JAIIB AFM flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Bank Rate

The rate at which the RBI provides long-term funds to banks against eligible securities. It is a policy signal and is normally aligned with the marginal standing facility rate.

CRR

Cash Reserve Ratio: the percentage of net demand and time liabilities that a bank must keep as cash with the RBI. It earns no interest and is maintained daily.

SLR

Statutory Liquidity Ratio: the minimum percentage of net demand and time liabilities held in cash, gold, or approved securities. It is maintained daily and earns returns.

Repo Rate

The rate at which banks borrow short-term funds from the RBI by selling securities with an agreement to repurchase them. It is the main policy rate.

Priority Sector Lending

A mandated share of bank credit, generally 40% of adjusted net bank credit, directed to agriculture, MSMEs, education, housing, and weaker sections. Shortfalls are deposited with NABARD or SIDBI.

Non-Performing Asset

A loan where interest or principal is overdue for more than 90 days. It is classified as substandard, doubtful, or loss based on the period of default.

MCLR

Marginal Cost of Funds based Lending Rate: the minimum internal benchmark for pricing loans, calculated from marginal cost of funds, negative carry, operating cost, and tenor premium.

KYC Norms

Know Your Customer rules requiring identification and address verification of customers plus ongoing monitoring. Updation frequency depends on the customer's risk category.

Accounting Equation

Assets equal liabilities plus capital. Every transaction affects at least two elements and keeps this equality intact, forming the basis of double-entry bookkeeping.

Trial Balance

A statement listing debit and credit balances of all ledger accounts to test arithmetical accuracy. It cannot detect errors of principle or compensating errors.

Net Interest Margin

Net interest income divided by average earning assets, expressed as a percentage. It measures how efficiently a bank converts its earning assets into interest income.

CASA Ratio

Current account and savings account deposits divided by total deposits. A high ratio lowers the cost of funds because these deposits carry low or no interest.

Capital Adequacy Ratio

Total regulatory capital divided by risk-weighted assets. RBI requires a minimum of 9%, including a capital conservation buffer, above the Basel minimum.

Accrual Concept

Income is recognised when earned and expenses when incurred, regardless of cash movement. It gives a truer picture of profit for the period.

Depreciation

Systematic allocation of the depreciable cost of a fixed asset over its useful life. It is a non-cash expense that reduces reported profit but not cash flow.

Provision for NPAs

An amount charged to profit and loss to cover expected losses on non-performing assets. It is computed as a percentage of the outstanding by asset classification.

Current Ratio

Current assets divided by current liabilities. It measures short-term liquidity; a ratio below one signals possible difficulty in meeting near-term obligations.

Section 138 NI Act

Makes dishonour of a cheque for insufficient funds an offence when drawn for a legally enforceable debt, provided written notice is served within 30 days of dishonour.

Payment in Due Course

Payment made in good faith and without negligence to a person entitled to receive it, in accordance with the apparent tenor of the instrument. It discharges the paying banker.

Banker's Lien

A general lien under Section 171 of the Indian Contract Act entitling a bank to retain goods and securities in its possession until the customer's dues are settled.

Section 131 Protection

Statutory protection for a collecting banker who collects an instrument in good faith and without negligence for a customer, shielding it from liability for conversion.

SARFAESI Act

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, allowing secured creditors to enforce security without court intervention after a 60-day notice.

Crossed Cheque

A cheque bearing two parallel lines, generally payable only through a bank account. It reduces the risk of payment to an unauthorised holder.

Limitation Period

The period within which a legal remedy must be sought. For recovery of a debt, it is three years from when the debt becomes due, unless acknowledged in writing.

Material Alteration

A change to an instrument that alters its effect, such as amount, date, or payee. It renders the instrument void unless the alteration is made with the consent of all parties.

EMI Formula

Equated Monthly Instalment = P x r x (1+r)^n divided by ((1+r)^n minus 1), where P is principal, r the monthly rate, and n the number of months.

Loan-to-Value Ratio

The loan amount expressed as a percentage of the value of the asset pledged. Higher LTV means greater credit risk and a higher regulatory risk weight.

SIP

Systematic Investment Plan: a fixed amount invested periodically in a mutual fund scheme. It averages the purchase cost across market levels and encourages disciplined saving.

Risk Profiling

Assessment of a client's risk tolerance, time horizon, liquidity needs, and objectives. It determines the suitable asset allocation and products recommended.

Diversification

Spreading investments across assets and sectors to reduce unsystematic risk. It cannot remove systematic or market-wide risk, which affects all securities.

Duration

A measure of a bond's sensitivity to interest rate changes, expressed in years. A longer duration means a larger price fall when rates rise.

NPS

National Pension System: a voluntary retirement savings scheme with tax benefits and a mandatory annuity component at exit. It offers tiered accounts and market-linked returns.