Banking Terms, Explained Simply
From payments to deposits — every banking term explained in one page with real examples from Indian banks, RBI rules and daily banking life.
On this page (8):
Corporate Bond
Corporate bonds are debt securities issued by companies to raise capital. They typically offer higher interest rates than government bonds but carry credit risk. Bonds are rated by agencies like CRISIL, ICRA, CARE (AAA being safest). Available on exchanges or through mutual funds.
An AAA-rated HDFC corporate bond offering 8% annual interest is relatively safe and gives 1-1.5% more return than government bonds.
e-KYC (Electronic KYC)
e-KYC is the electronic process of verifying a customer's identity using Aadhaar-based authentication. It enables instant account opening for bank accounts, mutual funds, insurance, and other financial products. Two methods: Aadhaar OTP (online) and biometric (in-person).
Opening a Zerodha demat account with Aadhaar e-KYC takes just 15 minutes — enter Aadhaar, verify OTP, take a selfie, and you're ready to invest.
Types of Fixed Deposits
FDs come in several types: Regular FD (standard), Tax-Saving FD (5-year lock-in, 80C deduction), Senior Citizen FD (0.25-0.50% extra rate), Flexi FD (linked to savings account), NRE/NRO FD (for NRIs), and Cumulative vs Non-Cumulative FD (interest reinvested vs paid out periodically).
A 5-year tax-saving FD of ₹1.5 lakh at 7% gives you approximately ₹2.1 lakh at maturity plus ₹46,800 tax savings under Section 80C at 30% slab.
Government Bond (G-Sec)
Government securities (G-Secs) are debt instruments issued by the Government of India to finance fiscal deficit. They include Treasury Bills (short-term, up to 1 year) and dated government bonds (long-term). G-Secs are considered risk-free as they are backed by the sovereign.
RBI Retail Direct platform allows you to buy government bonds starting from ₹10,000, earning 7-7.5% interest with sovereign safety.
NBFC (Non-Banking Financial Company)
NBFCs are financial institutions that provide banking services like loans, credit facilities, and investments but don't hold a banking license. They cannot accept demand deposits. Regulated by RBI. Examples: Bajaj Finance, HDFC Ltd (now merged), Muthoot Finance, Mahindra Finance.
Bajaj Finance offers personal loans at 12-16% while banks charge 10-14% — NBFCs are quicker in processing but often charge higher rates.
RBI (Reserve Bank of India)
RBI is India's central bank, established in 1935 and headquartered in Mumbai. It manages monetary policy, sets repo rate and CRR, regulates banks and NBFCs, issues currency, and manages foreign exchange reserves. The current RBI Governor is appointed by the Government of India.
When RBI cuts the repo rate by 25 basis points from 6.5% to 6.25%, banks tend to lower their lending rates, making home loans and car loans cheaper.
Reverse Repo Rate
Reverse repo rate is the interest rate at which RBI borrows money from commercial banks. It is a tool to absorb excess liquidity from the banking system. When reverse repo rate increases, banks prefer to park money with RBI rather than lending, reducing money supply.
When RBI raises reverse repo rate from 3.35% to 3.5%, banks earn more by depositing surplus funds with RBI, reducing their lending to businesses and individuals.
Savings Account
A savings account is a basic bank deposit account that earns interest (currently 2.7-7% depending on the bank) and allows easy deposits and withdrawals. Interest up to ₹10,000 per year is exempt from tax under Section 80TTA (₹50,000 for senior citizens under 80TTB).
Keeping ₹3 lakh in a savings account at 4% earns ₹12,000 annual interest. First ₹10,000 is tax-free under 80TTA; only ₹2,000 is taxable.