In Banking Interview basic banking terminology are frequently asked. These terms are not just for interviews but also for your general knowledge. These banking terms are useful for Banking examination, Economics & Commerce students, MBA Students and students who preparing for similar level Exams especially IBPS. Here we collected some terminology from various sources that are as follows:
Account payee cheques: Account payee cheques are able to rout only through accounts.
Accrued Interest: Interest that has been earned but not up till now paid.
Acquiring Bank: In a merger, the bank that absorbs the bank acquired.
Alteration: Any change involving an erasure or rewriting in the date, amount, or payee of a cheque or other negotiable instrument.
Amortization: The process of reducing debt through regular installment payments of principal and interest that will result in the payoff of a loan at its maturity.
At Par cheque: It is payable anywhere in India.
Automated Teller Machine (ATM): A machine, activated by a magnetically encoded card or other medium that can process a variety of banking transactions. These include accepting deposits and loan payments, providing withdrawals, and transferring funds between accounts.
Balance Transfer: The process of moving an outstanding balance from one credit card to another. This is usually done to obtain a lower interest rate on the outstanding balance. Transfers are sometimes subjected to a Balance Transfer Fee.
Bancassurance: Bancassurance refers to the distribution of insurance servicess and the insurance policies of insurance companies which may be life policies or non-life policies like home insurance - car insurance, medical-policies and others, by banks as corporate agents through their branches located in different parts of the country by charging a fee.
Bank Custodian: A bank custodian is responsible for maintaining the safety of clients' assets held at one of the custodian's premises, a sub-custodian facility or an outside depository.
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: Accepting for the purpose of lending or investment of deposits of money from Public, Repayable on demand or otherwise and withdraw by cheques, drafts, order, etc.
Banking Ombudsman: Bank 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.
Bank Rate: Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by central banks to control the money supply.
Bankrupt: A bankrupt person, firm, or corporation has insufficient assets to cover their debts. The debtor seeks relief through a court proceeding to work out a payment schedule or erase debts. In some cases, the debtor must surrender control of all assets to a court-appointed trustee.
Bankruptcy: The legal proceedings by which the affairs of a bankrupt person are turned over to a trustee or receiver for administration under the bankruptcy laws
Bank Statement: Periodically the bank provides a statement of a customer's deposit account. It shows all deposits made, all cheques paid, and other debits posted during the period (usually one month), as well as the current balance.
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.
Base Rate: It is the minimum rate a bank charges its most credit worthy customer. The bank cannot lend below this rate (with an exception to banks employees, loans to bank's depositors against their own deposits, although with the subvention of the central bank).
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.
Canceled cheque: A cheque that a bank has paid, charged to the account holder's account, and then endorsed. Once canceled, a cheque is no longer negotiable.
Cash back: The term 'cashback' is used with reference to credit cards. Cashback means giving back some portion of money (spent by the cardholder through the credit card) to the cardholder himself.
Cash reserve Ratio (CRR): CRR is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to use up out the excessive money from the banks.
Certificate of Deposit: Certificate of Deposits is 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 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.
Collateral: Assets that are offered to secure a loan or other credit. For example, if you get a real estate mortgage, the bank's collateral is typically your house. Collateral becomes subject to seizure on default.
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.
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.
Co-Signer: An individual who signs the note of another person as support for the credit of the primary signer and who becomes responsible for the obligation. (Also known as a Co-maker.
Credit card: Credit card is a plastic instrument that can be used for the purchase of goods and services. You can buy the services and then pay the cash to the bank. Limits will be fixed based on the net worth of the customer. Leading credit cards: VISA, MASTER.
Credit History: Credit history is an account of an individual's past borrowings by way of loans, credit cards and all other debt that needs to be repaid. Credit history in India is currently being provided by CIBIL (Credit Information Bureau of India Limited) and contains records of an individual's open and past accounts of loans and credit cards.
Credit Limit: The maximum amount of credit that is available on a credit card or other line of credit account.
Credit Report: A detailed report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.
Credit worthiness: 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.
Cut-Off Time: A time of day established by a bank for receipt of deposits. After the cut-off time, deposits are considered received on the next banking day.
Debit: A debit may be an account entry representing money you owe a lender or money that has been taken from your deposit 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.
Deferred Payment: A payment postponed until a future date.
Demand Deposits: Deposits which are withdrawn on demand by customers. E.g. savings bank and current account deposits.
Dishonour of Cheque : Non-payment of a cheque by the paying banker with a return memo giving reasons
for the non-payment.
Documentation Charges: Bank requires certain documents from the borrower to look into his credit worthiness and charges a fee for the same. These charges are known as documentation charges.
Draft: A signed, written order by which one party (the drawer) instructs another party (the drawee) to pay a specified sum to a third party (the payee), at sight or at a specific date. Typical bank drafts are negotiable instruments and are similar in many ways to cheques.
Drawee: The person (or bank) who is expected to pay a cheque or draft when it is presented for payment.
Drawer: The person who writes a cheque or draft instructing the drawee to pay someone else.
E-Banking / Online 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.
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 have 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 Clearing Service (ECS): It is a service provided by the banks to facilitate direct debit from your bank account towards an investment account (such as a mutual fund SIP) and/or paying regular loan EMIs. One can give a standing instruction (SI) to the bank to transfer the specified amount every month for a specified period.
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.
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.
Finance Charge: The total cost of credit a customer must pay on a consumer loan, including interest. The Truth in Lending Act requires disclosure of the finance charge.
Fixed Deposit account: Amount is kept for a fixed period. Higher rate of interest will be paid on this a/c.
Fixed Rate: Fixed rate is the interest rate that remains constant for the full term of the loan.
Floating Rate: An interest rate that is referenced to a market rate and is revised as per the change in the interest rates in the economy. When interest rates in the economy rise, floating rates rise and vice versa.
Foreclosure: A legal process in which property that is collateral or security for a loan may be sold to help repay the loan when the loan is in default.
Foreign Transaction Fees: A fee assessed by your bank for making a transaction at another bank's ATM.
Forfeiting: 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 forfeiter, who undertakes inherent political and commercial risks to finance the exporter, of course with assumption of a profit in the venture.
Forged cheque: A cheque on which the drawer's signature has been forged.
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.
Frozen Account: An account on which funds may not be withdrawn until a lien is satisfied and a court order or other legal process makes the account available for withdrawal. An account may also be frozen when there is a dispute regarding the true ownership of an account. The bank will freeze the account to preserve the existing funds until legal action can determine the lawful owner.
Foreign banks: Banks which are foreign originated are called foreign banks.
Example: Barclays Bank, HSBC, Citibank, YES bank, Standard Chartered Bank, etc.
IFSC: IFSC code 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.
Inactive Account: An account that has little or no activity; neither deposits nor withdrawals having been posted to the account for a significant period of time.
Indemnity: Indemnity is a bond where the indemnifier undertakes to pay back the beneficiary from any loss arising due to his actions or third party actions.
Industrial banks: The main purpose of industrial banks is to provide big loans to large scale industries. Examples: IDBI bank, Industrial bank of India, etc.
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.
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.
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.
Joint Account: When two or more individuals jointly open an account with a bank.
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 lawful banking operations and not in money laundering or frauds.
Late Charge: The fee charged for delinquent payment on an installment loan, usually expressed as a percentage of the loan balance or payment. Also, a penalty imposed by a card issuer against a cardholder's account for failing to make minimum payments.
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.
Lender: An individual or financial institution that lends money with the expectation that the money will be returned with interest.
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.
LIBOR: The London Interbank Offered Rate (or LIBOR) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market).
Linked Account: Any account linked to another account in the same bank where funds can be transferred electronically between accounts and carry out other specified services as well.
Mandate: Written authority issued by a customer to another person to act on his behalf, to sign cheques or to operate a bank account.
Marginal Standing Facility Rate: MSF scheme, Banks will be able to borrow upto 1% of their respective Net Demand and Time Liabilities. The rate of interest on the amount accessed from this facility will be 100 basis points (i.e. 1%) above the repo rate. This scheme is likely to reduce volatility in the overnight rates and improve monetary transmission
Maturity: The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.
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.
MIBOR: The Mumbai Interbank Offered Rate (or MIBOR) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Indian wholesale money market (or interbank market).
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. MICR Code is required for cheque clearance.
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.
Minimum Balance: The amount of money required to be on deposit in an account to qualify the depositor for special services or to waive a service charge.
Minimum Payment: The minimum Rs. amount that must be paid each month on a loan, line of credit, or other debt.
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 him.
Missing Payment: A payment that has been made but not credited to the appropriate account.
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.
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.
Mutilated cheque: It is a damaged cheque.
Multi city cheque: A cheque which is payable in any branch of a particular bank.
Nationalized bank: Banks which are owned and run by government of India are called as nationalized banks. Example: Canara bank, syndicate bank, Vijaya bank, etc.
NEFT :National Electronic Fund Transfer - 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 bare minimum amount that can be transferred is as low as Rs 100.
No-frills Account: This account is a basic savings account provided by banks to make banking simpler and more accessible for all customers. In a no-frills account, you do not have to maintain minimum balance and enjoy basic banking facilities such as electronic funds transfer (EFT), net banking, free cheque book issuance.
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.
NRI a/c: NRI stands for “Non Resident Indian”. An Indian who is residing in abroad can open an SB a/c in Indian banks. These accounts are called NRI a/cs.
Outstanding cheque: A cheque written by a depositor that has not yet been presented for payment to or paid by the depositor's bank.
Overdraft: When the amount of money withdrawn from a bank account is greater than the amount actually available in the account, the excess is known as an overdraft, and the account is said to be overdrawn.
Overdraw: To write a cheque for an amount that exceeds the amount on deposit in the account.
Over limit: An open-end credit account in which the assigned Rs. limit has been exceeded.
Pass Book: A record of all debit and credit entries in a customer's account. Generally all banks issues pass books to Savings Bank/Current Account Holders.
Payee: The person or organization to whom a cheque, draft, or note is made payable.
Payer: The person or organization who pays.
Paying Bank: A bank upon which a cheque is drawn and that pays a cheque or other draft.
Payment Due Date: The date on which a loan or installment payment is due. It is set by a financial institution. Any payment received after this date is considered late fees and penalties can be assessed.
Payoff: The complete repayment of a loan, including principal, interest, and any other amounts due. Payoff take places either over the full term of the loan or through prepayments.
Periodic Rate: The interest rate described in relation to a specific amount of time. The monthly periodic rate, for example, is the cost of credit per month the daily periodic rate is the cost of credit per day.
Personal Identification Number (PIN): Personal Identification Number is a digit 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 safekeeping 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.
Point of Sale (POS): The location at which a transaction takes place.
Post-Dated Cheque: A cheque which bears the date which is subsequent to the date when it is drawn.
PLR: Prime Lending Rate - The Prime Interest Rate is the interest rate charged by banks to their most creditworthy customers. The rate is almost always the same amongst major banks.
Principal Balance: The outstanding balance on a loan, apart from interest and fees.
Private bank: Banks which are owned and run by individuals are called private banks. EX: karnataka bank, karurvysya bank, lakshmivilas bank etc.
Processing Fee: Bank levies processing fee in order to process the loan request of the borrower. This fee is a small percentage of the loan amount sanctioned and is usually waived off during festival time to attract new borrowers.
Promissory Note: Promissory Note is a 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.
Public Sector Bank: A bank fully or partly owned by the Government.
RBI: Reserve Bank of India. RBI is also called as "bankers bank", because all banks will have a/c's with RBI. It provides funds to all banks hence it is called as Bankers Bank.
Recurring deposit: A fixed amount can be deposited in monthly installments.
Refinancing: A way of obtaining a better interest rate, lower monthly payments, or borrow cash on the equity in a property that has built up on a loan. A second loan is taken out to pay off the first, higher-rate loan.
Refund: An amount paid back because of an overpayment or because of the return of an item previously sold.
Renewal: A form of extending an unpaid loan in which the borrower's remaining unpaid loan balance is carried over into a new loan at the commencement of the next financing period.
Repo rate: Repo rate is the rate at which our banks borrow rupees from RBI. Whenever the banks have any shortage of funds they can borrow it from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive.
Residual Interest: Interest that continues to accrue on your credit card balance from the statement cycle date until the bank receives your payment.
Reverse Mortgage: A reverse mortgage is a special home loan product that allows a homeowner aged 62 or older the ability to access the equity that has accumulated in their home. The home itself will be the source of repayment. The loan is underwritten based on the value of the collateral (home) and the life expectancy of the borrower. The loan must be repaid when they die, sell their home, or no longer live there as they principal residence.
Reverse Repo rate: Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. RBI uses this tool when it feels there is too much money floating in the banking system.
Revolving Credit: A credit agreement that allows a customer to borrow against a preapproved credit line when purchasing goods and services. The borrower is only billed for the amount that is actually borrowed plus any interest due.
RRB'S (regional rural banks): Main purpose of RRBs is to improve banking habit in rural areas and save formers from money lenders.
RTGS: The RTGS or Real Time Gross Settlement System facilitates fund transfer within similar 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).
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.
Service Charge: A charge assessed by a depository institution for processing transactions and maintaining accounts.
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.
Stale cheque: Cheque is valid for six months. If the date on the cheque is before six months, then the cheque becomes stale cheque.
State Bank: A bank that is organized under the laws of a State and chartered by that State to conduct the business of banking.
Statement: A summary of all transactions that occur over the preceding month and could be associated with a deposit account or a credit card account.
Statutory Liquidity Ratio (SLR): SLR is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers.
Stop Payment: An order not to pay a cheque that has been issued but not yet cashed. If requested soon enough, the cheque will not be debited from the payer's account. Most banks charge a fee for this service.
Teller: Teller is a staff member of a bank who accepts deposits, cashes cheques and performs other banking services for the public.
Time Deposit: A time deposit (also known as a term deposit) is a money deposit at a bank that cannot be withdrawn for a certain "term" or period of time.
Travellers' Cheque: Cheques issued by a bank and function as cash but are protected against loss or theft when travelling.
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.
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.
Wholesale Banking: Wholesale banking is different from Retail Banking as its focus is on providing for financial needs of industry and institutional clients.