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30 Banking Terms - Important for Interviews

Published on Wednesday, February 11, 2015
Amortization – Adjusting expenses for intangible assets over a long span of time is amortization.

Balloon Payment - as a balloon looks very little before filling air and seems bigger after filling with air. same way the payment will be very little at initial stage and later it will big enough.


Bank Rate - When RBI provides loan to the bank for long term (90 to 365 days).On that amount of loan RBI takes some interest i.e. called Bank Rate.



According to modern banking definition of BR (Bank Rate): Bank Rate is used by RBI to provide discount on his securities. So, Bank Rate is known as Discount or Exchange Rate.

Base Rate - This is the minimum lending rate, below this rate bank cannot provide loan to anyone.

Call Money - When one bank borrow money from another bank.

a. Valid for only one day

b. It is used to full fill the one day need of bank

CAMEL : CAMEL is the international model of rating the banks

  • C – Capital Adequacy 
  • A – Assets 
  • M – Management 
  • E – Earning Profit 
  • L – Liquidity 

CRR - (Cash Reserve Ratio):Bank have to maintain or reserve some part of their deposit in RBI in form of cash.

  • CRR can be minimum no limit and maximum limit is 20%.Before some time back CRR was minimum 3% and maximum 15% 
  • CRR is calculated on daily bases 
  • No interest is paid by RBI on CRR 
  • Bank keep their CRR in currency chest 

CD- Certificate of Deposit

  • CD is issued by the bank 
  • Minimum amount of CD is 1 lakh 
  • Valid for minimum – 7 days 
  • Valid for maximum – 365 days 

CP – Commercial Paper

  • CP is issued by company 
  • Valid for minimum – 7 days 
  • Valid for maximum – 365 days 

Convertible Debenture :
Such type of debenture can be converted into shares, but only in equity shares.

Debenture: Debenture holder is the creditor of company, when company borrows money from public.

Equity Shares

  • Equity share holder is the real owner of the company. 
  • Equity share holder has voting rights. 

Future Market

  • Commodity market 
  • In this market dealing is for future. 
  • Commodities & metals are traded in this market 
  • This market is regulated by Forward Market Commission under the Forward Contract Regulation Act (FCRA). 

Gilt Edge market

  • This is the government security market where government securities are traded. 
  • This is low profit market but low risk market. 
  • This market is not open for public but on the recommendation of government or RBI opened for public for some time. 
For example:

Before some time, the RBI issued the Inflation Index Board (IIB) in this market. This bond had a maturity period of 3 years.

IPO (Initial Public Offer)

  • When a company issues its share for the first time, it is known as IPO. 
  • This is a part of primary market. 
  • IPO can be the cheapest share of the company. 
  • IPO can be more beneficial than any other shares. 
  • IPO can be issued by unlisted company. 

FPO (Follow on Public Offer)
When a company launch the share after IPO, it is known as FPO.

MSF – (Marginal Standing Facility) : The facility in which RBI provide loan to the bank only for one day

  • MSF interest Rate is always equal to Bank Rate 
  • By using MSF facility bank can borrow: 
  • Maximum 2% of their total deposit in RBI and 1 crore 

NFO (New Fund Offer)
  • When a group of companies launch the share or when a company launch the share for a different scheme than its original one, it is known as NFO. 
  • For example, Closed ended funds: these are traded for a specific period of time. 

P- Note (Participatory Note):

  • P-note is issued by FII (Foreign Institutional Investor) on the recommendation of SEBI in India. 
  • Without P- Notes, any foreign cannot investor cannot invest. 

PLR – (Prime Lending Rate) : On this rate bank provide loan to his prime customers

  • Another name of PLR is BPLR i.e. (Benchmark Prime lending rate) 
  • PLR is replaced by Base Rate 
  • Sub PLR : On this rate bank provide loan to unsecured persons 
  • Most PLR : On this rate bank provide loan to his employees 

Preferential Shares:
In this type of shares company gives preference in distributing their dividend i.e. part of profit.

Repo Rate - (Repurchased Option): When RBI provides loan to the bank for 1 to 90 days ,RBI takes some interest i.e. called Repo Rate

Reverse Repo Rate: When bank deposit his excess money in RBI then RBI provides some interest to that bank. This interest is known as Reverse Repo Rate

Right issue share: Issues on discount, but only for existing share holder. 

Share Market

  • Long term market or above 1 year market 
  • Governing body of share market is SEBI (securities and exchange Board of India) 
  • SEBI was established in 1988 with its head office at Mumbai. Its chairman is Sh. U. K. Sinha. 

SLR –(Statutory Liquidity Ratio) : Bank have to maintain some part of their deposits in itself in the form of cash/foreign exchange, mutual fund.

But in India Government security is the popular form of SLR.

  • SLR maximum can be 40% 
  • No minimum limit of SLR 

Sweat equity Share: Issued on discount, but only for employees.

T-Bill : Treasury Bill. T-Bill is issued by RBI on behalf of Govt.
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