• Banking Terms – C

    Term Meaning
    CAD Current Account Deficit
    Call Money Call money is a money market instruments wherein funds are borrowed/lent for a tenor of one day/overnight (excluding Sunday/holidays). These funds represent borrowings made for a period of one day to up to a fortnight.
    Call Option A type of Option derivative. Call Option is the right to buy the underlying securities at a specified exercise price on or before a specified expiration date.
    Call Reports Call report is one of the important reports which US banks should maintain. It a Quarterly Report. It will contain all basic financial information. FFIEC (Federal Financial Institutions Examination Council) have one standard form to get data from Banks.
    Callable Bonds Bonds that give the issuer the right to redeem the bonds before their stated maturity. This call option feature increases the bond price.
    Cap-Adjustment An adjustment cap is the maximum rate that a person’s interest rate can be increased or decreased each time his or her adjustable rate mortgage (ARM) is adjusted.
    Capital Capital can be defined as funds raised by a business through the sale of stock plus retained earnings. In economics, capital or capital goods or real capital refers to already-produced durable goods available for use as a factor of production. Capital goods may be acquired with money or financial capital. In finance and accounting, capital generally refers to financial wealth especially that is used to start or maintain a business.
    Capital Adequacy This is the level of capital required for a bank or financial institution to carry out its activities of lending. It is expressed as a percentage of value of assets. For example, for commercial banks, every USD one hundred millions of assets may require Capital of USD ten millions.
    Capital Adequacy Ratio (CAR) CAR is a ratio of total capital (Tier 1 and Tier 2) divided by risk-weighted assets. It denotes the liquidity position of a bank.
    Capital Gain It denotes the amount by which the proceeds from the sale of a capital asset exceed its original purchase price.
    Capital Market The market in which corporate equity and longer-term debt securities (those maturing in more than one year) are issued and traded is known as Capital Market.
    Capital Structure Capital structure refers to the make-up of a company’s balance sheet. In particular, the ratio of debt to equity and, within that debt, the mixture of long and short maturities is known as Capital Structure. It refers to the way a corporation finances itself through some combination of equity, debt, or hybrid securities.`
    Capitalization This refers to equity capital, certain types of bond s and reserves and surplus generated by the bank/ financial institution. It is also known as shareholder funds. Loan pricing must be done in such a manner that loans generate enough profit to add to the reserves and capital of the bank.
    Cap-Lifetime A limit on the amount that the payments of an adjustable rate mortgage can increase or decrease during the mortgage term.
    Caps Caps is the consumer safeguards on adjustable-rate mortgages that limit the increase or decrease of interest rate changes per year or during the life of the loan, and/or a limit on the amount that monthly payments can change.
    Captive Finance Companies These are subsidiaries of multinational manufacturing companies such as auto manufacturers. They exclusively finance consumers for purchasing products of their parent companies.
    Carried Interest Carried interest is the share of profits due to the fund manager after the cost of investment has been returned to investors. Carried interest is usually expressed as a percentage of the total profits of the fund.
    Cash Credit (CC) An arrangement through which the bank gives a short-term loan against the self-liquidating security
    Cash Equivalents Highly liquid, very safe investments that can easily and cheaply be converted into cash are known as Cash Equivalents. Examples include US Treasury bills, money-market funds and short-term certificates of deposit (CDs).
    Cash Flow Cash flow is a term that refers to the amount of cash being received and spent by a business during a defined period of time, sometimes tied to a specific project. Cash flow is calculated by adding net after-tax income plus any book keeping expenses that result in items being deducted but not paid out in cash.
    Cash Reserve The cash reserve is the total amount of cash that is present in the bank account and can also be withdrawn immediately.
    Cash reserve Ratio (CRR) CRR is the amount of funds that the banks have to keep with the RBI. It  affects the liquidity position of the banks and hence their ability to lend. Reduction of CRR increases liquidity in the market.
    Cash sorter This machine is used for sorting cash notes. This is used inside bank or the financial institution.
    Cashier’s Check A cashier’s check is nothing but a bank’s check, demand draft or teller’s check guaranteed by the bank. It doesn’t bounce because the face value of the check is paid by the customer when it is issued. These checks contain the payee name, remitters name and amount. A cashier’s check is secured because the amount is paid to the bank or institution at the time of check issuance. And the receiver is guaranteed to receive the money when cashing the check.
    Cashline It is the name given to an ATM machine by its bank, Royal bank of Scotland.
    C-D ratio Credit-Deposit Ratio
    Central Bank A central bank is the governing authority of all the other banks in a country. Its main purpose is to work as a bankers’ bank and to regulate all the other banks.
    Certificate of deposit (CD) A certificate of deposit or CD is a money-market time deposit, a financial product commonly offered to consumers by banks, thrift institutions, and credit unions. Such CDs are similar to savings accounts in that they are insured and thus virtually risk-free; they are “money in the bank”. They are different from savings accounts in that the CD has a specific, fixed term (often three months, six months, or one to five years), and, usually, a fixed interest rate.
    Certified Cheque The cheque will be certified saying the customer who has given the cheque has amount in his account.
    Charge off loans Charge off loan is an uncollectable amount from the lender. Principal amount and the accrued amount for till date will remove from the lender’s account. They may remove partially or fully. This may called partial or fully charged off loans.
    Charge-offs Accounts receivables that will most probably remain uncollectible and will be written off are known as charge-offs. These appear as an expense on the company‘s income statement and reduce the net income. A charge-off happens when a bank declares a borrower account as Uncollectible and hands it over to a collection agency which tries to get the person to pay off at least a portion of the balance due.
    Check 21 Act Check 21 is the US federal law which helps the bank to handle more checks electronically. It helps the bank to process checks faster and more efficient.  It replaces paper check with digital check which is called a substitute check during transactions. Check 21 Act is not related to ACH rule and so it doesn’t follow NACHA rules.
    Checking Account A Checking Account or demand deposit account is a deposit account held at a bank or other financial institution, for the purpose of securely and quickly providing frequent access to funds on demand, through a variety of different channels. Because money is available on demand these accounts are also referred to as demand accounts or demand deposit accounts.
    Cheque A written order directing a bank to deposit the amount in that particular given account.
    Cheque book A book which holds the cheque’s leaves.
    Cheque clearing  This term is used for debiting amount from an account and then crediting amount using cheque to another account. This process is called as cheque clearing.
    Cheque leaf Each cheque inside the cheque book is called as cheque leaf.
    Cheque Truncation Cheque truncation, truncates or stops the flow of cheques through the banking system. It takes place at the collecting branch, which sends the electronic image of the cheques to the paying branch through the clearing house.
    CHIPS CHIPS stands for clearing house for interbank payment system. It is privately held clearing house in US. It is used to transfer and settle funds in US dollar. Chips is used for making large value transaction between banks. To be a member of chips participants should have an account with Federal Reserve Bank.
    CIF Reference Number I_ Customer Identification File. It’s a 6 digit number which tells the customer relationship with the bank.  It’s appearing as first 6 digit in the account number.
    Clearing Clearing is a process of exchange of money and securities between brokers using a form of netting.
    Clearing Bank Clearing bank is one which settles the debits and credits of the commercial banks.
    Closed Economy Closed economy refers to the economy having no foreign trade (i.e., export and import). Such economies depend completely on their own internal domestic resources.
    Closed-end (Mutual) Fund  A fund with a fixed number of shares issued, and all trading is done between investors in the open market. The share prices are determined by market prices instead of their net asset value.
    Closed-end Credit Closed-end Credit is a kind of agreement in which advanced credit plus any finance charges are expected to be repaid in full over a definite time. Most real estate and automobile loans are closed-end agreements. Most real estate and auto loans are closed-end.
    Close-ended Loans Close-ended loans are those loans where an additional amount of loan is not available and the terms of loan remain unchanged. The amount, the duration and repayment are all fixed at the time of sanctioning a close-ended loan.
    Closing The finalizing of the sale of a property, as its title is transferred from the seller to the buyer, also called settlement.
    Closing Costs Fees and expenses, over and above the price of the property, incurred by the buyer and/or the seller in the property ownership transfer. Examples are title searches, lawyer’s fees, survey charges, and deed filing fees, also called settlement costs.
    Closing Price The price of a share quoted at the end of a trading day on an exchange is know as Closing Price. Different exchanges have different rules for determining the closing price. Some exchanges use the last price at which a trade has taken place; others use the mid-price.
    CLTV (Combined Loan-to-value) Combined Loan To Value (ratio) (CLTV) is the proportion of loans (secured by a property in relation to its value. It is actually the ratio of the total mortgage liens against the subject property to the lesser of either the appraised value or the sales price. The term “Combined Loan To Value” adds additional specificity to the basic Loan to Value which simply indicates the ratio between one primary loan and the property value. When “Combined” is added, it indicates that additional loans on the property have been considered in the calculation of the percentage ratio.
    CML CML stands for Capital Market Line
    Co-borrower The co-borrower is a person who signs a promissory note as a guarantee that the loan would be repaid. Thus the co-borrower plays the role of a guarantor and is equally responsible for the loan.
    Coinage Art and practice of making coins is called coinage. The metal is melted and moulded to shape into a coin.
    Collateral This refers to the physical security which is available to the Lender [bank] from the borrower customer. The bank has a right to take possession of the security in case of non-payment by borrower and the bank ensures that the borrower signs a suitable agreement to this effect. Thus in case of a car loan , if the borrower defaults on payment, the bank can repossess the car and sell it to another person and recover a part of the outstanding loan. In case of a home loan, the bank can take possession of the house based on the mortgage created by the borrower in its favour.
    Collateralized Borrowings Lending Obligation (CBLO) Collateralized Borrowings Lending Obligation (CBLO) is a money market instrument for borrowing against the securities, held in custody by the Clearing Corporation of India Limited for the amount lent.
    Collection When the loan is not repaid as per the terms and conditions of the loan agreement, the lending bank has to get it collected either through in-house collections department or through an outside collection agency.
    Collection item It is the item presented for deposit such as cheque whose amount needs to credit to the depositor’s account.
    Commercial Bank Bank which provide the loans for business purpose. It deals with the banking services through its branches in whole of the country. Operation of current accounts, deposits, granting of loans to individuals and companies etc. are various functions of the commercial bank.
    Commercial Paper Commercial paper is a money market security issued by large banks and corporations. It is generally not used to finance long-term investments but rather to purchase inventory or to manage working capital. It is commonly bought by money funds (the issuing amounts are often too high for individual investors), and is generally regarded as a very safe investment. As a relatively low risk option, commercial paper returns are not large. There are four basic kinds of commercial paper: promissory notes, drafts, checks, and certificates of deposit.
    Commercial Paper (CP) Commercial Paper (CP) is a fairly new instrument which was originated in US. It helps private companies with good credit rating to raise money directly from the market and investors. They raise money by issuing commercial papers in tight money market conditions through sources other than banks.
    Commission This is a fee collected for the service given by the bank for a particular kind of transaction.
    Commitment Bank has committed to give the particular amount. That amount will contractually funded by the bank in the future.
    Commitment Fees Banks will charge customer for unused credits that has been promised at a particular date in future.
    Commodity Futures Trading Commission This was established under the Commodities Futures Trading Commission Act of 1974 .It has authority and responsibility to make possible more effective regulation of the commodity futures markets. The Commission is empowered to regulate various transactions such as Options in Commodities. The commission is based in Washington, DC and maintains offices in several cities in USA.
    Commodity swap A Commodity swap is a swap agreement through which a floating or spot price is swapped with a fixed price over a specified period. This is mainly used for Crude Oil where one firm swaps the floating price of crude oil with the fixed price over a specified period.
    Common Stock Equity investment which represents ownership in the company. Each stock represents a fractional ownership interest in the firm by the investors who own the same.
    Compensating balance A bank needs a minimum amount or a credit balance as deposit to grant a loan.
    Compound interest Compound interest is the interest that is ‘compounded’ on a sum of money that is deposited for a long time. It is the interest calculated using the principal and accumulated interest.
    Consumer Credit Consumer credit is the credit and loan facility that is provided to the consumer for the purchase of goods, services and real estate property. Most consumer credit is unsecured in nature.
    Consumer Lending The term Consumer Loans/ Credit has been defined by the Board of Governors of the Federal Reserve. The definition refers to short-term and intermediate term debts owed by individuals to financial institutions, retailers, and other distributors.
    Consumer Protection Act It is implemented from 1987 to enforce consumer rights through a simple legal procedure. Banks also are covered under the Act. A consumer can file complaint for deficiency of service with Consumer District Forum, State Commission or National Commission depending on the amount.
    Contract Note A note which must accompany every security transaction with all the necessary transaction related details.
    Conventional Loan A loan underwritten according to guidelines established by Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) or a private investor and insured, if necessary, by a private mortgage insurance company. A mortgage that is not insured or guaranteed by the government, as opposed to a government mortgage is conventional loan.
    Convertible Bond Bonds which allow the bondholder to exchange the bond for a specified number of shares of common stock in the firm after a certain duration.
    Co-operative Bank Co-operative Banks are government supported financial agency in India, which are organized and managed with the dictum of co-operation, self-help and mutual help. It functions with the “no profit and no loss” model. As other banks in the country, Co-operative banks perform all the basic banking functions like borrowing and lending of credits.
    Cooperative Banks Cooperative Banks are those that are created by a group of individuals to support either a community or a religious group. They operate in metropolitan, urban and semi urban centers to cater to the need s of small borrowers. These are controlled by the RBI and by State Cooperative Acts.
    Core Banking Solutions (CBS) Through core banking solutions, all the branches of a bank are connected to a central system and customers can do banking with any branch through this facility. It is mainly driven by technology which makes banking process simpler and easier.
    Corporate Banking It denotes banking services for large companies.
    Corporate Bond Long-term debt issued by private corporations. The rating is determined by the financial strength and reputation of the company.
    Corporate Lending When the borrower is an Incorporated Company or a Business Entity and the borrowing is for meeting business requirements, it is known as corporate lending.
    Correspondent account It is an account created by the domestic banking institution to receive deposits from foreign financial institutions.
    Correspondent banking The transaction between a big bank and a small bank where the big bank provides deposit, lending and other services.
    Correspondents Correspondent is usually a term that refers to a company that originates and closes mortgage loans in its own name. Instead of selling those loans in pools, correspondents sell them individually to a larger lender, called a Sponsor.
    Cost-push Inflation Cost-push Inflation happens due to an increase in production cost.
    Coupon Payment Coupon payment is the interest payment that the bond issuer pays to the bond holders at period intervals. Usually this rate is fixed throughout the tenure of the fixed coupon payment bonds, the coupon rate can be variable and based on LIBOR or other standard rates for floating rate bonds.
    Covered Warrants Derivative call warrants on shares which have been separately deposited by the issuer so that they are available for delivery upon exercise.
    CPA This is the abbreviation of Canadian Payments association. All banks in Canada are members under this act. This facilitates the flow of funds between institutions.
    CRAR  Capital to Risk-Weighted Assets Ratio
    CRE CRE stands for Commercial Real Estate. The Property which is used for the business.
    Credit A contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some later date. It is usually referred to as a loan.
    Credit Approval Credit Approval refers to agreement to lend to the borrower against specific application. The approval is a written communication from lender to borrower specifying amount of loan, repayment terms, security and guarantor requirements etc.
    Credit Bureau Report This is a written report on the prospective borrower from an independent agency which maintains data bases on various types of borrowers such as borrowers in Car Loans segment or Housing Loan segment etc. This agency maintains records of a large number of borrowers and their repayment, their up to date financial position their repayment record etc. The report enables the bank to take decision on whether to end or not to lend by getting to know about his/her financials and past borrowings and repayment record.
    Credit Card It’s another kind of loan where the customer buys the goods and resettles the amount within a speculated time period. It is a card for which the issuer pays the seller the amount for the goods purchased by customer and the customer repays the amount in installments.
    Credit Card Act This Act was passed to amend the Truth in Lending Act and to establish fair and transparent practices relating to the extension of credit under an open-end consumer credit plan and for other purposes.
    Credit limit A credit limit is the maximum amount of credit that a bank or other lender will extend to a debtor, or the maximum that a credit card company will allow a card holder to borrow on a single card.Credit card companies will also allow you to change your credit limit, or limit the credit available to authorized users on the account.
    Credit Policy This is a written document prepared by the Credit Department / Top Management of the bank. This document details the various norms for lending adopted by the bank. The norms typically refer to desired borrower profile, minimum and maximum lending limits, lending products, interest rate structure for various loan products etc. This is a document for internal use of the bank/lender.
    Credit Rating  This is the rating which an individual (or company) gets from the credit industry. This is obtained by the individual’s credit history, the details of which are available from specialist organizations like CRISIL in India.
    Credit Reporting Agency An independent body which provides credit report on an individual based on data on his/her past borrowings and repayments, income, assets owned etc.
    Credit Risk This is the Risk that the Borrower of the bank finds himself unable to repay the loan installment[s] The credit risk may arise out of economic factor such as loss of job by the borrower after availing loan or deliberate non-payment of one or more installments.
    Credit Score This is a number which is assigned to a borrower on the basis of his/her personal financial information and his/her past repayment record, if any. This score enables the Lender to assess the potential borrower in terms of his/her repayment capacity. The Lenders generally decide upon the Cut off Score[s] below which they will not lend and a higher score is looked upon more favorably than a lower score.
    Credit Scoring Agency This is an independent agency which analyses a loan application and arrives at probability that the borrower will fail to repay. Score refers to a number allotted to the applicant and the number signifies the level of risk of default repayment of loan.
    Credit Squeeze Monetary authorities restrict credit as and when required. This credit restriction is called credit squeeze. Monetary authorities adopt the policy of credit squeeze to control inflationary pressure in the economy.
    Credit union A financial institution’s members avail loan from savings.
    Credit Worthiness A creditor’s measure of an individual’s or company’s ability to meet debt obligations. An individual might be considered credit-worthy by one organization but not by another. Much depends on whether an organization is involved with high risk customers or not.
    Creditworthy The term refers to a person/applicant considered good for a specific sum of loan based on the individual‘s income, expenses, assets owned, past borrowing and repayment record etc.
    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.
    Currency Board  A monetary system in which the monetary base is fully backed by foreign reserves. Any changes in the size of the monetary base has to be fully matched by corresponding changes in the foreign reserves.
    Currency Risk Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.
    Currency Swap Currency swap involves exchanging the principal and fixed rate interest payment on that principal in one currency for the same principal and fixed rate interest payment on that principal in some other currency. It also helps companies to gain the comparative advantage by swapping the same principal and interest payment between the parties.
    Current Account The account for which there is no restriction on the number of withdrawals from this account and also the bank does not pay any interest on the balance maintained in this account. This account is also knows as transaction account as it facilitates different types of transactions with much ease.
    Current Assets Current assets are assets that normally would be convertible into cash within the accounting cycle, usually one year. They include: stocks, debtors and short-term deposits. In accounting, a current asset is an asset on the balance sheet which is expected to be sold or otherwise used up in the near future, usually within one year, or one business cycle – whichever is longer. On the balance sheet, assets will typically be classified into current assets and long-term assets.
    Current Yield The current yield refers to the yield rate at the current moment of time which helps to calculate the market price of the bond for trading purpose.
    Custodial Account The account created for the minor but it is maintained by their parents or guardian.
    Customer Profitability Analysis The customer profitability analysis (CPA) is a broader version of sophisticated pricing loans. The method advocates that a bank should take the customer relationship in its entirety into account when pricing a loan request. CPA focuses on the rate of return from the entire customer relationship that can be calculated using the following formula: Net before tax rate of return from the customer relationship = (revenue from loans and other services provided to the customer – expenses from providing loans and other services to the customer)/net loanable funds used in excess of customer deposits

     

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