Bank Terminology

Introduction

Banking acts as the nervous system to any economy, ensuring an adequate flow of money in a country. The Reserve Bank of India regulates the banking system in India. It ensures that there is enough liquidity in the economy with various macroeconomic factors kept in check. The following guide provides a list of key terminologies related to the banking industry which are crucial from an academic and industrial point of view. 

Important Terminologies

Concerning the practical significance of these terminologies, every individual is expected to understand basic terminologies for them to carry out regular financial activities. Awareness about these terminologies is also essential for students aspiring to have a career in the banking industry as these terminologies point towards the technicalities of the same. Following are the key terminologies

• Bank Deposits- Contrary to the bank credits, bank deposits denote depositing savings in respective bank accounts. This is done for a variety of reasons, ranging from providing security to the depositors and lending that amount to the desired lenders so that the bank can earn interest on it
• Collateral Security- Collateral Security is the act of giving one’s assets to the lenders for security and protection in case there is a default in interest or principal payment. Collaterals are the assets with significant economic value that a borrower possesses. These can be in the form of real estate, shares, transferable guarantees, movable property, etc. 
• Repo Rate: Repo rate is simply the rate at which the Reserve Bank of India lends to the commercial banks and non-banking financial institutions in India at collateral for a specified period of time. 
• Reverse Repo Rate: The rate on which money is borrowed from the commercial banks by the reserve bank of India is called the reverse repo rate. This case especially arises when there is an excessive money supply in the market, which can give rise to inflation.
• Statutory Liquidity Ratio: The Statutory Liquidity Ratio or the SLR is a mandatory minimum percentage of reserves which the commercial banks have to maintain before offering credit to the lenders. These reserves must be in liquid assets such as cash, gold or other liquid securities. These reserves are maintained with the commercial banks themselves and have been a common tool to control credit growth in an economy.
• Cash Reserve Ratio:   The cash reserve ratio or the CRR is actually the opposite of the SLR. According to this, the commercial banks have to maintain a certain amount of reserves with the Reserve Bank of India . This again fluctuates as per the credit growth targets and generally increases when there is excess liquidity in the economy. 
• Call Money: Call money generally refers to a short term loan exchanged between two financial institutions on a collateral basis. Generally, the time period of repayment ranges to one day, hence, the name call money. Such loans are exchanged to fulfill the short-term liquidity requirements of financial institutions.
• Money Market: This market is also referred to as the money market where short term debt based financial instruments are exchanged which have a maturity period up to 365 days.
• Capital Market: This market on the other hand deals with long term, highly liquid financial instruments and these instruments can range from debentures to shares. The capital market operates in both the primary and the secondary market.
• Processing Fee: This is the set amount of fee that a bank would charge when processing a commercial or a private loan.
• Monetary Policies: These are the policies which the RBI has put in place to ensure that the banking system in India functions smoothly. Monetary policy and its tools are an important factor to the supply of money in the Indian economy. These tools are even used to set long term and short term economic goals. 

Conclusion

There are certain banking terminologies that have been covered above which are crucial from an academic perspective. It is important to understand these terminologies as they are not only critical to the banking industry but also for the economy at large. These terminologies also highlight the pivotal role that the Reserve Bank of India plays as the lead bank in the country. Moreover, the terminologies also highlight the relationship commercial banks have with each other and the RBI. Commercial banks  and the RBI play a crucial role in maintaining stability and liquidity in the Indian economy.