• Banking Terms – L



    Laffer Curve It represents relationship between total tax revenue and corresponding tax rates. The curve was first provided by American economist Prof. Arthur Laffer.
    Land Flip A fraudulent practice in the real estate business of selling undeveloped land at highly inflated prices. A land flip occurs when a group of dishonest buyers trades the land among its members, increasing the price with each transaction. The group will then finally unload the property onto an unsuspecting outside buyer at a price that the buyer will likely never be able to recoup from its own sale of the land.
    Late Charge Late charge is the amount charged to customer if they fail to pay the amount on time.
    Law of Limitation Limitation Act of 1963 fixes the limitation period of debts and obligations including banks loans and advances. If the period fixed for particular debt or loan expires, one cannot file a suit for is recovery, but the fact of the debt or loan is not denied.
    Lease A contract, through which, the owner (lessor) of a certain property, allows another (lessee) to use the same for a specified period, in exchange for a value called the rent.
    Lending Rate This is the rate of interest, which the bank charges to the borrower for the amount lent to him. This is a major source of income for the bank / lender. The Lending Rate is not same for all loan products of the bank and keeps changing from time to time.
    Letter of credit A letter given by the bank that grantees the payment of the customer, this substitutes the customer’s credit to the banks credit. If customer is not paying back, Bank has to take responsibility to settle the particular amount. Letters of Credit are covered by rules framed under Uniform Customs and Practices of Documentary Credits framed by International Chamber of Commerce in Paris.
    Letter of Offer  A Letter of Offer is a document addressed to the shareholders of the target company containing disclosures of the acquirer/Persons Acting in Concert (PACs), target company, their financials, justification of the offer price, the offer price, number of shares to be acquired from the public, purpose of acquisition, future plans of acquirer etc.
    Leverage Ratio Financial ratios that measure the amount of debt being used to support operations and the ability of the firm to service its debt. It can be of two types, financial leverage ratio and operating leverage ratio.
    Liabilities The liabilities of a company include its bank loans and overdraft, short-term debts for goods and services received (current liabilities) and its loan capital and the capital subscribed by shareholders. It can be defined as an obligation to other entities.
    LIBID This is the rate bid by banks on eurocurrecy. deposits .It is actually the international rate that banks lend to other banks.
    LIBOR LIBOR (the London Interbank Offered Rate) has been defined as the rate at which a prime commercial bank is offered deposits by other banks in London. The LIBOR is fixed by the Britishers bankers association daily. Libor rates are considered as a benchmark by banks across the globe for setting their interest rates for adjustable rate mortgages.  LIBOR will be slightly higher than the London Interbank Bid Rate (LIBID), the rate at which banks are prepared to accept deposits.
    Life Cap The upper and lower limit for changes in the borrower’s interest rate over the term of his/her loan.
    Lifeline Account A bank account meant for customers with low incomes. These accounts are characterized by little or no monthly fees and no minimum balance criteria.
    Limit Order  An order to buy (sell) securities which specifies the highest (lowest) price at which the order is to be transacted. The trading won’t be completed if the share price fails to reach that limit price.
    Limited Company  The passive investors in a partnership, who supply most of the capital and have liability limited to the amount of their capital contributions.
    Line of credit An arrangement between customer and bank. Customer can withdraw the amount at any time based on demand up to the maximum amount permitted by bank. Customer need not to pay interest on unused amount.
    Liquidation It refers to the termination (or winding up) of a registered company. Liquidation takes place because of company’s insolvency. In liquidation, assets are turned into cash for settling outstanding debts and for apportioning the balance, if any, amongst the owners.
    Liquidity Assets which can easily be converted into cash money are said to have liquidity. Examples are cash, cash equivalents, shares with high liquidity etc.
    Listing Date The date on which Initial Public Offering stocks are first traded on the stock exchange
    Loan Amount given to a person with the details like time of maturity, conditions of repayment and other variables.
    Loan Administration This is the process of monitoring loans that have been disbursed but not repaid in full.
    Loan Application This is a standard form required to be submitted by the borrower to the lender. This is the first step in the loan approval process. This form provides certain personal and financial information about the borrower to the lender bank. The form requires the borrower to give personal details such as address, employment history, current borrowings, names and other details of personal sureties, bankruptcy or other court proceedings if any etc. Here declarations made in the loan application are signed by the borrower and are treated as declarations under oath. The prospective borrower is disqualified for loan in case any declaration made by him in this document turns out to be incorrect.
    Loan-to-Value Ratio The loan-to-value (LTV) ratio is a mathematical calculation which expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property. Loan to value is one of the key risk factors that lenders assess when qualifying borrowers for a mortgage. The risk of default is always at the forefront of lending decisions, and the likelihood of a lender absorbing a loss in the foreclosure process increases as the amount of equity decreases.
    Local Currency Lending When a loan is in domestic currency of the borrower, it is called local currency lending.
    Lock-in Period A guarantee given by the lender that there will be no change in the quoted mortgage rates for a specified period of time, which is called the lock-in period.
    Lock-in Rate The interest rate percentage for the loan that will remain the same until funding is known as Lock in Rate.
    Loss Given Default (LGD) A term used to denote the actual loss incurred by a bank, in case of default by a debtor to pay off the loan. If there is any collateral pledged by the debtor, the value of such assets will be reduced from the loan amount.


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