INDIAN BANKING: IMPORTANT BANKING TERMS ONE SHOULD KNOW

Here are some important Terminologies and their definition, which a banker should basically know and understand:

SNO TERMINOLOGY DEFINITION
1 What is Repo Rate? Repo rate is the rate at which our banks borrow money from RBI. Whenever the banks have any shortage of funds they can borrow from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive.
2 What is Reverse Repo Rate? This is exactly the opposite of Repo rate. Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. RBI uses this tool when it feels there is too much money floating in the banking system.  Banks are always happy to lend money to RBI since their money is in safe hands earning good return. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to attractive returns by way of interest.
3 What is CRR Rate? Cash reserve Ratio (CRR) is the amount of funds that banks have to keep with RBI. If RBI decides to increase the CRR percentage, the funds available with banks come down. RBI uses this tool (increase of CRR rate), to drain out excessive money from the banking system
4 What is SLR Rate? SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of Cash, or Gold or Government approved securities (Bonds) before extending credit facilities to its customers.  SLR rate is determined and maintained by RBI (Reserve Bank of India) in order to control expansion of bank credit.
5 What is Bank Rate? Bank rate, also referred as the Discount Rate, is the rate of interest which a central bank levies on loans and advances extended to Commercial Banks and other financial institutions.  Changes in bank rate are often used as a tool by Central Bank to control money supply.
6 What is Inflation? Inflation is as an increase in the price of bunch of Goods and services that projects the Indian economy. An increase in inflation occurs when there is an increase in the average level of prices in Goods and services.  Inflation occurs when many people chase too few goods available in the market.  This will result in increase in the Pricess of Goods, since there is more demand and less supply of goods.
7 What is Deflation? Deflation is the continuous decrease in prices of goods and services. Deflation occurs when the inflation rate becomes negative (below zero) and stays there for a longer period.
8 What is FII? A: FII (Foreign Institutional Investor) is a term commonly used to denote an investor in the form of an institution established outside India. FII proposes to invest in Indian market like buying Indian stocks.  FII’s generally buy shares in large volumes which would have an impact on the stock markets.  Institutional Investors include Pension Funds, Mutual Funds, Insurance Companies, Banks, etc.
9 What is FDI? FDI (Foreign Direct Investment) occurs with the purchase of the “physical assets or a significant amount of ownership (stock) of a company in another country in order to gain a measure of management control” (Or) it  can be termed to be “ A foreign company’s stake in an Indian Company”.
10 What is an IPO? The term IPO stands for Initial Public Offering.  This is the first offering of shares to the general public made by a company which gets listed on the stock exchanges.
11 What is GDP? The Gross Domestic Product or GDP is a measure of all the services and goods produced in a country over a specific period say one year. GDP stood at 7.3% as at the quarter ended 31.3.2018.
12 What is Fiscal Deficit? It is the difference between the Government’s total receipts (excluding borrowings) and its Total Expenditure.  The fiscal deficit of India as on Feb 2018 stood at 3.5% of GDP.
13 What is Revenue deficit? Revenue Deficit is defined as the net amount arrived at when the revenue received (by taxes & other forms) fails to meet the predicted net amount to be received by the government
14 What is GNP? Gross National Product is measured as GDP plus income of residents from investments made abroad minus income earned by foreigners in the domestic market.
15 What is National Income? National Income is the money value of all goods and services produced in a country during a year.
  What is Per Capita Income? The national income of a country, or region, divided by its population is said to be the per capita income. Per capita income is often used to measure a country’s standard of living.

 

Author: Admin Bankedge

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