Banking Terms
Banking Terms
Banking Terms
BANKING TERMS
Account History:The payment history of an account over a specific
periodoftime,includingthenumberoftimestheaccountwaspastdueor
overlimit.
Account Holder:Any and all persons designated and authorized to
transactbusinessonbehalfofanaccount.Eachaccountholder'ssignature
needstobeonfilewiththebank.Thesignatureauthorizesthatpersonto
conductbusinessonbehalfoftheaccount.
Appraisal:Theactofevaluatingandsettingthevalueofaspecificpiece
ofpersonalorrealproperty.
Authorization:The issuance of approval, by a credit card issuer,
merchant,orotheraffiliate,tocompleteacreditcardtransaction.
ATM:ATMsareAutomaticTellerMachines,whichdothejobofatellerin
sameinstrumentatahigherpriceinanothermarket.
Affidavit:Aswornstatementinwritingbeforeaproperofficial,suchasa
notarypublic.
Amortization: The process of reducing debt through regular instalment
paymentsofprincipalandinterestthatwillresultinthepayoffofaloanat
itsmaturity.
Anywhere Banking :Refers to banking not only by ATMs, Tele-Banking
andinternetbanking,butalsotocorebankingsolutionsbroughtinbybanks
where customer can deposit his money, cheques and also withdraw money
fromanybranchconnectedwiththesystem.AllmajorbanksinIndiahave
broughtincorebankingintheiroperationstomakebankingtrulyanywhere
banking.
Annuity :Alifeinsuranceproductwhichpaysincomeoverthecourseofa
set period. Deferred annuities allow assets to grow before the income is
receivedandimmediateannuities(usuallytakenfromayearafterpurchase)
allowpaymentstostartfromaboutayearafterpurchase.
Available Balance:The balance of an account less any hold, uncollected
funds,andrestrictionsagainsttheaccount.
Available Credit: The difference between the credit limit assigned to a
cardholderaccountandthepresentbalanceoftheaccount.
Banking:Acceptingforthepurposeoflendingorinvestmentofdepositsof
moneyfromPublic,Repayableondemandorotherwiseandwithdrawable
bycheques,drafts,order,etc.
Bank Ombudsman: Bank Ombudsman is the authority to look into
systemofbankingdoneonlyinafixedbranchpremisesmadeofbrickand
mortar. Now there are banking channels likeATM, Internet Banking, tele
bankingetc.
Bid Price:The highest price offered by a dealer to purchase a given
security.
Business of Banking :Accepting deposits, borrowing money, lending
tohonourthechequeissuedbythecustomer,thechequeisreturnedbythe
bankwiththereason"fundsinsufficient"or"Exceedsarrangement.Thisis
knownas'Bouncingofacheque.
Blue Chips:Blue chips are unsurpassed in quality and have a long and
stablerecordofearningsanddividends.Theyareissuedbylargeandwell-
establishedfirmsthathaveimpeccablefinancialcredentials.
Bond:Publiclytradedlong-termdebtsecurities,issuedbycorporationsand
amountofthefirmsassetsminusthefirmsliabilitiesandpreferredstock.
Broker:Individualslicensedbystockexchangestoenableinvestorstobuy
andsellsecurities.
Brokerage Fee:Thecommissionchargedbyabroker.
investoroptimism.
Capital Gain:Theamountbywhichtheproceedsfromthesaleofacapital
assetexceeditsoriginalpurchaseprice.
Capital Markets:Themarketinwhichlong-termsecuritiessuchasstocks
andbondsareboughtandsold.
Cheque:Chequeisabillofexchangedrawnonaspecifiedbankerordering
chequesthroughthebankingsystem.Generallytruncationtakesplaceatthe
collecting branch, which sends the electronic image of the cheques to the
payingbranchthroughtheclearinghouseandstoresthepaperchequeswith
it.
Collateral:A specific asset pledged against possible default on a bond.
Mortgagebondsarebackedbyclaimsonproperty.Collateraltrustsbonds
arebackedbyclaimsonothersecurities.Equipmentobligationbondsare
backedbyclaimsonequipment.
Commercial Paper:Short-termandunsecuredpromissorynotesissuedby
corporationswithveryhighcreditstandings.
Compound Interest: Interestpaidnotonlyontheinitialdepositbutalso
onanyinterestaccumulatedfromoneperiodtothenext.
Current Account:Current account with a bank can be opened generally
forbusinesspurpose.Therearenorestrictionsonwithdrawalsinthistype
ofaccount.Nointerestispaidinthistypeofaccount.
Convertible Bond:A bond with an option, allowing the bondholder to
exchangethebondforaspecifiednumberofsharesofcommonstockinthe
firm.Aconversionpriceisthespecifiedvalueofthesharesforwhichthe
bond may be exchanged. The conversion premium is the excess of the
bondsvalueovertheconversionprice.
Credit Rating:An assessment of the likelihood of an individual or
business being able to meet its financial obligations. Credit ratings are
provided by credit agencies or rating agencies to verify the financial
strengthoftheissuerforinvestors.
Creditworthiness:It is the capacity of a borrower to repay the loan /
advanceintimealongwithinterestasperagreedterms.
Co-operative Bank : An association of persons who collectively own and
operateabankforthebenefitofconsumers/customers,likeSaraswatCo-
operative Bank or Abhyudaya Co-operative Bank and other such banks
Core Banking Solutions (CBS):CoreBankingSolutionsisabuzzwordin
Indian banking at present, where branches of the bank are connected to a
centralhostandthecustomersofconnectedbranchescandobankingatany
breachwithcorebankingfacility.
Crossing of Cheques:Crossing refers to drawing two parallel linesacross
thefaceofthecheque.Acrossedchequecannotbepaidincashacrossthe
counter, and 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,canbepaidonlythroughthenamedbank.
Customer:Aperson who maintains any type of account with a bank is a
moneyelectronicallyfromtheiraccounts.Whenyoupurchasethingsonthe
basisofDebitCardtheamountdueisdebitedimmediatelytotheaccount.
ManybanksissueDebit-Cum-ATMCards.
Debtor: Apersonwhotakessomemoneyonloanfromanotherperson.
Demand Deposits:Deposits which are withdrawn on demand by
customers.E.g.savingsbankandcurrentaccountdeposits.
Demat Account:Demat Account concept has revolutionized the capital
withareturnmemogivingreasonsforthenon-payment.DefaultRisk:The
possibility that a bond issuer will default i.e., fail to repay principal and
interestinatimelymanner.
Earnings per Share (EPS):The amount of annual earnings available to
commonstockholdersasstatedonapersharebasis.
E-Banking :E-Bankingorelectronicbankingisaformofbankingwhere
fundsaretransferredthroughexchangeofelectronicsignalsbetweenbanks
and financial institution and customers ATMs, Credit Cards, Debit Cards,
International Cards, Internet Banking and new fund transfer devices like
SWIFT,RTGSbelongtothiscategory
EFT - (Electronic Fund Transfer): EFTisadevicetofacilitateautomatic
names with a bank. It means that any one of the account holders have
powers to withdraw money from the account, issue cheques, give stop
paymentinstructionsetc.Intheeventofdeathofoneoftheaccountholder,
thesurvivingaccountholdergetsallthepowersofoperation.
Electronic Commerce (E-Commerce):E-Commerce is the paperless
commercewheretheexchangeofbusinesstakesplacebyElectronicmeans.
Equity:Ownershipofthecompanyintheformofsharesofcommonstock.
ontheinstrument.Interestiscalculatedonface/nominalvalue.
Ex-dividend (XD):Asecuritywhichnolongercarriestherighttothemost
recentlydeclareddividendortheperiodoftimebetweentheannouncement
ofthedividendandthepayment(usuallytwodaysbeforetherecorddate).
For transactions during the ex-dividend period, the seller will receive the
dividend, not the buyer. Ex-dividend status is usually indicated in
newspaperswithan(x)nexttothestocksorunittrustsname.
Floating Rate Bonds: Bonds bearing interest payments that are tied to
currentinterestrates.
Factoring:Businessofbuyingtradedebtsatadiscountandmakingaprofit
when debt is realized and also taking over collection of trade debts at
agreedprices.
Foreign Banks:Banks incorporated outside Indiabut operating inIndia and
moneyfromtheimporter,hesellstherighttoreceivemoneyatadiscounttoa
forfeiter,whoundertakesinherentpoliticalandcommercialriskstofinancethe
exporter,ofcoursewithassumptionofaprofitintheventure.
Forgery:when a material alteration is made on a document or a Negotiable
Instrumentlikeacheque,tochangethemandateofthedrawer,withintention
todefraud.
Future Value:Theamounttowhichacurrentdepositwillgrowoveraperiod
oftimewhenitisplacedinanaccountpayingcompoundinterest.
Guarantee:A contract between guarantor and beneficiary to ensure
positionforthepurposeofreducingoreliminatingrisk.
Hypothecation:Charge against property for an amount of debt where
companytomakeprofitablesecuritiestransactions
Initial Public Offering (IPO):Aneventwhereacompanysellsitsshares
tothepublicforthefirsttime.ThecompanycanbereferredtoasanIPO
foraperiodoftimeaftertheevent.
mature,ashisliabilitiesaremorethantheassets.CivilCourtsdeclaresuch
personsinsolvent.Banksdonotopenaccountsofinsolventpersonsasthey
cannotenterintocontractasperlaw.
partyactions.
International Banking:involves more than twonations or countries.
IfanIndianBankhasbranchesindifferentcountrieslikeStateBankof
India,itissaidtodoInternationalBanking.
Introduction:Banksarecarefulinopeninganyaccountforacustomer
accountholderorastaffmemberorbyanyotherpersonknowntothe
bankforopeningofaccount.Ifbankdoesnottakeintroduction,itwill
amounttonegligenceandwillnotgetprotectionunderlaw.
Joint Account:Whentwoormoreindividualsjointlyopenanaccount
withabank.
KYC Norms:KnowyourcustomernormsareimposedbyR.B.I.onbanks
andotherfinancialinstitutionstoensurethattheyknowtheircustomersand
toensurethatcustomersdealonlyinlegitimatebankingoperationsandnot
inmoneylaunderingorfrauds.
agentabroadauthorizingthepaymentofaspecifiedsumtoapersonnamed
Paris.
Libor: TheLondonInterbankOfferedRate(orLIBOR)isadailyreference
ratebasedontheinterestratesatwhichbanksoffertolendunsecuredfunds
AssociationandwillbeslightlyhigherthantheLondonInterbankBidRate
(LIBID),therateatwhichbanksarepreparedtoacceptdeposits.
Liquidity:Theabilitytoconvertaninvestmentintocashquicklyandwith
littleornolossinvalue.
outstandingordinarysharesandthemarketpriceofeachshare.
Merchant Banking :When a bank provides to a customer various types of
financialserviceslikeacceptingbillsarisingoutoftrade,arrangingandproviding
underwriting,newissues,providingadvice,informationorassistanceonstarting
newbusiness,acquisitions,mergersandforeignexchange.
of weaker sections in India. In micro finance, very small amounts are given as
credittopoorinrural,semi-urbanandurbanareastoenablethemtoraisetheir
incomelevelsandimprovelivingstandards.
suspiciousandunlawfulfinancialactivities,itiscalledmoneylaundering.
Mobile Banking :With the help of M-Banking or mobile banking
customercancheckhisbankbalance,orderademanddraft,stoppayment
of a cheque, request for a cheque book and have information about latest
interestrates.
purposeofofferingasecurityfortakingaloanoradvancefromanother.It
maybeexistingorfuturedebtorperformanceofanagreementwhichmay
createmonetaryobligationforthetransferor(mortgagor).
investors.
NABARD:NationalBankforAgriculture&RuralDevelopmentwassetupin
1982undertheActof1981.NABARDfinancesandregulatesruralfinancing
andalsoisresponsiblefordevelopmentagricultureandruralindustries.
mutualfund;alsousedwithpreferredstock.
Notary Public:ALawyerwhoisauthorizedbyGovernmenttocertifycopies
ofdocuments.
any loan account within a specified time limit, it is being treated as non-
performingassetsofabank.
Offer for Subscription: The offer of new securities to the public by the
issuerorbysomeoneonbehalfoftheissuer.
thanactualsharesavailable.Investorswilloftenapplyformoresharesthan
potentialoftheIPOcompany.
Pass Book:Arecordofalldebitandcreditentriesinacustomer'saccount.
Holders.
Personal Identification Number (PIN):PersonalIdentificationNumberis
anumberwhichanATMcardholderhastokeyinbeforeheisauthorizedto
doanybankingtransactioninaATM.
Cardsareconsideredplasticmoneyaslikemoneytheycanenableustoget
goodsandservices.
Post-Dated Cheque:AChequewhichbearsthedatewhichissubsequent
February,2007bearsthedateof12thFebruary,2007.
moreinvestmentgoals.
Power of Attorney: It is a document executed by one person - Donor or
Principal,infavourofanotherperson,DoneeorAgent-toactonbehalfof
theformer,strictlyasperauthoritygiveninthedocument.
presentwhenitisdepreciatedinanaccountpayingcompoundinterest.
pricingthecompanyscommonstock.Theprice/earnings(P/E)ratiorelates
thecompanysearningspershare(EPS)tothemarketpriceofitsstock.
industryorothercommercialenterprisestoprivateinvestors.
Prospectus: A detailed report published by the Initial Public Offering
company,whichincludesalltermsandconditions,applicationprocedures,
IPOpricesetc,fortheIPO
Prime Lending Rate (PLR):The rate at which banks lend to their best
(prime)customers.
onepersoninwritingtoanotherperson,topaytothatperson,acertainsum
ofmoneyondemandoronafutureday.
holdings.
forgreaterrisk.
exchangeforgreaterrisk.
exchangeforgreaterrisk.
Safe Custody:When articles of value like jewellery, boxes, shares,
giventoabankforsafekeepinginitssafevault,itiscalledsafecustody..
Bankchargesafeefromitsclientsforsuchsafecustody.
openingsavingsbankaccountwithanominalbalance.Thisaccountisused
for personal purposes and not for business purpose and there are certain
restrictionsonwithdrawalsfromthistypeofaccount.Accountholdergets
nominalinterestinthisaccount.
Speculation:Theprocessofbuyinginvestmentvehiclesinwhichthefuture
valueandlevelofexpectedearningsarehighlyuncertain.
Teller :Teller is a staff member of a bank who accepts deposits, cashes
chequesandperformsotherbankingservicesforthepublic.
assumption that market data, such as charts of price, volume, and open
Contrastedwithfundamentalanalysiswhichinvolvesthestudyoffinancial
predictmovementsinsecuritypricesfromtheirtradingvolumehistory.)
Trust Deed:A formal document that creates a trust. It states the purpose
andtermsofthenameofthetrusteesandbeneficiaries.
Underwriting :isanagreementbytheunderwritertobuyonafixeddate
andatafixedrate,theunsubscribedportionofsharesordebenturesorother
issues.Underwritergetscommissionforthisagreement.
finance,venturecapitalfinance,foreignexchangebusiness,insuranceetc.it
iscalledUniversalBanking.
Valuation:Processbywhichaninvestordeterminestheworthofasecurity
usingriskandreturnconcept.
Virtual Banking:Virtual banking is also called internet banking, through
whichfinancialandbankingservicesareaccessedviainternet'sWorldWide
Web.Itiscalledvirtualbankingbecauseaninternetbankhasnoboundaries
ofbrickandmortaranditexistsonlyontheinternet.
Warrant: Anoptionforalongerperiodoftimegivingthebuyertheright
tobuyanumberofsharesofcommonstockincompanyataspecifiedprice
foraspecifiedperiodoftime.
accounts.
Yield (Internal rate of Return):The compound annual rate of return
earnedbyaninvestment
fromparvalue.