Glossary of Banking Terms | Banking Terminology | Federal Bank

A

Account balance

Balance in the account can be Opening Account Balance or Closing Account Balance. Opening Account Balance / Beginning of the Day (BOD) Balance is the balance in an account at the beginning of each business day; includes all deposits and withdrawals that were posted from the previous night, whether or not funds have been collected. Closing Account Balance / End of the Day (EOD) Balance is the account balance computed at the end of the business day, and is the adjusted balance of the credits and debits during the business day in the account of the customer.

Account Statement

Periodic statement of all the debit and credit transactions on an account for a given statement cycle.

Active Account

A bank account in which there are regular transactions. A bank account that is not dormant or inoperative or under an attachment order of the court or enforcement authorities.

Amortization

Amortization is the repayment of Principal and Interest components of a Loan, over a period of time. Certain category of expenses or charges are also amortized over a period of time.

Anytime Banking

With introduction of ATMs, Tele-Banking and internet banking, customers can conduct their business anytime of the day and night. The 'Banking Hours' is not a constraint for transacting banking business

Anywhere Banking

Refers to banking not only by ATMs, Tele-Banking and internet banking, but also to core banking solutions brought in by banks where customer can deposit his money, cheques and also withdraw money from any branch connected with the system. All major banks in India have brought in core banking in their operations to make banking truly anywhere banking.

APR

Annual Percentage Rate (also commonly referred to as Annualized Rate) is the annual rate that is charged for borrowing expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. The purpose of the number is to function as a reference and comparison of similar rates. APR assumes significance because lenders/banks may quote interest rates in different ways to customers and the period of investment may vary from one day to many years.

APY

Annual percentage yield (APY) is the percentage rate reflecting the total amount of interest paid on a deposit account (savings, CDs etc.), based on the interest rate and the effect of interest compounding for one year.

AQB

Average Quarterly Balance (AQB) is the sum of the end of the day balances in the quarter divided by total number of days in the quarter

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.

B

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.

Bank Draft

An instrument issued by one branch of a bank on another branch of the bank containing an order to pay a certain sum on demand to the person named on the draft. It is used to transfer funds and to settle outstanding balances between banks, or to provide a customer with funds payable at a bank in a different location. Bank drafts are valid for certain period, generally, for 3 months, as indicated over face of draft

Banker's Cheque

A cheque issued by a branch of a bank against consideration received. Banker's cheque are valid for a certain period as indicated on the face of the cheque. (also called Pay Order).

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

Banking Ombudsman

Banking Ombudsman 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.

Basel-II

The Committee on Banking Regulations and Supervisory Practices, popularly known as Basel Committee, submitted its revised version of norms in June, 2004. Under the revised accord the capital requirement is to be calculated for credit, market and operational risks. The minimum requirement continues to be 8% of capital fund (Tier I & II Capital) Tier II shall continue to be not more than 100% of Tier I Capital.

Bouncing of a cheque

Where an account does not have sufficient balance to honour the cheque issued by the customer , the cheque is returned by the bank with the reason "funds insufficient" or "Exceeds arrangement".This is known as 'Bouncing of a cheque'

Business of Banking

Accepting deposits, borrowing money, lending money, investing, dealing in bills, dealing in Foreign Exchange, Hiring Lockers, Opening Safe Custody Accounts, Issuing Letters of Credit, Traveller's Cheques, doing Mutual Fund business, Insurance Business, acting as Trustee or doing any other business which Central Government may notify in the official Gazette.

C

Certificate of Deposit

Certificate of Deposits are negotiable receipts in bearer form which can be freely traded among investors. This is also a money market instrument, issued for a period ranging from 7 days to f one year .The minimum deposit amount is Rs. 1 lakh and they are transferable by endorsement and delivery.

Cheque

Cheque is a Bill of Exchange drawn on a specified banker ordering the banker to pay a certain sum of money to the drawer of cheque or another person. Money is generally withdrawn by clients by cheques. Cheque is always payable on demand

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.

Collecting Banker

Also called receiving banker, who collects on instruments like a cheque, draft or bill of exchange, lodged with himself for the credit of his customer's account.

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

Co-operative Society

When an association of persons collectively own and operate a unit for the benefit of those using its services like Apna Bazar Co-operative Society or Sahakar Bhandar or a Co-operative Housing Society.

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 branch with core banking facility.

Creditworthiness

It is the capacity of a borrower to repay the loan / advance in time along with interest as per agreed terms.

Crossing of Cheques

Crossing refers to drawing two parallel lines across the face of the cheque.A crossed cheque cannot be paid in cash across the counter. It is to be paid through a bank either by transfer, collection or clearing.A general crossing means that cheque can be paid through any bank and a special crossing, where the name of a bank is indicated on the cheque means it can be paid only through the named bank.

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.

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. You need this number when shopping online or over the phone.

D

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. You can use debit cards at ATMs, Shopping Outlets, Online Purchase and at many points where debit card is accepted.

Debtor

A person who takes some money on loan from another person

Demand Deposits

Deposits which are withdrawn on demand by customers.E.g. savings bank and current account deposits.

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.

Dishonour of Cheque

Non-payment of a cheque by the paying banker with a return memo giving reasons for the non-payment.

E

EFT - (Electronic Fund Transfer)

EFT is a device to facilitate automatic transmission and processing of messages as well as funds from one branch to another branch of the same bank 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.

Either or Survivor

Refers to operation of the account opened in two names with a bank. It means that any one of the account holders has powers to withdraw money from the account, issue cheques, give stop payment instructions etc. In the event of death of one of the account holder, the surviving account holder gets all the powers of operation.

Electronic Commerce (E-Commerce)

E-Commerce is the paperless commerce where the exchange of business takes place by Electronic means.

EMI

Equated Monthly Installment (EMI) refers to the monthly payment a borrower makes on his loan. Though it is a combination of interest payment and principal repayment, the total monthly amount is calculated in such a way that it remains constant all through the repayment tenure.

Endorsement

When a Negotiable Instrument contains, on the back of the instrument an endorsement, signed by the holder or payee of an order instrument, transferring the title to the other person, it is called endorsement.

Endorsement in Blank

Where the name of the endorsee or transferee is not mentioned on the instrument.

Endorsement in Full

Where the name of the endorsee or transferee appears on the instrument while making endorsement.

Execution of Documents

Execution of documents is done by putting signature of the person, or affixing his thumb impression or putting signature with stamp or affixing common seal of the company on the documents with or without signatures of directors as per articles of association of the company.

F

Factoring

Business of buying trade debts at a discount and making a profit when debt is realized and also taking over collection of trade debts at agreed prices.

Foreign Banks

Banks incorporated outside India but operating in India and regulated by the Reserve Bank of India (RBI),. e.g., Barclays Bank, HSBC, Citibank, Standard Chartered Bank, etc.

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.

Forgery

when a material alteration is made on a document or a Negotiable Instrument like a cheque, to change the mandate of the drawer, with intention to defraud.

G

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.

General Lien

A right of the creditor to retain possession of all goods given in security to him by the debtor for any outstanding debt.

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.

H

Holder in due course

A person who receives a Negotiable Instrument for value, before it was due and in good faith, without notice of any defect in it, he is called holder in due course as per Negotiable Instrument Act.

Holder of cheque

Holder means any person entitled in his own name to the possession of the cheque, bill of exchange or promissory note and who is entitled to receive or recover the amount due on it from the parties.

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.

I

Identification

When a person provides a document revealing his identity or is being identified by another person, who is known to the bank, it is called identification. Banks ask for identification before paying an order cheque or a demand draft across the counter.

IFSC

India Financial System Code (IFSC) is an 11-digit alphanumeric (letters and numbers) code that helps identify bank branches. The first four numbers represent the bank's code (alphabetic), the fifth number is a control character (0), and the next six numbers denote a bank branch. For example, the IFSC for Federal Bank Ltd's Angamally branch reads as FDRL0001002. This code is mentioned on your cheque. Different banks mention it at different places on the cheque.

Indemnifier

A person who indemnifies or guarantees to make good any loss caused to the lender from his actions or others' actions

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.

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.

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.

International Banking

Involves more than two nations or countries. If an Indian Bank has branches in different countries like State Bank of India, it is said to do International Banking.

Introduction

Banks insist for the introduction of a prospective customer by an existing account holder or a staff member or by any other person known to the bank for opening of account. If bank does not take introduction, it will amount to negligence and will not get protection under law.

J

Joint Account

When two or more individuals jointly open an account with a bank.

K

Karta

Manager of a Hindu Undivided Family (HUF) who handles the family business. He is usually the eldest male member of the undivided family.

Kiosk Banking

Doing banking from a cubicle from which food, newspapers, tickets etc. are also sold.

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 fraud.

L

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

Letter of Credit

A document issued by importers bank to its branch or agent abroad authorizing the payment of a specified sum to a person named in Letter of Credit (usually exporter from abroad). Letters of Credit are covered by rules framed under Uniform Customs and Practices of Documentary Credits framed by International Chamber of Commerce in Paris.

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.

M

Mandate

Written authority issued by a customer to another person to act on his behalf, to sign cheques or to operate a bank account

MCC

Multi-city cheques are denoted as MCC. MCC cheques can be en-cashed anywhere in India, irrespective of the city they were issued in. They are treated as local clearing cheques across the country. The amount is credited in the account the same day and there are no inter-city collection charges associated with a normal cheques being en-cashed in another city. A cheque issued at a branch in Chennai, can be en-cashed at a branch in Mumbai as if it were a local cheque. There would be a notation on the top or the bottom of a cheque indicating its status as as PAP or MCC cheque

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.

MICR Code

Magnetic Ink Character Recognition (MICR code (pronounced my-ker) is a nine-digit number printed on banking instruments such as a cheque or a demand draft using a special type of ink made of magnetic material. The first three digits denote the city. The fourth to sixth digits denote the bank, while the last three digits denote the branch number. The code is read by a machine, minimizing the chances of error in clearing of cheques, thereby making funds transfer faster. You will find the number on the right of the cheque number at the bottom of the cheque leaf. MICR code allows money to drop directly into your bank account for payments such as salaries and dividends. Your tax refund will come to you faster if you remember to mention this on the refund form. Refunds of unwanted money in initial public offers, too, drop back if you put down your code on the application form.

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.

Minor Accounts

A minor is a person who has not attained legal age of 18 years. As per Contract Act a minor cannot enter into a contract but as per Negotiable Instrument Act, a minor can draw, negotiate, endorse, receive payment on a Negotiable Instrument so as to bind all the persons, except himself. In order to boost their deposits many banks open minor accounts with some restrictions.

Mobile Banking

With the help of M-Banking or mobile banking customer can check his bank balance, order a demand draft, stop payment of a cheque, request for a cheque book and have information about latest interest rates.

Money Laundering

When a customer uses banking channels to cover up his suspicious and unlawful financial activities, it is called money laundering.

Money Market

Money market is not an organized market like Bombay Stock Exchange but is an informal network of banks, financial institutions who deal in money market instruments of short term like CP, CD and Treasury bills of Government.

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.

Mortgage

A minor is a person who has not attained legal age of 18 years. As per Contract Act a minor cannot enter into a contract but as per Negotiable Instrument Act, a minor can draw, negotiate, endorse, receive payment on a Negotiable Instrument so as to bind all the persons, except himself. In order to boost their deposits many banks open minor accounts with some restrictions.

N

NACH

National Automated Clearing House (NACH), introduced by National Payments Corporation of India, is a centralised clearing service that aims at providing interbank high volume, low value transactions that are repetitive and periodic in nature.

NEFT

National Electronic Fund Transfer enables funds transfer from one bank to another but works a bit differently than RTGS since the settlement takes place in batches rather than individually, making NEFT slower than RTGS. The transfer is not direct and RBI acts as the service provider to transfer the money from one account to another. You can transfer any amount through NEFT, even a rupee. You won't have to pay any fee for inward transfer of funds, but outward transactions are chargeable.

Negotiation

In the context of banking, negotiation means an act of transferring or assigning a money instrument from one person to another person in the course of business.

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.

Non-Resident

A person who is not a resident of India is a non-resident.

Non-Resident Accounts

Accounts of non-resident Indian citizens opened and maintained as per R.B.I. Rules.

NPA Account

If interest and installments 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.

O

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 etc. The mention "off Balance Sheet items" is often found in Auditors' Reports or Directors' Reports.

Online Banking

Banking through internet site of the bank which is made interactive

P

PAP

PAP cheques means those cheques which are Payable at par. PAP cheques can be en-cashed anywhere in India, irrespective of the city they were issued in. They are treated as local clearing cheques across the country. The amount is credited in the account the same day and there are no inter-city collection charges associated with a normal cheques being en-cashed in another city. There would be a notation on the top or the bottom of a cheque indicating its status as as PAP cheque.

Pass Book

A record of all debit and credit entries in a customer's account. Generally all banks issue pass books to Savings Bank/Current Account Holders.

Personal Identification Number (PIN)

Personal Identification Number is a number which an ATM card holder has to key in before he is authorized to do any banking transaction in an ATM .

Phishing

Phishing is the fraudulent attempt to obtain sensitive information or data, such as usernames, passwords and credit card details or other sensitive details, by impersonating oneself as a trustworthy entity in a digital communication.

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.

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.

Post-Dated Cheque

A Cheque which bears the date which is subsequent to the date when it is drawn. For example, a cheque drawn on 8th of February, 2007 bears the date of 12th February, 2007

Power of Attorney

A minor is a person who has not attained legal age of 18 years. As per Contract Act a minor cannot enter into a contract but as per Negotiable Instrument Act, a minor can draw, negotiate, endorse, receive payment on a Negotiable Instrument so as to bind all the persons, except himself. In order to boost their deposits many banks open minor accounts with some restrictions.

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.

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.

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.

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.

Public Sector Bank

A bank fully or partly owned by the Government

R

Rescheduling of Payment

Rearranging the repayment of a debt over a longer period than originally agreed upon due to financial difficulties of the borrower.

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.

Restructuring of account

A restructured account is one where the bank, grants to the borrower concessions that the bank would not otherwise consider. Restructuring would normally involve modification of terms of the advances/securities, which would generally include, among others, alteration of repayment period/ repayable amount/ the amount of installments and rate of interest. It is a mechanism to nurture an otherwise viable unit, which has been adversely impacted, back to health.

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.

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 the other account, it is called right of set-off. For example, the debit balance of Rs.50,000/- in an overdraft account can be set off against the credit balance of Rs.75,000/- in a Savings Bank Account of the same customer, leaving a balance of Rs.25,000/- credit in the savings account.

RTGS

Real Time Gross Settelement(RTGS) is a fund transfer mechanism that enables money to move from one bank to another on a real time and gross basis. Simply put, real time means the transaction is settled instantly without any waiting period and gross means that it is not bunched with any other transaction.You can transfer a minimum of Rs. 2 lakh through RTGS; there is no upper ceiling though. RTGS is the fastest inter-bank money transfer facility available through secure banking channels in India.

S

Safe Custody

When articles of value like jewellery, boxes, shares, debentures, Government bonds, Wills or other documents or articles are given to a bank for safe keeping in its safe vault,it is called safe custody.. Bank charges a fee from its clients for such safe custody.

Savings Bank Account

A minor is a person who has not attained legal age of 18 years. As per Contract Act a minor cannot enter into a contract but as per Negotiable Instrument Act, a minor can draw, negotiate, endorse, receive payment on a Negotiable Instrument so as to bind all the persons, except himself. In order to boost their deposits many banks open minor accounts with some restrictions.

T

Teller

Teller is a staff member of a bank who accepts deposits, cashes cheques and performs other banking services for the public.

U

Underwriting

Is an agreement by the underwriter to buy on a fixed date and at a fixed rate, the un-subscribed portion of shares or debentures or other issues. Underwriter gets commission for this agreement.

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.

V

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.

Vishing

Vishing is a fraudulent practice of making phone calls or leaving voice messages purporting to be from reputable companies in order to induce individuals to reveal personal information, such as bank details and credit card numbers.

W

Wholesale Banking

Wholesale banking is different from Retail Banking as its focus is on providing for financial needs of industry and institutional clients.

Accounts & Deposits

Loans

Fintech Partnerships

Cards

Insurance & Investments

Priority Banking

Celesta

Imperio

Federal 24x7

Transfer Funds

Pay Fees & Bills

Shop Online & More

Invest & Donate

Internet Banking

Mobile Banking

Conversational Banking

ATMs

Other Services

Accounts & Deposits

Loans

Insurance & Investments

Cards

Priority Banking

Send Money to India in Indian Rupee

Send Money to India in Foreign Currency

Track Your Remittance Online

Transfer Funds

Pay Fees & Bills

Shop & More

Invest & Donate

Online Banking

Mobile Banking

Conversational Banking

ATMs

Other Services

Accounts & Deposits

Treasury Products

SME & Agri Loans

Corporate Finance

Trade Finance

Transfer Funds

Payment & Collection Services

Online & e-Commerce Services

Cards

Internet Banking

Mobile Banking

Conversational Banking

ATMs

Open Banking