Banking Terms Every Loksewa Candidate Must Know: RBB Syllabus Deep Dive

"Key Basic Banking Terminology" is a short unit in the RBB syllabus, but it hides some of the most commonly tested words in any banking exam Capital Fund, CD Ratio, CRR, Base Rate, KYC, and more. Let's go through each one in plain language.

Quick Answer

This unit appears in the RBB Level 5 syllabus under "Some of the Key Basic Banking Terminology." It lists ten terms: Capital Fund, Loan Loss Provisioning, Credit-Deposit (CD) Ratio, Trade Finance (Letter of Credit, Bank Guarantee), Refinancing/Rescheduling/Restructuring, Base Rate, Credit Information and Blacklisting, Credit Ratings, Know Your Customer (KYC), and Audit and Internal Control. These are real terms Nepal Rastra Bank (NRB) actively uses to regulate banks today, and most of them come with specific numbers you can remember for your exam.

1. Capital Fund

A bank's capital fund is the money the bank's own owners have put in and kept aside separate from customer deposits to absorb losses if things go wrong. It has two parts:

• Tier 1 (Core) Capital: the bank's own equity and disclosed reserves the strongest, most reliable part of its capital.
• Tier 2 (Supplementary) Capital: additional capital elements, limited to not exceeding the size of Tier 1 capital.

NRB requires every bank to hold a capital fund of at least 10 percent of its total risk-weighted exposure (this percentage is called the Capital Adequacy Ratio, or CAR). In simple words: for every Rs 100 of risky lending a bank does, it must keep at least Rs 10 of its own capital as a safety cushion.

2. Loan Loss Provisioning

When a bank gives out loans, some borrowers may fail to repay. Loan loss provisioning means the bank sets aside money in advance to cover these possible losses, based on how risky each loan category is. A general loan loss provision (for loans that are still being repaid normally) is typically limited to around 1.25 percent of the bank's total risk-weighted exposure. This is one way regulators make sure banks don't collapse suddenly when a batch of loans goes bad.

3. Credit-Deposit (CD) Ratio

The CD Ratio shows what portion of a bank's total deposits it has lent out as loans. NRB currently requires this ratio to stay within 90 percent meaning for every Rs 100 a bank collects in deposits, it can lend out up to about Rs 90, keeping the rest for liquidity needs, cash reserves, and regulatory requirements. If a bank's CD ratio gets too close to this limit, it usually needs to attract more deposits (sometimes by offering higher interest rates) before it can lend more.

Good to know: an older, related term called the CCD Ratio (Credit to Core Capital plus Deposit) used to be the standard measure, but it has since been replaced by the simpler CD Ratio.

4. Trade Finance: Letter of Credit and Bank Guarantee

• Letter of Credit (LC): a promise from a bank, on behalf of a buyer, that the seller will get paid once certain agreed conditions are met — commonly used in international trade, where the buyer and seller may not fully trust each other yet.
• Bank Guarantee: a promise from a bank that if its customer fails to fulfill an obligation (like completing a contract), the bank will cover the loss instead.

Both tools exist to reduce risk when two parties are doing business and need a trusted third party (the bank) to back the deal.

5. Refinancing, Rescheduling, Restructuring

These three sound similar but mean different things:

• Refinancing: replacing an old loan with a new loan, often to get better terms like a lower interest rate.
• Rescheduling: changing the repayment timeline of an existing loan (for example, extending the deadline), usually because the borrower is struggling to pay on the original schedule.
• Restructuring: making bigger changes to a loan's overall terms not just the timeline, but potentially the interest rate, the amount, or other conditions usually done when a borrower is in more serious financial difficulty.

6. Base Rate

The base rate is the minimum interest rate a bank uses as a reference point when deciding what interest rate to charge different borrowers. Banks generally cannot lend below their own base rate (except in specific, regulator-approved cases). It reflects the bank's own cost of funds, so when deposit interest rates rise, the base rate tends to rise too.

7. Credit Information and Blacklisting

Nepal maintains a credit information system where banks report on borrowers' loan repayment behavior. If someone seriously fails to repay a loan, they can be blacklisted placed on an official list that other banks can check before lending to that same person again. This protects the overall banking system from repeat bad borrowers.

8. Credit Ratings

A credit rating is a score or grade given to a borrower (or sometimes a bond or financial instrument) showing how likely they are to repay what they owe. A higher-rated borrower is considered safer to lend to, and typically gets better loan terms.

9. Know Your Customer (KYC)

KYC is the process banks use to verify who their customers actually are before opening an account or approving a transaction checking citizenship documents, addresses, and other identifying details. This exists mainly to prevent fraud, money laundering, and other financial crimes. Every time you open a bank account and submit your citizenship certificate and photo, you're going through a KYC process.

10. Audit and Internal Control

Audit means an independent check of a bank's financial records and processes to confirm everything is accurate and follows the rules. Internal control refers to the bank's own internal systems and checks created by the bank itself to prevent errors, fraud, or mismanagement before they happen. Audit checks after the fact; internal control tries to prevent problems in the first place.

Why This Unit Matters for Your Exam

Every single term here has a short, clear, factual definition which makes this exactly the kind of content that turns into easy marks if you know it, and easy mistakes if you mix terms up (like confusing rescheduling with restructuring, or CD Ratio with CCD Ratio). This unit pairs naturally with the Digital Payment Systems deep dive we covered earlier, since both come from the same Paper I syllabus section in the RBB Level 5 & 6 syllabus breakdown.

What Should You Do With This Information

1. Memorize the two key numbers: capital fund minimum is 10 percent of risk-weighted exposure, and CD Ratio limit is 90 percent of deposits. These specific numbers are exactly what MCQs like to test.
2. Practice telling similar terms apart especially refinancing vs. rescheduling vs. restructuring, since this is a classic point of confusion.
3. Connect each term to a real-life example like thinking of KYC as "the documents I gave when I opened my bank account" this makes the definitions much easier to remember than reading them cold.
4. Know that CCD Ratio is an older term, now replaced by the simpler CD Ratio, a good fact if a question tests how banking terminology has changed over time.
5. Add this unit to your ongoing revision plan. Loksewa AI's study planner can help you schedule short, regular practice sessions for both this unit and the related Digital Payment Systems unit together.

Final Thought

This short list of ten terms covers a huge amount of ground in how banks are actually regulated and run day to day. Learn the definitions, attach a real-world example to each one, and pay close attention to the specific numbers 10 percent capital fund, 90 percent CD Ratio since these precise figures are exactly what separates a strong answer from a vague one.