List of Important Banking Terms
Repo Rate
Repo rate is the rate at which our
banks borrow rupees from RBI. Whenever the banks have any shortage of funds
they can borrow it from RBI. A reduction in the repo rate will help banks to
get money at a cheaper rate. When the repo rate increases, borrowing from RBI
becomes more expensive.
Reverse Repo Rate
This is exact opposite of Repo rate.
Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows
money from banks. RBI uses this tool when it feels there is too much money
floating in the banking system. Banks are always happy to lend money to RBI
since their money is in safe hands with a good interest. An increase in Reverse
repo rate can cause the banks to transfer more funds to RBI due to these
attractive interest rates.
CRR Rate
Cash reserve Ratio (CRR) is the
amount of funds that the banks have to keep with RBI. If RBI decides to
increase the percent of this, the available amount with the banks comes down.
RBI is using this method (increase of CRR rate), to drain out the excessive
money from the banks.
SLR Rate
SLR (Statutory Liquidity Ratio) is
the amount a commercial bank 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 the RBI (Reserve Bank of India) in order
to control the expansion of bank credit.
Bank Rate
Bank rate, also referred to as the
discount rate, is the rate of interest which a central bank charges on the
loans and advances that it extends to commercial banks and other financial
intermediaries. Changes in the bank rate are often used by central banks to
control the money supply.
Inflation
Inflation is as an increase in the
price of bunch of Goods and services that projects the Indian economy. An
increase in inflation figures occurs when there is an increase in the average
level of prices in Goods and services. Inflation happens when there are fewer
Goods and more buyers; this will result in increase in the price of Goods,
since there is more demand and less supply of the goods.
Deflation
Deflation is the continuous decrease
in prices of goods and services. Deflation occurs when the inflation rate
becomes negative (below zero) and stays there for a longer period.
Stagflation
Stagflation is a state of economy in
which economic activity is slowing down but wages and prices continue to rise.
The term is a blend of words stagnation and inflation. Recession A true
economic recession can only be confirmed if GDP (Gross Domestic Product) growth
is negative for a period of two or more consecutive quarters.
PLR
The Prime Interest Rate is the
interest rate charged by banks to their most creditworthy customers (usually
the most prominent and stable business customers). The rate is almost always
the same amongst major banks. Adjustments to the prime rate are made by banks
at the same time; although, the prime rate does not adjust on any regular basis.
The Prime Rate is usually adjusted at the same time and in correlation to the
adjustments of the Fed Funds Rate. The rates reported below are based upon the
prime rates on the first day of each respective month. Some banks use the name
"Reference Rate" or "Base Lending Rate" to refer to their
Prime Lending Rate.
Deposit Rate
Interest Rates paid by a depository
institution on the cash on deposit.
FII
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.
FDI
FDI (Foreign Direct Investment)
occurs with the purchase of the “physical assets or a significant amount of
ownership (stock) of a company in another country in order to gain a measure of
management control” (Or) A foreign company having a stake in Indian Company.
IPO
IPO is Initial Public Offering. This
is the first offering of shares to the general public from a company wishes to
list on the stock exchanges.
Disinvestment
The Selling of the government stake
in public sector undertaking.
Fiscal Deficit
It is the difference between the
government’s total receipts (excluding borrowings) and total expenditure.
Revenue deficit
It defines that, where the net amount
received (by taxes & other forms) fails to meet the predicted net amount to
be received by the government.
GDP
Gross National Product is measured as
GDP plus income of residents from investments made abroad minus income earned
by foreigners in domestic market.
National Income
National Income is the money value of
all goods and services produced in a country during the year.
Per Capita Income
The national income of a country or
region divided by its population. Per capita income is often used to measure a
country's standard of living.
Vote on Account
A vote-on account is basically a
statement, where the government presents an estimate of a sum required to meet
the expenditure that it incurs during the first three to four months of an
election financial year until a new government is in place, to keep the
machinery running.
Difference between Vote on Account and Interim Budget
Vote-on-account deals only with the
expenditure side of the government's budget, an interim Budget is a complete
set of accounts, including both expenditure and receipts.
SDR
The SDR (Special Drawing Rights)
is an artificial currency created by the IMF in 1969. SDR’s are allocated to
member countries and can be fully converted into international currencies so
they serve as a supplement to the official foreign reserves of member
countries. Its value is based on a basket of key international currencies (U.S.
dollar, euro, yen and pound sterling).
SEZ
SEZ means Special Economic Zone is
the one of the part of government’s policies in India. A special Economic zone
is a geographical region that economic laws which are more liberal than the
usual economic laws in the country. The basic motto behind this is to increase
foreign investment, development of infrastructure, job opportunities and
increase the income level of the people
Monetary policy
A Monetary policy is the process by
which the government, central bank, of a country controls (i) the supply of
money, (ii) availability of money, and (iii) cost of money or rate of interest,
in order to attain a set of objectives oriented towards the growth and
stability of the economy.
Fiscal Policy
Fiscal policy is the use of
government spending and revenue collection to influence the economy. These
policies affect tax rates, interest rates and government spending, in an effort
to control the economy. Fiscal policy is an additional method to determine
public revenue and public expenditure.
Core Banking Solutions (CBS)
Core banking is a general term used
to describe the services provided by a group of networked bank branches. Bank
customers may access their funds and other simple transactions from any of the
member branch offices. It will cut down time, working simultaneously on
different issues and increasing efficiency. The platform where communication
technology and information technology are merged to suit core needs of banking
is known as Core Banking Solutions.
Liquidity Adjustment Facility (LAF):
A tool used in monetary policy that
allows banks to borrow money through repurchase agreements. This arrangement
allows banks to respond to liquidity pressures and is used by governments to
assure basic stability in the financial markets.
RTGS System
The acronym 'RTGS' stands for Real
Time Gross Settlement. RTGS system is a funds transfer mechanism where
transfer of money takes place from one bank to another on a 'real time' and on
'gross' basis. This is the fastest possible money transfer system through the
banking channel. Settlement in 'real time' means payment transaction is not
subjected to any waiting period. The transactions are settled as soon as they
are processed. 'Gross settlement' means the transaction is settled on one to
one basis without bunching with any other transaction.
Bancassurance
It is the term used to describe the
partnership or relationship between a bank and an insurance company whereby the
insurance company uses the bank sales channel in order to sell insurance
products
Wholesale Price Index
The Wholesale Price Index (WPI) is
the index used to measure the changes in the average price level of goods
traded in wholesale market. A total of 435 commodity prices make up the index.
It is available on a weekly basis. It is generally taken as an indicator of the
inflation rate in the Indian economy. The Indian Wholesale Price Index (WPI)
was first published in 1902, and was used by policy makers until it was
replaced by the Producer Price Index (PPI) in 1978.
Consumer price Index (CPI)
It is a measure estimating the
average price of consumer goods and services purchased by households.
Venture Capital
Venture capital is money provided by
an outside investor to finance a new, growing, or troubled business. The
venture capitalist provides the funding knowing that there’s a significant risk
associated with the company’s future profits and cash flow. Capital is invested
in exchange for an equity stake in the business rather than given as a loan,
and the investor hopes the investment will yield a better-than-average return.
Treasury Bills
Treasury Bills (T-Bills) are short
term, Rupee denominated obligations issued by the Reserve Bank of India (RBI)
on behalf of the Government of India. 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.
Foreign exchange reserves
Foreign exchange reserves (also
called Forex reserves) in a strict sense are only the foreign currency deposits
and bonds held by central banks and monetary authorities. However, the term in
popular usage commonly includes foreign exchange and gold and IMF reserve
positions.
Open Market operations (OMO)
Buying and selling of government
securities in the open market in order to expand or contract the amount of
money in the banking system by RBI. Open market operations are the principal
tools of monetary policy.
Micro Credit
It is a term used to extend small
loans to very poor people for self-employment projects that generate income,
allowing them to care for themselves and their families.
Liquidity Adjustment Facility (LAF)
A tool used in monetary policy that
allows banks to borrow money through repurchase agreements. This arrangement
allows banks to respond to liquidity pressures and is used by governments to
assure basic stability in the financial markets.
E-Governance
E-Governance is the public sector’s
use of information and communication technologies with the aim of improving
information and service delivery, encouraging citizen participation in the
decision-making process and making government more accountable, transparent and
effective.
Right to information Act
The Right to Information act is a law
enacted by the Parliament of India giving citizens of India access to records
of the Central Government and State governments. The Act applies to all States
and Union Territories of India, except the State of Jammu and Kashmir - which
is covered under a State-level law. This law was passed by Parliament on 15
June 2005 and came fully into force on 13 October 2005.
Credit Rating Agencies in India
The credit rating agencies in India
mainly include ICRA and CRISIL. ICRA was formerly referred to the Investment
Information and Credit Rating Agency of India Limited. Their main function is
to grade the different sector and companies in terms of performance and offer
solutions for up gradation. The credit rating agencies in India mainly include
ICRA and CRISIL (Credit Rating Information Services of India Limited)
Cheque
Cheque is a negotiable instrument
instructing a Bank to pay a specific amount from a specified account held in
the maker/depositor's name with that Bank. A bill of exchange had drawn a
specified banker and payable on demand. “A written order directs a bank to pay
money”.
Demand Draft
A demand draft is an instrument used
for effecting transfer of money. It is a Negotiable Instrument. Cheque and
Demand-Draft both are used for Transfer of money. You can 100% trust a DD. It
is a banker's check. A check may be dishonored for lack of funds a DD cannot.
Cheque is written by an individual and Demand draft is issued by a bank. People
believe banks more than individuals.
SEBI
Securities and exchange Broad of
India (SEBI) is the regulator for the Securities Market in India. Originally
set up by the Government of India in 1988, it acquired statutory form in 1992
with SEBI Act 1992 being passed by the Indian Parliament.
Mutual funds
Mutual funds are investment companies
that pool money from investors at large and offer to sell and buy back its
shares on a continuous basis and use the capital thus raised to invest in
securities of different companies. The mutual fund will have a fund manager
that trades the pooled money on a regular basis. The net proceeds or losses are
then typically distributed to the investors annually.
Asset Management Companies
A company that invests its clients'
pooled fund into securities that match its declared financial objectives. Asset
management companies provide investors with more diversification and investing
options than they would have by themselves. Mutual funds, hedge funds and
pension plans are all run by asset management companies. These companies earn
income by charging service fees to their clients.
Non-performing assets
Non-performing assets, also called non-performing
loans, are loans, made by a bank or finance company, on which repayments or
interest payments are not being made on time. A debt obligation where the
borrower has not paid any previously agreed upon interest and principal
repayments to the designated lender for an extended period of time. The
nonperforming asset is therefore not yielding any income to the lender in the
form of principal and interest payments.
Recession
A true economic recession can only be
confirmed if GDP (Gross Domestic Product) growth is negative for a period of
two or more consecutive quarters.
