Financial Education

Debtor: A person who owes something to someone. (In the case of a bank, a customer who enjoys some financial accommodation from the bank.)
Demand Deposits: Deposits which are given without affixing any date or term for repayment and can thus be demanded any time.

Demat Account: This is an account to keep your share certificates with your depositary company after dematerialization of Shares. Dematerialization is a process where the company takes paper shares from an investor and converts them in an electronic form through the concerned company.

Financial Literacy: Theory and skills imparted to people so that they are better able to manage their finances profitably. Being financially literate about several financial concepts and terminology and thereby effectively making use of the available financial resources.

Processing Fee: It’s a small amount charged from the borrowers for the services rendered by the bank, to partially offset the cost the bank incurs while processing a loan proposal.

IFSC: Indian Financial System Code (IFSC) is an 11 digits alpha-numeric code assigned by RBI for easy identification of bank’s branches of various banks. This facilitates carrying out electronic fund transfer / inter-bank financial transactions. The first part of the code consists of 4 alphabets representing bank’s shortened name and last 6 digits are for identification of the branch. The 5th character is 0 which is reserved for future use.

Credit History: It is an accumulation of the records of an individual’s past borrowings, by way of loans, credit cards and all other debt that needs to be repaid.By charging a nominal fee, credit information agencies like CIBIL (Credit Information Bureau of India Limited) can provide you with an individual’s open and past accounts of loans and credit cards.

Balance Transfer: The cardholder can transfer the balance amount from one card to another if one is not able to make the full payment due on a particular card.

RTGS: Real Time Gross Settlement (RTGS) is an electronic form of funds transfer where the transmission takes place on a real time basis. In India, transfer of funds with RTGS is done for high-value transactions, the minimum amount being Rs 2 lakh. The beneficiary account receives the funds transferred, on a real time basis as against NEFT wherein fund transfer requests are carried out in hourly lots during the daytime. In RTGS, each fund transfer request is dealt with independently.

Statement: Record of financial transactions in an account for a given period starting with Opening Balance brought down and ending with Closing Balance Carried Forward. This is a mirror image of the account appearing in a ledger.

KYC: Banks, NBFCs, Insurance Companies, telephone operators etc., are legally required by RBI to ascertain the true identity, address, occupation and source of funds of their clients at the time of opening their accounts with them. In short, they are required to KNOW THEIR CUSTOMERS (KYC). Some approved documents are therefore sought from the applicant by an institution before initiating any financial dealings with a customer. The purpose of this exercise is to avoid bad money (money related to some financial or other crime) entering into official financial channels with the motive of laundering it. Photo ID, Address Proof, Source of funds, PAN CARD etc., are demanded by all institutions from their new clients and even from old clients at regular intervals.

MICR Code: Popularly known as the Magnetic Ink Character Recognition, the technology is used for different purposes by different institutions. In banks, clearing houses use the technology to identify a bank branch and type of instrument. Electronic device reads the 9 digit MICR code printed with special ink and sorts thousands of instruments at fast speed. Even answer sheets submitted by students in their competitive exams are evaluated through the similar technology known as OMR.

No frills account: This account offers basic functionality of a savings bank account to a low profile customer who wishes to avoid bank charges which banks have to levy for offering value added services to a customer.

Creditworthiness: The criteria a financial institution like bank applies while appraising a request for financial accommodation. As the name suggests, the FI has to find out whether the applicant is sincere and a man of integrity, The quality of his financial dealings with the bank, other FI’s and even with his suppliers and customers are looked into. His market report is obtained, his financial means (assets minus liabilities) and stability of income are checked thoroughly before the bank commits to provide a facility.

The crossing of Cheques: Making two parallel lines across a cheque bank draft or pay order is called crossing of the instrument. Its primary effect is that the drawee won’t pay the instrument at the cash counter. Instead, the amount will be paid through a bank account only. There are general crossings and special crossings. Special crossings add some more conditions to the ways an instrument can be paid.

Bouncing of a cheque: When a cheque, presented to the bank is returned unpaid for one or the other reasons, it is known as the bouncing of a cheque. The most frequent reason a cheque is bounced is non-availability of sufficient balance in drawer’s account but there are several other non-financial reasons also for bouncing of a cheque. Issuing a cheque without sufficient balance is a crime and severe punishment may be awarded to the drawer of such instrument.

Dishonour of Cheque: Please see “Bouncing of a cheque”.

PIN: Every Debit card / Credit Card needs to be used along with a secret PIN which only the card holder is supposed to know. It is a 4-digit numeral set by the cardholder at any ATM. Card holders are advised never to share the PIN with anyone and to change it frequently. Whenever a card is used to withdraw money at an ATM or while shopping through PoS machine, PIN is required to establish card holder’s identity and to authenticate/ complete the request.

Dormant/inactive account: In a situation where an individual does not make any transactions in his/her account (except for interest payments credited by the bank) for more than two years, the savings/current account is declared as dormant/inactive.