Banking domain glossary

AER – Annual earnings rate on an investment.

Annuity – A life insurance product which pays income over the course of a set period. Deferred annuities

allow assets to grow before the income is received and immediate annuities (usually taken from a year

after purchase) allow payments to start from about a year after purchase.

APR – The annual percentage rate of interest, usually on a loan or mortgage, usually displayed in

brackets and representing the true cost of the loan or mortgage as it shows any additional payments

beyond the interest rate.

Bank Statements – This is a statement from the bank giving details of transactions in the relevant

account. It can be requested at any intervals required, usually monthly.

Bear Market – A bear is somebody who believes that the market is falling and a bear market is a falling

market. See bull market for the opposite.

Bounced Cheque – when the bank has not enough funds in the relevant account or the account holder

requests that the cheque is bounced (under exceptional circumstances) then the bank will return the

cheque to the account holder. The beneficiary of the cheque will have not been paid. This normally incurs

a fee from the bank.

Bonds – These are securities which pay interest at specified intervals and the principle amount of the

loan is paid at maturity.

Bull Market – A bull is somebody who believes that the market is rising and a bull market is a rising

market. See bear market for the opposite.

Cashback Mortgages – This is when the mortgage provider lends the money for the mortgage and, in

addition, a lump sum to pay for, for example, building work to be carried out.

Central Clearing Time (in England and Wales) – This is the time that it takes for the monies from a

cheque to be taken out of the payee’s account and put into the payer’s account. This is three working

days in England and Wales, as long as the cheque was paid in before 16.30.

Certified Documents – These are photocopies of original documents that have been signed by a

professional i.e. a solicitor, accountant, teacher, doctor or bank official. The professional also states, on

the document, "original seen" since they must be able to verify that these are genuine copies and

therefore have to have seen the original, they also date the document and put their full name, profession

and their address.

Charges – This is the money paid to the bank for services rendered. Charges include overdraft fees,

charges for bouncing cheques, interest on overdraft and any charges that a business account might

normally incur.

Charge Cards – Cards which can be used like a credit card but the charge has to be paid off on the due

date. They usually have a high limit or no limit.

Cheque Book – A small, bound booklet of cheques. A cheque is a piece of paper produced by your bank

with your account number, sort-code and cheque number printed on it. The account number distinguishes

your account from anyone elses, the sort-code is your bank’s special code which distinguishes it from any

other bank. In times gone by, anything with the correct details and a verifiable signature could act as a

cheque. Even an elephant was once used!

Cheque Clearing – This is the process of getting the money from the cheque-writer’s account into the

cheque receiver’s account.

CHIP and PIN – A Chip is a small electronic insert placed into a cheque or credit card. The PIN is a four

digit personal identification number which is used with the card by the card-holder.

Clearing Bank – This is a bank that can clear funds between banks. For general purposes, this is any

institution which we know of as a bank or as a provider of banking services.

Contract Hire – This is a way of hiring an item of large capital value where the maintenance is the

responsibility of the company that hires out the item. A fixed monthly figure is paid and the item can be

sold, usually to an unconnected third party.

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

(Equifax and Experian are the two big operators in the U.K. www.equifax.co.uk and www.experian.co.uk).

Credit Scoring – This is the process of assessing an individual’s credit-worthiness. The process involves

taking information from an individual on an application form (for example when applying for a store card)

and weighting the answers given. Certain responses will attract higher scores than others and the total

score will determine whether or nor the organization wants to do business with the individual, or if they

represent too high a credit risk.

Credit-Worthiness – This is the judgment of an organization which is assessing whether or not to take a

particular individual on as a customer. 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.

County Court Judgment – This is when a judge at a county or small claims court finds against an

individual and they have a county court judgment made against them. This is recorded nationwide (and by

the credit tracking organizations Experian and Equifax) so anyone wanting to know the credit-worthiness

of an individual will know that the county court judgment exists. Once it is paid off then the record remains

but it is shown as being paid which reduces the credit risk associated with the person with the county

court judgment.

Direct Debit – An amount of money taken from a bank account, set up by the recipient and can vary in

amount and exact time that it is taken from an account. Mortgages are usually direct debits.

Endowment Mortgage – Interest only is paid over the term of this sort of mortgage and the capital is

repaid at the end of the term by using the monies from an endowment policy.

Factoring – This is when a business sells its invoices to a specialist company or bank which chases

payment and pays a percentage of the invoice back to the original business. The business can then

continue with its work and problems from cash-flow are reduced by having money from unpaid invoices

up-front.

Hire Purchase – When an item of large capital value is bought over time by paying a deposit and fixing a

period over which the loan will run (usually between 12 and 60 months) and then paying fixed and equal

repayments over this period.

Identity Theft – This is when criminals use an innocent person’s details to open or use an account to

carry out financial transactions. It is very easy to do with an individual’s personal details, which is why

shredding confidential information is so important.

Identity Verification – This is often used by financial institutions to verify the customer and usually takes

the form of a pass-word and the answer to an obscure personal question such as the customer’s mother’s

maiden-name.

Interest – The amount paid or charged on money over time. If you borrow money interest will be charged

on the loan. It you invest money, interest will be paid (where appropriate to the investment). Interest rates

usually bear a close relationship to the Bank of England’s base rate. It is expressed in percent.

ISAs – This stands for Individual Savings Accounts. These are available to all UK residents over 18 (mini

ISAs are available to 16 and 17-year-olds). Investment limits apply to the total contributions made in any

tax year, not to the total in the ISA itself. ISAs can be cash, stocks and shares or life insurance.

Lease Purchase – This is an agreement made on an item of high capital outlay (for example, a car)

where the ownership is transferred to the person who is leasing the item at the end of the contract,

providing all the terms and conditions of the purchase have been fulfilled.

Money Laundering – This is when money gained from crime is put into a bank so that it can be accessed

safely by the criminals and terrorists. It makes the proceeds of illegal activities easier to get to.

Money Transfer – This is the movement of money from one account to another.

Money Transfer Abroad – This is the movement of money from one account to another, the second

being in a different country from the first.

Offsetting – This is when the credit balances in a current and savings account are netted off against the

account holders borrowings (typically a mortgage) so that the rate paid on the borrowing is reduced as a

result of the credit held in other accounts, which reduces the amount that is being borrowed.

Overdraft – This is when a person has a minus figure in their account. It can be authorized (agreed to in

advance or retrospect) or unauthorized (where the bank has not agreed to the overdraft either because

the account holder represents too great a risk to lend to in this way or because the account holder has not

asked for an overdraft facility).

Payee – The person who receives a payment. This often applies to cheques. If you receive a cheque you

are the payee and the person or company who wrote the cheque is the payer.

Payer – The person who makes a payment. This often applies to cheques. If you write a cheque you are

the payer and the recipient of the cheque is the payee.

PEP – Personal Equity Plans have been replaced by ISAs. Existing PEPs can be retained but, since April

1999, no new ones can be opened.

Phishing – This is when a criminal uses the internet to try to fraudulently obtain details of peoples

accounts so that they can use these accounts themselves, usually to take money out of.

Repayment mortgage – This is a mortgage where the sum borrowed is paid off by the end of the

mortgage term. It involves monthly repayments which consist of the interest on the loan plus some of the

capital borrowed.

Security for Loans – Where large loans are required the lending institution often needs to have a

guarantee that the loan will be paid back. This takes the form of a large item of capital outlay (typically a

house) which is owned or partly owned and the amount owned is at least equivalent to the loan required.

Standing Order – A regular payment made out of a current account which is of a set amount and is

originated by the account holder.

Tessa’s – Tax Exempt Special Savings Accounts.

Capital

Capital Funds

Equity contribution of owners. The basic approach of capital adequacy framework is that a bank should have sufficient capital to provide a stable resource to absorb any losses arising from the risks in its business. Capital is divided into different tiers according to the characteristics / qualities of each qualifying instrument. For supervisory purposes capital is split into two categories: Tier I and Tier II.

Tier I Capital

A term used to refer to one of the components of regulatory capital. It consists mainly of share capital and disclosed reserves (minus goodwill, if any). Tier I items are deemed to be of the highest quality because they are fully available to cover losses Hence it is also termed as core capital.

Tier II Capital

Refers to one of the components of regulatory capital. Also known as supplementary capital, it consists of certain reserves and certain types of subordinated debt. Tier II items qualify as regulatory capital to the extent that they can be used to absorb losses arising from a bank's activities. Tier II's capital loss absorption capacity is lower than that of Tier I capital.

Revaluation reserves

Revaluation reserves are a part of Tier-II capital. These reserves arise from revaluation of assets that are undervalued on the bank's books, typically bank premises and marketable securities. The extent to which the revaluation reserves can be relied upon as a cushion for unexpected losses depends mainly upon the level of certainty that can be placed on estimates of the market values of the relevant assets and the subsequent deterioration in values under difficult market conditions or in a forced sale.

Leverage

Ratio of assets to capital.

Capital reserves

That portion of a company's profits not paid out as dividends to shareholders. They are also known as undistributable reserves and are ploughed back into the business.

Deferred Tax Assets

Unabsorbed depreciation and carry forward of losses which can be set-off against future taxable income which is considered as timing differences result in deferred tax assets. The deferred Tax Assets are accounted as per the Accounting Standard 22.

Deferred Tax Liabilities

Deferred tax liabilities have an effect of increasing future year's income tax payments, which indicates that they are accrued income taxes and meet definition of liabilities.

Subordinated debt

Refers to the status of the debt. In the event of the bankruptcy or liquidation of the debtor, subordinated debt only has a secondary claim on repayments, after other debt has been repaid.

Hybrid debt capital instruments

In this category, fall a number of capital instruments, which combine certain characteristics of equity and certain characteristics of debt. Each has a particular feature, which can be considered to affect its quality as capital. Where these instruments have close similarities to equity, in particular when they are able to support losses on an ongoing basis without triggering liquidation, they may be included in Tier II capital.

BASEL Committee on Banking Supervision

The BASEL Committee is a committee of bank supervisors consisting of members from each of the G10 countries. The Committee is a forum for discussion on the handling of specific supervisory problems. It coordinates the sharing of supervisory responsibilities among national

authorities in respect of banks' foreign establishments with the aim of ensuring effective supervision of banks' activities worldwide.

BASEL Capital accord

The BASEL Capital Accord is an Agreement concluded among country representatives in 1988 to develop standardised risk-based capital requirements for banks across countries. The Accord was replaced with a new capital adequacy framework (BASEL II), published in June 2004. BASEL II is based on three mutually reinforcing pillars hat allow banks and supervisors to evaluate properly the various risks that banks face. These three pillars are: Minimum capital requirements, which seek to refine the present measurement framework supervisory review of an institution's capital adequacy and internal assessment process; market discipline through effective disclosure to encourage safe and sound banking practices

Risk Weighted Asset

The notional amount of the asset is multiplied by the risk weight assigned to the asset to arrive at the risk weighted asset number. Risk weight for different assets vary e.g. 0% on a Government Dated Security and 20% on a AAA rated foreign bank etc.

CRAR(Capital to Risk Weighted Assets Ratio)

Capital to risk weighted assets ratio is arrived at by dividing the capital of the bank with aggregated risk weighted assets for credit risk, market risk and operational risk. The higher the CRAR of a bank the better capitalized it is.

Credit Risk

The risk that a party to a contractual agreement or transaction will be unable to meet its obligations or will default on commitments. Credit risk can be associated with almost any financial transaction. BASEL-II provides two options for measurement of capital charge for credit risk 1.standardised approach (SA) - Under the SA, the banks use a risk-weighting schedule for measuring the credit risk of its assets by assigning risk weights based on the rating assigned by the external credit rating agencies.2. Internal rating based approach (IRB) - The IRB approach, on the other hand, allows banks to use their own internal ratings of counterparties and exposures, which permit a finer differentiation of risk for various exposures and hence delivers capital requirements that are better aligned to the degree of risks. The IRB approaches are of two types:a) Foundation IRB (FIRB): The bank estimates the Probability of Default (PD) associated with each borrower, and the supervisor supplies other inputs such as Loss Given Default (LGD) and Exposure At Default (EAD). b) Advanced IRB (AIRB): In addition to Probability of Default (PD), the bank estimates other inputs such as EAD and LGD. The requirements for this approach are more exacting. The adoption of advanced approaches would require the banks to meet minimum requirements relating to internal ratings at the outset and on an ongoing basis such as those relating to the design of the rating system, operations, controls, corporate governance, and estimation and validation of credit risk components, viz., PD for both FIRB and AIRB and LGD and EAD for AIRB. The banks should have, at the minimum, PD data for five years and LGD and EAD data for seven years. In India, banks have been advised to compute capital requirements for credit risk adopting the SA.

Market risk

Market risk is defined as the risk of loss arising from movements in market prices or rates away from the rates or prices set out in a transaction or agreement. The capital charge for market risk was introduced by the BASEL Committee on Banking Supervision through the Market Risk Amendment of January 1996 to the capital accord of 1988 (BASEL I Framework). There are two methodologies available to estimate the capital requirement to cover market risks: 1) The Standardised Measurement Method: This method, currently implemented by the Reserve Bank, adopts a ‘building block’ approach for interest-rate related and equity instruments which differentiate capital requirements for ‘specific risk’ from those of ‘general market risk’. The ‘specific

risk charge’ is designed to protect against an adverse movement in the price of an individual security due to factors related to the individual issuer. The ‘general market risk charge’ is designed to protect against the interest rate risk in the portfolio.2) The Internal Models Approach (IMA): This method enables banks to use their proprietary in-house method which must meet the qualitative and quantitative criteria set out by the BCBS and is subject to the explicit approval of the supervisory authority.

Operational Risk

The revised BASEL II framework offers the following three approaches for estimating capital charges for operational risk:1) The Basic Indicator Approach (BIA): This approach sets a charge for operational risk as a fixed percentage ("alpha factor") of a single indicator, which serves as a proxy for the bank’s risk exposure. 2) The Standardised Approach (SA): This approach requires that the institution separate its operations into eight standard business lines, and the capital charge for each business line is calculated by multiplying gross income of that business line by a factor (denoted beta) assigned to that business line.3) Advanced Measurement Approach (AMA): Under this approach, the regulatory capital requirement will equal the risk measure generated by the banks’ internal operational risk measurement system. In India, the banks have been advised to adopt the BIA to estimate the capital charge for operational risk and 15% of average gross income of last three years is taken for calculating capital charge for operational risk.

Internal Capital Adequacy Assessment Process (ICAAP)

In terms of the guidelines on BASEL II, the banks are required to have a board-approved policy on internal capital adequacy assessment process (ICAAP) to assess the capital requirement as per ICAAP at the solo as well as consolidated level. The ICAAP is required to form an integral part of the management and decision-making culture of a bank. ICAAP document is required to clearly demarcate the quantifiable and qualitatively assessed risks. The ICAAP is also required to include stress tests and scenario analyses, to be conducted periodically, particularly in respect of the bank’s material risk exposures, in order to evaluate the potential vulnerability of the bank to some unlikely but plausible events or movements in the market conditions that could have an adverse impact on the bank’s capital.

Supervisory Review Process (SRP)

Supervisory review process envisages the establishment of suitable risk management systems in banks and their review by the supervisory authority. The objective of the SRP is to ensure that the banks have adequate capital to support all the risks in their business as also to encourage them to develop and use better risk management techniques for monitoring and managing their risks.

Market Discipline

Market Discipline seeks to achieve increased transparency through expanded disclosure requirements for banks.

Credit risk mitigation

Techniques used to mitigate the credit risks through exposure being collateralised in whole or in part with cash or securities or guaranteed by a third party.

Mortgage Back Security

A bond-type security in which the collateral is provided by a pool of mortgages. Income from the underlying mortgages is used to meet interest and principal repayments.

Derivative

A derivative instrument derives its value from an underlying product. There are basically three derivatives a) Forward Contract- A forward contract is an agreement between two parties to buy or sell an agreed amount of a commodity or financial instrument at an agreed price, for delivery on an agreed future date. Future Contract- Is a standardized exchange tradable forward contract

executed at an exchange. In contrast to a futures contract, a forward contract is not transferable or exchange tradable, its terms are not standardized and no margin is exchanged. The buyer of the forward contract is said to be long on the contract and the seller is said to be short on the contract.b) Options- An option is a contract which grants the buyer the right, but not the obligation, to buy (call option) or sell (put option) an asset, commodity, currency or financial instrument at an agreed rate (exercise price) on or before an agreed date (expiry or settlement date). The buyer pays the seller an amount called the premium in exchange for this right. This premium is the price of the option.c) Swaps- Is an agreement to exchange future cash flow at pre-specified Intervals. Typically one cash flow is based on a variable price and other on affixed one.

Duration

Duration (Macaulay duration) measures the price volatility of fixed income securities. It is often used in the comparison of interest rate risk between securities with different coupons and different maturities. It is defined as the weighted average time to cash flows of a bond where the weights are nothing but the present value of the cash flows themselves. It is expressed in years. The duration of a fixed income security is always shorter than its term to maturity, except in the case of zero coupon securities where they are the same.

Modified Duration

Modified Duration = Macaulay Duration/ (1+y/m), where ‘y’ is the yield (%), ‘m’ is the number of times compounding occurs in a year. For example if interest is paid twice a year m=2. Modified Duration is a measure of the percentage change in price of a bond for a 1% change in yield.

Non Performing Assets (NPA)

An asset, including a leased asset, becomes non performing when it ceases to generate income for the bank.

Net NPA

Gross NPA – (Balance in Interest Suspense account + DICGC/ECGC claims received and held pending adjustment + Part payment received and kept in suspense account + Total provisions held).

Coverage Ratio

Equity minus net NPA divided by total assets minus intangible assets.

Slippage Ratio

(Fresh accretion of NPAs during the year/Total standard assets at the beginning of the year)*100

Restructuring

A restructured account is one where the bank, grants to the borrower concessions that the bank would not otherwise consider. Restructuring would normally involve modification of terms of the advances/securities, which would generally include, among others, alteration of repayment period/ repayable amount/ the amount of installments and rate of interest. It is a mechanism to nurture an otherwise viable unit, which has been adversely impacted, back to health.

Substandard Assets

A substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. Such an asset will have well defined credit weaknesses that jeopardize the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.

Doubtful Asset

An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, - on the basis of currently known facts, conditions and values - highly questionable and improbable.

Doubtful Asset

An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, - on the basis of currently known facts, conditions and values - highly questionable and improbable.

Loss Asset

A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

Off Balance Sheet Exposure

Off-Balance Sheet exposures refer to the business activities of a bank that generally do not involve booking assets (loans) and taking deposits. Off-balance sheet activities normally generate fees, but produce liabilities or assets that are deferred or contingent and thus, do not appear on the institution's balance sheet until and unless they become actual assets or liabilities.

Current Exposure Method

The credit equivalent amount of a market related off-balance sheet transaction is calculated using the current exposure method by adding the current credit exposure to the potential future credit exposure of these contracts. Current credit exposure is defined as the sum of the positive mark to market value of a contract. The Current Exposure Method requires periodical calculation of the current credit exposure by marking the contracts to market, thus capturing the current credit exposure. Potential future credit exposure is determined by multiplying the notional principal amount of each of these contracts irrespective of whether the contract has a zero, positive or negative mark-to-market value by the relevant add-on factor prescribed by RBI, according to the nature and residual maturity of the instrument.

Earnings

Total income

Sum of interest/discount earned, commission, exchange, brokerage and other operating income.

Total operating expenses

Sum of interest expended, staff expenses and other overheads.

Operating profit before provisions

Net of total income and total operating expenses.

Net operating profit

Operating profit before provision minus provision for loan losses, depreciation in investments, write off and other provisions.

Profit before tax (PBT)

(Net operating profit +/- realized gains/losses on sale of assets)

Profit after tax (PAT)

Profit before tax – provision for tax.

Retained earnings

Profit after tax – dividend paid/proposed.

Average Yield

(Interest and discount earned/average interest earning assets)*100

Average cost

(Interest expended on deposits and borrowings/Average interest bearing liabilities)*100

Return on Asset (ROA)- After Tax

Return on Assets (ROA) is a profitability ratio which indicates the net profit (net income) generated on total assets. It is computed by dividing net income by average total assets. Formula- (Profit after tax/Av. Total assets)*100

Return on equity (ROE)- After Tax

Return on Equity (ROE) is a ratio relating net profit (net income) to shareholders’ equity. Here the equity refers to share capital reserves and surplus of the bank. Formula- Profit after tax/(Total equity + Total equity at the end of previous year)/2}*100

Accretion to equity

(Retained earnings/Total equity at the end of previous year)*100

Net Non-Interest Income

The differential (surplus or deficit) between non-interest income and non-interest expenses as a percentage to average total assets.

Net Interest Income ( NII)

The NII is the difference between the interest income and the interest expenses.

Net Interest Margin

Net interest margin is the net interest income divided by average interest earning assets.

Cost income ratio (Efficiency ratio)

The cost income ratio reflects the extent to which non-interest expenses of a bank make a charge on the net total income (total income – interest expense). The lower the ratio, the more efficient is the bank. Formula: Non interest expenditure / Net Total Income * 100.

Funds and Investment

CASA Deposit

Deposit in bank in current and Savings account.

High Cost Deposit

Deposits accepted above card rate (for the deposits) of the bank.

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.

Funding Volatility Ratio

Liquid assets [as above] to current and savings deposits - (Higher the ratio, the better)

Market Liability Ratio

Inter-bank and money market deposit liabilities to Average Total Assets

ALM

Asset Liability Management (ALM) is concerned with strategic balance sheet management involving all market risks. It also deals with liquidity management, funds management, trading and capital planning.

ALCO

Asset-Liability Management Committee (ALCO) is a strategic decision making body, formulating and overseeing the function of asset liability management (ALM) of a bank.

Banking Book

The banking book comprises assests and liabilities, which are contracted basically on account of relationship or for steady income and statutory obligations and are generally held till maturity.

Venture Capital Fund

A fund set up for the purpose of investing in startup businesses that is perceived to have excellent growth prospects but does not have access to capital markets.

Held Till Maturity(HTM)

The securities acquired by the banks with the intention to hold them up to maturity.

Held for Trading(HFT)

Securities where the intention is to trade by taking advantage of short-term price / interest rate movements.

Available for Sale(AFS)

The securities available for sale are those securities where the intention of the bank is neither to trade nor to hold till maturity. These securities are valued at the fair value which is determined by reference to the best available source of current market quotations or other data relative to current value.

Yield to maturity (YTM) or Yield

The Yield to maturity (YTM) is the yield promised to the bondholder on the assumption that the bond will be held to maturity and coupon payments will be reinvested at the YTM. It is a measure of the return of the bond.

Convexity

This represents the rate of change of duration. It is the difference between actual price of a bond and the price estimated by modified duration.

Foreign Currency Convertible Bond

A bond issued in foreign currency abroad giving the investor the option to convert the bond into equity at a fixed conversion price or as per a pre-determined pricing formula.

Trading Book

Investments in trading book are held for generating profits on the short term differences in prices/yields. Held for trading (HFT) and Available for sale (AFS) category constitute trading book.

CRR

Cash reserve ratio is the cash parked by the banks in their specified current account maintained with RBI.

SLR

Statutory liquidity ratio is in the form of cash (book value), gold (current market value) and balances in unencumbered approved securities.

Stress testing

Stress testing is used to evaluate a bank’s potential vulnerability to certain unlikely but plausible events or movements in financial variables. The vulnerability is usually measured with reference to the bank’s profitability and /or capital adequacy.

Scenario Analysis

A method in which the earnings or value impact is computed for different interest rate scenario.

LIBOR

London Inter Bank Offered Rate. The interest rate at which banks offer to lend funds in the

interbank market.

Basis Point

Is one hundredth of one percent. 1 basis point means 0.01%. Used for measuring change in interest rate/yield.

Fraud

Frauds have been classified as under, based mainly on the provisions of the Indian Penal Code (a) Misappropriation and criminal breach of trust. (b) Fraudulent encashment through forged instruments, manipulation of books of account or through fictitious accounts and conversion of property. (c) Unauthorised credit facilities extended for reward or for illegal gratification. (d) Negligence and cash shortages. (e) Cheating and forgery. (f) Irregularities in foreign exchange transactions. (g) Any other type of fraud not coming under the specific heads as above.

Asset Securitisation

Securitization

A process by which a single asset or a pool of assets are transferred from the balance sheet of the originator (bank) to a bankruptcy remote SPV (trust) in return for an immediate cash payment.

Special Purpose Vehicle (SPV)

An entity which may be a trust, company or other entity constituted or established by a ‘Deed’ or ‘Agreement’ for a specific purpose.

Bankruptcy remote

The legal position with reference to the creation of the SPV should be such that the SPV and its assets would not be touched in case the originator of the securitization goes bankrupt and its assets are liquidated.

Credit enhancement

These are the facilities offered to an SPV to cover the probable losses from the pool of securitized assets. It is a credit risk cover given by the originator or a third party and meant for the investors in any securitization process.

Custodian

An entity, usually a bank that actually holds the receivables as agent and bailee of the trustee.

First loss facility

First level of credit enhancement offered to an SPV as part of the process in bringing the securities issued by SPV to investment grade.

Second loss facility

Credit enhancement providing the second or subsequent tier of protection to an SPV against potential losses.

Value at Risk (VAR)

VAR is a single number (currency amount) which estimates the maximum expected loss of a portfolio over a given time horizon (the holding period) and at a given confidence level. VaR is defined as an estimate of potential loss in a position or asset/liability or portfolio of assets/liabilities over a given holding period at a given level of certainty. The following are the three main methodologies used to calculate VaR: Parametric Estimates – Estimates VaR using parameters such as volatility and correlation. Accurate for traditional assets and linear derivatives, but less accurate for non linear derivatives. Monte Carlo simulation- Estimates VaR by simulating random scenarios and revaluing positions in the portfolio. Appropriate for all types of instruments, linear

and nonlinear. Historical simulation- Estimates VaR by reliving history; takes actual historical rates and revalues positions for each change in the market

Commercial real estate

commercial real estate is defined as “fund based and non-fund based exposures secured by mortgages on commercial real estates (office buildings, retail space, multi-purpose commercial premises, multi-family residential buildings, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction etc.)”

AAccount AgreementTerms and conditions for use of a credit account and repayment of debt between the borrower and the lending institution. A copy is provided when an account is opened. If you don't have your Credit Card Account Agreement handy, you can sign in to Online Banking and request that we mail you a copy. Sometimes referred to as a Borrowing Agreement.Account BalanceFor checking and savings accounts, your account balance is based on the funds put into your account (credits) and the funds taken out of your account (debits). We process debits and credits each business day.For credit cards, it's the total amount owed on the account at a designated time, indicated on your monthly statement.Account StatementA printed or online statement for a checking, savings, or credit card account detailing all the debit and credit transactions for a given statement cycle.Adjusted BalanceThe balance subject to interest charge, which is calculated by adding up all transactions, then subtracting all payments or credits, just before printing the monthly credit card statement.After Business Day Cut-off TransactionsMost cash deposits, cash withdrawals and transfers between Bank of America checking accounts made after Business Day Cut-off and before midnight will be included in the balance used to pay transactions. Annual Percentage Rate (APR)The yearly rate of interest. The APR is listed in the account agreement as well as on monthly billing statements.Automatic PaymentAn arrangement that authorizes payments to be deducted automatically from a bank account (usually a checking account) to pay bills (such as insurance payments, rent, mortgage or loan payments). Payments are usually scheduled to be made on a certain day of the month.Available BalanceYour Available Balance is the amount of money in your checking or savings account that is currently available for you. It includes all Cleared and Processing transactions. Keep in mind that any transactions you have made but Bank of America has not yet received need to be subtracted from your Available Balance for you to know the exact amount of money you have to spend or withdraw. 

The Available Balance does not include any transaction that has not been received by the bank (check, recurring Debit Card transactions, ACH); the amount of a deposit not currently available, for example a deposited check on hold; or Debit Card transactions identified as Authorized.

Available CreditThe amount of money in a credit line that is available for immediate use.Average Daily BalanceFor checking and savings accounts, average daily balance is the average balance in the account during the statement cycle. We calculate it by adding the end-of-day balances for each day in the statement cycle and dividing by the number of days in the statement cycle.

For credit card accounts, it is the balance subject to interest charge for each day during the statement cycle. The average daily balance is determined by adding up the daily balances, then dividing them by the number of days in the cycle.

BBalance Subject to Interest ChargeThe balance amount that is used to calculate an interest charge for a periodic statement. Two of the most common methods are the average daily balance and the adjusted balance. The account agreement explains which method a given credit card company uses.Balance TransferThe act of transferring debt from one account to another. Typically done between credit cards to take advantage of a lower rate offer or to consolidate debt to lower monthly payments.Bounced CheckA checks which a bank returns unpaid because there are not enough available funds in the account.

CCancelled CheckA check that has been paid. A cancelled check may generally be used as proof of payment.Cash AdvanceTransaction to access cash from a credit card account. Cash advances can be made using an ATM, at a bank, by phone or through a credit card cash advance check.Cash Equivalent TransactionA purchase of “cash equivalents” — items that can be used as or changed into cash — from any seller other than a financial institution. Examples of cash equivalents may include casino gaming chips, foreign currency, money orders, wire transfers and travelers checks from a non-financial institution. Please refer to your account agreement to find out what types of transactions your credit card issuer considers to be cash equivalents.Check EnclosureA service where the bank returns the checks with the account statement.Check ImageA service where you receive images of the front of your cancelled checks. Each account statement includes images of checks (up to 10 per page) that posted to your account during the statement cycle. You can view and print copies of the front and back of checks posted within the last 180 days by signing on to Online Banking, or you can request check copies by visiting your nearest Bank of America Banking Center, or by calling the customer service number on your statement.Checking AccountA banking account in which you place funds and withdraw available funds on demand, typically by using a

debit card or writing a check. Checking accounts are FDIC insured to the maximum amount allowed by law. There are checking account options to choose from so that you can bank the way you prefer.Combined BalanceAny combination of balances from linked accounts, such as savings, checking, and CDs. We use combined balances to assess whether balance requirements have been met in order to waive the monthly fee on some checking and savings accounts.Compound InterestInterest that is calculated not only on the principal balance in the account, but also on the accumulated interest. The more frequently interest is compounded, the higher the effective yield.Credit HistoryIncludes account types, remaining balances, payment status, collection information and inquiries. Credit bureaus collect and organize information about people who have credit. The information generally goes back seven to 10 years. This report includes your name, address, employer, length of employment and previous credit history.Credit ScoreA number rating the quality of an individual’s credit. Credit bureaus calculate this number, often with the assistance of computer systems. Lenders use this score as part of the process of assigning rates and terms to the loans they make. There are several Web sites that allow consumers to request their score online. One common type of credit score is the FICO® score.Cut-Off TimeFor credit card, it is time of day specified by Bank of America after which a transaction will not be processed for that specific day. Processing won't always be completed on the day it starts. For banking center payments, it is the time the banking center closes where you made your payment, and it varies by banking center. The cut-off time for an ATM is usually posted on the ATM, and if it's inside a banking center it's usually the same time or later than the banking center cut-off time

DDebitA decrease in a checking or savings account balance such as a withdrawal of money.Debit cardAn optional card that Bank of America issues to checking customers that can be used anywhere Visa or MasterCard debit cards are accepted. The money used is deducted directly from the customer's checking account. Debit cards can also be used to withdraw cash or make deposits at Bank of America ATMs.Decline All Overdraft SettingWith the Decline All Overdraft Setting, we will not authorize any payment, withdrawal, or purchase that would cause your account to be overdrawn. However, Decline-All doesn't mean you will never pay a fee. Here is how it works: when you do not have enough funds in your account or linked Overdraft Protection account, we will decline ATM withdrawals, and both everyday and recurring debit card purchases, with no fee being charged for the declined transaction. We will also decline or return checks, withdrawals, Online Banking Bill Pay or other electronic payments made using your checking account number, and you will be charged a $35 NSF: Returned Item fee for each returned transaction. You will receive no more than four Overdraft and NSF: Returned Item fees in one day.Default RateThe APR(s) which may be applied to your account under certain circumstances, such as if you pay 60 days late. Also known as "Default APR" or "Penalty Rate."

Direct depositDirect Deposit is a service that automatically transfers your recurring deposits to your checking or savings account. Recurring deposits can include: salary, pension, Social Security and Supplemental Income (SSI) benefits, or other regular monthly income.

EElectronic Funds Transfer (EFT)Any transfer of funds initiated by electronic means, such as an electronic terminal, telephone, computer, ATM or magnetic tape.Extended Overdrawn Balance ChargeAn Extended Overdrawn Balance Charge occurs when your account is overdrawn and continues to be overdrawn for five or more consecutive business days. The amount is in addition to Overdraft Item Fees and NSF: Returned Item Fees

GGrace PeriodA grace period is a 25-day interest-free period between the time of a purchase and the payment due date shown on your next credit card statement. Cash advances generally do not have a grace period, and there is no grace period for payments. Payments are due no later than the payment due date

HHoldA hold is a delay in the availability of funds you have deposited into your checking or savings account. When Bank of America places a hold on your deposit, you will not be able to use the funds until the hold expires. Holds occur infrequently and if you receive one, you will receive a notice with the reason and the date the funds will be available. A check may be held for several reasons: The check is for an amount larger than you normally deposit; the source of the check; we suspect that we cannot collect the funds from the account the check is drawn on; or there have been previous overdrafts from this account.Hold PeriodThe time between when you initiate a transaction and when the funds are released for use.

IInsufficient Funds (NSF) ItemAn Insufficient Funds (NSF) Item occurs when there are not sufficient funds in a checking or savings account to cover a given transaction and the account drops below zero balance. In this case, we do not pay the transaction but return the item unpaid and charge you an Insufficient funds fee of $35. This fee is sometimes called a Returned Item Fee.Interest ChargeThe sum of interest on your credit card account, and it is broken down by transaction type: purchases, cash advances and balance transfers.

Interest RateA rate of interest charged for the use of a credit card, loan or line of credit, expressed as a percentage of the total amount loaned. Different types of loans charge different rates of interest.

LLinked AccountYou can link accounts for a variety of reasons. One use is to meet combined balance requirements for your banking relationship. By linking your accounts, you can use the combined balances to meet account requirements and avoid the monthly fees on certain checking and savings accounts. You can link checking, savings, Individual Retirement Account (IRA), Money Market Savings, or certificate of deposit (CD) account(s) to waive monthly maintenance fees. You can also link accounts to get Overdraft Protection for your primary checking account. For more information, see Overdraft Protection.

MMinimum Daily BalanceThis term relates to checking and savings accounts. To determine the minimum daily balance, we look at the lowest end-of-day balance you had in your checking or savings account during a statement cycle. The end-of-day balance is the amount of funds on deposit in the account after we finish posting that day's transactions.Monthly Maintenance FeeThe fee charged to maintain a checking or savings account. Also known in California, Washington and Idaho as a Monthly Service Charge; Monthly Fee in Arizona, Georgia and Massachusetts. This fee covers the costs of maintaining your accounts and use of services and features such as Online Banking, our ATM network as well as processing of your account activity and statements. There are several ways to not to pay the monthly fee

OOnline BankingOnline banking lets you get account information and manage banking transactions all from a PC. Through Bank of America Online Banking, you can review all your Bank of America checking and savings accounts, credit cards and other banking services such as a home loan or home equity product.Overdraft ItemAn Overdraft Item occurs when we pay your check or other transaction even though you do not have enough available funds in your account to cover the given transaction. In this case, we pay the transaction and charge you an Overdraft Item Fee for each item (up to four Overdraft Items and NSF: Returned Item fees per day).Overdraft ProtectionOverdraft Protection allows you to link your primary Bank of America checking account to another Bank of America account. The linked account can be: a second checking account, a savings account or a credit card. By doing so, available funds from the linked account are automatically transferred to cover the overdraft when you do not have sufficient available funds in your primary checking account. There is an Overdraft Transfer Fee associated with most Overdraft Protection.

OverdrawnAn account is overdrawn when it has been drawn on in excess of available funds.

PPayment AllocationThe method used by your credit card issuer to assign all or part of your payments. For instance, your minimum payment may be allocated to balances starting with the lowest rate first and any amount exceeding the minimum payment will be allocated to balances with the highest rate first.Person-to-Person TransferA transfer of funds from one customer’s account to another customer’s account.Posted Transactionwhen a transaction or item appears on your credit card account statement, it is referred to as having “posted.” Posted transactions have been processed by your issuer, but funds for the transaction may still be in transit. Unposted transactions have not yet been processed, but may affect the amount of credit available. See your account agreement for details.Promotional RateA rate that is lower than your standard interest rate and is valid only for certain transactions for a limited period of time.

RResidual Interest ChargeThe amount of interest that has accrued from the closing date of the last statement and the date that balance was actually paid. This only occurs on credit card balances that are accruing interest charges.

SSavings AccountA banking account in which you place funds and receive interest for doing so. Savings accounts are FDIC insured to the maximum amount allowed by law. There are many savings options to choose from so that you can save the way you prefer.Scheduled TransferAn arrangement that moves funds from one account to another automatically on a prearranged schedule; for example, every payday or once a month. With a scheduled transfer, money is transferred automatically from your checking account to your savings account monthly. It is a good way to save money automatically.Simple InterestThe interest calculated on a principal sum, not compounded on earned interest.Standard Overdraft Setting (for Personal Accounts)With the Standard Overdraft Setting, you can make ATM withdrawals and everyday, non-recurring debit card transactions (individual debit card purchases like those at the grocery store or a one-time online purchase) only when you have enough funds in your checking account or in your linked Overdraft Protection account. If you don't have enough funds in your account, we typically decline the transaction and you are not charged an Overdraft Item fee. Keep in mind that we may pay for other transactions - such as checks, Online Banking Bill Pay, or recurring debit card payments - even if it causes your account to be overdrawn, but this may be more convenient than not having certain transactions paid at our

discretion, based on factors such as the transaction amount and your account history. If we pay a transaction that is larger than your available balance, and it overdraws your account, this will typically result in a $35 charge for each overdraft item, unless you deposit enough available funds that day to cover the overdraft. If we return the item unpaid, this will typically result in a $35 NSF: Returned Item fee.Statement Billing CycleThe amount of time between your last statement date and your current statement date. For instance, if your current statement is dated October 1, and your previous statement was dated September 1, there were 30 days in your statement cycle.Stop PaymentWhen you ask a bank not to pay a check or payment you have written or authorized. Stop payments are generally placed on lost or stolen checks or on checks related to disputed purchases. Stop payment orders generally expire after 6 months and a fee usually applies

TTransaction FeeA fee that may be charged when making certain types of transactions with your credit card. It is usually a percentage of the total amount of the transaction. For instance, a transaction fee is often charged when you take a cash advance with your card.Transaction HistoryFor checking or savings accounts, it's the section of your checking or savings statement that itemizes every action on your account during that statement cycle.For credit cards, it's the section of your statement that itemizes every action on your account during that statement’s billing period.

UU.S. Prime RateThe U.S. Prime Rate is the prime lending rate offered by a number of the country’s largest banks. It is frequently cited as a standard for general interest-rate levels in the economy. The U.S. Prime Rate is often used to calculate variable interest rates. A set number, or margin, determined by the issuer, is added to the U.S. Prime Rate to get the variable interest rate. When the Prime Rate goes up or down, the variable rate may change.Unsecured Line of CreditA line of credit is an agreement by a financial institution to loan money to a borrower up to an agreed upon maximum. Interest is only charged on the money that is actually withdrawn from the line of credit. With an unsecured line of credit, the bank does not hold any of the borrower's property as collateral

WWire TransferWith wire transfer, we deposit money electronically into your account or the account you designate (this can be a business or another person's personal account). There is a service fee associated with a wire transfer.WithdrawalA removal of funds from a checking or savings account.