Glossary of General Banking

  • ATM: ATMs are Automatic Teller Machines, which do the job of a teller in a bank through Computer Network. ATMs are useful to dispense cash, receive cash, accept cheques, give balances in the accounts and also give mini-statements to the customers.
  • Bank Ombudsman: Bank Ombudsman is the authority to look into complaints against Banks in case of deficiency of services 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.
  • 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.
  • Banking: Accepting for the purpose of lending or investment of deposits of money from Public, Repayable on demand or otherwise and withdrawable by cheques, drafts, order, etc.
  • Basel-II : The Committee on Banking Regulations and Supervisory Practices, popularity 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.
  • 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.
  • 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’ .
  • 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.
  • 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.
  • Core Banking Solutions (CBS): Core Banking Solutions is 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.
  • 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, 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, where the name of a bank is indicated on the cheque, 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.
  • 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. Many banks issue Debit-Cum-ATM Cards.
  • 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.
  • 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.
  • 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.
  • 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.
  • 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 creditors to retain possession of all goods given in security to him by the debtor for any outstanding debt.
  • Holder : 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. For example, if you give a cheque to your friend to withdraw money from bank, he becomes holder of that cheque. Even if he loses the cheque, he continues to be holder. Finder cannot become the holder.
  • 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. In the earlier example if your friend lends some money to me on the basis of the cheque, which I have given to him for encashment, he becomes holder-in-due course.
  • 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.
  • Identification: When a person provides a document to a bank or is being identified by a 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.
  • Indemnifier: When a person 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.
  • JHF Account: Joint Hindu Family Account is account of a firm whose business is carried out by 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.
  • Karta : Manager of a Hindu Undivided Family (HUF) who handles the family business. He is usually the eldest male member of the undivided family.
  • 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.
  • 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.
  • 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.
  • 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.
  • 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 : 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).
  • NABARD: National Bank for Agriculture & Rural Development was setup in 1982 under the Act of 1981. NABARD finances and regulates rural financing and also is responsible for development agriculture and rural industries.
  • 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.
  • Notary Public: A Lawyer who is authorized by Government to certify copies of documents in all legal transactions
  • 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.
  • 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.
  • Online Banking: Banking through internet site of the bank which is made interactive.
  • 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 a ATM
  • 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 : 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.
  • 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.
  • Prime Lending Rate (PLR) : The rate at which banks lend to their best (prime) customers.
  • 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 wher government has minimum of 51% of shares or more.
  • 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.
  • 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 other account, it is called right of set-off. For example, debit balance of Rs.50,000/- in overdraft account can be set off against credit balance of Rs.75,000/- in the Savings Bank Account of the same customer, leaving a balance of Rs.25,000/- credit in the savings
  • account.
  • 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: All banks in India are having the facility of opening savings bank account with a nominal balance. This 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.
  • Teller: Teller is a staff member of a bank who accepts deposits, cashes cheques and performs other banking services for the public.
  • 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.