Banking Terminology

Account
Refers to a running record of transactions which are taking place between two transactors, who may be in two departments of one business and a basic element in all systems of recording business transactions. In retail trading, it refers to the credit facility which is automatically extended to a customer with whom an account is operated.
Asset
When the balance sheet of a business is drawn up, everything which it owns at the time and which has a money value, is listed as an asset. Assets may be classified as:
(1) Current Assets – consisting of cash, stock and book debts;
(2) Fixed Assets – consisting of buildings, plant and machinery, and
(3) Intangible Assets – being the value of goodwill, patents, etc.

Account
Refers to a running record of transactions which are taking place between two transactors, who may be in two departments of one business and a basic element in all systems of recording business transactions. In retail trading, it refers to the credit facility which is automatically extended to a customer with whom an account is operated.
Asset
When the balance sheet of a business is drawn up, everything which it owns at the time and which has a money value, is listed as an asset. Assets may be classified as:
(1) Current Assets – consisting of cash, stock and book debts;
(2) Fixed Assets – consisting of buildings, plant and machinery, and
(3) Intangible Assets – being the value of goodwill, patents, etc.

Bailout
To rescue a company which is in financial difficulties.
Balance Sheet
This is an ordered statement of the economic resources or assets of a company or a similar business organisation, each item having a value set upon it. In simple terms, it contains lists of assets and liabilities of a company.
Bank Credit
Refers to the lending by the banking system, by whatever means: bank advances, discounting bills or purchasing securities.
Bank Deposits
A note issued by a bank for a sum of money which it promises to pay the bearer on demand.
Bank Note
A note issued by a bank for a sum of money which it promises to pay the bearer on demand.
Bankruptcy
A legal proceeding under which the property of an insolvent debtor is taken for the benefit of his creditors generally.
Bill
A short-term debt instrument, which is in the form of a document ordering the drawee (i.e., the debtor) to pay the drawer (the creditor) a stated sum at a specified date, or ‘at sight’, which means on demand. Once it is accepted, i.e., signed by the drawee (who may be an accepting house or bank) and ‘endorsed’, i.e., signed on the back by the acceptor, a bill becomes negotiable and may get discounted, i.e., sold at a discount on its face value, at a rate which reflects current short term rates of interest.
Bill of Exchange
A Bill of Exchange is an instrument in writing, containing an unconditional order, signed by the banker, directing a certain person to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.
Bridge Loan
A loan made by a bank for a short period to make up for a temporary shortage of cash.

Call Loan
A loan which may be terminated or called at any time by the lender or borrower.
Call Money
Funds borrowed by discount houses from the clearing houses of banks in many countries, and which they employ in holding a portfolio of assets. A high proportion of these funds are borrowed literally “at call”.
Capital Asset
The term used for an asset, which is not bought or sold as part of the everyday running of a business. Examples include real estate and plant equipment.
Capital Expenditure
Expenditure of a non-recurrent nature resulting in the acquisition of assets.
Cash
Money in the form of bank notes and coins.
Cash Cow
Units in large business enterprises which yield high earnings but often have low growth potential.
Cash Discount
A deduction from a price charged payment made before a certain date.
Cash Flow
Refers to the sum of retained earnings and depreciation provision made by firms. As such it is the source of internally generated long–term funds available to the company.
Cash Reserve Ratio (CRR)
Refers to the liquid cash that banks have to maintain with the Reserve Bank of India (RBI) as a certain percentage of their demand and time liabilities.
Certificate of Deposit (CD)
A document, which is issued by a bank acknowledging a deposit of money with it and constituting a promise to repay that sum, to the bearer, at a specified future date. It is negotiable, i.e., it can be transferred.
Cheap Money
A term used to describe a situation where bank rate and other rates of interest are low. A policy of cheap money may be adopted in a time of industrial depression to stimulate recovery.
Cheque
A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise on demand.
Collateral Security
An additional security in addition to the personal security offered by a borrower.
Commercial Banks
A general term denoting those banks, which conduct a general rather than a specialised type of business. They accept deposits, make advances, etc.
Consumer Credit
Refers to a loan, which is given to the consumer for a short period of time, for the purchase of a specific commodity. This can take the form of hire purchase or be in the form of a personal loan from a bank.
Credit
A wide term which has been used in connection with operations or states involving lending, generally at short-term. To ‘give credit’ is to finance, directly or indirectly, the expenditure of others against future repayment.
Credit Card
A card which is issued by a bank or group of bodies or other agency which provides the holder direct access to credit, like for example, from a merchant location or hotel or, in the case of some cards issued by banks, to cash from the banks operating the particular scheme.
Credit Rating
Means an evaluation of the soundness of an individual or business firm as a credit risk. It is usually based on
(1) company’s track-record;
(2) company’s current and prospective business;
(3) financial risk, and
(4) quality of management.
Crossing
This means drawing two parallel lines across the face of a cheque, the effect of which is to make it necessary to pay it into a banking account.

Dear Money
A period when rates of interest are high, and borrowing is expensive.
Debt
Refers to a sum of money, or quantity of goods or services, owed by one individual or body to another.
Demand Draft
A Demand Draft is a Bill of Exchange and a negotiable instrument.
Demonetisation
To deprive a coin or currency note of its value.
Devaluation
Refers to a fall in the external value (or exchange rate) of one currency vis-à-vis other currency.
Discount

(1) (Cash Discount): An inducement offered by a creditor to debtors to pay promptly.
(2) Trade Discount: A deduction from the catalogue price of an article generally allowed by a wholesaler to a retailer.
(3) With reference to a bill of exchange, to discount a bill means to acquire it by purchase for a sum less than its face value, the amount of this discount depending partly on the length of the unexpired term of the bill and partly on the amount of risk involved. (4) When a recently issued stock falls below its issue price, it is said to stand at a discount.
Dishonour
A Bill of Exchange is dishonoured when the drawee has insufficient funds to discharge it when it falls due for payment. Similarly, a cheque is dishonoured when the drawee has insufficient funds to meet it.
Drawer
One who writes and issues the cheque.
Drawee
Person or organisation on which a cheque or other order for payment is drawn.

Easy Money
Tefers to a general state of ease and inexpensiveness of borrowing in the financial system. It may result from policy action to reduce interest rates, increase liquidity of the banking system, release of any non-price restrictions on lending like credit ceilings and restrictive conditions on hire-purchase contracts.

Fiat Money
Money which the State declares to be legal tender.
Finance
The term is applicable to funds from almost any source which are used to undertake any kind of expenditure.

Hot Money
Money that moves across country/borders as a result of interest rate differences and moves away when the interest rate differential disappears.
Hypothecation
Refers to the pledging of securities as collateral.

Idle Money
An inactive money that does not contribute to productive assets in an economy. It results from what Keynes called 'Liquidity Preference' i.e.; the desire to hold money rather than risk it on interest-earning assets, or goods which may have little utility.
Insolvent
The state of being unable to pay one’s debts.
Interest
A payment by a borrower for the use of a sum of money for a period of time.
Insolvent
Means the state of being unable to pay one's debts.
Interest
A payment by a borrower for the use of a sum of money for a period of time.

Lease
The term used for an agreement in which one party obtains the right of use of some property owned by another party for a given period of time in return for an agreed fixed charge generally paid in periodic instalments.
Letter of Credit
A letter issued by a bank authorising the bearer to draw a stated amount of money from the issuing bank, its branches, or other associated banks or agencies.
Letter of Hypothecation
The term used for a letter from an exporter to his bank authorizing it, in the event of the importer failing to accept or pay a bill of exchange, to sell the goods exported and remit the proceeds less expenses.
Liabilities
A liability is a debt assumed by a business entity as a result of its borrowing or other financial obligations.
Lien
A claim against property. A bond is usually secured by a lien against specified property of the company.
Liquid Assets
Assets either in the form of money or which can be quickly converted into money.
Liquidity
The availability of cash, and of assets readily convertible into cash (called liquid assets), to meet immediate payment obligations.

Mortgage
Refers to the conveyance of property by a debtor (mortgager) to a creditor (mortgagee) as security for a debt, with a condition that the property will have to be reconveyed on payment of the debt.
Microfinance
A type of banking service that is provided to low income individuals or groups involving lending of small amounts of money.

Near Money
Assets which are readily convertible into money e.g. deposit accounts, deposit with savings banks and building societies, and certain short-term agreement securities.
Negotiable Instrument
A claim, the title to which passes by delivery. Examples of such claims include bills of exchange,cheques, promissory notes, dividend warrants and debentures payable to bearer. Transfer is by delivery only. A bill of exchange payable to a certain person 'only' is not a negotiable instrument. Neither is a cheque with 'not negotiable' written on it. Bill of Lading, Dock Warrants, and Postal Orders are not negotiable.

Overdraft
System of bank lending, by which the borrower is permitted to draw cheques beyond the credit balance in his account, up to an agreed limit, and to pay interest only on the daily amounts by which the account is overdrawn.

Paper Note
A general term for money in the form of bank notes.
Pass Book
A book supplied to customers by a bank, in which entries are made of all deposits and withdrawals.
Prime Lending Rate (PLR)
Interest rate charged by banks to their largest, most secure and credit worthy customers on loans.
Pro Forma
A term applied to practices or documents that are done as pure formality.

Repo
Repo is a short term for repurchase agreement for RBI selling a government security at a competitive rate in the market to absorb what it considers excess liquidity. The buyers are either banks or registered primary dealers.
Repo Rate
The rate at which RBI purchases short term securities from banks.
Reverse Repo Rate
The rate at which RBI sells short term securities to banks.
Revolving Credit
A loan facility that is renewed as it is repaid and may be used repeatedly. It is also termed as open-end credit; eg: credit card limit.