Banking Terms and Abbreviations: Full Forms and Meanings

Banking and Financial Awareness papers begin with abbreviations. A single line asks what RTGS or CASA or SARFAESI stands for, and a candidate who has read the list answers it in four seconds. The abbreviations are not random letters: each one names a system, a rate, a regulator or a law, and once the idea behind it is clear the full form almost writes itself. These notes group the terms the way they are used, so that the payment systems sit together, the policy rates sit together and the asset quality terms sit together.

Payment and settlement systems

Codes on a cheque and an account

IFSC, the Indian Financial System Code, has eleven characters: the first four name the bank, the fifth is always zero and is kept for future use, and the last six name the branch. It is used for NEFT, RTGS and IMPS. MICR, Magnetic Ink Character Recognition, is the nine digit number at the foot of a cheque: the first three digits give the city, the next three the bank and the last three the branch. SWIFT, the Society for Worldwide Interbank Financial Telecommunication, carries the messages behind international payments, and its code runs to eight or eleven characters. CBS, Core Banking Solution, is the software that makes every branch of a bank a branch of the whole bank rather than of itself.

The rates and tools of monetary policy

The Reserve Bank works through quantitative tools, which act on the volume of money, and qualitative tools, which act on its direction. CRR, the Cash Reserve Ratio, is the share of deposits a bank keeps with the Reserve Bank in cash, and it earns no interest. SLR, the Statutory Liquidity Ratio, is the share a bank keeps with itself in cash, gold or approved securities. The repo rate is the rate at which banks borrow from the Reserve Bank against securities, and the reverse repo rate the rate at which they park money with it. MSF, the Marginal Standing Facility, lets a bank borrow overnight above its normal limit. LAF, the Liquidity Adjustment Facility, is the window through which repo and reverse repo operate, and the gap between its upper and lower rate is called the corridor. OMO, Open Market Operations, is the buying and selling of government securities. MSS, the Market Stabilisation Scheme, mops up lasting surplus liquidity through special securities. The qualitative tools are margin requirements, selective credit control, rationing of credit, direct action and moral suasion, which is simple persuasion of banks by the Reserve Bank.

Asset quality and recovery

• NPA, Non Performing Asset: a loan on which interest or instalment stays overdue for more than ninety days.
• SARFAESI: the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002, which lets a bank seize and sell secured property without going to court.
• ARC, Asset Reconstruction Company: buys bad loans from banks and tries to recover them.
• CIBIL: a credit information company whose score reports how a borrower has repaid in the past.
• CRAR, Capital to Risk Weighted Assets Ratio: the capital a bank must hold against its risky assets, fixed under the Basel norms of the Basel Committee on Banking Supervision.
• MCLR and EBLR: the internal and the external benchmark to which a floating loan rate is tied.

Institutions and customer terms

RBI is the Reserve Bank of India, set up in 1935 on the recommendation of the Hilton Young Commission and nationalised in 1949. NABARD is the National Bank for Agriculture and Rural Development, set up in 1982 with its head office in Mumbai. SIDBI is the Small Industries Development Bank of India, EXIM Bank the Export Import Bank of India, SEBI the Securities and Exchange Board of India, IRDAI the Insurance Regulatory and Development Authority of India and PFRDA the Pension Fund Regulatory and Development Authority. DICGC, the Deposit Insurance and Credit Guarantee Corporation, insures bank deposits, and the cover was raised to five lakh rupees per depositor per bank in 2020. On the customer side, KYC is Know Your Customer, CASA is Current Account and Savings Account, NRE and NRO are the two rupee accounts for a non resident Indian, EMI is Equated Monthly Instalment and LTV is the Loan to Value ratio.