Banking Glossary

ATM
An automated teller machine (ATM) is a machine in which a customer can use his card along with PIN to get cash, information and other services.
Bank Guarantee
Bank guarantee is a promise by a bank on behalf of its customer to a third party to pay an amount specified in the guarantee deed in case the customer fails to perform the obligation as stipulated in the deed.
Banking Ombudsman
Banking Ombudsman is an independent dispute resolution authority set up by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services.
Bills
Bills are financial negotiable instruments such as Bills of Exchange or Promissory Notes. Bill of Exchange is issued by a seller to his buyer directing him to make payment for the goods supplied/ services rendered. Bill in the form of a promissory note is issued by a buyer to his seller undertaking to make payment for the goods received/ services rendered.
Bill Purchase / Discounting
Bill purchase / discounting are modes of extending credit to the seller of goods who has raised demand / usance bill of exchange. Demand bills are purchased and usance bills are discounted.
Card
Card is a general term for any plastic card, which a customer may use to pay for goods and services or to withdraw cash. In this Code, it includes ATM/ Smart/Debit/Credit cards.
Cash Credit/Overdraft
Cash credit/overdraft is a form of credit facility in which a borrower is sanctioned a pre- arranged limit with the freedom to borrow as much money as he requires. In case of flow of credit to the account, he can withdraw afresh subject to the limit sanctioned. As such, the limit works as a revolving line of credit. Bank charges interest on the outstanding balances.
Cash losses
Cash losses mean net losses minus depreciation.
Cheque Collection Policy
Cheque Collection Policy refers to the policy followed by a bank in respect of various local and outstation cheques and instruments deposited with the bank for credit to an account.
Compensation Policy
Compensation Policy refers to the policy followed by a bank for compensating its customers for the financial losses incurred by them (the customers) due to the acts of omission or commission on the part of the bank.
Credit facilities/ Bank Loan
Credit facilities from the bank may be in the form of a term loan or in the form of overdraft or cash credit that is extended by a bank to its customer for a specified period and he is charged interest on the outstanding balances.
Credit Information Companies (CICs)
Credit Information Companies are companies formed and registered under the Companies Act, 1956 and which have been granted a Certificate of Registration by the Reserve Bank. These companies are empowered to collect data on credit from credit institutions who are its members and disseminate
the same after analysis, to its members and specified users.
Current Account
A form of demand deposit wherefrom withdrawals are allowed any number of times depending upon the balance in the account or up to a particular agreed amount.
Customer
An MSE or its authorised representative who has an account with a bank or who avails of other products/ services from a bank.
Deceased account
A Deceased account is a deposit account in which case either the single account holder has deceased or in case of joint accounts one or more of joint account holders has/have deceased.
Demat accounts
A Demat account refers to dematerialised account and is an account in which the stocks of investors are held in electronic form.
Deposit Accounts
• “Savings deposits” means a form of demand deposit which is subject to restrictions as to the number of withdrawals as also the amounts of withdrawals permitted by the bank during any specified period.
• “Term deposit” means a deposit received by the bank for a fixed period withdrawable only after the expiry of the fixed period and includes deposits such as Recurring/Short Deposits/Fixed Deposits/ Monthly Income Certificate/Quarterly Income Certificate etc.
• “Notice Deposit” means term deposit for specific period but withdrawable on giving at least one complete banking day’s notice.
Electronic Clearing Service
The Electronic Clearing Service (ECS) is an online transmission system which permits the electronic transmission of payment information by the banks/branches to the Automated Clearing House (ACH) via a communication network.
Electronic Funds Transfer
Electronic Funds Transfer (EFT) is a scheme introduced by RBI to help banks to offer their customers facility of transfer of funds from account to account from one bank branch to another in places where EFT service is available.
Equity
Equity means a part of capital of a corporate entity that is represented by the shares of the company whether in physical or dematerialised form.
Factoring
Factoring is a financial option for the management of receivables. It is the conversion of credit sales into cash.
Government bond
Government bond means a security, created and issued by the Central or State Government for raising a public loan.
Guarantee
A promise given by a person.
Improper conduct of account 
Issuing of cheque on the account without sufficient balance in the account; frequent returns of inward / outward cheques in the account; account has been overdrawn, or the account holder has exceeded its agreed credit limit; non compliance of KYC procedure; fraud/malfeasance or fraudulent intention exhibited by the customer; suspicious transactions/ engagement in money laundering activity under the scope of PMLA Act, 2002 etc. are instances of improper conduct of account.
Letter of Credit
A letter of credit is a document issued by a bank, which usually provides an irrevocable undertaking for payment to a beneficiary against submission of documents as stated in the Letter of Credit.
Mail
Mail is a letter in a physical or electronic form.
Merchant Services
Merchant services generally refer to merchant accounts allowed to trading and service establishments for acceptance of payments through credit/ debit cards. The cards may be accepted over the counter through card terminals i.e. Point of Sale (POS) machines or over phone or through internet.
Micro and Small Enterprises
Micro and Small Enterprises are those enterprises engaged in manufacturing or rendering services.
A micro enterprise is defined as:
An enterprise engaged in the manufacture or production of goods pertaining to any industry where the investment in plant and machinery does not exceed Rs. 25 lakh
or
An enterprise engaged in rendering services where investment in equipment does not exceed Rs. 10 lakh.
A small enterprise is defined as :
An enterprise engaged in manufacture or production of goods pertaining to any industry where the investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore
or
An enterprise engaged in rendering services where investment in equipment is more than Rs. 10 lakh but does not exceed Rs. 2 crore.
National Electronic Funds Transfer
National Electronic Funds Transfer (NEFT) system is a nation-wide funds transfer system to facilitate transfer of funds from one bank branch to any other bank branch in the country.
Net worth
Net worth means sum of Capital and free reserves minus accumulated losses.
Nomination Facility
The nomination facility enables the bank to: make payment to the nominee of a deceased depositor, of the amount standing to the credit of the depositor, return to the nominee, the articles left by a deceased person in the bank’s safe custody, release to the nominee of the hirer, the contents of a safety locker, in the event of death of the hirer.
Non-Fund based facility
Non-fund based facilities are such facilities extended by banks which do not involve outgo of funds from the bank when the customer avails the facilities but may at a later date crystallise into financial liability if the customer fails to honour the commitment made by availing these facilities. Non-fund based facilities are generally extended in the form of Bank Guarantees, Acceptances and Letters of Credit.
Non Performing Asset
A Non Performing Asset (NPA) is a loan or an advance where
i) interest and/ or installment of principal remain overdue for a period of more than 90 days in respect of a term loan.
ii) the account remains ‘out of order’ in respect of an Overdraft/Cash Credit (OD/CC).
iii) the bill remains overdue for a period of more than 90 days in the case of bills purchased or discounted.
Originator
An organisation which collects payments from a customer’s account in line with customer’s instructions.
Other Security Information
A selection of personal facts and information (in an order which the customer knows), which may be used for identification when using accounts.
Out-of-date (stale) cheque
A cheque, which has not been paid because the date written on the cheque is a date exceeding three months from the time of its presentation.
‘Out of Order’ status
An account should be treated as ‘out of order’ if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as ‘out of order’.
Overdue
Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank.
PAN
The Permanent Account Number (PAN) is an all India unique Number having ten alphanumeric characters allotted by the Income Tax Department, Government of India. It is issued in the form of a laminated card. It is permanent and will not change with change of address of the assessee or change of Assessing Officer.
Password
A word or a set of numbers or an alphanumeric combination for an access code, which the customer has chosen, to allow him to use a phone or Internet banking service. It is also used for identification.
Payment and Settlement System
Payment and Settlement System means financial system creating the means for transferring money between suppliers and user of funds usually by exchanging debits or credits among financial institutions.
PIN
A confidential number, use of which along with a card allows customers to pay for articles/services, withdraw cash and use other electronic services offered by the bank.
Real Time Gross Settlement
The acronym ‘RTGS’ stands for Real Time Gross Settlement. RTGS system offers the fastest means of transfer of funds through banking channel. Settlement of transactions under RTGS takes place on one-to-one basis, which is termed as ‘Gross’ settlement and in ‘real time’ i.e. without any waiting period.
Reasonable
Governed by or being in accordance with reason and sound thinking; being within the bounds of common sense; not excessive or extreme.
Repossession
Repossession is the process by which a creditor with a loan secured on house or goods (e.g. car) takes possession of the security, if the debtor does not repay as per the terms of the loan agreement.
Rehabilitation Package
Rehabilitation package is the package drawn for the rehabilitation of a sick unit. The package has to be drawn in accordance with the RBI stipulations and it usually consists of
i) Working Capital with relaxation in the rate of interest in terms of regulatory guidelines
ii) Funded Interest Term Loan
iii) Working Capital Term Loan
iv) Term Loan
v) Contingency Loan Assistance
Smart Cards
A smart card is a plastic card about the size of a credit card, with an embedded microchip which can process data. It provides a secure way of identification, authentication and storage of data. It can be used for telephone calling, electronic cash payments, and other applications.
Security
Represents assets used as support for a loan or other liability. In the event of the borrower defaulting on the loan, the lender bank can claim these assets in lieu of the sum owed.
Primary security is the asset created out of the credit facility extended to the borrower and / or which is directly associated with the business / project of the borrower for which the credit facility has been extended.
Collateral security is any other security offered for the said credit facility. For example, hypothecation of jewellery, mortgage of house etc. Services
i) In respect of small and micro service enterprises, services refer to small road and water transport operators, small business, professional and self-employed persons, and all other service enterprises.
ii) Services rendered by the banks include various facilities like remittance (issue of DDs, MTs, TTs etc), receipt and payment of cash, exchange of notes and foreign exchange etc. provided by the banks to the customers.
Sick Unit
Sick unit refers to a unit whose account has remained substandard for more than six months or there has been erosion in net worth due to accumulated cash losses to the extent of 50% of the net worth during the previous accounting year and the unit has been in commercial production for at least
two years.
Substandard
A substandard asset would be one, which has remained NPA for a period less than or equal to 12 months.
Tariff Schedule
The schedule containing charges levied by a bank on the products and services offered by it to its customers.
Unpaid Cheque
This is a cheque, which is returned ‘unpaid’ (bounced) by the drawee bank.

Banking Codes and Standards Board of India

In November 2003, RBI constituted the Committee on Procedures and Performance Audit of Public Services under the Chairmanship of Shri S.S.Tarapore (former Deputy Governor) to address the issues relating to availability of adequate Banking Services to common man. The mandate to the Committee included identification of factors that inhibited the attainment of best customer services and suggesting steps to improve the quality of banking services to individual customers. The Committee felt that in an effort to continuously upgrade the package of services that banks offered to their customers there was a need of benchmarking of such services. After in depth study at the grass root level the Committee concluded that there was an institutional gap for measuring the performance of banks against a bench mark reflecting the best practices (Code and Standards). Therefore, the Committee recommended setting up of the Banking Codes and Standards Board of India broadly on the lines of Banking Codes and Standards Board functioning in U.K.

Among the existing institutional structures, the Scheme of Banking Ombudsman, which has been functioning for quite some time, does not look into systemic issues with a view to enforcing a prescribed quality of service. Ideally, such a function should be performed by a Self Regulatory Organisation (SRO) but in view of the existing framework of the banking sector in India, it was felt that an independent, autonomous Board will be best suited for the function. Therefore, Dr. Y.V. Reddy, Governor, Reserve Bank of India, in his Monetary Policy Statement (April 2005) announced setting up of the banking Codes and standards Board of India in order to ensure that comprehensive code of conduct for fair treatment of customers was evolved and adhered to.

The Banking Codes and Standards Board of India has been registered as a separate society under the Societies Registration Act, 1860. Therefore, it would function as an independent and autonomous body.

The Banking Codes and Standards Board of India is not a Department of the RBI. Reserve Bank has agreed to lend it financial support for a limited period. It is an independent banking industry watch dog to ensure that the consumer of banking services get what they are promised by the banks.

To ensure that the Board really functions as an autonomous and independent watchdog of the industry, the Reserve Bank also decided to extend financial support to the Board by way of meeting its full expenses for the first five years. This was to enable the Board to reach its economic critical mass that will make it truly independent in its functioning and take a view on any bank without its existence coming under any threat. On its part, RBI would derive supervisory comfort in case of banks which are members of the Board. In substance, the Board has been set up to ensure that common man as a consumer of financial services from the banking Industry is in a no way at a disadvantageous position and really gets what it has been promised.

RBI and the State Bank of Vietnam signed a Memorandum of Understanding

The Reserve Bank of India (RBI) on 16 November 2012 signed a Memorandum of Understanding (MoU) with the State Bank of Vietnam (SBV) for promoting greater co-operation and sharing supervisory information, between the two supervisors.

The MoU between the two banks was signed at Hanoi, Vietnam in the Headquarters of State Bank of Vietnam and by the Chief General Manager-In-Charge, Department of Banking Supervision, RBI- G. Jaganmohan Rao and Chief Inspector, Banking Supervision Agency, SBV- Nguyen Huu Nghia. The Deputy Governor, SBV- Dang Thanh Binh, and Indian Ambassador to Hanoi- Ranjit Rae graced this occasion of signing the MoU.

IndiaFirst Life launches Simple Benefit Plan

 Private insurer IndiaFirst Life Insurance launched ‘Simple Benefit Plan’ that offers dual benefits of a life cover and assured savings.

“Simple Benefit Plan offers an insurance cover on your life and additionally helps you earn and secure returns on the money that you invest with us, with premiums as low as Rs 174 per month.

“This plan is customised for people who want to save and at the same time secure their families from uncertainties of life, but do not have large disposable incomes.”

The plan term is between 10 to 20 years and offers a death benefit equal to the sum assured plus five times the annual premium, guaranteed amount and additional earning from bonuses.

It also provides tax benefits. Customers can also access their money easily during any emergency by availing a loan of up to 90 per cent of the surrender value.

IndiaFirst Life Insurance is a joint venture between two public sector banks — Bank of Baroda and Andhra Bank — along with UK’s leading risk, wealth and investment company Legal & General.

ATM network crosses 1-lakh mark

 The number of ATMs in India has crossed the one lakh mark, according to the National Payments Corporation of India (NPCI). All the banks put together have plans to install an additionally about one lakh ATMs over the next two years, raising the number of ATMs per million population to about 170 ATMs from 85.

As of October 2012 the total number of ATMs was 1,04,500. Public sector banks and the State Bank group with about 61,500 ATMs accounted for 59 per cent of the ATMs. The private sector and foreign banks put together have about 41,800 ATMs accounting for 40 per cent of the ATMs and the balance 1 per cent represents about 1,150 ATMs that have been deployed by co-operative banks/RRBs.

Almost all the ATMs in the country are part of NPCI’s National Financial Switch (NFS) network which facilitates routing of ATM transactions through inter-connectivity between the bank's systems, thereby enabling ATM/debit cardholders of the country to utilise the services in any ATM of a connected bank.

Nearly 200 million transactions are processed every month in NFS, of which 75 per cent are cash withdrawal transactions with an average ticket size of Rs 3,300. The balance 25 per cent transactions are non–financial transactions.

Besides cash withdrawal and balance Inquiry transactions, NFS supports other Value Added Services (VAS) such as pin change and mini statement through the ATMs. There are plans to increase the VAS through Card-to-Card transfer, cheque book request and statement request through the ATMs. 

Master card and Thomas Cook Came up Together for Travel Prepaid Cards

Thomas Cook (India), the integrated travel and travel-related financial services company on 1 November 2012 launched prepaid foreign exchange borderless prepaid card in collaboration with MasterCard Worldwide, a global payments and technology company.

The borderless prepaid card is going to enable travellers with an option of loading eight currencies on a single card that is US Dollars, British Pounds, Euro, Australian Dollars, Canadian Dollars, Swiss Francs, Singapore Dollars and Japanese Yen.

The borderless prepaid card is basically a multi-currency card which has a validity of five years. The person carrying the card is liable for getting the visiting country’s currency loaded on the card which enables him to save money and time.

The borderless prepaid card come up with an embedded chip and PIN which ensures  security and increased protection against counterfeiting and skimming card frauds.

The company is also offering a free replacement of the card within 72 hours if in case it is stolen or had been lost. It also has 24x7 global emergency assistance via toll free access in over 80 countries.

The master card came to this idea after a Consumer Segmentation Study in which they had found that around 36.7 per cent affluent Indians want to go overseas for a holiday.

The collaboration with MasterCard, is supposed to grant an acceptance at over 34.3 million merchant establishments, e-commerce websites and access to 2 million ATMs.