Our economics textbook has always included banking terms and concepts. However, they are difficult to recall and implement.
Most of us have heard about monetary policy changes in the past, such as changes in the SLR, CRR, Reverse Repo Rate, Repo rate, and so on. Unfortunately, this can lead to a misunderstanding of the concepts.
However, because banking is such an important aspect of our professional and personal lives, it is beneficial for us all to understand some basic banking terms so that we can better secure and manage our accounts.
Understanding the fundamentals of banking and finance and the terminology used to discuss them can make a significant difference in your bank account.
Here are 25 banking terms you should know to manage your money better:
Also read: How repo rate affects common man
Reverse Repo Rate
It is the rate at which India's reserve bank borrows funds from commercial banks. It's frequently done to keep a lid on the market's money supply. 3.35% is the current reverse repo rate.
Many banks across the country provide this service. This enables every customer to easily manage their accounts, access their credit, and secure their funds. Consumer banking is another term for this.
Liquidity Ratio (Statutory Liquidity Ratio)
Before lending money to consumers, Indian banks must have a certain amount of cash, gold, and other assets, this is what is called the Statutory Liquidity Ratio. This is in place to keep the country's credit expansion under control. The SLR rate is currently at 18.50%.
Cash Reserve Ratio
All banks in India must keep a specific level of funds with the Reserve Bank of India. The Cash Reserve Ratio is the term for this. When the RBI seeks to manage market liquidity, it normally raises it. The CRR rate is now at 3%.
Money Market / Capital Market
Long-term debts are dealt with on the capital market. It raises funds by trading stocks, bonds, and other long-term investments. In both primary and secondary markets, it is feasible. On the other side, the money market deals with short-term funds. Typically, the maturity time is fewer than 365 days.
Promoting ecologically friendly banking practices to reduce carbon footprint is an idea. Its goal is to attain both financial and environmental stability.
It's a short-term loan with a high-interest rate. This has a maturation time of 1 to 14 days. The lender has the right to request the money at any moment. It becomes called money if it is repaid within a day. It becomes notice money if it is not repaid after more than a day.
It refers to an increase in the money supply in the market, which reduces the consumer's purchasing power. In simple terms, money loses value and fewer products are consumed per currency unit.
Any loan that has been overdue for more than 90 - 180 days is considered past due by Indian banks. When a payment or interest is missed, the debt becomes delinquent. As a result, the bank's asset is no longer earning income, making it a non-performing asset.
Negative Interest Rate
It's a policy that allows central banks to charge commercial banks interest on money they deposit with them. This permits commercial banks to charge interest instead of paying interest on client cash deposits. This frequently happens during a period of deflation.
It is a sort of loan that allows borrowers to make minimal initial payments while repaying the remaining total in one lump sum at maturity. Due to the increased sum, the last payment is renamed Balloon payment.
It is a fraudulent financial transaction in which thieves conceal the source of funds. It's frequently done to hide the black money earned through criminal activities.
It is a scheme to steal the personal information of a customer. It is accomplished by utilizing the card's magnetic stripe. This is prohibited and falls under the category of cybercrime.
Exchange Bill (Bill of Exchange)
It is a financial instrument that orders the recipient to pay a predetermined sum to the note's signatory. They are a part of international trade.
It is a transfer of funds from the payer's account to the payee's account via electronic means. Direct Debit, on the other hand, is a request to your bank that authorizes a third party to withdraw funds from your account. It's generally use to pay bills.
It's a form of loan that's only for a brief period of time and has a set limit. It is generally given by bank to a firm to help it meet its working capital needs. Overdraft, on the other hand, allows for the continuation of personal loans even if the account balance is low.
Letter of Credit
It's a bank document that assures the buyer will pay the seller in full and on schedule; in the event that the buyer defaults, the bank will cover the payment. It's a guarantee from the bank to the vendor.
A VOSTRO account is a bank account that is held on behalf of another bank. This account contains funds for overseas equivalents.
A NOSTRO account is a bank's foreign currency deposit account with another country's bank. Its purpose is to carry out foreign exchange and commerce activities.
A CASA account is a mix of current and savings account. It combines the benefits of both accounts. The CASA Account features a modest current account interest rate and an above-average return on savings.
DEMAT (Deposit & Exchange Commission) Account
It's a type of account that allows Indian nationals to trade stocks and debentures on the stock exchange. Demat accounts have stock deposits, just like regular accounts do.
Also read: DEMAT guide
It's a type of money that is accepted as payment for any monetary debt (by law).
When a person or business becomes bankrupt, they have the option of seeking relief from some or all of their debts. Bankruptcy is the legal term for this situation.
Many banks have robust fraud-prevention systems in place. If a questionable transaction occurs on your account, your bank may refuse to process the payment until you confirm that the purchase is legitimate.
Although financial institutions are rife with jargon, this glossary of banking terminology can help you decipher even the most perplexing topics and become more financially savvy!