Banking Terms







Accrued Interest

Interest earned but not yet received.


Purchase of controlling interest in a firm, generally through tender offer


for the target shares.


Insurance company official, responsible for estimating future claims and


disbursement and for calculating necessary fund and premium levels.


Authorized Dealers

Advising Bank

A Bank usually located in the country of residence of an Exporter, used


by an Importer’s bank to authenticate a Letter of Credit before it is passed on to the Exporter.


Agricultural Export Zones


A written statement, sworn to be true by the person signing it, before


someone authorized by court of law.

Agent Bank

A participating bank in a syndicated loan that handles all the operations


and deals with the borrower on behalf of the members of the syndicate.


All India Development Bank


All India Financial Institution


Asset-Liability Management Committee


Asset/ liability management involves a set of techniques to create value


and manage risks in a bank.


Asset Management Committee

American                      Depository


Receipt (ADR)

A certificate registered in the holder’s name or as a bearer security giving


title  to  a  specified  number  of  shares  in  a  non-US-based  company deposited in a bank outside the USA. These certificates are traded on US stock exchanges.

American option

An option that can be exercised on or any time before the date of expiry.


Process of full payment of debt in installments of principal and earned


interest over a definite time.

Amount at risk

Balance of the sum payable not covered by reserves, potentially falling on


the net worth (net assets) of the company.





Fixed amount of cash to be received every year for a specified period of




Agricultural   and    Processed   Food    Products    Exports                       Development




Simultaneous  purchase  and  sale  of  identical  or  equivalent  financial


instruments or commodity futures so as to benefit from difference in their price relationship.


Automatic Refinance Facility


Accounting Standards Board

Asset/Liability Risk:

A risk  that  current  obligations/  liabilities  cannot  be  met  with  current


assets. A fundamental risk in all organizations, which should manage the risk and maintain liquidity or become insolvent.


Things that one owns which have value in financial terms.


Receipt of an exercise notice by an option writer (seller) that obligates


him to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.

Audit Risk

The risk of giving an incorrect audit opinion.

Automated                          Banking


Machines (ABMs)

Terminals that allow bank customers to perform many everyday banking


tasks, e.g., deposits, withdrawals, bill payments and transfers between accounts.

Automated                              Teller


Machines (ATMs)

A computerized machine used for banking transactions, e.g. depositing or


withdrawing money, making balance/ transaction inquiries and transfers; operated   through  magnetic  plastic  cards  with  the  held  of  personal identification numbers (PINs).

Available Balance

The portion of a customer’s account balance having no restrictions from


the bank and available for immediate withdrawals.

Average life

Weighted average of the maturities of various loans or bonds after taking


into account agreed amortization’s.

Back-end value

Amount paid to the remaining shareholders in the second stage of a two-


tier or partial tender offer.




Balance of Payment

Statement  showing  the  country’s  trade  and  financial  transactions  (all


economic transactions), in terms of net outstanding receivable or payable from other countries, with the rest of the world for a period of time.

Balance Sheet

Statement of assets and liabilities of a company at any particular time.


The assets on a balance sheet will always equal the liabilities plus the owner’s equity.

Balloon Payment

A large payment that may be charged at the end of a loan or lease.

Bank Credit

Includes  Term  Loans,  Cash  Credit,  Overdrafts,  Bills  purchased  &


discounted, Bank Guarantees, Letters of Guarantee, Letters of credit.

Bank Debits

The sum of the value of all cheques and other instruments charged against


the deposited funds of a bank’s customer.

Bank Rate

Interest rate paid by major banks if they borrow from RBI, the Central


Bank of the country.  The Bank Rate influences the rates of interest major banks/ financial institutions charge and pay their customers.

Bank Statement

A periodic  record  of  a  customer’s  account  that  is  issued  at  regular


intervals, showing all transactions recorded for the period in question.

Banker’s Acceptance

Negotiable time drafts, or bills of exchange, that have been accepted by a


bank which, by accepting, assumes the obligation to pay the holder of the draft the  face  value of the instrument on the specified maturity date. Bankers’  Acceptances  are  generally  used  to  finance  export,  import, shipment, or storage of goods.


A condition in which a firm (or individual) is unable to meet its (his)


obligations and,  hence,  its  (his)  assets  are  surrendered  to  a  court  for administration.

Basis Point

One-hundredth of one percentage point (i.e. 0.01%), normally used for


indicating spreads or cost of finance.

Bid/Bond Guarantee

A guarantee issued by a bank on behalf of a seller to a buyer to support


the sellers’ bid or tender for a contract.  If the sellers’ bid is accepted, the buyer can claim compensation under the guarantee.


Board for Industrial and Financial Reconstruction.




Bill Discounting

Receiving payment on a bill of exchange prior to the bill’s maturity by


surrendering the bill for the face value less applicable interest for the time remaining up to maturity.

Bill of Exchange

An order written by the seller of goods instructing the purchaser to pay


the seller (or bearer of the bill) a specified amount on a specified future date.

Bill of Lading

A document which represents ownership of goods in transit.

Blue Chips

Shares in leading quoted companies that can be easily bought and sold


without influencing their price (liquidity) and are regarded as low-risk investments.


A negotiable instrument evidencing debt, under which the issuer promises


to pay the holder its face value plus interest as agreed.

Book Value

The cost price of an asset less accumulated depreciation.

Bought financing

Short-term financing arranged by a bank for offering continuing source of


funds pending receipt of loan/bond issue proceeds.

BR Act

Banking Regulation Act.

Brand name capital

A  firm’s  reputation;  the  result  of  non-salvageable  investment  which


provides customers  with  an  implicit  guarantee  of  product  quality  for which they are willing to pay a premium.

Break-even point

Refers to the price at which a transaction produces neither a gain nor a



Bridge Loan

Temporary finance provided to a project until long-term arrangements are




Bombay Stock Exchange


One who expects prices to rise.

Bull Market

A market in which prices keep rising.

Bullet redemption

Repayment of a debt in one lump sum at the end of the maturity period.


A common practice in Euro markets in respect of bond issues.


Provision of  more  than  one  product  or  service  to  a  customer  at  an


inclusive price e.g. ‘free’ life insurance with a loan.




Bust-up takeover

An acquisition followed by divestment of some or all of the operating


units of the acquired firm which are presumably worth more in pieces than as a going concern.


A public company, which buys its own shares, by tender offer, in open


market, or in a negotiated buy-back from a large block holder.


Cost, Insurance and Freight

Call Date

Date on which a bond may be redeemed before maturity at an option of


the issuer.

Call Money

Loaned funds that are repayable upon the request of either party.

Call Option

An option that gives its holder the right to buy an asset at a fixed price


during a certain period

Call Provision

A feature of a bond that entitles the  issuer to retire the bond before




A ceiling on the interest rate on a floating-rate note.


Funds invested in a firm by the owners for use in conducting the business.

Capital Adequacy Ratio



A ratio of total capital divided by risk-weighted assets and risk-weighted


off-balance sheet items.  A bank is expected to meet a minimum capital ratio specifically prescribed by the Regulator.

Capital budget

The list of planned capital expenditures prepared usually annually

Capital Gain and Loss

The difference between the price that is originally paid for a security and


cash proceeds at the time of maturity (face value of bond) or at the time of sale (selling price of a bond or stock).  When the difference is positive, it is a gain, but when it is negative, it is a loss.

Capital investments

Money used to purchase permanent fixed assets for a business, such as


machinery,   land   or   buildings   as   opposed   to   day-to-day   operating expenses.

Capital Market

Market in which financial instruments are bought and sold.

Capital Structure

The composition of a firm’s long-term financing consisting of equity,


preference shares, and long-term debt.

Cash cows

Business segments, having a high market share in low growth product





markets, which generate more cash flow than needed for reinvestment.

Cash Credit (CC)

An arrangement whereby the bank gives a short-term loan against the


self-liquidating security.

Cash Discount

A discount given to buyers for cash rather than credit purchase.

Cash flow forecast

An estimate of when and how much money will be received and paid out


of a business.  It usually records cash flow on a month-by-month basis.

Certificate   of                      Deposit



A negotiable instrument issued by a bank evidencing time deposit


A written order on a bank instrument for payment of a certain amount of




Credit Information Bureau of India Ltd.


Company Law Board

Clean-up merger

Also called Take-out merger.  The consolidation of the acquired firm into


the acquiring firm after the acquirer has obtained control.


Cash Management Services.


Property (real,  personal  or  otherwise)  pledged  as  security  for  a  loan.


Also, any supplementary promise of payment, such as a guarantee.


A secret  agreement  between  two  or  more  persons  to  defraud  another


person of his or her right in order to achieve an unlawful objective.

Commercial                             Credit



The  risk  of  loss  from  providing  credit  to  corporate  counter-parties.


Extension of credit can take the form of direct loans and contingencies/



Commercial Paper (CP)

Issue  of  short-term  notes,  without  any  underwriting,  representing  a


promise to repay the amount at a specified future date.

Commitment fee

A fee charged by a bank in respect of an unused balance of a line of credit


or sanction of loan designed to offset the bank’s cost of keeping the funds available.

Compound Interest

Interest payable (receivable) on interest.


A combination of unrelated firms; any combination  that is not vertical or






Consumer  Price  Index



An index that measure movements in the average price of products and



Convertible Bond

A bond that is convertible into common stock.

Convertible Security

Bond or preferred stock which is convertible into equity shares generally


at the option of the holder

Corporate Banking

Banking services for large firms.

Corporate Governance

A system by which organizations are directed and controlled.  Board of


directors are responsible for the governance of their organizations.

Corporate Tax

A tax on the profits of firms, as distinct from taxation of the incomes of


their owners.

Coupon Rate

The stated interest rate on a bond.


A definite provision in a loan contract.


Capital to Risk-Weighted Assets Ratio.


Credit Rating Agencies.

Credit Crunch

Refers to a situation where supply of credit falls even though there is


sufficient demand for it.

Credit History

A record of how a person or company has borrowed and repaid debts.

Credit Risk

The risk of loss from failure of the counterparty to perform as agreed



Credit Scoring System

A statistical system used to determine whether or not to grant credit by


assigning   numerical   scores    to   various   characteristics                   relating       to creditworthiness.


A creditor’s measure of a consumer’s or company’s past and future ability


and willingness to repay debts.


Credit Rating and Investment Services of India Limited

Cross default

Two loan agreements connected by a clause that allows one lender to


recall the loan if the borrower defaults with another, and vice versa.

Cumulative Dividends

A feature of preferred stock that requires all past dividends on preferred


stock to be paid before any equity dividends are paid.

Currency basket

Arrangements whereby two or more currencies are clubbed together with





defined weights, and whose exchange rate/ interest rate is determined by


computing weighted average market rates.

Currency Market Risk

The risk of loss from having positions in any of the currency markets.


The risk can be from outright positions.  It can also reside in the balance sheet or in the income flows of a company.

Current assets

Short-term assets, constantly changing in value, such as stocks, debtors


and bank balances.

Current liabilities

Short-term liabilities, due to be paid in less than one year, such as bank


overdrafts, money owed to suppliers and employees.

Current Yield

The yield on a security resulting from dividing the interest payment or


dividend on it by its current market price.

D/A (documents against



Refer to shipping documents presented to a bank on a collection basis to


be passed to the buyer when he or she accepts a bill of exchange.  The bank holds the bill of exchange until it ends (maturity) when they ask the buyer to pay the seller.

D/P (documents against



Refer to shipping documents presented to a bank on a collection basis to


be passed to the buyer (drawee) when payment is made.


Discounted Cash Flow.


An  instrument  for  raising  long-term  debt.   Debentures  in  India  are


typically secured by tangible assets.

Debt/equity ratio

A comparative ratio of debt and equity used to measure the gearing/


health of a business.


Generally, failure to satisfy an obligation when due, or the occurrence of


one of the defined events of default agreed to by the parties under a contract.

Default Risk

The risk  that  a  borrower  may  not  repay  principal  and/or  interest  as


originally agreed.

Default Risk Premium

The component of a required interest rate that is based on the lenders’


perceived risk of default.


An annual deduction of a part of the cost of an asset.  In general, it means





a decline in market value.


Development Financial Institution.

Direct Financing

Provision of funds for investment to the ultimate user of funds.

Direct taxes

Taxes which affect the consumer directly, such as income tax, corporate


tax, capital gains tax etc.


The amount by which a bond or preferred stock sells below its par or face


value.  In foreign exchange market, it is the amount by which forward price  is  less  than  the  spot  price.           In  general,  it  means  an  extent  of reduction in the price / value of the asset/  product which is given when it is sold.


Company earnings that may be paid out to shareholders according to the


number of shares or stocks they hold.  Dividends can be earned on stocks as also units of mutual funds.

Documentary Credit

Written undertaking by a bank on behalf of an importer authorizing an


exporter to  draw  drafts  on  the  bank  up  to  a  specified  amount  under specific  terms and conditions.       They are used to facilitate international trade.  Also called Letter of Credit (LC).


Debt Recovery Tribunal.

Due diligence

While finalizing documentation, the lead manager and the legal counsel


conduct a thorough review of the borrowing entity with reference to the financials,  legality, and all such matters relevant in a public offering of securities.

Earning Yield

The ratio of earning per share to market price of the share.


External Commercial Borrowings.


Export Credit Guarantee Corporation.

Effective rate of interest

The percentage rate of return on an annual basis, reflecting the effect of


intra-year compounding.


A person who conceives, starts and manages a business.


Export-Oriented Units.

Equitable mortgage

A type of mortgage under which one still owns the property which is





security for the mortgage.  The owner can occupy or live in the property.


The value of a business after all debts and other claims are settled.  Also,


the amount of cash a business owner invests in a business and/ or the difference between the price for which a property could be sold and the total debts registered against it.

Escrow Account

An account for which a bank acts as an uninterested third party (custodian


/ depository) to ensure compliance with the terms of the deal between two parties only upon the fulfillment of some stated conditions.  The account becomes operative on the occurrence of the stated event.  Banks hold such accounts in which funds accumulate to pay taxes, insurance on mortgage property, etc.

Exchange Rate

The rate at which one currency may be exchanged for another.

Exchange Rate Risk

The  risk   that   changes   in   currency   exchange   rates   may   have   an


unfavourable impact on costs or revenues of economic units.

Excise duties

Duties levied on items manufactured within the country and paid by the




Products and services sold to other countries.

Face Value

The stated principal amount of a financial instrument.


Sale of receivables to a financial institution usually on a ‘non-recourse’



Fixed assets

Assets such as land, buildings, machinery or property used in operating a


business that will not be consumed or converted into cash during the current accounting period.

Fixed Rate

A predetermined rate of interest applied to the principal of a loan or credit



Foreign Exchange

Various instruments  used  to  settle  payments  for  transactions  between


individuals  or   organizations   using   different   currencies   (e.g.   notes, cheques, etc.)

Foreign Exchange Rate

The value of a nation’s currency in terms of another nation’s currency.

Foreign Trade

The exchange of goods between two nations.





A form of export finance in which the forfaiter accepts, at a discount from


the exporter,  a  bill  of  exchange  or  promissory  note  (note)  from  the exporter’s  customer; the forfaiter in due course collects payment of the debt.          Such  notes  are  normally  guaranteed  by  the  customer’s  bank. Maturities are normally up to three years.

Forward Contract

A contract in which one party agrees to buy, and the other to sell, a


specified product at a specified price on a specified date in the future.

Forward Cover

Forward purchase or sale of foreign currency to offset an anticipated


future cash flow.


Floating Rate Notes.

Funded debt

Generally, a short-term debt that has been converted into long-term debt




Contracts to  buy  something  in  the  future  at  a  price  agreed  upon  in


advance. First developed in the agriculture commodity markets but often involve foreign exchange, and Government bonds.

Going-concern value

The value of the firm as a whole over and above the sum of the values of


each of its parts; the value of an organization’s learning and reputation.


The excess of the purchase price paid for a firm over the book value


received. Recorded on the acquirers’ balance sheet.

Gross               Domestic


Product (GDP)

The total of market value of the finished goods and services produced in a


country in  a  given  year.    Comprising  three  sectors  viz.  Agriculture, Industry & Services.

Gross National Product



The total market value of finished goods and services produced in the


country in  a  given  year,  plus  the  income  of  domestic  residents  from investments made abroad, minus the income earned by foreigners abroad from the domestic market.

Gross Profit margin

The difference between the sales a business generates and the costs it pays


out for goods.


The undertaking of responsibility by one party for another party’s debt or


obligation to perform some specific act or duty.   Although the original





debtor is responsible for the debt, the guarantor becomes liable in the


event of a default.


The difference between the market value of a security and its value when


used as collateral.   The haircut is intended to protect a collateral taker from losses due to declines in collateral values.


One investment purchased against another investment in order to counter


any loss made by either.

Holding company

A company which controls another company, usually by owing more than


half of its shares.


Inter-Corporate Deposit.


Goods and services that a country buys from other countries.


If someone promises to compensate someone else for loss or damage, it is


called an indemnity.

Indirect financing

The process by which deficit spending units obtain funds from financial


intermediaries who, in turn, them from ultimate surplus spending units.

Indirect taxes

Taxes, which  are  charged  on  goods  produced,  imported  or  exported:


Excise and Customs duties.

Industry life cycle

A conceptual model of the different stages of an industry’s development.


1.  Development stage: New product, high investment needs, losses;


2.  Growth    stage:    Consumer    acceptance,    expanding                sales,     high profitability, ease of entry;

3.  Maturity stage: Sales growth slows, excess capacity, prices and profits decline – key period for merger strategy;

4.  Decline  stage:  Substitute  products  emerge,  sales  growth  declines, pressure for mergers to survive.


A percentage rate of change in the price level.

Inflation Premium

A premium for anticipated inflation that investors require in addition to


the pure rate of interest.

Initial  Public  Offering



The first offering to the public of common stock, e.g. of a former privately


held firm, or a portion of the common stock of a hitherto wholly-owned







The condition when one is unable to pay one’s debt obligations when due.

Insufficient Funds

When an account balance is inadequate to cover a cheque that has been


written and presented for payment.


A contract whereby one party agrees to pay a sum to another party for a


fee (premium) in the event that the latter suffers a particular loss.   The person or firm that undertakes the risk is the insurer.  The party desiring to be protected from loss is the insured party.

Intangible assets

Assets that cannot be touched.  Examples are goodwill and patent rights.

Internal Rate of Return



The rate of discount at which the net present value of an investment is




A contractual arrangement whereby one party (the lessor) grants the other


party (the lessee) the right to use an asset in return for periodic rental payments.


One who takes property on lease.


A person,  Corporation,  or  other  legal entity that leases property to a



Letter of Credit (LC)

A formal document issued by a bank on behalf of a customer, stating the


conditions under which the bank will honour the commitments of the customer.


A lender’s claim on assets offered as security for a loan.

Line of Credit

A pre-approved credit facility (usually for one year) enabling a bank


customer to borrow up to the specified maximum amount at any time during the relevant period of time.


Divestment of all the assets of a firm so that the firm ceases to exist.


The extent to which or the ease with which an asset may quickly be


converted into cash with the least administrative and other costs.

Loan Document

A business  contract  by  which  a  borrower  and  lender  enter  into  an


agreement.    Loans  are  classified  according  to  the  lender  or  borrower involved,  whether  or  not  collateral  is  required,  the  time  of  maturity,





conditions of repayment, and other variables.

Loan Risk

This is the risk of loss from loaning money and having the borrower fail


to repay, either due to genuine reasons or willfully.

Long-term Liabilities

Money that  one  owes  over  a  period  longer  than  12  months,  such  as


mortgages, bank loans and other obligations.


A part of the value of security, which is not given as a loan by the bank or


financial institution.

Market Capitalization

The total value, at market prices, of the securities at issue for a company


or a stock market or sector of the stock market.  Calculated by multiplying the number of shares issued by the market price per shares.


Non-Banking Finance Companies.


Non-Convertible Debenture.

Net Present Value

Capital budgeting criterion, which compares the present value of cash


inflows of a project discounted at the risk-adjusted cost of capital to the present value of investment outlays discounted at the risk-adjusted cost of capital.

Net Worth

Book value of a company’s common stock, surplus, and retained earnings.

Non Performing Assets



When due payments in credit facilities remain overdue above a specified


period, then such credit facilities are classified as NPA.




Purchase from the seller of accepted term Bills of Exchange at a discount


to allow for funding of the advance from the discount date until the maturity date  of the bills.          When the discount is provided on a non- recourse basis the financing bank has no recourse to the seller in the event of non-payment by the buyer or the buyers’ bank.


National Stock exchange of India Limited.


The responsibility to perform some act or pay a sum of money when due.



Off-Balance Sheet

Includes all banking transactions that do not appear on the balance sheet


of a bank as an asset or as a debt.  Includes all commitments for which a cash flow  arises conditional on a specific event.                                                                                      For instance, a loan





guarantee will create an obligation only if there is a default.  Derivatives


are a form of off-balance sheet transactions.


A computer system where input data are processed as received and output


data are transmitted as soon as they become available to the point where they are required.

Open-End Credit

Commonly referred to as a Line of Credit. May be used repeatedly up to a


certain limit; also called a Charge Account or Revolving Credit.

Open-End Lease

Often, referred to as a finance lease. A lease that may involve a balloon


payment based on the value of the property when it is returned.

Operating Cycle

The length of time taken by a firm to produce its final product, sell it to


customers, and collect proceeds of the sale in cash.

Operating Lease

Short-term, cancelable lease.

Operating synergy

Combining  two  or  more  entities  results  in  gains  in  revenues  or  cost


reductions because of complementarities or economies of scale or scope.

Operational Risk

Includes all risks not included in market risks and credit risks, such as


losses arising from fraud, failure in computer systems and data entry errors.

Opportunity Cost

The rate of return that can be earned on the best alternative investment.  In


general, the gain or return on the next best investment opportunity or the next best use of resources, which is forgone by putting the resources to a given use.


A formal contract which grants the holder of the option the right to buy or


sell a certain quantity of an underlying interest or asset at a stipulated price within a specific period of time.

Option Contract

A contract that gives the buyer the right, but not the obligation, to buy or


sell an underlying asset by (or on) a specific date for a specific price.  For this right the purchaser pays a premium.

Overdraft System

The system in which the borrower is allowed to overdraw on his current


account with the banker upto a certain specified limit during a given period.




Par Value

The value of a security when it is issued.  For bonds and preferred stock,


par value is equivalent to face value.

Partial Shipment

A load sent in more than one consignment.   In a Letter of Credit, the


buyer can say whether this is allowed or not allowed.


Shared ownership among two or more individuals, some of whom may,


but do not necessarily, have limited liability with respect to obligations of the group. There is a written agreement among partners detailing the terms              and             conditions             of    participation   in    a    business            ownership arrangement.

Pass                  Through



Debt instruments backed by a portfolio of assets.

Payback period

Length of time required for an asset to generate cash flows just enough to


cover the initial outlay.

Plain                    Vanilla



The  most  common  and  generally  the  simplest  types  of  derivatives


transaction.  Transactions that have unusual or less common features are often called exotic or structured.


If someone pledges goods, they let a second person take possession of the


goods, but the person pledging the goods still owns them.  It is often done as security  for money owed or to make sure that something is done as promised.

Power of Attorney

A power of attorney is a document, which gives power to the person


appointed by it to act for the person who signed the document.


Payment of the principal amount of a loan ahead of the scheduled date.

Present Value

The discounted value of a payment or stream of payments to be received


in future, taking into consideration a specific interest or discount rate. Present Value represents a series of future cash flows expressed in today’s value.

Prime     Lending               Rate



The rate of interest charged on loans by banks to their most creditworthy




Amount of debt that must be repaid. Also means a person who deals in





securities on his own account and not as a broker.

Product Differentiation

Development of a variety of product configurations to appeal to a variety


of consumer tastes.

Product Life Cycle

A conceptual model of the stages through which products or lines of


businesses pass.   Includes development, growth, maturity, and decline. Each stage presents its own threats and opportunities.

Product Mix

The composite of products offered for sale by an organization.


The amount of physical output for each unit of productive unit.

Promissory Note

A signed undertaking from one party containing a promise to pay a stated


sum to a specified person or a company at a specified future date.


Public Sector Bank


Public Sector Enterprise


Public Sector Undertaking

Purchasing            Power



The concept that homogeneous goods cannot have more than one price


measured in any one currency.   If the price increases domestically, the domestic currency will depreciate so that the price denominated in foreign currency remains the same.

Pure         Conglomerate



A combination of firms in non-related business activities that is neither a


product-extension nor a geographic-extension merger.


Refers to the credit quality of a counterparty.  External ratings are given


by rating agencies (ranging from AAA very safe asset to C).                                                                                         Internal ratings are granted by the bank itself.


Comparison of two figures used to evaluate business performances, such


as debt/equity ratio return on investment, etc.


Checking all bank account papers to make sure that the bank’s records


and customer’s records are in sync.


In the context of a sale of a loan by a bank to investors, they have the right


to call the guarantee from the bank should the borrower be unable to meet its obligations


Redemption  means  paying  off  all  the  money  borrowed  under  an







A formal document expressing the intention of a board of directors of a



Revolving     Letter                      of



A  Letter  of  Credit  in  which  the  value  of  the  Letter  of  Credit  is


automatically reinstated upon utilization.  A Letter of Credit may revolve by value, time or both.

Rights Issue

Issue of securities offered to existing shareholders/ bond holders on a pre-


emptive or priority basis.

Risk Assessment

A process used to identify and evaluate risks and their potential effect.


Transfer of  ownership  of  some  type  of  property  from  one  person  to


another, for some consideration.


The attempt to get repayment of some portion of a loan obligation which


has already been written off the bank’s books.

Scale Economies

The reduction in per-unit costs achievable by spreading fixed costs over a


higher level of production.


Securities and Exchange Board of India.


State Electricity Boards.


The process of transformation of a bank loan into tradable securities.  It


often involves the creation of a separate corporate entity, the Special Purpose  Vehicle  (SPV),  which  buys  the  loans  financing  itself  with securities that are sold to investors.

Selective Credit Control



Control of credit flow to borrowers dealing in some essential commodities


to discourage hoarding and black-marketing.

Senior Debt

Debt  which,   in   the   event   of   bankruptcy,   must   be   repaid   before


subordinated debt receives any payment.

Serial Bonds

Bonds that mature at specified intervals.

Series Bond

Bond which may be issued in several series under the same indenture.

Service Charge

A fee paid for using a service.

Service Provider

The organization which provides the outsourced service.


Specific Economic Zone.





State Financial Corporation.

Short-term Loan

Loan to a business for less than one year, usually for operating needs.


Sick Industrial Companies (Special Provisions) Act.

Sinking Fund

A  fund  to  which  a  firm  makes  a  periodic  contribution  to  facilitate


retirement of debt.

Special Purpose Vehicle

A legal corporate entity created to buy loans from banks.  It finances itself


with securities issued to investors.


Any individual or group who has an interest in a firm; in addition to


shareholders and bondholders, includes labour, consumers, suppliers, the local community, and so on.

Standby       Letter                     of



A guarantee issued by a bank, on behalf of a buyer that protects the seller


against non-payment for goods shipped to the buyer.  The buyer pays the seller  directly  for the goods and only if the buyer fails to pay does the seller claim under the Standby Letter of Credit.


All transactions in a bank account for a period of time.  Statements are


usually given once a month.

Statutory Audit

By law, certain companies need to have their accounts audited by suitably


qualified accountants.  This is called a statutory audit.


Traded on a stock exchange, these are shares in a company.  Essentially,


one purchases shares in an exchange for owning a part of a company.


An agreement for an exchange of payments between two counterparties at


some point(s) in the future and according to a specified formula.


Acronym  for   Strengths,   Weakness,   Opportunities   and   Threats;   an


approach  to  formulating  firm  strategy  via  assessment  of  a  firm’s capabilities in relation to the business environment.


Group of banks and financial institutions, which together contribute the


necessary financing for a transaction.

Syndicated Loans

Loans to a company backed by a group of banks in order to share the risk


in a  large  transaction  among  several  financial  institutions.                                                                                              There  is usually a lead bank and several participating banks.





The “2 + 2 = 5” effect.   The output of a combination of two entities is


greater than the sum of their individual outputs.

Systematic Risk

The risk that the failure of one participant in a payment or settlement


system, or in financial markets generally, to meet its required obligations when  due  will  cause  other  participants  or  financial  institutions  to  be unable to meet their  obligations (including settlement obligations in a payment and settlement system) when due.

Take-out Merger

The second-step  transaction  which  merges  the  acquired  firm  into  the


acquirer and thus takes out the remaining target shares which were not purchased in the initial (partial) tender offer.

Tangible Assets

Physical assets such as plant, machinery, factories, and offices.

Tax Avoidance

Lawful agreement or re-arrangement of the affairs of an individual or


company intended to avoid liability to tax.

Tax Evasion

Fraudulent or illegal arrangements made with the intention of evading tax,


e.g. by failure to make full disclosure to the revenue authorities.

Tax Haven

An international banking and financial centre providing privacy and tax



Tax Incentives

Tax benefits.   Most tax incentive measures fall into one or more of the


following categories: tax exemption (tax holiday); deduction from the taxable base; reduction in the rate of tax; tax deferment, etc.

Term Loan

A loan intended for medium-term or long-term financing to supply cash to


purchase fixed assets such as machinery, land or buildings or to renovate business premises.

Tier 1 Capital

Refers to core capital consisting of Capital, Statutory Reserves, Revenue


and other reserves, Capital Reserves (excluding Revaluation Reserves) and   unallocated   surplus/   profit   but   excluding   accumulated   losses, investments in subsidiaries and other intangible assets

Tier 2 Capital

Comprises Property Revaluation Reserves, Undisclosed Reserves, Hybrid


Capital,  Subordinated  Term  Debt  and  General  Provisions.                                                                                                  This  is


Supplementary Capital.




Title Deeds

Documents which prove who owns a property and under what terms.

Trade Creditors

Organisations, which are owed money for goods and services supplied.

Trade Debtors

Organisations, which owe money for goods and services supplied.

Trade Deficit

The amount by which merchandise imports exceed merchandise exports.


Action in a bank account.    Could be a deposit, withdrawal, debit card


payment, service charge or interest payment.


An entity created for the purpose of protecting and conserving assets for


the benefit of a third party, the beneficiary- A contract affecting three parties, the settlor, the trustee and the beneficiary.

Trust Deed (Settlement


Deed,    Declaration              of Trust                  or Trust Instrument)

Document  that  lays  down  the  foundations  of  how  the  trustees  are  to


administer and manage the trust assets and how they are to distribute and dispose of trust assets during the lifetime of the trust.


Trustees have a fiduciary duty to act in accordance with a trust deed and


for the benefit of the beneficiary (ies).


‘Uniform Customs and Practice for Documentary Credit’ developed by


the International  Chamber  of  Commerce  as  the  rules  that  govern  the operation of  Letter of Credit transactions worldwide.                                                                          ICC publication No.500 contains details of the rules currently in use.


When a firm’s securities sell for less than their intrinsic, or potential, or


long-run value for one or more reasons.


The arrangement in which investment bankers undertake to ensure the full


success of the issue of securities.

Universal Bank

A bank or a financial institution that has the legal authority to offer all


financial  services  and  may,  thus,  be  engaged  in  securities  dealing, insurance,  underwriting, and the full range of more traditional banking services.

Value Creation

The difference between the value of an investment and the amount of


money invested by shareholders.

Variable Expenses

Costs of doing business that vary with the volume of business, such as





advertising costs, manufacturing costs and bad debts.

Variable Rate

A variable rate loan or credit agreement, calls for an interest rate that may


fluctuate over the life of the loan.  The rate is often tied to an index that reflects  changes in market rates of interest.  A fluctuation in the rate causes changes in either the payments or the length of the term.


Venture Capital Fund.

Venture Capital

Commonly refers to funds that are invested by a third party in a business


either as equity or as a form of secondary debt.

Vertical Merger

A combination of firms, which operate at different levels or stages of the


same  industry  manufacturer  mergers  with  a  type  company  (backward integration).


Voluntary Retirement Scheme

Winding up

Winding up of a company is done by paying the company’s creditors, and


then distributing monies left (if any) among the members.


(1)   A measure of the income generated by a bond.    The amount of


interest paid on a bond divided by the price.   (2)   The rate of discount which makes  the present value of the stream of future returns plus the terminal value of the asset equal to the current market price of the asset.

Zero Coupon Bond

A bond issued at a discount (i.e. below par value), earning no interest but


redeemable at its par value, thus providing a guaranteed capital gain.



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