Important Banking Terminology
1. Basis Points : A basis point is equal to one-hundredth of a percentage point. For example, one basis point is equal to 0.01% and 100 basis points is equal to 1.0%.
2. Bank Rate : Bank rate is the rate charged by the central bank for lending funds to commercial banks and other financial institutions.
3. Liquidity Adjustment Facility (LAF) : It is a monetary policy tool which allows banks to borrow money through repurchase agreements. LAF consists of repo and reverse repo operations.
4. Repo Rate : It is the rate at which the central bank of a country (in India, it is RBI) lends money to commercial banks in the event of any shortfall of funds.
5. Reverse Repo Rate : It is the rate at which the central bank of a country (in India, it is RBI) borrows money from commercial bank within the country.
6. Cash Reverse Ratio (CRR) : CRR is the amount of funds that the banks have to keep with RBI. If RBI increases CRR, the available amount with the banks comes down.
7. Statutory Liquid Ratio (SLR) : SLR is the amount a commercial banks needs to maintain in the form of cash, or gold, or govt. approved securities (Bonds) before providing credit to the customers.
8. Marginal Standing Facility (MSF) : MSF rate is the rate at which banks borrow funds overnight from the RBI against approved government securities.
9. National Electronic Fund Transfer (NEFT) : NEFT enables funds transfer from one bank to another but works a bit differently than RTGS. NEFT is slower than RTGS.
10. Real Time Gross Settlement (RTGS) : RTGS system is funds transfer system where transfer of money or securities takes place from one bank to another on a "real time" and on "gross" basis. Minimum and Maximum Limit of RTGS : 2 lakh and no upper limit.
11. Fiscal Deficit : Fiscal Deficit is the difference between the total income of the government in a fiscal year (total taxes and non-debt capital receipts) and its total expenditure.
12. Direct Tax : A direct tax is that which is paid directly by someone to taxing authority. Income tax and property tax are an examples of direct tax.
13. Indirect Tax : Indirect taxes are basically taxes that can be passed on to another entity or individual. They are usually imposed on a manufacturer or supplier who then passes on the tax to the consumer. The most common example of an indirect tax is the excise tax on cigarettes and alcohol. Value Added Taxes (VAT) are also an example of an indirect tax.
14. NOSTRO Account : A NOSTRO account is maintained by an Indian Bank in the foreign countries.
15. VOSTRO Account : A VOSTRO account is maintained by a foreign bank in India with their corresponding bank.
16. Special Drawing Rights (SDR) : Special drawing rights are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund in 1967.
17. BOND : Publicly trading term debt securities issued by corporations and governments, whereby the issuer agrees to pay a fixed amount of interest over a specific period of time and to repay a fixed amount of principal maturity.
18. 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.
19. Non Performing Assets (NPA) : A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
20. Inflation : Inflation is a rise in the general level of prices of goods and services in an economy over some period of time.
21. Gross Domestic Product (GDP) : An estimated value of the total worth of a country's production and services, within its boundary, by its nationals and foreigners, calculated over the course on one year.
NOTE : GDP = consumption + investment + (government spending) + (exports - imports).
22. Gross National Product (GNP) : An estimated value of the total worth of production and services, by citizens of a country, on its land or on foreign land, calculated over the course on one year.
NOTE : GNP = GDP + NR (Net income inflow from assets abroad or Net Income Receipts) - NP (Net payment outflow to foreign assets). Total value of Goods and Services produced by all nationals of a country (whether within or outside the country).
0 Comments