Banking and economy glossary: the terms bank exams actually ask

This is a revision glossary, not a first read. It defines the banking, money-market and economy terms that awareness sections ask about, grouped by theme and written the way the exam tests them — the mechanism rather than the current figure, because the mechanism is what the question is usually about and the figure is what changes.

For the connected explanation of the RBI, the policy rates and the regulatory framework, read RBI and monetary policy basics first, then use this to check that the vocabulary is on recall. One standing rule: every specific rate and limit is revised periodically, so learn what each term means now and confirm the numbers from the Reserve Bank of India’s website close to the exam.

Policy rates and monetary tools

• Repo rate — the rate at which the RBI lends short-term funds to banks against government securities. The main policy rate; raising it fights inflation.
• Reverse repo rate — the rate at which the RBI borrows from banks, absorbing liquidity. The standing deposit facility is now the main absorption tool.
• Standing deposit facility (SDF) — lets the RBI absorb liquidity without giving collateral; forms the floor of the rate corridor.
• Marginal standing facility (MSF) — overnight borrowing by banks against their SLR holdings, above the repo rate; the ceiling of the corridor.
• Bank rate — the long-term rate for rediscounting bills; now aligned with the MSF and used mainly for penalties.
• Cash reserve ratio (CRR) — the share of deposits a bank must keep as cash with the RBI, earning no interest. Raising it directly withdraws lendable funds.
• Statutory liquidity ratio (SLR) — the share of deposits a bank must hold in liquid assets such as government securities, on which it does earn a return.
• Open market operations (OMO) — the RBI buying or selling government securities to inject or absorb liquidity.
• NDTL — net demand and time liabilities, the deposit base on which CRR and SLR are computed.

Lending rate benchmarks

• Base rate / MCLR — older benchmarks below which a bank could not lend; MCLR is the marginal cost of funds-based lending rate.
• External benchmark lending rate (EBLR) — retail floating-rate loans now linked to an external benchmark, usually the repo rate, so policy changes pass through faster.
• EMI — equated monthly instalment, the fixed monthly repayment covering principal and interest.

Asset quality

• Non-performing asset (NPA) — a loan where interest or principal is overdue for more than 90 days.
• SMA (special mention account) — an account showing early stress, before it becomes an NPA; classified SMA-0, 1 and 2 by how many days it is overdue.
• Standard, sub-standard, doubtful, loss — the classification ladder for advances, from performing to uncollectible.
• Provisioning — money set aside against an expected loss on an advance.
• Gross and net NPA — net NPA is gross NPA after deducting provisions.
• SARFAESI Act, 2002 — lets secured creditors enforce security and recover dues without going to court.
• Insolvency and Bankruptcy Code (IBC), 2016 — the time-bound resolution framework for stressed assets, administered through the IBBI.
• Asset reconstruction company (ARC) — a company that buys and works out bad loans from banks.
• Haircut — the reduction a lender accepts on the amount recovered in a resolution.

Priority sector and financial inclusion

• Priority sector lending (PSL) — the required share of credit banks must direct to agriculture, MSMEs, education, housing and weaker sections.
• PSL certificate (PSLC) — a tradable instrument a bank buys to meet a PSL shortfall.
• Financial inclusion — extending banking to the unbanked; the PM Jan Dhan Yojana and basic savings bank deposit accounts (BSBDA, or “no-frills” accounts) are its main tools.
• KYC — know your customer, the identity verification banks must complete before opening an account.
• AML — anti-money laundering rules banks follow to detect and report suspicious transactions.

Types of banks and institutions

• Scheduled bank — a bank in the second schedule of the RBI Act, with access to RBI refinance.
• Payments bank — may take deposits up to a limit per customer but cannot lend, the distinction most often tested.
• Small finance bank — a differentiated bank focused on lending to small borrowers and the unserved.
• Regional rural bank (RRB) — jointly owned by the central government, a sponsor bank and the state government.
• NBFC — a non-banking financial company; lends and invests but cannot accept demand deposits.
• NABARD, SIDBI, EXIM Bank, NaBFID — the refinance and development institutions for agriculture, small industry, foreign trade and infrastructure.

Money and capital markets

• Treasury bill (T-bill) — a short-term (up to one year) government borrowing, issued at a discount to face value.
• Commercial paper — an unsecured short-term borrowing by companies.
• Certificate of deposit — a short-term negotiable deposit instrument issued by banks.
• Call money — very short-term (overnight) borrowing between banks.
• Bond and debenture — debt instruments; a debenture is typically unsecured corporate debt.
• Equity share — an ownership stake in a company.
• IPO and FPO — a company’s first and subsequent public offers of shares.
• Mutual fund — a pooled investment managed on behalf of many investors.
• Sensex and Nifty — the benchmark indices of the BSE and NSE.
• Bull and bear market — a rising and a falling market respectively.

The economy

• GDP and GNP — gross domestic product measures output within the country; gross national product adds net income from abroad.
• Fiscal deficit — the gap between the government’s total expenditure and its total receipts excluding borrowing.
• Revenue deficit — the shortfall on the revenue account alone.
• Primary deficit — the fiscal deficit minus interest payments.
• Current account deficit (CAD) — the shortfall in the country’s trade and current transfers with the rest of the world.
• Balance of payments — the full record of a country’s transactions with the world.
• CPI and WPI — the consumer and wholesale price indices; the RBI targets CPI inflation.
• Headline and core inflation — headline includes food and fuel; core excludes them.
• Inflation, deflation, disinflation, stagflation — a rising price level, a falling one, a slowing rate of rise, and high inflation alongside stagnant growth.
• Direct and indirect tax — a tax on income or wealth versus a tax on goods and services; GST is the main indirect tax.
• FDI and FPI — foreign direct investment (a lasting stake) versus foreign portfolio investment (in financial assets).

Payments and cards

• NEFT — deferred net settlement transfer, round the clock, no minimum.
• RTGS — real-time gross settlement for large values, minimum ₹2 lakh, round the clock.
• IMPS — immediate mobile-based transfer, operated by NPCI.
• UPI — unified payments interface, instant transfer via a virtual payment address, also NPCI.
• NACH, CTS, AePS, BBPS — bulk/recurring clearing, cheque truncation, Aadhaar-enabled payments and the bill-payment system.
• RuPay — the domestic card network operated by NPCI.

Capital, insurance and regulators

• CRAR / capital adequacy ratio — the ratio of a bank’s capital to its risk-weighted assets, set under the Basel norms.
• CASA — the share of current and savings account deposits, the cheapest funds a bank has.
• Net interest margin (NIM) — the gap between interest earned and interest paid, as a share of assets.
• DICGC — insures bank deposits up to ₹5 lakh per depositor per bank, principal and interest together.
• Bancassurance — banks selling insurance products.
• The regulators — RBI (banking), SEBI (securities), IRDAI (insurance), PFRDA (pensions), IBBI (insolvency) and IFSCA (GIFT City).
• Global institutions — IMF and World Bank (Washington DC), ADB (Manila), NDB (Shanghai) and AIIB (Beijing).

How to use this glossary

1. Learn the subject from the monetary policy article first. A glossary confirms vocabulary; it does not build understanding.
2. Scan a theme, then cover the definitions and produce each from the term alone. The money-market instruments and asset-classification ladder are the ones candidates most often blur together.
3. Layer current affairs on top, from one source daily, and update every figure in the fortnight before the exam. Then test recall with a mock test rather than by rereading, because this section feels productive to reread in a way that does not always translate into marks.