Banking Terms

NDS Auction platform

Auctions of government securities are conducted on the electronic platform called the NDS – Auction platform.

Commercial banks, scheduled urban co-operative banks, Primary Dealers, insurance companies and provident funds, who maintain funds account (current account) and securities accounts (SGL account) with RBI, are members of this electronic platform. All members of PDO-NDS can place their bids in the auction through this electronic platform. All non-NDS members including non-scheduled urban co-operative banks can participate in the primary auction through scheduled commercial banks or Primary Dealers. For this purpose, the urban co-operative banks need to open a securities account with a bank / Primary Dealer – such an account is called a Gilt Account. A Gilt Account is a dematerialized account maintained by a scheduled commercial bank or Primary Dealer for its constituent.

Government securities in secondary market

There is an active secondary market in Government securities.  The securities can be bought / sold in the secondary market either (i) Over the Counter (OTC) or (ii) through the Negotiated Dealing System (NDS) or (iii) the Negotiated Dealing System-Order Matching (NDS-OM).

Clearing Corporation of India Limited (CCIL)

The Clearing Corporation of India Limited (CCIL) guarantees settlement of trades on the settlement date by becoming a central counter-party to every trade through the process of novation.

Money Market

Money market has the same features as that of Government securities. The only difference is that it is for short term (Government securities market is a long term investment horizon). It is for a maximum tenor of up to one year.

Money market is classified into 3.They are

i. Overnight market -  The tenor of transactions is one working day.

ii. Notice money market – The tenor of the transactions is from 2 days to 14 days.

Iii. Term money market – The tenor of the transactions is from 15 days to one year.

Demat Accounts

Accounts in which shares of various companies are traded in electronic form

Inflation

Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.

Deflation

Deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). This should not be confused with disinflation, a slow-down in the inflation rate (i.e., when inflation declines to lower levels).

Reflation

When government wants to control the deflation condition, the suggests RBI to decrease the key rates. If deflation in not controlled, govt. makes a fiscal policy. (taxes decreased, subsidy on loan increased).

Disflation

When government wants to control the inflation condition, the suggests RBI to increase the key rates. If inflation in not controlled, govt. makes a fiscal policy. (Taxes increased, subsidy on loan decreased) 33. Doubtful Asset: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.

Taking of the Cheque

When a bank returns a Cheque unpaid, it is known as taking of a Cheque

NOSTRO Account

These are the accounts maintained by an Indian bank in foreign countries

VOSTRO Account

It is the account maintained by a foreign bank in India with their corresponding bank

Indirect Tax

It is the tax paid by someone else. For example, if we are buying something, sales tax for that item is not paid by ourselves. Its paid by the company which manufactured it. Indirect taxes include Excise tax, VAT, Entertainment tax etc…

Direct Tax

It is the tax paid by someone directly to the taxing authority.

Call money

Borrowing or lending money for one day is known as Call money

Notice money

Borrowing or lending money for 2-14 days are known as notice money

Term money

Borrowing or lending money for more than 15 days to One year are known as term money

Marginal Standing Facility (MSF)

It is the rate at which banks borrow funds from Reserve Bank of India against approved government securities. It is done when there is cash shortage. Minimum amount which can be borrowed is one crore and its multiples.

Capital Adequacy Ratio

Capital Adequacy Ratio is the capital to assets ratio which banks are required to maintain against risks. It is also known as Capital to Risk (Weighted) Assets Ratio (CRAR).

Casa Deposit

Deposit in bank in current and Savings account.

Liquid Assets

Liquid assets consists of cash, balances with RBI, balances in current accounts with banks, money at call and short notice, inter-bank placements due within 30 days and securities under “held for trading” and “available for sale” categories excluding securities that do not have ready market.

Import Parity Price (IPP)

The price that a purchaser pays or can expect to pay for imported goods such as petrol, diesel or cooking gas. “The import parity price (IPP) is the price at the border of a good that is imported, which includes international transport costs and tariffs. The IPP is used in International trade and is sometimes referred to as the International Benchmark Price. 

Export Parity Price (IPP)

The price that a producer gets or can expect to get for its product if exported, equal to the Freight on Board price minus the costs of getting the product from the farm or factory to the border.  The EPP applies only to the quantity that is exported and not to the quantity that is sold domestically

Participatory Notes Or P-Notes

They are derivative instruments, used by Foreign Institutional Investors (FIIs) who are NOT registered with SEBI. P-Notes, mostly used by overseas HNIs (High Networth Individuals), hedge funds and other foreign institutions, allow them to invest in Indian markets through registered Foreign Institutional Investors (FIIs), while saving on time and costs associated with direct registrations. 

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