BANKING TERMS WITH EXPLANATION
It is the rate of interest charged by a central bank to commercial banks on the advances and the loans it extends.
It is the minimum rate a bank charges its most credit worthy customer. The bank cannot lend below this rate (with an exception to banks employees, loans to bank’s depositors against their own deposits, albeit with the subvention of the central bank).
Balance transfer is an option included under credit card payments and is useful for persons holding more than one card. On availing this facility, the cardholder can transfer the balance amount outstanding on card one to card two, if he/she is not able to make full payment that is due on a particular card.
In any case, the payment due date is only delayed but the payment has to be made at the scheduled time as stated in card two. Balance transfer facility is useful in reducing the interest outgo (on card one) and extending the payment due date on the original card.
Banking Ombudsman is an unbiased forum formed to resolve complaints registered by bank customers with respect to the services provided by banks. The RBI introduced this scheme under Section 35A of Banking Regulation Act, 1949. In case one has not been satisfactorily serviced by their bank, they should first register a complaint with the bank customer service department.
If they are not happy with the bank’s response, then they can approach the banking ombudsman for an unbiased resolution.
Bouncing of a cheques
After a cheque is deposited and the payment is not honoured, it is called as bouncing of cheques. The cheques could bounce for multiple reasons like insufficient funds or signature mismatch.
Core Banking Solutions (CBS)
In this all the branches of the bank are connected together and the customer can access his/her funds or transactions from any other branch.
CRR (Cash Reverse Ratio)
The amount of funds that banks keep with the RBI. If the percentage of CRR increases then the amount with the bank comes down.
The term ‘cashback’ is used with reference to credit cards. Cashback means giving back some portion of money (spent by the cardholder through the credit card) to the cardholder himself. The cashback is made in terms of points earned; for example, the bank may say one point will be earned for every Rs 100 spent by the cardholder and at the end of the year; the money worth of the points earned (say Rs 1 for 1 point) will be credited back into the cardholder’s account.
Credit history is an account of an individual’s past borrowings by way of loans, credit cards and all other debt that needs to be repaid/has been repaid. Credit history in India is currently being provided by CIBIL (Credit Information Bureau of India Limited) and contains records of an individual’s open and past accounts of loans and credit cards.
Through the CIBIL report, the bank (lender) can know if the individual (borrower) had made any late payments or defaults. You can get your own credit history report from CIBIL for a nominal fee.
A borrower needs to provide some kind of security to the bank in case of high ticket loans. Such security is called ‘collateral’.
In case the borrower fails to repay the loan, the bank has the authority to attach the collateral to the loan and claim its dues.
CVV: Card verification value
CVV is an anti-fraud security feature that helps verify that you are in possession of your credit card and making the transaction.
CVV is usually a three-digit number printed on the signature panel at the back of your credit card.
Bank requires certain documents from the borrower to look into his creditworthiness and charges a fee for the same. These charges are known as documentation charges.
Processing Fee is charged by the bank upon sanctioning of loan to the borrower.
If an individual has not made any transactions in his/her account (except for interest payments credited by the bank) for more than two years, the savings/current account is declared as dormant/inactive.
It is a card issued by the bank so the customers can withdraw their money from their account electronically.
The way in which a bank keeps money in a deposit account in the same way the Depository Company converts share certificates into electronic form and keep them in a Demat account.
Electronic Clearing Service (ECS)
It is a service provided by the banks to facilitate direct debit from your bank account towards an investment account (such as a mutual fund SIP) and/or paying regular loan EMIs.
One can give a standing instruction (SI) to the bank to transfer the specified amount every month for a specified period.
EMI (Equated Monthly Instalments)
Although a very common term, it is not understood well. EMI as the name suggested is the amount calculated to pay back the loan amount on monthly basis. It is calculated on the basis of Interest rate, tenure and of course the loan amount. Every installment has both the components of principal and interest.
Fixed rate is the interest rate that remains constant for the full term of the loan
An interest rate, that is referenced to a benchmark rate and is revised as per the change in the interest rates in the economy. When interest rates in the economy rise, floating rates rise
IFSC is useful in bank fund transfers and cheque clearance. It is an 11 character code assigned by RBI to identify every bank branch uniquely. The first part is the first 4 alphabet characters representing the bank. Next character is 0 (zero) and is reserved for future use. The last 6 characters is the branch code.
KYC or Know Your Customer norms are imposed by RBI on banks and other financial institutions to ensure that the correct identity of the banks’ customers is established and to ensure that banks deal only in legitimate banking operations and not in money laundering or frauds.
Any account linked to another account in the same bank where funds can be transferred electronically between accounts and carry out other specified services as well.
MICR stands for Magnetic Ink Character Recognition. MICR Code comprises 9 digits given at the bottom (right side) of the cheque number. It is a unique code and varies between each bank branch.
MICR Code is required for cheque clearance. MICR Code is different from the IFSC code, which is also mentioned on a cheque.
National Electronic Funds Transfer (NEFT)
Transfer of funds initiated by electronic means such as an electronic terminal, telephone, computer, or ATM. The NEFT facilitates the process of fund transfer within the same bank or inter-bank transfers. The minimum amount that can be transferred is as low as Rs 100.
This account is a basic savings account provided by banks to make banking simpler and more accessible for all customers.
Overdraft is a loan facility provided by the bank. This generally provided against a security (collateral). The main feature of this loan is that an overdraft limit is given to your account and you can use any amount to the extent of limit. Due to this you pay interest only on the amount you use and not the entire limit sanctioned. Generally there is no EMI system in this kind of loan.
Commercial banks borrow funds by the RBI if there is any shortage in the form of rupees. If this rate increases it becomes expensive to borrow money from RBI and vice versa.
Reducing rate of interest
Interest on the loan taken by you can be charged in two ways that is fixed rate for the term or at the reducing rate. Reducing rate means that the interest will be charged only on the outstanding amount, which keeps on reducing with every EMI or any kind of repayment. It is always advisable to take loan on a reducing balance.
The RTGS or Real Time Gross Settlement System facilitates fund transfer within same bank or inter-bank transfers, but unlike NEFT, RTGS ensures the fund transfer fast and smooth in ‘real-time’ for a nominal fee.
The minimum transfer amount is higher than NEFT (usually Rs 2 lakh and above).
SLR (Statutory Liquidity Ratio)
It is amount that a commercial bank should have before giving credits to its customers which should be either in the form of gold, money or bonds.
Cheques issued by a bank and function as cash but are protected against loss or theft when travelling.
He/she is a staff member of the bank who cashes cheques, accepts deposits and performs different banking services for the general mass. ATM is derived from this terminology Automatic Teller Machine
When financial institutions and banks undertake activities related to banking like investment, issue of debit and credit card etc then it is known as universal banking.
Internet banking is sometimes known as virtual banking. It is called so because it has no bricks and boundaries. It is controlled by the World Wide Web.
It is similar to retail banking with a slight difference that it mainly focuses on the financial needs of the institutional clients and the industry.