Skip to main content

What are the finance terms in Banking Sector?

 Today we are going to increase our vocabulary knowledge related to banking sector. I m going to tell you some basic terms which are used in day to day life and always asking in bank exam.

Debit balance: It means account holder don’t have any cash in his account and if he withdraws cash then he uses bank cash or over drawn the cash.

Credit balance: It means account holder has a cash in his account.

Debit card: It is a plastic card with the help of it card holder can withdraw cash from his account by using retail outlet.

Credit card: A card which facilitates the card holder to make payments up to certain limit  and after certain period the card holders have to pay cash to card company or issuing bank.

ATM: It is a (Automated Teller Machine) machine in which debit or credit card holders insert their card to withdraw cash.

EFT(Electronic Fund Transfer ): The computer based fund transfer from one bank account to another bank account of same financial institution or different.

APR(Annual Percentage Rate): It is annual cost of borrowing funds.It is a simple interest.

EAR (Effective Annual Rate): It is a rate of interest calculated  with the help of compounding methods.

Overdraft: Bank provides facility to its customer to over withdraw cash from own account.

Bank draft: It is a form of large payments in which customer has to deposit that amount to issuing bank  with fees and then the bank guarantees to make payments to beneficiary account.

Traveller's cheque: It is cheque issued by bank for reducing the risk of carrying huge cash while travelling and it can use in any bank.

Cash credit: It is a short term secured loan issued to its customer to fulfill the needs of working capital  in which separate account is created and bank deposit loan amount in that account and if account holder uses not whole amount of loan then interest is charged on withdrawn amount only.

Current account: An account open by businessmen or professional and there is no limit for cash withdrawn from that account. No interest earn by account holders.

Saving account: An account open for saving purpose and account holder earn interest on cash balance in that account. There is a limit for cash withdrawn.

Fixed deposit: It is a deposit of cash for fixed period and after lock in period the holder withdraws limited cash .

PPF: It is a long term investment in which minimum Rs.500 and maximum Rs.1,50,000 deposited in a year by holder. The interest received is tax free.
Bank rate: It is the rate of interest charged by central bank on long term loan from commercial bank.

Repo rate: It is the rate of interest charged by central bank on granting short term loan to commercial bank against securities. The rate charged for repurchasing the securities.

Reverse repo rate:It is the rate charged by commercial bank on loan provided to central bank.

SLR(Statutory Liquidity Ratio): It is the minimum percentage of deposits that banks keep in the form of government securities, gold etc.

CRR (Cash Reserve Ratio): It is the minimum amount that commercial bank keep with RBI.

MSF (Marginal Standing Facility): It is the interest rate at which scheduled bank borrow money from RBI in overnight.It means fund borrow for shorter period.

Garnishing order: In case if debtor fails to pay creditor fund then creditor may apply on court. The court issue garnishing order in which bank account of a debtor’s is freezes and the order is divided into two parts: Order Nishi- court ask the reason for non-payment and in Order Absolute- order debtor’s bank to pay creditor amount full or part of it.

Basel 1: Basel committee form a norm to regulate banking sector.It help to standardised  In Basel 1 norm focus on capital requirement and reduces the credit risk.It is introduced in 1988.

Basel 2: It is introduced in 2004,  It focuses on capital adequacy, risk management and disclosure requirement.

Basel 3: It is introduced in 2010 and it is form due to the failure of Basel 2 norm. It focuses on promoting capital,liquidity, funding and leverage.




Comments

Post a Comment

Popular posts from this blog

How to calculate Cost of Preference Share Capital?

Cost of Preference Share Capital:  An amount paid by company as dividend to preference shareholder is known as Cost of Preference Share Capital. Preference share is a small unit of a company’s capital which bears fixed rate of dividend and holder of it gets dividend when company earn profit. Dividend payable is not a tax deductible amount. So, there is no tax adjustments required for comparing with cost of debt. Formula for Cost of Preference Share: Irredeemable Preference Share Redeemable Preference Share K p  = Dp/NP K p  = D p +((RV-NP)/n )/ (RV+NP)/2 Where, K p  = Cost of Preference Share D p  = Dividend on preference share NP = Net proceeds from issue of preference share (Issue price – Flotation cost) RV = Redemption Value N = Period of preference share Example:  A company issues 20,000 irredeemable preference share at 8% whose face value is Rs.50 each at 4% discount. Find out the Cost of ...
90 comments
Read more

What is the difference between Cheque book and Pass book?

 Cheque book is issued by bank in customers / account holder request. With the help of this book account holder can withdraw cash from his/her account. Bank does not charge any fee to issued cheque book to its customer. But afterward bank charges some amount for using bank facility like cheque book, Debit card etc.So, Automatic some definite amount deducted from customer bank account. Pass book is  also issued by bank to its customer. It helps to record all the bank related activity according to date that is withdrawal and deposit. It is recorded by bank but the book is kept by customer to know the current balance of  his /her account.  Point of difference Pass book Cheque book What is the meaning of pass book and cheque book? Passbook is a book in which all withdrawal and deposit against customer account is recorded.   Cheque book is a book of cheques which are used to withdrawal the money to b...
Post a Comment
Read more

Numericals with solutions of Net income Approach

Net income approach questions and answers:   Questions:  Find out the value of the firm with the help of given information: Particulars Amount Earnings before interest and tax 3, 50, 000 Cost of equity 10% Cost of debt 7.2% Debenture 1,00,000 Find out the overall cost of capital with the help of net income approach. (Assume tax rate-10%) Solution: Particulars Amount Earnings before interest and tax 3, 50, 000 Less: Interest @7.2% 7, 200 Earnings before tax 3, 42, 800 Less: Tax@10% 34, 280 Net income 3, 08, 520 Cost of equity 10% Market value of equity (S =net income/ cost of equity) 30, 85, 200 Market value of debt (B) 1, 00, 000 Value of the firm (S+B) 31, 85, 200 Questions:  Find out the overall cost of capital if the equity capitalisation rate is 12...
Post a Comment
Read more