CAIIB ABM key terms

The share of net demand and time liabilities that a bank must keep as cash with the Reserve Bank of India. It earns no interest and is used to control liquidity in the banking system.

The minimum portion of NDTL a bank must hold in approved liquid assets such as government securities, cash, or gold. It is held by the bank itself rather than with the RBI.

The base on which reserve requirements are computed. It is the total of demand and time liabilities owed to the public, after netting inter-bank liabilities and adjusting for assets held with other banks.

The interest rate at which the RBI lends short-term funds to banks against government securities. It is the principal policy signal through which the central bank tightens or eases liquidity.

The rate at which the RBI absorbs surplus liquidity from banks by borrowing against securities. It usually sits below the repo rate and forms the floor of the corridor.

A facility allowing banks to borrow overnight against excess SLR securities at a penal rate above the repo. It acts as the ceiling of the interest rate corridor.

The RBI's window for daily adjustment of banking system liquidity through repo and reverse repo operations against eligible collateral. It keeps short-term money market rates close to the policy rate.

Purchase or sale of government securities by the RBI in the secondary market to inject or absorb durable liquidity. OMOs also influence the yield curve and long-term interest rates.

The rate at which the RBI provides long-term funds to banks without collateral, historically linked to the penal rate for reserve shortfalls. It is aligned with the MSF rate in current practice.

A statutory six-member body chaired by the RBI Governor that decides the policy repo rate to achieve the inflation target. It sets the stance of monetary policy at bi-monthly meetings.

A monetary framework in which the central bank commits to a numerical inflation goal. In India the flexible target is 4 percent CPI inflation with a tolerance band of plus or minus 2 percent.

A measure of retail price changes in a fixed basket of goods and services consumed by households. It is the nominal anchor for India's monetary policy decisions.

An index tracking price movements at the wholesale or producer stage, excluding services. It captures input cost pressures but is no longer the headline measure for policy.

The minimum lending rate below which a bank may not lend, computed from cost of funds, operating expenses, and the profit margin. It replaced the benchmark prime lending rate for pricing loans.

An internal benchmark based on marginal cost of funds, tenure premium, operating cost, and negative carry. Floating rate loans are priced as MCLR plus a spread.

A lending benchmark linked to an external rate such as the repo rate or treasury bill yield. It makes retail and small business loan pricing more transparent and responsive to policy changes.

The margin added to a benchmark rate when pricing a loan, reflecting borrower risk, tenor, and business strategy. It also describes the gap between lending and deposit rates.

Net interest income divided by average earning assets, expressed as a percentage. It measures how profitably a bank intermediates between depositors and borrowers.

The difference between interest earned on assets and interest paid on liabilities. It is the core revenue line of a bank before fee and trading income.

Interest income from loans divided by average advances, expressed as a percentage. Comparing it with cost of funds shows the spread earned on the lending book.

Total interest paid on deposits divided by average deposits. It is a key driver of a bank's funding cost and hence of its lending rates and margin.

Capital expressed as a percentage of risk-weighted assets. It shows whether a bank holds enough capital to absorb losses, with the minimum prescribed by the regulator.

On- and off-balance-sheet exposures multiplied by regulatory risk weights based on credit, market, and operational risk. They form the denominator of capital adequacy ratios.

Core capital comprising paid-up equity, reserves, and retained earnings, net of specified deductions. It absorbs losses on a going-concern basis and includes Common Equity Tier 1.

Supplementary capital such as general provisions, revaluation reserves, and subordinated debt within regulatory limits. It absorbs losses in winding up and supports total capital adequacy.

An additional layer of common equity above the minimum capital requirement, designed to be drawn down in stress. Breaching it restricts dividend and bonus distributions.

The post-crisis global framework strengthening bank capital, leverage, and liquidity standards. It introduced buffers, a leverage ratio, and the LCR and NSFR liquidity metrics.

High-quality liquid assets divided by net cash outflows over a 30-day stress period. It requires banks to hold enough liquid assets to survive a short severe run-off.

Available stable funding divided by required stable funding over a one-year horizon. It discourages excessive reliance on short-term wholesale funding for long-term assets.

A loan on which principal or interest has remained overdue for more than 90 days. Such assets stop earning income and require provisioning by the bank.

Gross non-performing assets divided by gross advances, expressed as a percentage. It is a headline indicator of asset quality deterioration in a loan book.

Net non-performing assets, after deducting provisions, divided by net advances. It shows the uncovered portion of bad loans relative to the lending book.

Charging an amount to profit and loss to create a buffer against expected loan losses. Provision coverage varies by asset classification and regulatory norms.

A loan whose original terms, such as repayment schedule or interest rate, have been modified due to borrower financial difficulty. It is typically downgraded unless it meets upgrade criteria.

The weighted average time to receive a bond's cash flows, used as a measure of sensitivity to interest rate changes. Higher duration means greater price volatility for a given yield shift.

Duration divided by one plus yield per period, giving the approximate percentage price change for a one percent change in yield. It is used to estimate interest rate risk on a portfolio.

Investments a bank intends and is able to hold until maturity, generally carried at amortised cost. Only a limited share of the portfolio may be classified this way.

A statistical estimate of the maximum loss on a portfolio over a set horizon at a given confidence level. It is widely used to measure market risk in trading books.