Banking Glossary (B)

Balance Transfer
	Transferring balances from one credit card to another, usually to take advantage of a lower interest rate. Transfers are limited to the available credit on the receiving card.
Banking Book
	The banking book comprises assests and liabilities, which are contracted basically on account of relationship or for steady income and statutory obligations and are generally held till maturity.
Bank Draft
	An instrument issued by one branch of a bank on another branch of the bank containing an order to pay a certain sum on demand to the person named on the draft. It is used to transfer funds and to settle outstanding balances between banks, or to provide a customer with funds payable at a bank in a different location. Bank drafts are valid for certain period, generally, for 6 months, as indicated over face of draft.
Banker's Cheque
	A cheque issued by a branch of a bank against consideration received. Banker's cheque are valid for a certain period as indicated on the face of the cheque. (also called Pay Order).
Bankruptcy
	A legal action, in which a person who is not able to repay his loans satisfactorily, is declared bankrupt by a court order. The collateral or security in this case becomes liable to be attached by administration to satisfy creditors.
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.
Base Rate
	New reference rate used by banks for loan pricing w.e.f July 2010. Base rate captures cost of deposits, cost of capitals and unallocable (common) overheads. Banks are not allowed to lend base rate except for certain specified category or borrowers.
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.
BASEL Capital Accord
	The BASEL Capital Accord is an Agreement concluded among country representatives in 1988 to develop standardised risk-based capital requirements for banks across countries. The Accord was replaced with a new capital adequacy framework (BASEL II), published in June 2004. BASEL II is based on three mutually reinforcing pillars hat allow banks and supervisors to evaluate properly the various risks that banks face. These three pillars are :
	>	Minimum capital requirements, which seek to refine the present measurement framework
	>	supervisory review of an institution's capital adequacy and internal assessment process;
	>	market discipline through effective disclosure to encourage safe and sound banking practices
Basis Point
	A unit of measurement which is equal to 1/100th of 1%. This is used to measure changes in interest rates, stock-market indices or yield on fixed income securities. For example, if an interest rate is reduced by 50 basis points it means an effective reduction of 0.5%.
Bill Discounting
	Under this type of lending, Bank takes the bill drawn by borrower on his (borrower's) customer and pay him immediately deducting some amount as discount / commission. The Bank then presents the Bill to the borrower's customer on the due date of the Bill and collect the total amount. If the bill is delayed, the borrower or his customer pay the Bank a pre-determined interest depending upon the terms of transaction.
Bill Pay Service
	Bill Pay is a service of Online Banking from bank that allows you to pay your bills online. In addition you can elect to receive e-Bills - electronic versions of your paper bills - from your bank credit card and a variety of companies currently offering e-Bills.
Biller
	A service provider who bills his / her services at specified intervals and has facilitated receipt of payment from his customers through online banking.
Billing Cycle
	The number of days between your last statement date and your current statement date. Most service providers follow a monthly billing cycle.
Billing Statement
	A monthly bill from your credit card issuer which describes and summarizes the activity on your account including the outstanding balance, purchases, payments, credits, finance charges and other transactions for the month.
Borrower
	The person / legal entity who is taking the loan with the promise to repay it back with interest under the credit or loan agreement.
Bounced cheque
	A cheque, which a bank returns unpaid because there is not enough available balance in the account or for other reasons.
Broker
	Broker is an individual who, for a commission or a fee, brings two parties together and assists in negotiating contracts between them.
Budget
	The financial record you use to keep track of the money you earn, how much you spend and what you spend it on. Your budget also includes savings and how much you pay to your creditors.

Banking Glossary (A)

Acceptance Letter
	Acceptance letter is the letter that a borrower or applicant gives to the lender after reading the terms of the loan. This letter denotes the borrower's willingness to accept the loan offer within a particular time frame.
Account Balance
	Opening Account Balance / Beginning of the Day (BOD) Balance : The balance in an account at the beginning of each business day; includes all deposits and withdrawals that were posted from the previous night, whether or not funds have been collected.
	Closing Account Balance / End of the Day (EOD) Balance : The account balance computed at the end of the business day, and is the adjusted balance of the credits and debits during the business day in the account of the customer.
Account Statement
	Periodic statement of all the debit and credit transactions on an account for a given statement cycle.
Acquirer
	Acquirers are banks and financial institutions that collaborate with businesses to accept credit / debit card payments.
Active Account
	A bank account in which there are regular transactions. A bank account that is not dormant or inoperative or under an attachment order of the court or enforcement authorities.
Additional Cardholder
	Another member added to an existing card thus extending its usage is called an additional cardholder. Thus by adding an additional cardholder the existing cardholder allows him / her to make purchases and use the credit card. However, the responsibility to repay the monthly outstanding balance rests with the original (principal) cardholder.
Administrative Fee
	A one time non-refundable levy to bank's customers for meeting expenses related to appraisal of loan proposals.
Advance EMI
	Number of equated monthly installments, paid in advance at the time of disbursal of loan.
Affinity Card
	Credit cards linked to special organizations like sports clubs, exclusive clubs and charities. Affinity credit cards can also help raise funds, when a part of income from every transaction goes toward the benefit of relevant organization.
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.
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.
Amortization
	Amortization is the repayment of Principal and Interest components of a Loan, over a period of time. Certain category of expenses or charges are also amortized over a period of time.
Annual Fee
	An annual amount charged by the credit card companies to maintain the credit card.
Annual percentage yield (APY)
	A percentage rate reflecting the total amount of interest paid on a deposit account (savings, CDs etc.), based on the interest rate and the effect of interest compounding for one year.
Anywhere Banking
	Customer can deposit / withdraw cash at any branch other than the branch in which he holds the account. Anywhere banking frees the customer from geographical boundaries and limitations and gives the flexibility to the customer to use his account across the board.
Application Form
	A form to be filled in and signed as per the Bank's requirements to avail Banking facilities. Requirement of details to be filled in will vary for each facility. Applications may also require certain specified documents also to be attached.
Arrears Outstanding
	The arrears outstanding comprises of the unpaid EMI's and other charges, if any, levied in the account.
Asset
	Cash or anything you own that can be turned into cash. This includes property, goods, savings or investments.
	These are things that people own such as buildings, vehicles, shares and money in the bank. The opposite is liabilities. For a bank, its assets are mainly the loans it makes
ATM
	Acronym for automated teller machine, a machine at a bank branch or other location, which enables a customer to perform basic banking activities (checking one's balance, withdrawing or transferring funds) even when the bank is closed.
Attestation
	Authentication of signatures of a customer of the branch required by the customer for any legal purposes.
Automatic Funds Transfer
	An arrangement that moves funds from one account to another automatically on a pre-arranged schedule; for example, every payday or once a month.
Automatic Payment
	An arrangement that authorizes payments to be deducted automatically from a bank account (usually a savings / current account) to pay bills (such as insurance payments, rent, mortgage or loan payments). Payments are usually scheduled to be made on a certain day of the month.
Available Balance
	The available balance is the account balance in the account that is available for immediate use at any given point of time
Available Credit
	Available credit is your credit limit minus your current balance. It is the unused portion of your credit line.
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.
Average Cost
	(Interest expended on deposits and borrowings / Average interest bearing liabilities) x 100
Average daily Balance
	The average balance in a deposit account, equals the sum of the daily account balances during an accounting period, usually a monthly or a quarterly cycle, divided by the number of days in the accounting period. Banks normally specify certain minimum average daily balance to be maintained in current and savings accounts.
Average Yield
	(Interest and discount earned / average interest earning assets) x 100

Important Banking Terms for IBPS Exam II

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.
BASEL Capital accord
	The BASEL Capital Accord is an Agreement concluded among country representatives in 1988 to develop standardised risk-based capital requirements for banks across countries. The Accord was replaced with a new capital adequacy framework (BASEL II), published in June 2004. BASEL II is based on three mutually reinforcing pillars hat allow banks and supervisors to evaluate properly the various risks that banks face. These three pillars are: Minimum capital requirements, which seek to refine the present measurement framework supervisory review of an institution's capital adequacy and internal assessment process; market discipline through effective disclosure to encourage safe and sound banking practices
Risk Weighted Asset
	The notional amount of the asset is multiplied by the risk weight assigned to the asset to arrive at the risk weighted asset number. Risk weight for different assets vary e.g. 0% on a Government Dated Security and 20% on a AAA rated foreign bank etc.
CRAR(Capital to Risk Weighted Assets Ratio)
	Capital to risk weighted assets ratio is arrived at by dividing the capital of the bank with aggregated risk weighted assets for credit risk, market risk and operational risk. The higher the CRAR of a bank the better capitalized it is.
Credit Risk
	The risk that a party to a contractual agreement or transaction will be unable to meet its obligations or will default on commitments. Credit risk can be associated with almost any financial transaction. BASEL-II provides two options for measurement of capital charge for credit risk 1.standardised approach (SA) - Under the SA, the banks use a risk-weighting schedule for measuring the credit risk of its assets by assigning risk weights based on the rating assigned by the external credit rating agencies. 2. Internal rating based approach (IRB) - The IRB approach, on the other hand, allows banks to use their own internal ratings of counterparties and exposures, which permit a finer differentiation of risk for various exposures and hence delivers capital requirements that are better aligned to the degree of risks. The IRB approaches are of two types: a) Foundation IRB (FIRB): The bank estimates the Probability of Default (PD) associated with each borrower, and the supervisor supplies other inputs such as Loss Given Default (LGD) and Exposure At Default (EAD). b) Advanced IRB (AIRB): In addition to Probability of Default (PD), the bank estimates other inputs such as EAD and LGD. The requirements for this approach are more exacting. The adoption of advanced approaches would require the banks to meet minimum requirements relating to internal ratings at the outset and on an ongoing basis such as those relating to the design of the rating system, operations, controls, corporate governance, and estimation and validation of credit risk components, viz., PD for both FIRB and AIRB and LGD and EAD for AIRB. The banks should have, at the minimum, PD data for five years and LGD and EAD data for seven years. In India, banks have been advised to compute capital requirements for credit risk adopting the SA.
Market risk
	Market risk is defined as the risk of loss arising from movements in market prices or rates away from the rates or prices set out in a transaction or agreement. The capital charge for market risk was introduced by the BASEL Committee on Banking Supervision through the Market Risk Amendment of January 1996 to the capital accord of 1988 (BASEL I Framework). There are two methodologies available to estimate the capital requirement to cover market risks: 1) The Standardised Measurement Method: This method, currently implemented by the Reserve Bank, adopts a ‘building block’ approach for interest-rate related and equity instruments which differentiate capital requirements for ‘specific risk’ from those of ‘general market risk’. The ‘specific risk charge’ is designed to protect against an adverse movement in the price of an individual security due to factors related to the individual issuer. The ‘general market risk charge’ is designed to protect against the interest rate risk in the portfolio. 2) The Internal Models Approach (IMA): This method enables banks to use their proprietary in-house method which must meet the qualitative and quantitative criteria set out by the BCBS and is subject to the explicit approval of the supervisory authority.
Operational Risk
	The revised BASEL II framework offers the following three approaches for estimating capital charges for operational risk: 1) The Basic Indicator Approach (BIA): This approach sets a charge for operational risk as a fixed percentage ("alpha factor") of a single indicator, which serves as a proxy for the bank’s risk exposure. 2) The Standardised Approach (SA): This approach requires that the institution separate its operations into eight standard business lines, and the capital charge for each business line is calculated by multiplying gross income of that business line by a factor (denoted beta) assigned to that business line. 3) Advanced Measurement Approach (AMA): Under this approach, the regulatory capital requirement will equal the risk measure generated by the banks’ internal operational risk measurement system. In India, the banks have been advised to adopt the BIA to estimate the capital charge for operational risk and 15% of average gross income of last three years is taken for calculating capital charge for operational risk.
Internal Capital Adequacy Assessment Process (ICAAP)
	In terms of the guidelines on BASEL II, the banks are required to have a board-approved policy on internal capital adequacy assessment process (ICAAP) to assess the capital requirement as per ICAAP at the solo as well as consolidated level. The ICAAP is required to form an integral part of the management and decision-making culture of a bank. ICAAP document is required to clearly demarcate the quantifiable and qualitatively assessed risks. The ICAAP is also required to include stress tests and scenario analyses, to be conducted periodically, particularly in respect of the bank’s material risk exposures, in order to evaluate the potential vulnerability of the bank to some unlikely but plausible events or movements in the market conditions that could have an adverse impact on the bank’s capital.
Supervisory Review Process (SRP)
	Supervisory review process envisages the establishment of suitable risk management systems in banks and their review by the supervisory authority. The objective of the SRP is to ensure that the banks have adequate capital to support all the risks in their business as also to encourage them to develop and use better risk management techniques for monitoring and managing their risks.
Market Discipline
	Market Discipline seeks to achieve increased transparency through expanded disclosure requirements for banks.
Credit risk mitigation
	Techniques used to mitigate the credit risks through exposure being collateralised in whole or in part with cash or securities or guaranteed by a third party.
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.