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What is Banking and various Important banking terms

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What is Banking ?

Banking is a service industry that accept deposites from public and creates demand depostites simultenously making loan 

In simple word – Providing services to those who want to lend, borrow or invest.

In other words bank is an institution  which collects money from those who have in spare or who are saving it out of their income  and lend this money out to those who require it

Banking terms  

  • e- banking 
  • commercial banks
  • bank rates 
  • Different bank accouts
  • kisan credit card
  • credit cards – debit card
  • smart card
  • bank card 
  • Market Stabilization scheme (MSS) 
  • Open Market Operations (OMO)


1. E – banking : Electronic banking 

Electronic banking or online banking or virtual banking. It means conduct of banking operations through electronic means of devices , such as computers , telephones , mobile phones , ATMs etc.

2. Commercial bank: 

Commercial banks are banking institutions that accept deposits and grant short term ,medium  and long term loans and advances to their customers.

3. Types of Accounts in banking

     Different various accouts in banks following :-
 a. Current Account/Demand deposit Account:   An active account catering for frequent deposits and withdrawals by cheque.


 b. DeMat Account:  This account is opened by the investor while registering with an investment broker (or sub-broker).


c. Fixed deposit account or time deposit account:   

It is a financial instrument provided by banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date.


d. NOSTRO Account:   A bank account held by a UK bank with a foreign bank, usually in the currency of that country.


e. Recurring Deposit Account:  It is opened by those who want to save regularly for a certain period of time and earn a higher interest rate.

f. Saving Account:  A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.

4. Compound interest 

Interest that applies to the original deposit as well as any newly earned interest. For example, if you put $100 in an account that earns compound interest at 5% a year, in the next year you will earn 5% on $105. Noncompounding interest would continue to earn 5% on $100.

5. Bank card 

Also known as debit card . A debit card is a plastic card that provides an alternative payment method to cash when making purchases. It can be called an electronic cheque as the funds are withdrawn  directly from either the bank account or from the remaining balance in the card.

6. Credit card : 

credit cards also plastic cards which are issued by banks to pay a merchant for goods and service on behalf of credit card holder

7. Prepaid cards: 

These are issued by banks/ other entities  against the value paid in advance by the cardholder and stored in such cards which can be stored in any prepaid card at any point of time is 50 thousand rupees.

8. Smart card : 

it contains an electronic chip that is used to store cash . There is no requirement of any signature or payment authorization .  Process will begin Amount is deducted from smart card  and collected by smart card reader machine.

9. Co-Branded Cards

A credit card that is offered by the credit card company that is jointly sponsored by bank and a retail merchant. These cards generally covered with a variety of incentives such as discounts and rebates.

10. Rupay Card

Rupay Card is the Indian version of debit/credit card. It is similar to international cards such as Master and Visa. It is launched by NPCI (National Payment Corporation of India) in India. The processing fee of the Rupay card is considerably low as compared to other credit/debit cards.

11. Kisan Credit Cards     

  

 The Kisan Credit Card (KCC) scheme was introduced in 1998 for issue of Kisan Credit Cards to farmers on the basis of their holdings for uniform adoption by the banks so that farmers may use them to readily purchase agriculture inputs such as seeds, fertilizers, pesticides etc. and draw cash for their production needs.

12. Bank rates 

The rate of interest which the RBI charges on the loans and advances to a commercial bank. 

Currently  Bank Rate is 4.25%

Differnt types of bank rates are following :-

Repo rate: The rate at which the RBI lends money to commercial banks in the event of any shortfall of funds.

Currently Repo Rate 4.00%


Reverse Repo Rate: The rate at which the RBI borrows money from commercial banks within the country.

Currently Reverse Repo Rate 3.35%


Term Repo: A repurchase agreement with a term of more than one day.


Cash Reserve Ratio (CRR)

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI.

Currently CRR is 3.00% 


Statutory liquidity ratio (SLR):   SLR is the minimum proportion of their Net Demand and Time Liabilities, which every bank maintains in the form of cash, gold and securities, at the close of business every day.

Currently SLR is  18.00%


Liquidity adjustments facility (LAF):  It’s a monetary policy tool which allows banks to borrow money through repurchase agreements and adjusting the day to day mismatches in liquidity.


 Marginal standing facility (MSF):  It’s a window for banks to borrow from the RBI in an emergency situation when inter-bank liquidity finishes completely.

Currently Marginal Standing Facility Rate is 4.25%

13. Market Stabilization scheme (MSS) 

Securities that are issued with the objective of providing a stock of securities to the RBI to intervene in the market for managing liquidity

14. Open Market Operations (OMO)

 It’s an activity by a RBI to give or take liquidity in its currency to or from a bank or a group of banks.

What is Banking and various Important banking terms

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