BANKING TERMINOLOGIES

Capital Funds
	Equity contribution of owners. The basic approach of capital adequacy framework is that a bank should have sufficient capital to provide a stable resource to absorb any losses arising from the risks in its business. Capital is divided into different tiers according to the characteristics / qualities of each qualifying instrument. For supervisory purposes capital is split into two categories: Tier I and Tier II.
Tier I Capital
	A term used to refer to one of the components of regulatory capital. It consists mainly of share capital and disclosed reserves (minus goodwill, if any). Tier I items are deemed to be of the highest quality because they are fully available to cover losses Hence it is also termed as core capital.
Tier II Capital
	Refers to one of the components of regulatory capital. Also known as supplementary capital, it consists of certain reserves and certain types of subordinated debt. Tier II items qualify as regulatory capital to the extent that they can be used to absorb losses arising from a bank's activities. Tier II's capital loss absorption capacity is lower than that of Tier I capital.
Revaluation reserves
	Revaluation reserves are a part of Tier-II capital. These reserves arise from revaluation of assets that are undervalued on the bank's books, typically bank premises and marketable securities. The extent to which the revaluation reserves can be relied upon as a cushion for unexpected losses depends mainly upon the level of certainty that can be placed on estimates of the market values of the relevant assets and the subsequent deterioration in values under difficult market conditions or in a forced sale.
Leverage
	Ratio of assets to capital.
Capital reserves
	That portion of a company's profits not paid out as dividends to shareholders. They are also known as undistributable reserves and are ploughed back into the business.
Deferred Tax Assets
	Unabsorbed depreciation and carry forward of losses which can be set-off against future taxable income which is considered as timing differences result in deferred tax assets. The deferred Tax Assets are accounted as per the Accounting Standard 22.
Deferred Tax Liabilities
	Deferred tax liabilities have an effect of increasing future year's income tax payments, which indicates that they are accrued income taxes and meet definition of liabilities.
Subordinated debt
	Refers to the status of the debt. In the event of the bankruptcy or liquidation of the debtor, subordinated debt only has a secondary claim on repayments, after other debt has been repaid.
Hybrid debt capital instruments
	In this category, fall a number of capital instruments, which combine certain characteristics of equity and certain characteristics of debt. Each has a particular feature, which can be considered to affect its quality as capital. Where these instruments have close similarities to equity, in particular when they are able to support losses on an ongoing basis without triggering liquidation, they may be included in Tier II capital.
BASEL Committee on Banking Supervision
	The BASEL Committee is a committee of bank supervisors consisting of members from each of the G10 countries. The Committee is a forum for discussion on the handling of specific supervisory problems. It coordinates the sharing of supervisory responsibilities among national authorities in respect of banks' foreign establishments with the aim of ensuring effective supervision of banks' activities worldwide.
Market Discipline
Market Discipline seeks to achieve increased transparency through expanded disclosure requirements for banks.
Mortgage Back Security
	A bond-type security in which the collateral is provided by a pool of mortgages. Income from the underlying mortgages is used to meet interest and principal repayments.
Derivative
	A derivative instrument derives its value from an underlying product. There are basically three derivatives a) Forward Contract- A forward contract is an agreement between two parties to buy or sell an agreed amount of a commodity or financial instrument at an agreed price, for delivery on an agreed future date. Future Contract- Is a standardized exchange tradable forward contract executed at an exchange. In contrast to a futures contract, a forward contract is not transferable or exchange tradable, its terms are not standardized and no margin is exchanged. The buyer of the forward contract is said to be long on the contract and the seller is said to be short on the contract. b) Options- An option is a contract which grants the buyer the right, but not the obligation, to buy (call option) or sell (put option) an asset, commodity, currency or financial instrument at an agreed rate (exercise price) on or before an agreed date (expiry or settlement date). The buyer pays the seller an amount called the premium in exchange for this right. This premium is the price of the option. c) Swaps- Is an agreement to exchange future cash flow at pre-specified Intervals. Typically one cash flow is based on a variable price and other on affixed one.
Non Performing Assets (NPA)
	An asset, including a leased asset, becomes non performing when it ceases to generate income for the bank.
Net NPA
	Gross NPA – Total provisions held.
Substandard Assets
	A substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. Such an asset will have well defined credit weaknesses that jeopardize the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.
Doubtful Asset
	An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, - on the basis of currently known facts, conditions and values - highly questionable and improbable.
Loss Asset
	A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.
Off Balance Sheet Exposure
	Off-Balance Sheet exposures refer to the business activities of a bank that generally do not involve booking assets (loans) and taking deposits. Off-balance sheet activities normally generate fees, but produce liabilities or assets that are deferred or contingent and thus, do not appear on the institution's balance sheet until and unless they become actual assets or liabilities.
Net Interest Income ( NII)
	The NII is the difference between the interest income and the interest expenses.
Net Interest Margin
	Net interest margin is the net interest income divided by average interest earning assets.
Return on Asset (ROA)- After Tax
	Return on Assets (ROA) is a profitability ratio which indicates the net profit (net income) generated on total assets. It is computed by dividing net income by average total assets. Formula- (Profit after tax/Av. Total assets)*100
Return on equity (ROE)- After Tax
	Return on Equity (ROE) is a ratio relating net profit (net income) to shareholders’ equity. Here the equity refers to share capital reserves and surplus of the bank. Formula- Profit after tax/(Total equity + Total equity at the end of previous year)/2}*100
CASA Deposit
	Deposit in bank in current and Savings account.
Liquid Assets
	Liquid assets consists of: cash, balances with RBI, balances in current accounts with banks, money at call and short notice, inter-bank placements due within 30 days and securities under “held for trading” and “available for sale” categories excluding securities that do not have ready market.
ALM
	Asset Liability Management (ALM) is concerned with strategic balance sheet management involving all market risks. It also deals with liquidity management, funds management, trading and capital planning.
ALCO
	Asset-Liability Management Committee (ALCO) is a strategic decision making body, formulating and overseeing the function of asset liability management (ALM) of a bank.
Venture Capital Fund
	A fund set up for the purpose of investing in startup businesses that is perceived to have excellent growth prospects but does not have access to capital markets.
Held Till Maturity(HTM)
	The securities acquired by the banks with the intention to hold them up to maturity.
Held for Trading(HFT)
	Securities where the intention is to trade by taking advantage of short-term price / interest rate movements.
Available for Sale(AFS)
	The securities available for sale are those securities where the intention of the bank is neither to trade nor to hold till maturity. These securities are valued at the fair value which is determined by reference to the best available source of current market quotations or other data relative to current value.
Yield to maturity (YTM) or Yield
	The Yield to maturity (YTM) is the yield promised to the bondholder on the assumption that the bond will be held to maturity and coupon payments will be reinvested at the YTM. It is a measure of the return of the bond.
CRR
	Cash reserve ratio is the cash parked by the banks in their specified current account maintained with RBI.
SLR
	Statutory liquidity ratio is in the form of cash (book value), gold (current market value) and balances in unencumbered approved securities.
LIBOR
	London Inter Bank Offered Rate. The interest rate at which banks offer to lend funds in the interbank market.
Basis Point
	Is one hundredth of one percent. 1 basis point means 0.01%. Used for measuring change in interest rate/yield.
Fraud
	Frauds have been classified as under, based mainly on the provisions of the Indian Penal Code (a) Misappropriation and criminal breach of trust. (b) Fraudulent encashment through forged instruments, manipulation of books of account or through fictitious accounts and conversion of property. (c) Unauthorised credit facilities extended for reward or for illegal gratification. (d) Negligence and cash shortages. (e) Cheating and forgery. (f) Irregularities in foreign exchange transactions. (g) Any other type of fraud not coming under the specific heads as above.
Securitization
	A process by which a single asset or a pool of assets are transferred from the balance sheet of the originator (bank) to a bankruptcy remote SPV (trust) in return for an immediate cash payment.
Special Purpose Vehicle (SPV)
	An entity which may be a trust, company or other entity constituted or established by a ‘Deed’ or ‘Agreement’ for a specific purpose.
Bankruptcy remote
	The legal position with reference to the creation of the SPV should be such that the SPV and its assets would not be touched in case the originator of the securitization goes bankrupt and its assets are liquidated.
Commercial real estate
	commercial real estate is defined as “fund based and non-fund based exposures secured by mortgages on commercial real estates (office buildings, retail space, multi-purpose commercial premises, multi-family residential buildings, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction etc.)” KYC Norms & Anti Money laundering  Measures in Banking Objectives: 1.      Protect  banks from  financial frauds and from being used  by criminals who are engaged  in money laundering 2.      Make Bank employees understand  their customers  better  and their financial dealings  and to manage  any risk associated prudently 3.      To strengthen  customer identification  and monitoring of accounts Policy: Customer Acceptance Customer Identification procedure Monitoring of  transactions Monitoring  and reporting suspicious activities FIU-IND  ( Financial Intelligence  Unit of India) STR – Suspicious Transaction Report Marketing and Banking   specialization: Marketing covers not only goods  but also services. Banking is also a service industry  where the concepts  and application  of marketing is used.  Banks are relatively new to marketing.  As Banking industry shifted from class banking to mass banking , the needs and  wants of their customers  multiplied.  Also in view of large numbers  of existing banks as well as new banks  coming up the competition intensified in the market. These developments contributed in the development of  the marketing  approach  among banks. Marketing in Banks is the process of satisfying  the financial  and banking needs   and wants of customers Different types of Deposits Different types of loans and advances What is  MSME ?- Micro, Small and Medium Enterprises  Priority sector loans are those loans  given to borrowers  specified by RBI under its s priority sector lending  guidelines  for loans to Agriculture, Small Scale Industries, Retail trade, Water/Transport operators, Professional and self employed , Housing Loans ( upto 25 lacs)  etc. Every Bank has to  lend 40 %  of their lendable resources  to this sector. Retail loans are those that are given to customers  such as  Home Loans , Car Loans, Personal  loans, Gold loans etc. ECS :Electronic Clearing System is an electronic payment /receipt  for transactions that are repetitive  and periodical in nature. ECS enables  bulk transfer  of funds from one bank  account to many bank accounts or vice versa- ECS Debit and ECS Credit Bank Computerisation was mooted by which Committee: Dr C Rangarajan MICR : Magnetic Ink Character recognition NEFT:/ RTGS Why Banking as a career? It is expected that Indian Economy  register  a double digit growth during the  next two to three decades.  This provides  enormous  amount of challenges  and opportunities  for the growth   of the  banking  sector within India 56.90% of  India’s population  belongs to the age group of  15-59 years . We have only 7.50 %   of the population   belonging to the age category  above 60 years. The population growth will increase and  in future there will a very good demand for retail  banking products. More over  the next challenge is financial inclusion, ie banking for all .. Technology leveraging is maximum done in banking sector. All these are giving a lot of opportunities for  a  structured career growth. I am sure that I  also can grow  with the growth and development of the banking system. Banking sector gives an opportunity  for continuous  learning  including the latest technology. That means we can always travel with the  technology . The educational  and training opportunities  provided by Banks are  enormous. India vision 2020 says  India will become 4th largest economy. I am sure that Banks will have a  substantial part  to play in this  progress. I also want to be a part of this process by working in a Bank. Inflation  refers to a persistent rise in prices. Simply put , it is a situation of too much money  and too few goods. Thus due to  scarcity of goods and presence  of many buyers , the prices are pushed up. ASBA   Application supported by Blocked  Amounts- used an alternative  payment system in IPO applications. No need of sending  money with application. Simply block it in the respective accounts  and earn interest. ALM – Asset Liability Management   is a comprehensive  framework for measuring, monitoring and managing  the market  risk of a bank. It is the  management  of  structure of  balance sheet ( liabilities and assets) in such a way  that the  net earnings is maximized. Base rate : is for the Banks to set a level of minimum  interest  rates charged  while giving out the  loans. IFSC Code: Indian Financial System Code: used for interbank transfers through NEFT and RTGS. Financial inclusion is the delivery of  financial services  at affordable  costs to sections of disadvantaged and low  income segments  of society.