1. The document defines various banking terms like NEFT, linked accounts, travellers' cheques, base rate, balance transfer, banking ombudsman, cashback, credit history, collateral, documentation fees, dormant accounts, fixed and floating interest rates, MICR code, no-frills accounts, ECS, processing fees, RTGS, IFSC code, KYC, CASA ratio, capital adequacy ratio, and risk weighting. 2. Key terms include NEFT for electronic fund transfers, linked accounts for transferring funds between accounts, travellers' cheques functioning like cash when traveling, and base rate as the minimum lending rate for banks. 3. Other important terms are

1. BANKING TERMS
1. National Electronic Funds Transfer (NEFT)
Transfer of funds initiated by electronic means such as an electronic terminal,
telephone, computer, or ATM. The NEFT facilitates the process of fund transfer
within the same bank or inter-bank transfers. The minimum amount that can be
transferred is as low as Rs 100.
2. Linked Account
Any account linked to another account in the same bank where funds can be
transferred electronically between accounts and carry out other specified services
as well.

2. • 3. Travellers' Cheque
• Cheques issued by a bank and function as cash but are
protected against loss or theft when travelling.
• 4. Base Rate
• It is the minimum rate a bank charges its most credit worthy
customer. The bank cannot lend below this rate (with an
exception to banks employees, loans to bank's depositors
against their own deposits, albeit with the subvention of the
central bank).
• For a retail customer, the Base Rate will cover all loans from
auto, personal to home loans effective from July 1, 2010

3. • 5. Balance Transfer
• Balance transfer is an option included under credit card payments and is useful for
persons holding more than one card. On availing this facility, the cardholder can
transfer the balance amount outstanding on card one to card two and vice versa, if
he/she is not able to make full payment that is due on a particular card.
• In any case, the payment due date is only delayed but the payment has to be made
at the scheduled time as stated in card two. Balance transfer facility is useful in
reducing the interest outgo (on card one) and extending the payment due date on
the original card.
• 6. Banking Ombudsman
• Banking Ombudsman is an unbiased forum formed to resolve complaints
registered by bank customers with respect to the services provided by banks. The
RBI introduced this scheme under Section 35A of Banking Regulation Act, 1949. In
case one has not been satisfactorily serviced by their bank, they should first
register a complaint with the bank customer service department.
• If they are not happy with the bank's response, then they can approach the
banking ombudsman for an unbiased resolution.

4. • 7. Cashback
• The term 'cashback' is used with reference to credit cards. Cashback means giving
back some portion of money (spent by the cardholder through the credit card) to
the cardholder himself. The cashback is made in terms of points earned; for
example, the bank may say one point will be earned for every Rs 100 spent by the
cardholder and at the end of the year, the money worth of the points earned (say
Rs 1 for 1 point) will be credited back into the cardholder's account.
• 8. Credit History
• Credit history is an account of an individual's past borrowings by way of loans,
credit cards and all other debt that needs to be repaid/has been repaid. Credit
history in India is currently being provided by CIBIL (Credit Information Bureau of
India Limited) and contains records of an individual's open and past accounts of
loans and credit cards.
• Through the CIBIL report, the bank (lender) can know if the individual (borrower)
had made any late payments or defaults. You can get your own credit history
report from CIBIL for a nominal fee.

5. • 9. Collateral
• A borrower needs to provide some kind of security to the bank in case of
high ticket loans (except home loans where the property is the security).
Such security is called 'collateral'.
• In case the borrower fails to repay the loan, the bank has the authority to
attach the collateral to the loan and claim its dues.
• 10. Documentation/Processing Fee
• Bank requires certain documents from the borrower to look into his
creditworthiness and charges a fee for the same. These charges are known
as documentation charges.
• Processing Fee is charged by the bank upon sanctioning of loan to the
borrower.

6. • 11. Dormant/Inactive Account
• If an individual has not made any transactions in
his/her account (except for interest payments credited
by the bank) for more than two years, the
savings/current account is declared as
dormant/inactive.
• 12. Fixed Rate
• Fixed rate is the interest rate that remains constant for
the full term of the loan.

7. • 13. Floating Rate
• An interest rate that is referenced to a market rate and is revised
as per the change in the interest rates in the economy. When
interest rates in the economy rise, floating rates rise and vice
versa.
• 14. MICR Code
• MICR stands for Magnetic Ink Character Recognition. MICR Code
comprises 9 digits given at the bottom (right side) of the cheque
number. It is a unique code and varies between each bank branch.
• MICR Code is required for cheque clearance. MICR Code is
different from the IFSC code, which is also mentioned on a
cheque.

8. • 15. No-frills Account
• This account is a basic savings account provided by banks to make banking simpler
and more accessible for all customers. In a no-frills account, you do not have to
maintain minimum balance and enjoy basic banking facilities such as electronic
funds transfer (EFT), netbanking, free cheque book issuance.
• 16. Electronic Clearing Service (ECS)
• It is a service provided by the banks to facilitate direct debit from your bank
account towards an investment account (such as a mutual fund SIP) and/or paying
regular loan EMIs.
• One can give a standing instruction (SI) to the bank to transfer the specified
amount every month for a specified period. Alternatively, you can direct a one-
time transfer of funds through NEFT/RTGS (explained next).

9. • 17. Processing Fee
• Bank levies processing fee in order to process the loan
application of the borrower. This fee is a small percentage
(example: 2.5 per cent) of the loan amount sanctioned and is
usually waived off during festival time to attract more
borrowers.
• 18. RTGS
• The RTGS or Real Time Gross Settlement System facilitates
fund transfer within same bank or inter-bank transfers, but
unlike NEFT, RTGS ensures the fund transfer fast and smooth
in 'real-time' for a nominal fee.
• The minimum transfer amount is higher than NEFT (usually Rs
2 lakh and above).

10. • 19. IFSC
• IFSC code is useful in bank fund transfers and cheque
clearance. It is an 11 character code assigned by RBI to
identify every bank branch uniquely. The first part is the
first 4 alphabet characters representing the bank. Next
character is 0 (zero) and is reserved for future use. The last
6 characters is the branch code.
• 20. KYC
• KYC or Know Your Customer norms are imposed by RBI on
banks and other financial institutions to ensure that the
correct identity of the banks' customers is established and
to ensure that banks deal only in legitimate banking
operations and not in money laundering or frauds.

11. • CASA ratio : The CASA (current and savings account)
ratio is the ratio of deposits in the current and savings
accounts of a bank to its total deposits.[1]
• A high CASA ratio indicates that a higher portion of the
banks deposits come from current and savings accounts.
This means that the bank is getting money at low cost,
since no interest is paid on the current accounts and the
interest paid on savings account is usually low.
• Current and Saving Accounts are demand deposits and
therefore pay lower interest rates compared to term
deposits where the rates are higher. Thus higher CASA ratio
means that more of the money deposited in the bank is in
the demand deposits i.e. the CASA, thus bank is getting the
money at lower cost.

12. • Capital Adequacy Ratio (CAR), also called Capital to Risk
(Weighted) Assets Ratio (CRAR),is a ratio of a bank's
capital to its risk. National regulators track a bank's CAR
to ensure that it can absorb a reasonable amount of loss
and complies with statutory Capital requirements.
• Formula
• Capital adequacy ratios (CARs) are a measure of the amount of a
bank's core capital expressed as a percentage of its risk-weighted
asset.
• Capital adequacy ratio is defined as:
• TIER 1 CAPITAL = (paid up capital + statutory reserves + disclosed
free reserves) - (equity investments in subsidiary + intangible
assets + current & b/f losses)

13. • TIER 2 CAPITAL = A) Undisclosed Reserves + B) General Loss
reserves + C) hybrid debt capital instruments and subordinated
debts
• where Risk can either be weighted assets () or the respective
national regulator's minimum total capital requirement. If using
risk weighted assets,≥ 10%.
• The percent threshold varies from bank to bank (10% in this case, a
common requirement for regulators conforming to the Basel
Accords) is set by the national banking regulator of different
countries.
• Two types of capital are measured: tier one capital ( above), which
can absorb losses without a bank being required to cease trading,
and tier two capital ( above), which can absorb losses in the event
of a winding-up and so provides a lesser degree of protection to
depositors

14. • Capital adequacy ratio is the ratio which determines the
bank's capacity to meet the time liabilities and other risks
such as credit risk, operational risk etc. In the most simple
formulation, a bank's capital is the "cushion" for potential
losses, and protects the bank's depositors and other
lenders. Banking regulators in most countries define and
monitor CAR to protect depositors, thereby maintaining
confidence in the banking system.[1]
• CAR is similar to leverage; in the most basic formulation, it
is comparable to the inverse of debt-to-equity leverage
formulations (although CAR uses equity over assets instead
of debt-to-equity; since assets are by definition equal to
debt plus equity, a transformation is required). Unlike
traditional leverage, however, CAR recognizes that assets
can have different levels of risk.

15. Risk weighting
• Since different types of assets have different risk profiles, CAR
primarily adjusts for assets that are less risky by allowing banks to
"discount" lower-risk assets. The specifics of CAR calculation vary
from country to country, but general approaches tend to be similar
for countries that apply the Basel Accords. In the most basic
application, government debt is allowed a 0% "risk weighting" - that
is, they are subtracted from total assets for purposes of calculating
the CAR.
• Risk weighting example
• Risk weighted assets - Fund Based : Risk weighted assets mean fund
based assets such as cash, loans, investments and other assets.
Degrees of credit risk expressed as percentage weights have been
assigned by RBI to each such assets.

16. • Non-funded (Off-Balance sheet) Items : The credit risk exposure at-
tached to off-balance sheet items has to be first calculated by
multiplying the face amount of each of the off-balance sheet items
by the Credit Conversion Factor. This will then have to be again
multiplied by the relevant weightage.
• Local regulations establish that cash and government bonds have a
0% risk weighting, and residential mortgage loans have a 50% risk
weighting. All other types of assets (loans to customers) have a
100% risk weighting.
• Bank "A" has assets totaling 100 units, consisting of:
• Cash: 10 units
• Government bonds: 15 units
• Mortgage loans: 20 units
• Other loans: 50 units
• Other assets: 5 units

17. • Bank "A" has debt of 95 units, all of which are deposits. By definition,
equity is equal to assets minus debt, or 5 units.
• Bank A's risk-weighted assets are calculated as follows
• Cash = 10*0% =0
• Government securities = 15*0%=0
• Mortgage loans =20*50%=10
• Other loans =50*100% =50
• Other assets =5*100%=5
• Weighted Assets = 65
• Equity =5
• CAR (Equity/RWA) = 7.69%
Even though Bank "A" would appear to have a debt-to-
equity ratio of 95:5, or equity-to-assets of only 5%, its CAR
is substantially higher. It is considered less risky because
some of its assets are less risky than others.