BANKING TERMINOLOGIES

December 12, 2017

BANKING TERMINOLOGIES

RBI – Reserve Bank of India, 1935 under the RBI Act, 1934

Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India and its main function is General superintendence and direction of the Bank’s affairs

NABARD – National Bank for Agricultural & Rural Development, established in 1982, Under the NABARD Act,1981

The Bank has been entrusted with “matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas in India.

Policy Rates

Policy Repo Rate – Rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds against the pledge of government securities. Repo rate is used by monetary authorities to control inflation.
Reverse Repo Rate – Rate at which RBI borrows money from the commercial banks. The increase in the Repo rate will increase the cost of borrowing and lending of the banks which will discourage the public to borrow money and will encourage them to deposit.
Marginal standing facility (MSF): It’s a window for banks to borrow from the RBI in an emergency situation when inter-bank liquidity finishes completely.
Bank Rate –Refers to the official interest rate at which RBI will provide loans to the banking system which includes commercial / cooperative banks, development banks etc. Such loans are given out either by direct lending or by rediscounting (buying back) the bills of commercial banks and treasury bills.

Repo Rate V/s Bank Rate

Repo Rate (Short Term)	Bank Rate (Long Term)
Rate at which Central Bank lends money to commercial banks during financial crisis	Rate of interest charged by RBI for loans to commercial banks
Securities, bonds, agreements and Collateral involved when repo rate is charged	No securities sold or Collateral involved and no purchasing agreement signed
Repo rate is charged for re-purchase in the securities sold by commercial banks to Central Bank Focuses on short term financial needs	Bank rate is charged against loans offered by central banks to commercial banks Cater to long term financial requirements of commercial banks
Increase in repo rate usually handled by the bank and doesn’t affect the customers	Increase in bank rate directly affects lending rates offered to customers

Note: –

Repo Rate is always lower than the Bank Rate.
Both are used by RBI to control liquidity and inflation in the market.

Repo Rate V/s Marginal Standing Facility

Repo Rate	Marginal Standing Facility (MSF)
Given to banks for meeting their short term financial needs	Meant for lending overnight to banks
Rate at which money is lent by RBI to commercial banks	Rate at which RBI lends money to scheduled banks
Landing at repo rate includes selling of bank securities as Collateral along with a repurchase agreement	Loan given at MSF rate involves providing government securities as collateral
Not allowed to use securities under SLR	Banks are allowed to use securities that comes under SLR in the process of taking loan

Reserve Ratios

1) Cash Reserve Ratio – Cash Reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI.

2) Statutory liquidity ratio (SLR): SLR is the minimum proportion of their Net Demand and Time Liabilities, which every bank maintains in the form of cash, gold and securities, at the close of business every day.

CRR V/s SLR

Particulars	CRR	SLR
Meaning	CRR is the percentage of money which the bank has to keep with the Central Bank of India in the form of cash.	The bank has to keep a certain percentage of their Net Time and Demand Liabilities in the form of liquid assets as specified by RBI.
Form	Cash	Cash and other assets like gold and government securities viz. Central and State government securities.
Effect	It controls excess money flow in the economy.	It helps in meeting out the unexpected demand of any depositor by selling the bonds.
Maintenance with	Central Bank of India i.e. RBI.	Bank itself.
Regulates	Liquidity in the economy.	Credit growth in the economy.

National Electronic Funds Transfer (NEFT): – It is a nation-wide payment system in which individuals can electronically transfer funds from any bank branch to any individual having an account with any other bank branch in the country and are settled in batches.

Real Time Gross Settlement (RTGS) is the fastest possible money transfer system through the banking channel. Because settlements are made in real time, transactions are not subject to any waiting periods

Immediate Payment Service (IMPS) is an instant interbank electronic fund transfer service through mobile phones, ATM, Internet Banking, etc.

NEFT V/s RTGS V/s IMPS

Transaction Timings	NEFT	RTGS	IMPS
Monday to Saturday (Except 2nd and 4th Saturday)	8:00 AM to 6:30 PM	8:00 AM to 4:30 PM	24×7
Minimum	Rs. 1	Rs. 2 Lakh	Rs. 1
Maximum	No Limit	Rs 10 Lakh	Rs 2 Lakh

Plastic Money: Credit Cards, Debit Cards, ATM Cards and International Cards are considered plastic money as like money they can enable us to get goods and services.

ATM: ATMs are Automatic Teller Machines, which do the job of a teller in a bank through Computer Network. ATMs are located on the branch premises or off branch premises. ATMs are useful to dispense cash, receive cash, accept cheques, give balances in the accounts and also give mini-statements to the customers

Initial Public Offering (IPO): An event where a company sells its shares to the public for the first time. The company can be referred to as an IPO for a period of time after the event

KYC Norms: Know your customer norms are imposed by R.B.I. on banks and other financial institutions to ensure that they know their customers and to ensure that customers deal only in legitimate banking operations and not in money laundering or frauds.

Price/Earnings Ratio (P/E): The measure to determine how the market is pricing the company’s common stock. The price/earnings (P/E) ratio relates the company’s earnings per share (EPS) to the market price of its stock.

Demat Account: Demat Account concept has revolutionized the capital market of India. When a depository company takes paper shares from an investor and converts them in electronic form through the concerned company, it is called Dematerialization of Shares. These converted Share Certificates in Electronic form are kept in a Demat Account by the Depository Company, like a bank keeps money in a deposit account. Investor can withdraw the shares or purchase more shares through this demat Account.

Fiscal deficit- It occurs when a government’s total expenditures exceed the revenue that it generates, excluding money from borrowings.

Current account deficit- It is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the goods and services it exports.

Twin deficits refer to a situation where an economy is running both a fiscal deficit and also a deficit on the current account of the balance of payments.

Balance of payments (balance of international payments) – It encompasses all transactions between a country’s residents and its non-residents involving goods, services and income, financial claims on and liabilities to the rest of the world and transfers such as gifts.

BOP Deficit – It is a situation in which imports of goods, services, investment income and transfers exceed the exports of goods, services, investment income and transfers

BOP Surplus – A vice-versa of BOP Deficit

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