Important Banking Terms - 4

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Banking Terms

1. Collateral:

A specific asset pledged against possible default on a bond. Mortgage bonds are backed by claims on property. Collateral trusts bonds are backed by claims on other securities. Equipment obligation bonds are backed by claims on equipment.

2. Commercial Paper:

 Short-term and unsecured promissory notes issued by corporations with very 

high credit standings.

3. Common Stock:

Equity investment representing ownership in a corporation; each share represents a fractional ownership interest in the firm.

4. Compound Interest:

Interest paid not only on the initial deposit but also on any interest accumulated 

from one period to the next.

5. Contract Note:

 A note which must accompany every security transaction which contains information 

such as the dealer’s name (whether he is acting as principal or agent) and the date of contract.

6. Controlling Shareholder:

Any person who is, or group of persons who together are, entitled to exercise or control the exercise of a certain amount of shares in a company at a level (which differs by jurisdiction) that triggers a mandatory general offer, or more of the voting power at general meetings of the issuer, or who is or are in a position to control the composition of a majority of the board of directors of the issuer.

7. Convertible Bond:

A bond with an option, allowing the bondholder to exchange the bond for a specified number of shares of common stock in the firm. A conversion price is the specified value of the shares for which the bond may be exchanged. The conversion premium is the excess of the bond’s value over the conversion price.

8. Corporate Bond:

Long-term debt issued by private corporations.

9. Coupon: 

The feature on a bond that defines the amount of annual interest income.

10. Coupon Frequency:

 The number of coupon payments per year.

11. Coupon Rate:

 The annual rate of interest on the bond’s face value that a bond’s issuer promises to 

pay the bondholder. It is the bond’s interest payment per dollar of par value.

12. Covered Warrants:

 Derivative call warrants on shares which have been separately deposited by the issuer so that they are available for delivery upon exercise.

13. Credit Rating:

An assessment of the likelihood of an individual or business being able to meet its 

financial obligations. Credit ratings are provided by credit agencies or rating agencies to verify the 

financial strength of the issuer for investors.

14. Collecting Banker:

Also called receiving banker, who collects on instruments like a cheque, draft or 

bill of exchange, lodged with himself for the credit of his customer's account.

15. Consumer Protection Act: 

It is implemented from 1987 to enforce consumer rights through a simple legal procedure. Banks also are covered under the Act. A consumer can file complaint for deficiency of service with Consumer District Forum for amounts upto Rs.20 Lacs in District Court, and for amounts above Rs.20 Lacs to Rs.1 Crore in State Commission and for amounts above Rs.1 Crore in National Commission.

16. Co-operative Bank :

An association of persons who collectively own and operate a bank for the 

benefit of consumers / customers, like Saraswat Co-operative Bank or Abhyudaya Co-operative Bank 

and other such banks.

17. Co-operative Society : 

When an association of persons collectively own and operate a unit for the 

benefit of those using its services like Apna Bazar Co-operative Society or Sahakar Bhandar or a Co-

operative Housing Society.

18. Core Banking Solutions (CBS):

 Core Banking Solutions is a buzz word in Indian banking at present, 

where branches of the bank are connected to a central host and the customers of connected branches 

can do banking at any breach with core banking facility.

19. Creditworthiness: 

It is the capacity of a borrower to repay the loan / advance in time along with 

interest as per agreed terms.

20. Crossing of Cheques: 

Crossing refers to drawing two parallel lines across the face of the cheque. A crossed cheque cannot be paid in cash across the counter, and is to be paid through a bank either by transfer, collection or clearing. A general crossing means that cheque can be paid through any bank and a special crossing, where the name of a bank is indicated on the cheque, can be paid only through the named bank.