Important Banking Terms & Definitions for exams -PDF

Friends.. Here are the important banking terms & its definitions useful for all upcoming exams. This article has been shared by our friend Varun Bansal. On behalf of all readers, Currentaffairs4examz team expresses its gratitude to Varun for sharing the article. If you have anything to share with others just mail us at currentaffairs4examz@gmail.com. We will publish them here. (If there is any error in this article, please point out). You can download the article as PDF by clicking print friendly button below. 

1. SDR (Special Drawing Rights): SDR are new form of International reserve assets, created by the International Monetary Fund in 1967. The value of SDR is based on the portfolio of widely used countries and they are maintained as accounting entries and not as hard currency or physical assets like Gold.

2. NEFT (National Electronic Fund Transfer): NEFT enables funds transfer from one bank to another but works a bit differently than RTGS. NEFT is 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. Minimum limit: No Minimum limit, Maximum Limit: No maximum limit.

3. RTGS (Real time gross settlement): RTGS system is funds transfer systems where transfer of money or securities takes place from one bank to another on a "real time" and on "gross" basis. Settlement in "real time" means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. Minimum & Maximum Limit of RTGS: 2 lakh and no upper limit.

4. CRAR(Capital to Risk Weighted Assets Ratio) or CAR(Capital Adequacy 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.

5. Non Performing Assets (NPA): An asset, including a leased asset, becomes non performing when it ceases to generate income for the bank.The Duration of NPA declaration is of 90 days.

6. Participatory Notes : are derivative instruments, used by Foreign Institutional Investors (FIIs) who are NOT registered with SEBI. These are mostly used by overseas HNIs (High Net worth Individuals), hedge funds and other foreign institutions, allow them to invest in Indian markets through registered Foreign Institutional Investors (FIIs), while saving on time and costs associated with direct registrations. Foreign institutions, allow them to invest in Indian markets through registered Foreign Institutional Investors (FIIs), while saving on time and costs associated with direct registrations.

7. IFSC: IFSC code means Indian Financial System Code. RTGS and NEFT payment system of Reserve Bank of India (RBI) use these codes. IFSC code consists of 11 Characters identified as under (Lets take an example of SBI, Madhapur Hyderabad):- First 4 digits show the Identity of the bank. i.e. SBIN 5th digits in default as ZERO (for future use) i.e. 0 Last 6 Characters display the Branch Identity. i.e. 004187 So IFSC Code is SBIN004187

8. MICR:MICR code means Magnetic Ink Character Recognition code which contains 9 digits, like 380002006 appearing at the bottom of the cheque, following the cheque number. Each Bank Branch has a unique MICR code. First 3 digits:-City PIN Code + Next 3 digits :Bank Code +Last 3 Digits-Branch Code

9. CTS (CHEQUE TRUNCATION SYSTEM) is basically an online image-based cheque clearing system where cheque images and Magnetic Ink Character Recognition (MICR) data are captured at the collecting bank branch and transmitted electronically. Truncation means, stopping the flow of the physical cheques issued by a drawer to the drawee branch.

10. Core Banking Solution (CBS) :-Core Banking Solution (CBS) is networking of branches, which enables Customers to operate their accounts, and avail banking services from any branch of the Bank on CBS network, regardless of where he maintains his account.

11. Commercial Paper: Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. Corporate, primary dealers (PDs) and the All India Financial Institutions (FIs) are eligible to issue CP. Maturity period: between a minimum of 7 days and a maximum of up to one year from the date of issue. CP can be issued in denominations of Rs.5 lakh or multiples thereof. Only a scheduled bank can act as an IPA (Issuing and Paying Agent) for issuance of CP.

12. Treasury Bills: Treasury bills (T bills) offer short term investment opportunities. They are thus useful in managing short term liquidity. At present, the Government of India issues three types of treasury bills through auctions, namely, 91 day, 182 day and 364 day. There are no treasury bills issued by State Governments. Treasury bills are available for a minimum amount of Rs.25,000 and in multiples of Rs. 25,000. Treasury bills are issued at a discount and are redeemed at par.

13. Certificates of Deposit (CD): Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialised form or as a Usance Promissory Note against funds deposited at a bank or other eligible financial institution for a specified time period.

Note: CDs can be issued by (i) scheduled commercial banks{excluding Regional Rural Banks and Local Area Banks}; and (ii) select All ]India Financial Institutions (FIs) that have been permitted by RBI Minimum amount of a CD should be Rs.1 lakh, and in multiples of Rs. 1 lakh thereafter. The maturity period of CDs issued by banks should not be less than 7 days and not more than one year, from the date of issue.

14. Bank Rate: The interest rate at which at central bank lends money to commercial banks. Often these loans are very short in duration. Managing the bank rate is a preferred method by which central banks can regulate the level of economic activity. Lower bank rates can help to expand the economy, when unemployment is high, by lowering the cost of funds for borrowers. Conversely, higher bank rates help to reign in the economy, when inflation is higher than desired.

15. Repo Rate: Whenever the banks have any shortage of funds they can borrow it form RBI. Repo rate is the rate at which commercial banks borrows rupees from RBI. A reduction in the repo rate will help banks to get money at cheaper rate. When the repo rate increases borrowing form RBI becomes more expensive.

16. Reverse Repo Rate: Reverse Repo rate is the rate at which RBI borrows money from commercial banks. Banks are always happy to lend money to RBI since their money is in the safe hands with a good interest. An increase in reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. One factor which encourages an organisation to enter into reverse repo is that it earns some extra income on its otherwise idle cash.

17. CRR (Cash Reverse Ratio): CRR is the amount of funds that the banks have to keep with RBI. If RBI increases CRR, the available amount with the banks comes down. RBI is using this method (increase of CRR), to drain out the excessive money from the banks.

18. SLR (Statutory Liquidity Ratio): SLR is the amount a commercial banks needs to maintain in the form of cash, or gold, or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by RBI in order to control the expansion of the bank credit.

19. Marginal Standing Facility (MSF): MSF rate is the rate at which banks borrow funds overnight from the Reserve Bank of India against approved government securities.