If you want to make a career in any field it is important that you are aware of basic terminology and jargon of that area. So if you want to join the banking industry. it is pertinent that you have a understanding and familiarity with the commonly used banking terms. Knowledge of these banking terms will play a important role in your final selection as they are commonly asked in both the banking written exams and interviews.

Banking terms may also be asked in other competitive exams, so it is important that you are aware of these terms especially if you are not from commerce background.

Here we have furnished the most commonly used banking terms in an alphabetical order

1. Adjustable-Rate Mortgages (ARMS) – Also known as variable-rate mortgages. The initial interest rate is usually below that of conventional fixed-rate loans. The interest rate may change over the life of the loan as market conditions change.
   There is typically a maximum (or ceiling) and a minimum (or floor) defined in the loan agreement. If interest rates rise, so does the loan payment. If interest rates fall, the loan payment may as well.
2. Annual Percentage Yield (APY) – A percentage rate reflecting the total amount of interest paid on a deposit account based on the interest rate and the frequency of compounding for a 365-day year.
3. Annuity – A life insurance product which pays income over the course of a set period
4. Bank Ombudsman – It is the authority to look into complaints against Banks in the main areas of collection of cheque / bills, issue of demand drafts, non-adherence to prescribed hours of working, failure to honour guarantee / letter of credit commitments, operations in deposit accounts and also in the areas of loans and advances where banks flout directions / instructions of RBI. This Scheme was announced in 1995 and is functioning with new guidelines from 2007. This scheme covers all scheduled banks, the RRBs and co-operative banks.
5. Bancassurance : Bancassurance refers to the distribution of insurance products and the insurance policies of insurance companies which may be life policies or non-life policies like home insurance – car insurance, medi-policies and others, by banks as corporate agents through their branches located in different parts of the country by charging a fee.
6. Banker’s Lien : Bankers lien is a special right of lien exercised by the bankers, who can retain goods bailed to them as a security for general balance of account. Bankers can have this right in the absence of a contract to the contrary.
7. BASEL Committee on Banking Supervision – The BASEL Committee is a committee of bank supervisors consisting of members from each of the G10 countries. The Committee is a forum for discussion on the handling of specific supervisory problems. It coordinates the sharing of supervisory responsibilities among national authorities in respect of banks’ foreign establishments with the aim of ensuring effective supervision of banks’ activities worldwide.
8. Brick & Mortar Banking : Brick and Mortar Banking refers to traditional system of banking done only in a fixed branch premises made of brick and mortar.
9. Capital reserves – It is that portion of a company’s profits not paid out as dividends to shareholders. They are also known as undistributable reserves and are ploughed back into the business.
10. Capital to Risk Weighted Assets Ratio (CRAR) – 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. The higher the CRAR of a bank the better capitalized it is.
11. Cash reserve Ratio(CRR) – Cash reserve ratio is the cash parked by the banks in their specified current account maintained with RBI.
12. Cheque Truncation : Cheque truncation, truncates or stops the flow of cheques through the banking system. Generally truncation takes place at the collecting branch, which sends the electronic image of the cheques to the paying branch through the clearing house and stores the paper cheques with it.
13. Consumer Protection Act : It is implemented from 1987 to enforce consumer rights through a simple legal procedure. Banks also are covered under the Act. A consumer can file complaint for deficiency of service with Consumer District Forum for amounts upto Rs.20 Lacs in District Court, and for amounts above Rs.20 Lacs to Rs. 1 Crore in State Commission and for amounts above Rs.1 Crore in National Commission.
14. Co-operative Bank : An association of persons who collectively own and operate a bank for the benefit of consumers / customers, like Saraswat Co-operative Bank or Abhyudaya Co-operative Bank and other such banks.
15. Core Banking Solutions (CBS) : Core Banking Solutions is a buzz word in Indian banking at present, where branches of the bank are connected to a central host and the customers of connected branches can do banking at any breach with core banking facility.
16. Current Account : Current account with a bank can be opened generally for business purpose. There are no restrictions on withdrawals in this type of account. No interest is paid in this type of account.
17. Debit Card : A plastic card issued by banks to customers to withdraw money electronically from their accounts. When you purchase things on the basis of Debit Card the amount due is debited immediately to the account.
18. Debt-to-Income Ratio (DTI) – The percentage of a consumer’s monthly gross income that goes toward paying debts. Generally, the higher the ratio, the higher the perceived risk. Loans with higher risk are generally priced at a higher interest rate.
19. 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.
20. E-Banking : E-Banking or electronic banking is a form of banking where funds are transferred through exchange of electronic signals between banks and financial institution and customers ATMs, Credit Cards, Debit Cards, International Cards, Internet Banking and new fund transfer devices like SWIFT, RTGS belong to this category.
21. EFT – (Electronic Fund Transfer) : EFT is a device to facilitate automatic transmission and processing of messages as well as funds from one bank branch to another bank branch and even from one branch of a bank to a branch of another bank. EFT allows transfer of funds electronically with debit and credit to relative accounts.
22. Forfaiting : In International Trade when an exporter finds it difficult to realize money from the importer, he sells the right to receive money at a discount to a forfaiter, who undertakes inherent political and commercial risks to finance the exporter, of course with assumption of a profit in the venture.
23. Garnishee Order : When a Court directs a bank to attach the funds to the credit of customer’s account under provisions of Section 60 of the Code of Civil Procedure, 1908.
24. General Lien : A right of the creditors to retain possession of all goods given in security to him by the debtor for any outstanding debt.
25. Guarantee : A contract between guarantor and beneficiary to ensure performance of a promise or discharge the liability of a third person. If promise is broken or not performed, the guarantor pays contracted amount to the beneficiary.
26. Hypothecation : Charge against property for an amount of debt where neither ownership nor possession is passed to the creditor. In pledge, possession of property is passed on to the lender but in hypothecation, the property remains with the borrower in trust for the lender.
27. Indian Financial System Code (IFSC) – 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.
28. Indemnifier : When a person indemnifies or guarantees to make good any loss caused to the lender from his actions or others’ actions.
29. Indemnity – Indemnity is a bond where the indemnifier undertakes to reimburse the beneficiary from any loss arising due to his actions or third party actions.
30. Insolvent – Insolvent is a person who is unable to pay his debts as they mature, as his liabilities are more than the assets . Civil Courts declare such persons insolvent. Banks do not open accounts of insolvent persons as they cannot enter into contract as per law.
31. Interest Warrant – When cheque is given by a company or an organization in payment of interest on deposit, it is called interest warrant. Interest warrant has all the characteristics of a cheque.
32. JHF Account – Joint Hindu Family Account is account of a firm whose business is carried out by Manager (Karta) of the Joint family, acting for all the family members.. The family members have common ancestor and generally maintain a common residence and are subject to common social, economic and religious regulations.
33. 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.
34. Law of Limitation – Limitation Act of 1963 fixes the limitation period of debts and obligations including banks loans and advances. If the period fixed for particular debt or loan expires, one can not file a suit for is recovery, but the fact of the debt or loan is not denied. It is said that law of limitation bars the remedy but does not extinguish the right.
35. Lease Financing – Financing for the business of renting houses or lands for a specified period of time and also hiring out of an asset for the duration of its economic life. Leasing of a car or heavy machinery for a specific period at specific price is an example.
36. Limited Companies Accounts – Accounts of companies incorporated under the Companies Act, 1956 . A company may be private or public. Liability of the shareholders of a company is generally limited to the face value of shares held by them.
37. Merchant Banking – When a bank provides to a customer various types of financial services like accepting bills arising out of trade, arranging and providing underwriting, new issues, providing advice, information or assistance on starting new business, acquisitions, mergers and foreign exchange.
38. MICR Code – 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. Donot confuse MICR Code with IFSC Code which is also printed on a cheque.
39. Micro Finance- Micro Finance aims at alleviation of poverty and empowerment of weaker sections in India. In micro finance, very small amounts are given as credit to poor in rural, semi-urban and urban areas to enable them to raise their income levels and improve living standards.
40. Money Laundering – When a customer uses banking channels to cover up his suspicious and unlawful financial activities, it is called money laundering.
    
41. Moratorium –  R.B.I. imposes moratorium on operations of a bank; if the affairs of the bank are not conducted as per banking norms. After moratorium R.B.I. and Government explore the options of safeguarding the interests of depositors by way of change in management, amalgamation or take over or by other means.
42. Mortgage –  Transfer of an interest in specific immovable property for the purpose of offering a security for taking a loan or advance from another. It may be existing or future debt or performance of an agreement which may create monetary obligation for the transferor (mortgagor).
43. 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.
44. Non-Fund Based Limits – Non-Fund Based Limits are those type of limits where banker does not part with the funds but may have to part with funds in case of default by the borrowers, like guarantees, letter of credit and acceptance facility.
45. Non Performing Assets (NPA) – An asset, including a leased asset, becomes non performing when it ceases to generate income for the bank.
46. Notary Public – A Lawyer who is authorized by Government to certify copies of documents .
47. NPA Account : If interest and instalments and other bank dues are not paid in any loan account within a specified time limit, it is being treated as non-performing assets of a bank.
48. Off Balance Sheet Items – Those items which affect the financial position of a business concern, but do not appear in the Balance Sheet E,g guarantees, letters of credit . The mention “off Balance Sheet items” is often found in Auditors Reports or Directors Reports.
49. 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.
50. Pledge – A bailment of goods as security for payment of a debt or performance of a promise, e.g pledge of stock by a borrower to a banker for a credit limit. Pledge can be made in movable goods only.
51. Power of Attorney – It is a document executed by one person – Donor or Principal, in favour of another person , Donee or Agent – to act on behalf of the former, strictly as per authority given in the document.
52. Premature Withdrawals – Term deposits like Fixed Deposits, Call Deposits, Short Deposits and Recurring Deposits have to mature on a particular day. When these deposits are sought to be withdrawn before maturity , it is premature withdrawal.
53. Prime Lending Rate (PLR) – The rate at which banks lend to their best (prime) customers.
54. Priority Sector Advances – Consist of loans and advances to Agriculture, Small Scale Industry, Small Road and Water Transport Operators, Retail Trade, Small Business with limits on investment in equipments, professional and self employed persons, state sponsored organisations for lending to SC/ST, Educational Loans, Housing Finance up to certain limits, self-help groups and consumption loans.
55. Promissory Note – Promissory Note is a promise / undertaking given by one person in writing to another person, to pay to that person , a certain sum of money on demand or on a future day.
56. Provisioning – Provisioning is made for the likely loss in the profit and loss account while finalizing accounts of banks. All banks are supposed to make assets classification . and make appropriate provisions for likely losses in their balance sheets.
57. Public Sector Bank – A bank fully or partly owned by the Government.
58. Restrictive Endorsement – Where endorser desires that instrument is to be paid to particular person only, he restricts further negotiation or transfer by such words as “Pay to Ashok only”. Now Ashok cannot negotiate the instrument further.
59. Right of Appropriation – As per Section 59 of the Indian Contract Act, 1972 while making the payment, a debtor has the right to direct his creditor to appropriate such amount against discharge of some particular debt. If the debtor does not do so, the banker can appropriate the payment to any debt of his customer.
60. Right of Set-Off – When a banker combines two accounts in the name of the same customer and adjusts the debit balance in one account with the credit balance in other account, it is called right of set-off. For example, debit balance of Rs.60,000/- in overdraft account can be set off against credit balance of Rs.85,000/- in the Savings Bank Account of the same customer, leaving a balance of Rs.25,000/- credit in the savings account.
61. Real Time Gross Settlement (RTGS) – 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)
62. Savings Bank Account – Saving Bank account is used for personal purposes and not for business purpose and there are certain restrictions on withdrawals from this type of account. Account holder gets nominal interest in this account.
63. Tier I Capital – Tier I Capital consists mainly of share capital and disclosed reserves (minus goodwill, if any). Tier I items are deemed to be of the highest quality because they are fully available to cover losses, hence it is also termed as core capital.
64. Tier II Capital – Also known as supplementary capital, it consists of certain reserves and certain types of subordinated debt. Tier II items qualify as regulatory capital to the extent that they can be used to absorb losses arising from a bank’s activities. Tier II’s capital loss absorption capacity is lower than that of Tier I capital.
65. Underwriting – is an agreement by the underwriter to buy on a fixed date and at a fixed rate, the unsubscribed portion of shares or debentures or other issues. Underwriter gets commission for this agreement.
66. Universal Banking – When Banks and Financial Institutions are allowed to undertake all types of activities related to banking like acceptance of deposits, granting of advances, investment, issue of credit cards, project finance, venture capital finance, foreign exchange business, insurance etc. it is called Universal Banking.
67. Virtual Banking – Virtual banking is also called internet banking, through which financial and banking services are accessed via internet’s world wide web. It is called virtual banking because an internet bank has no boundaries of brick and mortar and it exists only on the internet.

Information Source : RBI and Institute of Banking and Finance

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