Banking Awareness - Banking Terminologies Part 1

1.  Account Agreement: The contract governing your open-end credit account, it provides information on changes that may occur to the account.

2.       Account History: The payment history of an account over a specific period of time, including the number of times the account was past due or over limit.

3.       Account Holder: Any and all persons designated and authorized to transact business on behalf of an account. Each account holder's signature needs to be on file with the bank. The signature authorizes that person to conduct business on behalf of the account.

4.        Acquiring Bank: In a merger, the bank that absorbs the bank acquired.

5.       Accrued interest: Interest due from issue date or from the last coupon payment date to the settlement date. Accrued interest on bonds must be added to their purchase price.

6.       Adjustable-Rate Mortgages (ARMS): Also known as variable-rate mortgages. The initial interest rate is usually below that of conventional fixed-rate loans. The interest rate may change over the life of the loan as market conditions change.  There is typically a maximum (or ceiling) and a minimum (or floor) defined in the loan agreement. If interest rates rise, so does the loan payment. If interest rates fall, the loan payment may as well.

7.       Arbitrage: Buying a financial instrument in one market in order to sell the same instrument at a higher price in another market.

8.       Adverse Action: Under the Equal Credit Opportunity Act, a creditor's refusal to grant credit on the terms requested, termination of an existing account, or an unfavorable change in an existing account.

9.       Adverse Action Notice: The notice required by the Equal Credit Opportunity Act advising a credit applicant or existing debtor of the denial of their request for credit or advising of a change in terms considered unfavorable to the account holder.

10.   AER: Annual earnings rate on an investment.

11.   Affidavit: A sworn statement in writing before a proper official, such as a notary public.

12.   Alteration: Any change involving an erasure or rewriting in the date, amount, or payee of a check or other negotiable instrument.

13.   Amortization: The process of reducing debt through regular installment payments of principal and interest that will result in the payoff of a loan at its maturity.

14.   Anytime Banking: With introduction of ATMs, Tele-Banking and internet banking, customers can conduct their business anytime of the day and night. The 'Banking Hours' is not a constraint for transacting banking business.

15.   Anywhere Banking : Refers to banking not only by ATMs, Tele-Banking and internet banking, but also to core banking solutions brought in by banks where customer can deposit his money, cheques and also withdraw money from any branch connected with the system. All major banks in India have brought in core banking in their operations to make banking truly anywhere banking.

16.   Annual Percentage Rate (APR): The cost of credit on a yearly basis, expressed as a percentage.

17.   Annual Percentage Yield (APY): A percentage rate reflecting the total amount of interest paid on a deposit account based on the interest rate and the frequency of compounding for a 365-day year.

18.   Annuity : A life insurance product which pays income over the course of a set period. Deferred annuities allow assets to grow before the income is received and immediate annuities (usually taken from a year after purchase) allow payments to start from about a year after purchase.

19.   APR:  The annual percentage rate of interest, usually on a loan or mortgage, usually displayed in brackets and representing the true cost of the loan or mortgage as it shows any additional payments beyond the interest rate.

20.   Application: Under the Equal Credit Opportunity Act (ECOA), an oral or written request for an extension of credit that is made in accordance with the procedures established by a creditor for the type of credit requested.

21.   Appraisal: The act of evaluating and setting the value of a specific piece of personal or real property.

22.   Arbitrage: Buying a financial instrument in one market in order to sell the same instrument at a higher price in another market.

23.   Ask Price: The lowest price at which a dealer is willing to sell a given security.

24.   Asset-Backed Securities (ABS): A type of security that is backed by a pool of bank loans, leases, and other assets. Most ABS are backed by auto loans and credit cards – these issues are very similar to mortgage-backed securities.

25.   At-the-money: The exercise price of a derivative that is closest to the market price of the underlying instrument.

26.   ATM:  ATMs are Automatic Teller Machines, which do the job of a teller in a bank through Computer Network. ATMs are located on the branch premises or off branch premises. ATMs are useful to dispense cash, receive cash, accept cheques, give balances in the accounts and also give mini-statements to the customers.

27.   Authorization: The issuance of approval, by a credit card issuer, merchant, or other affiliate, to complete a credit card transaction.

28.   Automated Clearing House (ACH): A computerized facility used by member depository institutions to electronically combine, sort, and distribute inter-bank credits and debits. ACHs process electronic transfers of government securities and provided customer services, such as direct deposit of customers' salaries and government benefit payments (i.e., social security, welfare, and veterans' entitlements), and preauthorized transfers.

29.   Automated Teller Machine (ATM): A machine, activated by a magnetically encoded card or other medium that can process a variety of banking transactions. These include accepting deposits and loan payments, providing withdrawals, and transferring funds between accounts.

30.   Automatic Bill Payment: A checkless system for paying recurring bills with one authorization statement to a financial institution. For example, the customer would only have to provide one authorization form/letter/document to pay the cable bill each month. The necessary debits and credits are made through an Automated Clearing House (ACH).

31.   Availability Date: Bank's policy as to when funds deposited into an account will be available for withdrawal.

32.   Availability Policy: Bank's policy as to when funds deposited into an account will be available for withdrawal.

33.   Available Balance: The balance of an account less any hold, uncollected funds, and restrictions against the account.

34.   Available Credit: The difference between the credit limit assigned to a cardholder account and the present balance of the account.

35.   Banking: Accepting for the purpose of lending or investment of deposits of money from Public, Repayable on demand or otherwise and withdraw able by cheques, drafts, order, etc.

36.   Bank Ombudsman: Bank Ombudsman is the authority to look into complaints against Banks in the main areas of collection of cheque / bills, issue of demand drafts, non-adherence to prescribed hours of working, failure to honour guarantee / letter of credit commitments, operations in deposit accounts and also in the areas of loans and advances where banks flout directions / instructions of RBI. This Scheme was announced in 1995 and is functioning with new guidelines from 2007. This scheme covers all scheduled banks, the RRBs and co-operative banks.

37.   Bancassurance:  Bancassurance refers to the distribution of insurance products and the insurance policies of insurance companies which may be life policies or non-life policies like home insurance - car insurance, medi-policies and others, by banks as corporate agents through their branches located in different parts of the country by charging a fee.

38.   Bank Rate: It is the rate of interest charged by a central bank to commercial banks on the advances and the loans it extends.

39.   Banker's Lien: Bankers lien is a special right of lien exercised by the bankers, who can retain goods bailed to them as a security for general balance of account. Bankers can have this right in the absence of a contract to the contrary.

40.   Basel-II: The Committee on Banking Regulations and Supervisory Practices, popularity known as Basel Committee, submitted its revised version of norms in June, 2004. Under the revised accord the capital requirement is to be calculated for credit, market and operational risks. The minimum requirement continues to be 8% of capital fund (Tier I & II Capital) Tier II shall continue to be not more than 100% of Tier I Capital.

41.   Bear Markets: Unfavorable markets associated with falling prices and investor pessimism.

42.   Brick & Mortar Banking: Brick and Mortar Banking refers to traditional system of banking done only in a fixed branch premises made of brick and mortar. Now there are banking channels like ATM, Internet Banking, tele banking etc.

43.   Business of Banking : Accepting deposits, borrowing money, lending money, investing, dealing in bills, dealing in Foreign Exchange, Hiring Lockers, Opening Safe Custody Accounts, Issuing Letters of Credit, Travelers’ Cheques, doing Mutual Fund business, Insurance Business, acting as Trustee or doing any other business which Central Government may notify in the official Gazette.

44.   Bouncing of a cheque: Where an account does not have sufficient balance to honour the cheque issued by the customer, the cheque is returned by the bank with the reason "funds insufficient" or "Exceeds arrangement”. This is known as 'Bouncing of a cheque’.

45.   Basis Point: One hundredth of 1%. A measure normally used in the statement of interest rate e.g., a change from 5.75% to 5.81% is a change of 6 basis points. Bear Markets: Unfavorable markets associated with falling prices and investor pessimism.

46.   Bid-ask Spread: The difference between a dealers’s bid and ask price.

47.   Bid Price: The highest price offered by a dealer to purchase a given security.

48.   Billing Cycle: A billing cycle is a time period that covers the credit statement that usually lasts for 25 days

49.   Blue Chips: Blue chips are unsurpassed in quality and have a long and stable record of earnings and dividends. They are issued by large and well-established firms that have impeccable financial credentials.

50.   Bond: Publicly traded long-term debt securities, issued by corporations and governments, whereby the issuer agrees to pay a fixed amount of interest over a specified period of time and to repay a fixed amount of principal at maturity.