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All Banking Terms and Definitions, Meanings for Bank Exams

All Banking Terms and Definitions, Meanings for Bank Exams

In Banking exams like IBPS, SBI, RBI questions are asked from Banking Awareness sections. In banking awareness you will be asked to answer the questions based on Banking Terms or Banking Terminology. If you have no clear concept in your mind about these terms, then you can't solve those questions. So here we have given the important Banking Terms and Definitions, Meanings for Bank Exams. 

1.  What is Bank Rate ?  

Ans : The interest rate at which at central bank lends money to commercial banks. Often these loans are very short in duration. Managing the bank rate is a preferred method by which central banks can regulate the level of economic activity. Lower bank rates can help to expand the economy, when unemployment is high, by lowering the cost of funds for borrowers. Conversely, higher bank rates help to reign in the economy, when inflation is higher than desired.

2.  What is Liquidity adjustment facility (LAF) ?

Ans : Liquidity adjustment facility (LAF) is a monetary policy tool which allows banks to borrow money through repurchase agreements. LAF is used to aid banks in adjusting the day to day mismatches in liquidity. LAF consists of repo and reverse repo operations.

3.  What is Repo Rate ?

Ans :  Whenever the banks have any shortage of funds they can borrow it form RBI. Repo rate is the rate at which commercial banks borrows rupees from RBI. A reduction in the repo rate will help banks to get money at cheaper rate. When the repo rate increases borrowing form RBI becomes more expensive.

4.  What is Reverse Repo Rate ?

Ans : Reverse Repo rate is the rate at which RBI borrows money from commercial banks. Banks are always happy to lend money to RBI since their money is in the safe hands with a good interest. An increase in reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. One factor which encourages an organisation to enter into reverse repo is that it earns some extra income on its otherwise idle cash.

5.  What is CRR (Cash Reverse Ratio) ?

Ans :  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. RBI is using this method (increase of CRR), to drain out the excessive money from the banks.

6.  What is SLR (Statutory Liquidity Ratio) ?

Ans : 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 its customers. SLR rate is determined and maintained by RBI in order to control the expansion of the bank credit.

7. What is the function of  SLR ?

Ans : With the SLR, the RBI can ensure the solvency  of a commercial banks. It is also helpful to control the expansion of the Bank credits. By changing SLR rates, RBI can increase or decrease bank credit expansion. Also through SLR, RBI compels the commercial banks to invest in the government securities like govt. bonds.

Main use of SLR: 

Ans : SLR is used to control inflation and propel growth. Through SLR rate the money supply in the system can be controlled effectively.

8.  What is Marginal Standing Facility (MSF) ?

Ans : MSF rate is the rate at which banks borrow funds overnight from the Reserve Bank of
India (RBI) against approved government securities.

8.  What is Commercial Paper (CP)

Ans : Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. Corporates, primary dealers (PDs) and the All-India Financial Institutions (FIs) are eligible to issue CP.

10. What is the Maturity period of Commercial Paper (CP) ?

Ans : Maturity period is between a minimum of 7 days and a maximum of up to one year from the date of issue. CP can be issued in denominations of Rs.5 lakh or multiples thereof. Only a scheduled bank can act as an IPA (Issuing and Paying Agent) for issuance of CP.

11. What is Treasury Bills ?

Ans : Treasury bills (T-bills) offer short-term investment opportunities, generally up to one year. They are thus useful in managing short-term liquidity. At present, the Government of India issues three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day. There are no treasury bills issued by State Governments. Treasury bills are available for a minimum amount of Rs.25,000 and in multiples of Rs. 25,000. Treasury bills are issued at a discount and
are redeemed at par. Treasury bills are also issued under the Market Stabilization Scheme (MSS).

12. What is Certificates of Deposit (CD) ?

Ans : Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialised form or as a Usance Promissory Note against funds deposited at a bank or other eligible financial institution for a specified time period.

13. Which organization can issue Certificates of Deposit (CD) ?

Ans :

Scheduled commercial banks {excluding Regional Rural Banks and Local Area Banks}; and
(ii) select All-India Financial Institutions (FIs) that have been permitted by RBI Minimum amount of a CD should be Rs.1 lakh, and in multiples of Rs. 1 lakh thereafter.

Maturity period of CD :

The maturity period of CDs issued by banks should not be less than 7 days and not more than one year, from the date of issue.

14. What Fiscal Deficit means ?

Ans : A deficit in the government budget of a country and represents the excess of expenditure over income. So this is the amount of borrowed funds require by the government to meet its expenditures completely.

15. What do you mean by Direct Tax ?

Ans : 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. They are not shifted to somebody else.

16. What do you mean by Indirect Tax ?

Ans : This type of tax is not paid by someone to the authorities and it is actually passed on to the other in the form of increased cost. They are levied on goods and services produced or purchased. Excise Tax, Sales Tax, Vat, Entertainment tax are indirect taxes.

17. What is a NOSTRO Account ?

Ans : A Nostro account is maintained by an Indian Bank in the foreign countries.

18. What is a VOSTRO Account ?

Ans : A Vostro account is maintained by a foreign bank in India with their corresponding bank.

19. What is SDR (Special Drawing Rights) ?

Ans : SDR are new form of International reserve assets, created by the International Monetary
Fund in 1967. The value of SDR is based on the portfolio of widely used countries and they are maintained as accounting entries and not as hard currency or physical assets like Gold.

20. What do you mean by Cheque ?

Ans : Cheque is a negotiable (which can be transferred to another person in exchange of money) instrument drawn on a specified banker ordering the banker to pay a certain sum of money to the drawer of cheque or another person. Cheque is always payable on demand.

21. What ate the Types of Cheque ?
  1. Ante Dated Cheque
  2. Stale Cheque
  3. Post Dated Cheque
22. What is Ante Dated Cheque?

Ans : A cheque bearing a date prior to actual date of signing the cheque or opening of an account is called an ante dated cheque which is valid and can be paid till it become stale.

23. What is Stale Cheque ?

Ans :  If the validity of the cheque has already expired it is called stale cheque which cannot be paid. The normal maximum validity of cheque is 3 months earlier it was 6 months.

24. What is Post Dated Cheque ?

Ans : The cheque which bears a date subsequent to the date on which it is drawn. For ex. A cheque
drawn on 10th January, 2013 bears the date of 12th January, 2013.

25.  What Crossing of Cheque means ?

Ans : Crossings refers to drawing two parallel lines across the face of the cheque.  A crossed cheque cannot be paid in cash across the counter, and 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 means where the name of the Bank is indicated on the cheque can be paid only through the named bank.

26. What do you mean by Dishonour of Cheque ?

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

27. . What is a Demand Draft ?

Ans : Demand draft is defined as an order to pay money drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand.  Cheque and Demand draft both are used for transfer of money. Difference b/w Cheque & DD: A cheque can be bounce but D.D cannot be bounce as it is already paid.

28. What is Current account ?

Ans : 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.

29. What is NEFT (National Electronic Fund Transfer) ?

Ans : NEFT enables funds transfer from one bank to another but works a bit differently than RTGS. NEFT is 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.

30. What is the maximum limit of NEFT ?

Ans : 
  1. Minimum & Maximum Limit of NEFT: no limit. 
  2. Limit of NEFT to Nepal in a day is Rs 50,000 
31. What is RTGS (Real time gross settlement ) ?

Ans : RTGS system is funds transfer systems where transfer of money or securities takes place from one bank to another on a "real time" and on "gross" basis.
Settlement in "real time" means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. Minimum & Maximum Limit of RTGS: 2 lakh and no upper limit.

32. What BOND means ?

Ans : Publicly traded ling term debt securities issued by corporations and governments, whereby the issuer agrees to pay a fixed amount of interest over a specified period of time and to repay a fixed amount of principal maturity.

33. What is Call Money ?

Ans : Call Money’ is the borrowing or lending of funds for 1day.

34. What is Notice Money ?

Ans : Money borrowed or lend for period between 2 days and 14 days it is known as ‘Notice Money’

35.  What is Term Money ?

Ans :  Term Money refers to borrowing/lending of funds for period exceeding 14 days

36. What do you mean by CRAR (Capital to Risk Weighted Assets Ratio) ?

Ans : 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.

37. What Non Performing Assets (NPA) means ?

Ans : An asset, including a leased asset, becomes non performing when it ceases to generate
income for the bank.

38. What do you mean by INFLATION ?

Ans :  Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.

39.  What is IFSC (Indian Financial System Code) and what is its function ?

Ans :  Indian Financial System Code is an alpha-numeric code that uniquely identifies a bank-branch participating in the NEF system.
ii. This is an 11 digit code with the first 4 alpha characters representing the bank, The 5th character is 0 (zero).and the 6 characters representing the bank branch.
iii. IFSC is used by the NEFT system to identify the originating / destination banks / branches and also to route the messages appropriately to the concerned banks / branches.

For ex: SBIN0015986 : i. First 4 character SBIN – refers to State Bank of India. ii. 0 is a control number.
iii. last six characters (015986) represents the SBI branch Jail Road, Hari Nagar New Delhi.

40. What is the full form of  MICR ?

Ans : MICR stands for Magnetic Ink Character Recognition. MICR Code is a 9 numeric digit code which unique identifies a bank branch participating in the ECS Credit scheme. MICR code consists of 9 digits e.g 400229128

i. First 3 digits represent the city (400)
ii. Next 3 digits represent the bank (229)
iii. Last 3 digits represent the branch (128)

Note: The MICR Code allotted to a bank branch is printed on the MICR band of cheque leaves issued by bank branches.

41. What do you mean by Cheque Truncation ?

Ans : 

i. Truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point with the presenting bank en-route to the drawee bank branch.

ii.  In its place an electronic image of the cheque is transmitted to the drawee branch by the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc.

iii. Cheque Truncation speeds up the process of collection of cheques resulting in better service to customers, reduces scope for clearing-related frauds or loss of instruments in transit, lowers the cost of collection of cheques, and removesreconciliation-related and logistics-related problems, thus benefitting the system as a whole.

42. What do you mean by Bancassurance ?

Ans : The sale of insurance and other similar products through a bank. This can help the consumer in some situations; for example, when a bank requires life insurance for those receiving a mortgage loan the consumer could purchase the insurance directly from the bank.

43. What is Banking Ombudsman Scheme 2006 ?

Ans : 
i. The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks.
ii. The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services.
iii. All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are covered under the Scheme.

Important Points: 
  1. The Banking Ombudsman does not charge any fee for filing and resolving customers’ complaints. 
  2. The amount, if any, to be paid by the bank to the complainant by way of compensation for any loss suffered by the complainant is limited to the amount arising directly out of the act or omission of the bank or Rs 10 lakhs, whichever is lower. 
  3. The Banking Ombudsman may award compensation not exceeding Rs 1 lakh to the complainant only in the case of complaints relating to credit card operations for mental agony and harassment.  
  4. If a complaint is not settled by an agreement within a period of one month, the Banking Ombudsman proceeds further to pass an award. Before passing an award, the Banking Ombudsman provides reasonable opportunity to the complainant and the bank, to present their case.  
  5. If one is not satisfied with the decision passed by the Banking Ombudsman, one can approach the appellate authority against the Banking Ombudsmen’s decision. Appellate Authority is vested with a Deputy Governor of the RBI. 
  6. If one is aggrieved by the decision, one may, within 30 days of the date of receipt of the award, appeal against the award 
  7. before the appellate authority.  

Ans :  Under the guidelines issued on August 10, 2012 by RBI, Any individual, including poor or those from weaker section of the society, can open zero balance account in any bank. BSBDA guidelines are applicable to "all scheduled commercial banks in India, including foreign banks having branches in India".
ii. The aim of introducing 'Basic Savings Bank Deposit Account' is very much part of the efforts of RBI for furthering

45. Important Points of BSBDA-Small Accounts

Ans : 

  1. In BSBDA, banks are required to provide free of charge minimum 4 withdrawals, through ATMs 
  2. Total credits in such accounts should not exceed 1 lakh rupees in a year. 
  3. Maximum balance in the account should not exceed 50,000 Rs at any time 
  4. The total of debits by way of cash withdrawals and transfers will not exceed 10,000 rupees in a month 
  5. Foreign remittances cannot be credited to Small Accounts without completing normal KYC formalities 
  6. Small accounts are valid for a period of 12 months initially which may be extended by another 12 months if the person provides proof of having applied for an Officially Valid Document.