual or company having an account with any other bank branch in the country.
82. OTP: OTP is a one-time password that is valid for only one specific transaction and is used as an additional factor of authentication for online transactions.
83. Oversubscribed :When demand for shares outstrips supply of shares during a new stock issue or initial public offer (IPO).
84. PAP :PAP cheques can be encashed anywhere in India, irrespective of the city they were issued in. This also means you only have to pay the amount written on the cheque and not the service charges that might otherwise be charged to you, especially when you send a cheque to someone out of your city or country.
85. Personal Assurance Message :When you register for the Verified by Visa service, you are asked to create a Personal Assurance Message. When you pay online, always look for this Personal Assurance Message or Personal Message – it is your guarantee that you are being authenticated by HDFC Bank.
86. POS :POS is the short for Point of Sale, and usually refers to a retail outlet.
87. PPO :Stands for Pension Payment Order. The pension is authorised through a Pension Payment Order that consists of two booklets. One is meant for the disbursing authority and the other for the individual. The rate of monthly pension, amount commuted, reduced pension payable (i.e. after commutation) to a Government Servant and the rate of family pension payable to a spouse (where the spouse of the individual is alive) are mentioned in the Pension Payment Order.
88. Remittance :Remittance is any form of money transfer or payment done from one’s working country to a home country. Remittance charges depend on the difference in currency rates and the amount of transfer.
89. Risk adjusted returns :It is a concept that refines an investment’s return by measuring how much risk is involved in producing that return, which is generally expressed as a number or rating. Risk-adjusted returns are applied to individual securities and investment funds and portfolios.
90. RM or Relationship Manager:The person who manages your relationship with the bank.
91. Rolling Returns:It is the annualized average return for a period ending with the listed year. Rolling returns are useful for examining the behavior of returns for holding periods similar to those actually experienced by investors. It is also known as ‘rolling period returns’ or ‘rolling time periods’.
92. RTGS:It stands for Real Time Gross Settlement. And is a way of instantly transferring large sums of money It means that funds transfers happen immediately, in real time. Instructions are processed at the time they are received rather than later. ‘Gross Settlement’ means the settlement of funds transfers occur on an instruction by instruction basis.
93. Secure Sockets Layer (SSL):Secure Sockets Layer (SSL) is a commonly-used protocol for the security of messages transmitted on the Internet.
94. Stamp Duty: Stamp duty is a way of collecting tax on documents like receipts, licenses and transaction records.
95. Super Saver Facility :A Super Saver Facility allows you to link your Savings Account or Current Account to a Fixed Deposit and enjoy the rewards of an overdraft facility to supplement your household or business requirements.
96. Surety :An individual who agrees to be legally responsible for another person’s debts in the
event of default.
97. Surrender Periods :The amount of time an investor must wait until he or she can withdraw money from the plan without facing a penalty. Withdrawing money before the agreed-upon holding period can result in surrender charges.
98. Sweep-in Facility :The Sweep-in facility allows you to enjoy the high interest rates that come with a Fixed Deposit and the liquidity of a Savings Account.
99. Sweep-out :The Sweep-out facility allows you to transfer money from your savings account into a fixed deposit or vice-versa. You can do this via a standing instruction, if the money in the account goes above or falls below a limit you have decided upon. You also enjoy the high interest rates that come with a Fixed Deposit, along with the liquidity of a Savings Account.
100. Tax Rebate :Tax rebates are reductions in tax available to tax payers who meet certain criteria (for example, senior citizens).
101. TDS :TDS is short for Tax Deducted at Source. TDS is certain percentage of payment that is collected by the entity making a payment and deposited with the tax authorities. For example, the tax you have to pay on your salary is already deducted by your company and the net amount is paid to you.
102. Telegraphic Transfer (T/T) :A Telegraphic Transfer also called a Telex Transfer is an electronic means of transferring funds overseas.
Third Part Cheque :Third party cheque is endorsed by its payee to another party who becomes the holder in due course.
103. Vakalatnama :A written consent given by a person to a lawyer to represent him or her, conduct proceedings and plead on their behalf in the court of law.
104. Volatility of Mutual Funds :Relative rate at which the price of a mutual fund moves. Volatility is found by calculating the annualised standard deviation of daily change in price. If the price of a mutual fund moves up and down rapidly over short periods, it has high volatility. If the price almost never changes, it has low volatility.