IPCI Capsule 1 – Banking Awareness

Certificate of Deposit: Certificate of Deposits are negotiable receipts in bearer form which can be freely traded among investors. This is also a money market instrument, issued for a period ranging from 7 days to one year .The minimum deposit amount is Rs. 1 lakh and they are transferable by endorsement and delivery.
Adjustable-Rate Mortgages (ARMS): Also known as variable-rate mortgages. The initial interest rate is usually below that of conventional fixed-rate loans. The interest rate may change over the life of the loan as market conditions change. There is typically a maximum (or ceiling) and a minimum (or floor) defined in the loan agreement. If interest rates rise, so does the loan payment. If interest rates fall, the loan payment may as well.
Arbitrage: Buying a financial instrument in one market in order to sell the same instrument at a higher price in another market.
Bank Ombudsman: Bank Ombudsman is the authority to look into complaints against Banks in the main areas of collection of cheque / bills, issue of demand drafts, non-adherence to prescribed hours of working, failure to honour guarantee / letter of credit commitments, operations in deposit accounts and also in the areas of loans and advances where banks flout directions / instructions of RBI. This Scheme was announced in 1995 and is functioning with new guidelines from 2007. This scheme covers all scheduled banks, the RRBs and co-operative banks.
Bancassurance: Bancassurance refers to the distribution of insurance products and the insurance policies of insurance companies which may be life policies or non-life policies like home insurance – car insurance, medi-policies and others, by banks as corporate agents through their branches located in different parts of the country by charging a fee.
Anytime/Anywhere Banking: With introduction of ATMs, Tele-Banking and internet banking, customers can conduct their business anytime of the day and night. The ‘Banking Hours’ is not a constraint for transacting banking business.
Bank Ombudsman: Bank Ombudsman is the authority to look into complaints against Banks in the main areas of collection of cheque / bills, issue of demand drafts, non-adherence to prescribed hours of working, failure to honour guarantee / letter of credit commitments, operations in deposit accounts and also in the areas of loans and advances where banks flout directions / instructions of RBI. This Scheme was announced in 1995 and is functioning with new guidelines from 2007. This scheme covers all scheduled banks, the RRBs and co-operative banks.
ATM: ATMs are Automatic Teller Machines, which do the job of a teller in a bank through Computer Network. ATMs are located on the branch premises or off branch premises. ATMs are useful to dispense cash, receive cash, accept cheques, give balances in the accounts and also give mini-statements to the customers.
Basis Point: One hundredth of 1%. A measure normally used in the statement of interest rate e.g., a change from 5.75% to 5.81% is a change of 6 basis points. Bear Markets: Unfavorable markets associated with falling prices and investor pessimism.
Blue Chips: Blue chips are unsurpassed in quality and have a long and stable record of earnings and dividends. They are issued by large and well-established firms that have impeccable financial credentials.
Call Money: Call money is the borrowing or lending of funds for 1 day. Where money is borrowed or lend for period between 2 days and 14 days it is known as ‘Notice Money’.
Cheque Truncation: Cheque truncation truncates or stops the flow of cheques through the banking system. Generally truncation takes place at the collecting branch, which sends the electronic image of the cheques to the paying branch through the clearing house and stores the paper cheques with it.
Credit Rating: An assessment of the likelihood of an individual or business being able to meet its financial obligations. Credit ratings are provided by credit agencies or rating agencies to verify the financial strength of the issuer for investors. E.g. CRISIL, ICRA, S&P.
Gross Domestic product (GDP): The total of market value of the finished goods and services produced in a country in a given year. Comprising of three sectors: Agriculture, Industry and Services.
Gross National Product(GNP): The total market value of finished goods and services produced in the country in a given year, plus income of domestic residents from investments made abroad, minus income earned by foreigners abroad from the domestic market
Demat Account: Demat Account concept has revolutionized the capital market of India. When a depository company takes paper shares from an investor and converts them in electronic form through the concerned company, it is called Dematerialization of Shares. These converted Share Certificates in Electronic form are kept in a Demat Account by the Depository Company, like a bank keeps money in a deposit account. Investor can withdraw the shares or purchase more shares through this demat Account.
EFT – (Electronic Fund Transfer): EFT is a device to facilitate automatic transmission and processing of messages as well as funds from one bank branch to another bank branch and even from one branch of a bank to a branch of another bank. EFT allows transfer of funds electronically with debit and credit to relative accounts.
Electronic Commerce (E-Commerce): E-Commerce is the paperless commerce where the exchange of business takes place by Electronic means.