Banking Terms

Important terms related to banking

Bank Rate: It is the official rate of interest charged by the Reserve Bank of India as the lender of last resort. It is the rate at which the Reserve Bank discounting first-class securities including Bill of Exchange. The present rate is 6.5%.

Clearing House :The place, where clerks from banks meet daily, bringing with them all bills paid into their-banks or drawn on each one of the other on that day. The bills are exchanged and the outstanding differences settled.

Capital Adequacy Ratio (CAR): It is the ratio of capital funds (Share capital General reserves) to risk weighted assets. This is required so that banks can countermand the problem if so arised due to the generation of non-performing assets. RBI has stipulated CAR at 9%, although at present most if the banks have CAR more than 9%.

Prime Lending Rate (PLR): It is the rate of interest which is charged by a commercial bank to its prime borrower or blue chip companies. Every bank may set its own PLR level. This is more or less a benchmark for the interest rate of the concerned bank. Normally, banks charge interest more than PLR to other borrowers.

Virtual Banking: The provision of banking and related services through more and more use of information technology without direct recourse to the bank by the customer is called virtual banking.

Bonus:  It is in addition to normal payment of dividend to shareholders by a company or an extra gratuity paid to workers by employers.

Custom Duties: These are duties on imports and exports.

Closed Economy It depends only on internal resources and has no outside links with other countries of the world,

Devaluation It is a deliberate reduction in the value at home currency relatively to foreign currency. It is done by a governmental action and is resorted in order to reduce imports and increase exports.

Excise Duty These duties are charged on goods manufactured within the country.

Hire Purchase A system for the purchase of goods by which they are obtained on hire and each payment is also treated as part payment of purchase price.

Income tax It is the direct tax levied on total income of a person in a year.

Money Bill It is a bill, which relates to imposition of taxes or borrowings or appropriation out of the consolidated fund of India.

Mixed Economy An economy in which both the private and public sector play equal part.

State Trading It means the State undertaking purchase and sale of certain commodity so as to control market prices and to assure a fair deal to both the consumer and the producer.

Special Drawing Rights (SDRs) These are drawing rights given to Members by the International Monetary Fund in proportion to their quota in the Fund, so that expanding world trade can be financed on international faith and cooperation. Out of every 1 billion additional SDRs created by IMF, India gets 35 million.

Arbitration : A method for solving disputes, generally of an industrial nature between the employer and his employees.

Annuity : A fixed amount paid once a year or at interval of a stipulated period.

Ante date: To give a ate prior to that on which it is written to any cheque, bill or any other document.

Appreciation of Money : It is a rise in the value of money caused by a fall in the general price fall

Assets: Property of any kind.

Balance of Trade(or Payment): The difference between the visible exports and visible imports of two countries in trade with each other is called balance of payment. If the difference is positive the balance of payment(BOP) is called favorable and if negative it is called unfavorable.

Balance Sheet: It is a statement of concern, prepared at the end of a year, showing debits and credits under broad heads, to find out the profit and loss position.

Banker's Cheque: A cheque by one bank on another

Bank Rate: It is the rate of interest charged by the Reserve Bank of India for lending money to commercial banks.

Black Money : It means unaccounted money, concealed income and undisclosed wealth. In order to evade taxes some people falsify their account and do not record all transactions in their books. The money which thus remains unaccounted for is called Black Money.

Barter : To trade by exchanging one commodity for another

Bear : A speculator in the stock market who believes that prices will down.

Bearer : This term on cheques and bills denotes that any person holding the same has the same right in respect of it, as the person who issued it.

Bond : A legal agreement to pay a certain sum of money (called principal) at some future date and carrying a fixed rate of interest.

Bonus : It is in addition to normal payment of divident to shareholders by a company, or an extra gratuity paid to workers by the employer.

Budget : An estimate of expected revenues and expenditure for a given period, usually a year, item by item.

Budget deficit : When the expenditure of the government exceeds the revenue, the balance between the two is the budget deficit.

Bulls : Speculators in the stock markets who buy goods, in some cases without money to pay with, anticipating that prices will go up.

Buyer’s Market : An area in which the supply of certain goods exceeds the demands so that purchasers can drive hard bargains.

Carat : Measure or weight of precious stones. 24 carat gold is the purest gold, thus 22 carat gold means a piece of gold in which 22 parts are pure gold and 2 pans of an alloy,

Cartel: It is the combination of business, generally in the same trade formed with a view to controlling price and enjoying monopoly.

Caution money: It is the money deposited as security for the fullfilment of a contract or obligation

Call Money: Loan made for a very short period. It carries a low rate of interest. Credit, Letter of: A letter from a bank or a firm authorising payment to a third person of specific sum for which the sender assumes full responsibility.

Commercial Banks : Financial institutions that create credit accept deposits give loans and perform other financial functions. They create credit by creating deposits on the basis of their cash reserve ratio.

Deflation : It is a state in monetary market when money in circulation has decreased and is characterized by low prices,  unemployment etc.

Depreciation : Reduction in the value of fixed assets due to wear and tear.

Depression : A phase of the business cycle in which economic activity is at a low ebb and there is mass scale unemployment and underemployment of sources. Prices, profits, consumption, etc are also at a low level.

Devaluation: Official reduction in the foreign value of domestic Currency. It is done to encourage the country's exports and discourage imports.

Direct Tax : Taxes that are directly borne by the person on whom it was initially fixed.

e.g: Personal income tax.

Divident : Earning of stock paid to share holders.

Dumping: Sale of commodity at different prices in different markets, lower price is charged in market where demand is relatively elastic. pike

Exchange Rate: The rate at which central banks will exchange one country's currency for another.

Excise Duty : Tax impose on the manufacture, sale and consumption of various commodities, such as taxes on textiles, cloth, liquor,etc.

Fiscal Policy : Government's expenditure and Tax policy.

Foreign Exchange : Claims on a country by another, held in the form of currency of that country. Foreign exchange system enables one currency to be exchanged for another thus facilitating trade between countries.

Gross Domestic Product (GDP): A measure of the total flow of goods and services produced by the economy over a specific time period, normally a year. It is obtained by valuing output of goods and services at market prices and then aggregating.

Indirect Taxes: Taxes levied on goods purchased by the consumer for which the tax payer’s liabilities varies in proportion to the quantity of particular goods purchased or sold.

Inflation : A sustained and appreciable increase in the price level over a considerable period of time.

Laissez-faire : The principle of non-intervention of government in economic affairs.

Mixed Economy : The economy in which there is a unique blend of public sector and private sector co-exist. The perfect example is India.

National Income : Total of all incomes earned or inputed to factors of productions, used in economic literature to represent the output or income of an economy in a simple fashion.

Per Capita Income : Total GNP of a country divided by the total population. It is often used as an economic indicator of the levels of living and development. However, it is a biased index because it takes no account of income distribution.

Patents : It is an exclusive right granted under the Patents Act to the inventor for a new invention.

Preference Shares : These are the shares entitled to a fixed divident before will distribution of profits can be made amongst the holders of ordinary shares or stock.

Public Sector : A term which is generally applied to state enterprises, ie, those companies which are nationalized and run by the government.

Recession: It happens when there is excess of production over demand.

Statuatory Liquidity Ratio (SLR) : It is the ratio of cash in hand exclusive Of cash balances maintained by banks to meet required CRR.

Tariff (ad valorem):  A fixed Percentage tax on the value of an imported commodity, levied at the point of entry into the importing Country.

Value Added TaX (VAT) : A tax levied on the values that are added to goods and services turned out by the producers during stages of production and distribution.

Zero based Budgeting (ZBB) : The practice of justifying the utility in cost benefit terms of each government expenditure on projects. The ZBB technique involves a critical review of every scheme before a budgetary provision is made in its favour. If ZBB is properly implemented it could help to reverse the trend of larger deficits on the revenue account of the Union Government.

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