Jaiib

Guidelines - JAIIB
A WORD OF CAUTION
The candidates appearing for the Associate Examinations have expressed their genuine need from the Institute for publishing some kind of guidelines to enable them to answer in a better way. Many candidates have also represented that the guidelines should throw light on the expectations of the examiners, so that they can perform better in the Associate Examinations with confidence. The Institute has received the feedback from all concerned and appreciated the importance and felt need of candidates appearing for the examinations. We have consulted the Chief Examiners and subject specialists for updating and publishing the guidelines with regard to previous question papers in different years. The guidelines were published for the examinations conducted during April/May 1995 and 1997. We have received very good response from the user-system and were encouraged with the positive response. The Syllabus for the Associate Examinations was revamped and a new question paper pattern was introduced by the Institute from February 1999 and candidates require the guidelines for this also. We have decided to bring out the guidelines for February 1999 examinations for all the subjects in one go for JAIIB as per the need of candidates. The Institute would like to reiterate that these guidelines are only illustrative and not exhaustive. The candidates should not construe these guidelines as complete answers nor would they serve the purpose of model/suggested answers. Even if the same questions are repeated in future examination, the guidelines provided herein would have to be suitably modified, elaborated and updated incorporating the latest developments on the subject from time to time keeping track of the same from banking dailies and other relevant publications. Nevertheless, the guidelines would help the candidates to understand the essential points to be covered while answering the respective questions. The authors of the booklet have taken pains to include broadly all related aspects of the subject matter covered by the question as for as possible. We would like to impress upon you that these guidelines are in no way to be considered as substitute to studying of text books. The candidates may have to suitably elaborate or condense the answers depending upon the tone and tenor of questions and marks allotted and supplement with illustrations/ quoting decided cases etc., We would like to add that individual imprint on the answers, by way of style of presentation, logical organisation of thought and development of answer would carry a lot of weight in securing better marks. Wishing you all success which rests on your hands. Wishing all the success.
Chief Executive Officer February 1999
The Indian Institute of Bankers
MISSION
The mission of the Institute is to develop professionally qualified and competent bankers primarily through a process of training, examination and continuing professional development programmes.
Guidelines - JAIIB
CONTENTS
1. Indian Financial System and Commercial Banking ..................................................................................................... 3
2.
Business Communication and Customer Relations ................................................................................................... 31
3.
Special and Preferred Sector Finance ...................................................................... 41
4.
Basic Accountancy ..................................................................................................... 61
5.
Introduction to Computers ......................................................................................... 85
Guidelines - JAIIB
INDIAN FINANCIAL SYSTEM & COMMERCIAL BANKING
Guidelines - JAIIB
GUIDELINES FOR ANSWERING ASSOCIATE EXAMINATION-FEBRUARY 1999

INDIAN FINANCIAL SYSTEM AND COMMERCIAL BANKING
Q 1.
Define the following terms briefly, say in 2 to 3 sentences. Answer any five (a) (b) (c) (d) (e) (f) (g) (h) Capital adequacy Open Market Operations : Authorised Dealers : Mutual Funds : Capital Market : Net working Capital / Margin : Endorsement of cheques : Poverty Line
Ans 1 (a)
Capital adequacy : Stipulated by Bank for International Settlements (BIS) at Basle to ensure that the banks have enough capital to absorb losses from assets which turn bad. The norms are fixed as a percentage of risk weighted assets i.e. assets are, weighted on the basis of the risk involved in their realisation. For example, cash is given a risk weightage of 0% and higher weightage for assets secured by goods, mortgage etc. In India Narasimham Committee recommendations have stipulated that Indian Banks particularly those with International Presence must have a capital adequacy of 8%
Ans 1 (b)
Open Market Operations : These relate to the activities initiated by the Reserve Bank of India by way of purchase/Sale of securities in the market in order to vary the monetary flow in the economy.
Ans 1(c)
Authorised Dealers : Institutions authorised by the Reserve Bank of India to undertake both purchase and sale of Foreign Exchange.
Ans 1 (d)
Mutual Funds : Mobilisation of funds by organisations in Public Sector and Private Sector for the purpose of investment in stock market securities so as to give adequate return to the
The Indian Institute of Bankers investors who can not invest directly. Ans 1 (e) Capital Market : Market for raising long term funds by companies through issue of shares, debentures etc. Ans 1 (f) Net working Capital / Margin : The margin contribution towards the working capital by the borrower is known as the Net working capital. This should ordinarily be equal to 25% of the working capital gap (i.e. current assets minus current liabilities). Ans 1 (g) Endorsement of cheques : When the maker or holder of a negotiable instrument signs the same otherwise than as maker for the purpose of negotiation on the back or face thereof or on a slip of paper annexed thereto he is said to have endorsed the same and is called the endorser (Section 15 of NI Act). Ans 1 (h) Poverty Line : This is the line which indicates the minimum level of income which may ensure sufficient food for maintenance of a person i.e. at least 2200 calories per day. In India families with annual income below Rs. 11,000 in rural areas and Rs. 11,850 in urban areas are considered to be living below poverty line. Q 2. State, with reasons, whether the following statements are true or false. Your answer to a question must not exceed three sentences. Answer any three (a) (b) (c) A cheque is a Bill of Exchange Section 85 of NI Act extends protection to a collecting banker. Bankers in general are hesitant to finance HUF Firms because these firms cease to exist when the Karta is dead (d) (e) Q2a Ans 2 a Mortgage involves transfer of possession Documents of little to goods means an invoice duly endorsed in favour of a bank
A cheque is a Bill of Exchange True : Section 6 of NI Act defines a cheque as a Bill of Exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
Q2b Ans 2 b Q2c
Section 85 of NI Act extends protection to a collecting banker. False : Section 85 extends Protection to a paying banker. Bankers in general are hesitant to finance HUF Firms because these firms cease to 8
Guidelines - JAIIB
exist when the Karta is dead Ans 2 c False : The hesitation to finance HUF is because of the fact that the liability of the firm to the banker is susceptible to change with the birth of a male child or the death of a male coparsener in the HUF. Q2d Ans 2 d Mortgage involves transfer of possession False : There is no requirement of transfer of possession of property in every case of mortgage, except of course, in the case of usufructuary mortgage where the transfer of possession of mortgaged property is a must. Q2e Ans 2 e Documents of little to goods means an invoice duly endorsed in favour of a bank False : A document of title to goods is a document evidencing proof of possession or control of goods or authorising or purporting to authorise either by endorsement or delivery, the possessor of the document to transfer or receive goods thereby represented. Therefore, it could be a Railway receipt/Lorry receipt or Bill of lading.
SECTION II Q 3. In the following cases a number of alternative answers have been given. Please pick up the one which you consider as correct and explain the reasons for your choice briefly, say in 30-40 words. Answer any six question (a) Introduction of rating methodology for banks was introduced by RBI on the lines of : I) CAMEL (b) II) IRAC III) CMA
The Regulatory Authority for Regional Rural Banks is : i) The Sponsor Bank iii) State Govt. ii) Central Govt. iv) RBI and NABARD
(c)
National income is the estimate of : i) Taxes collected all over the country
ii) Foodgrains production of the country 9
The Indian Institute of Bankers iii) Current production of goods and services in the country iv) All the above v) None of the above (d) Rural Development in our country began with : i) Community Development Programme
ii) Integrated Rural Development Programme iii) Small Farmers Development Agency iv) Intensive Agricultural Area Programme (e) Purchase of a motor vehicle can be financed to the following professional under a scheme in the priority sector : i) Medical Practitioner iii) Architect (f) ii) Engineer iv) All the above
A Public Limited Company should have minimum membership of i) 50 ii) 15 iii) 7 iv) No limit
(g)
No charge need be registered with the Registrar of companies when advance is granted to a company against : i) Hypothecation of goods
ii) Pledge of goods iii) Mortgage of immovable property (h) Lien becomes time barred three years after : i) Date of loan
ii) Date of delivery of relative goods iii) due date of loan iv) Lien has no limitation period 10
Guidelines - JAIIB
Q3a Ans 3 a Introduction of rating methodology for banks was introduced by RBI on the lines of : The correct answer is (i) i.e. CAMEL. The working Group to ``Review the system of on-site supervision over Bank headed by Shri S. Padmanabhan, constituted in February 1995 recommended far reaching changes in bank inspections by the Reserve Bank of India including, interalia, introduction of a rating methodology for the banks on the lines of the widely adopted CAMEL model (Capital Adequacy, Assets Quality, Management, Earnings and Liquidity). Q3b Ans 3 b The Regulatory Authority for Regional Rural Banks is : The correct answer is (iv) i.e. RBI and NABARD. Reserve Bank of India is the regulatory authority of the Regional Rural Banks in accordance with the Banking Regulation Act, 1949 which empowers NABARD to undertake the inspection of RRBS. Q3c Ans 3 c National income is the estimate of : The correct answer is (iii) i.e. Current production of goods and services in the country. National Income consists of the total goods and services produced in the country in a given period of time, generally during a year. Q3d Ans 3 d Rural Development in our country began with : The correct answer is (i) i.e. Community Development Programme. Community development Programme (CDP) was launched on 2nd October 1952. A unit of Development namely Development Block was created all over the country. The programme was launched with the notion that rural development is all inclusive and all the aspects of rural life were targeted for development. The main emphasis in the programme was on self reliance in the individual and initiative in the Community for achieving this desired goals. Q3e Purchase of a motor vehicle can be financed to the following professional under a scheme in the priority sector : Ans 3 e The correct answer is (i) i.e. Medical Practitioner. For medical practitioners loan upto Rs. 10 lacs can be granted for setting up practice in rural/semi urban areas. Out of this working capital should not exceed Rs. 2.00 lacs. Loan for one motor vehicle can be considered within the above ceiling. Other professionals are not eligible for loan for purchase of motor vehicle under this scheme. 11
The Indian Institute of Bankers Q3 f Ans 3 f A Public Limited Company should have minimum membership of The correct answer is (iii) i.e. 7. A Public Limited Company should have a minimum of seven (7) members (share holders) but there is no maximum limit. Limited companies in India are governed by the Companies Act, 1956. Q3g No charge need be registered with the Registrar of companies when advance is granted to a company against : Ans 3 g The correct answer is (ii) i.e. Pledge of goods. Whenever an advance is granted to a company by creating charge on its assets the charge has to be registered with the Registrar of Companies (ROC) under Section 125 of the Companies Act, 1956. But when the charge of pledge is created, no registration is required. Q3h Ans 3 h Lien becomes time barred three years after : The correct answer is (iv) i.e. Lien has no limitation period. Lien is a right possessed by a person to detain or retain the goods or property belonging to another until he has received the due remuneration for the services he has rendered in respect of them. This is defined under Section 170 of the Indian Contract Act, 1872. Lien does not get time barred, so long as the goods under lien are with possession of the lien holder. Lien continues. Q 4. Explain the underlying rationale for the following practices/procedures being followed by banks in India. Your answer should not exceed three sentences. Answer any three questions : (a) Banks do not generally accept for collection, cheques with `Not Negotiable crossing. (b) (c) Banks do not open accounts in the name of a minor alone. Introduction for all deposit accounts to be opened with a bank has been made compulsory. (d) (e) Banks do not pay cheques outside business hours. When a banker closes the account of a customer, he is required to send a notice well in advance. (f) Cash credit limit of Rs. 10 crores and over, granted to a borrower needs to be bifurcated under the Loan Delivery System. 12
Guidelines - JAIIB
Q. 4 a Ans 4 a Banks do not generally accept for collection, cheques with `Not Negotiable crossing. The effect of the words Not Negotiable has been stated in section 130 of the NI Act. It states, À person taking a cheque crossed generally or specially bearing in either case the words Not Negotiable shall not have and shall not be capable of giving a better title to the cheque than which the person from he took it had. It does not make the cheque non transferable but it deprives the cheque of the special feature of negotiability. Such cheques are like stolen articles, the receiver of which does not get a better title than that of the thief. It is a warning to the transferee that when he takes the cheque, he will get only that title which the transferor had. If the transferor had no title than the transferee will not get any title. `Not Negotiable crossing is a caution to the holder and its collecting banker. Q. 4 b Ans 4 a Banks do not open accounts in the name of a minor alone. According to the Indian Contract Act, a minor cannot enter into any legal contract. Therefore, any contract with a minor is void. That is why, bankers do not generally open accounts in the name of minor alone, but open joint accounts in the name of the minor and the natural guardian. When accounts are opened in the name of minors alone, these are subject to the minimum age and maximum limit of deposits No cheque is collected in such accounts. Q4c Ans 4 c Introduction for all deposit accounts to be opened with a bank has been made compulsory. In terms of the directives of the Reserve Bank of India all accounts whether current, savings or fixed are required to be introduced. This has been made compulsory with the objective of prevention of frauds and benami transactions. The purpose of introduction is to identify the person for whom account is being opened. Introduction also serves the purpose of obtaining legal protection under 131 of the NI Act, so that the banker is not held negligent while opening an account. Q4d Ans 4 d Banks do not pay cheques outside business hours. Section 65 of the NI Act requires that the presentment for payment must be made on a working day during the banking hours. Therefore, payment of cheques after banking hours is not payment in due course and the paying banker may not be eligible for protection under Section 10 of the NI Act in case the payment goes wrong. 13
The Indian Institute of Bankers Q4e When a banker closes the account of a customer, he is required to send a notice well in advance. Ans 4 e The relationship between the banker and the customer is established by mutual agreement to open and operate the account. This relationship may be terminated at any time by either parties by closing the account. However, when the account is proposed to be closed at the insistence of the bank, the bank should give proper notice well in advance to the customer so that the latter may make alternate arrangements. Otherwise, cheques issued by him in the intervening period may be returned and it may lead to several legal difficulties to the bank, vide the case of Champion Automobiles Ltd Vs. Madras and Travancore National Bank Ltd. (AIR 1938, Madras TT) Q4f Cash credit limit of Rs. 10 crores and over, granted to a borrower needs to be bifurcated under the Loan Delivery System. Ans 4 f The working capital limits are sanctioned to the borrowers in the form of cash credit. This is a form of running account and the borrowers are expected to bring the account into credit as often as possible by depositing sale proceeds and redrawn. But this has rarely happened in practice and as a result cash credit has become permanent facility drawn to the brim of the limit and with very low fluctuations. In order to bring some sort of discipline RBI has made it mandatory on the part of the banks to bifurcate wherever working limits of Rs. 10 crores and above have been granted to borrowers, into working capital demand loan and cash credit in the ratio of 80:20. For example, if a borrower has been sanctioned a total fund based working capital limit of Rs. 20 crores, Rs. 16 crores will be allowed as short term (called working capital Demand Loan) loan and Rs. 4 crore as running cash credit account. The loan component can be scheduled to be repaid in installments, quarterly, half yearly or yearly depending on the cash flow. Moreover, the loan component is permissible depending upon the eligibility of the borrowers.
SECTION III Q 5. How would you deal with the following cases? Please give reasons for your answer, in say 4-5 sentences. Answer any Four questions. (a) Mr. A, Secretary of a Public Limited Company, has approached you for opening a current account in the name of the company. 14
Guidelines - JAIIB
(b) Mr. Raghavendra of a Proprietary business enterprise, requests for a Term Loan of Rs. 10 lacs for purchase of three Photocopying machines costing Rs. 12 lacs under the scheme for financing of Professionals and Self Employed under Priority sector. (c) Mr. Shyam, a salaried Govt. employee, maintains a Savings Bank Account with your Branch. He deposited Rs. 1,000/- in cash for credit of his account which owing to an error was credited to another customers account. Mr. Shyam issued a cheque for Rs. 800/- in payment of his house rent which was dishonoured for insufficient fund in his account. Mr. Shyam threatens the Bank to file a suit claiming damages for Rs. 10,000/- for wrongful dishonour of the cheque. (d) Mr. Mohan maintains one Current and one Savings Bank Account with your Branch. He had issued a cheque for Rs. 5,000/- on his current account. When the cheque was presented for payment, the balance in the account being insufficient, the Branch Manager transferred the requisite amount of shortfall from the Savings Bank account of Mr. Mohan, without his consent, and paid the cheque. Mr. Mohan now threatens to file a suit against the Branch for damages for transfer of funds from one account to the other without his consent. (e) Mrs. Gayatri maintains a current account with your Branch. She had signed a balance confirmation certificate in respect of the account as on 31.12.97 on 5th January 1998. However, in the month of May 1998, she came to know after examining the statement of her current account that three cheques with forged signatures were paid in November 1997. So she demanded refund of the amounts of these cheques which was refused by the branch saying that she had already confirmed the balance and that she had brought the matter to the notice of the branch after a long time. Mrs. Gayatri threatens legal action against the branch. (f) Shri Ramprasad is a client of your Branch. He gave several cheques for credit of his Savings Bank account maintained with your Branch to one Shri Kalidas, a cashier of your Branch. The employee cashed the cheques and misappropriated the amounts. He made false and fictitious entries in the Pass Book of Shri Ramprasad under his signature. On making demand of the amount, the Branch refused to repay on the ground that Shri Kalidas had no authority to authenticate entries in a Pass Book. Ramprasad threatens legal action against the branch for recovery of the amount. 15
The Indian Institute of Bankers Q 5 (a) Mr. A, Secretary of a Public Limited Company, has approached you for opening a current account in the name of the company. Ans 5 (a) An account in the name of Public Limited Company can be opened on completion of the following formalities. i) The company should submit certified copies of the Memorandum and Articles of Association as amended upto date. ii) iii) A copy of the certificate of Incorporation. A copy of the certificate of commencement of business issued by the Registrar of companies. iv) A certified copy of the resolution passed by the Board of Directors authorising the opening of the account, execution of documents and operations of the account. v) The prescribed account opening form duly filled in and signed by the authorised signatories. Specimen signatures of the authorised signatories should be recorded in the presence of a bank officer. vi) vii) Q 5 (b) A list of directors duly certified and signed by the chairman. No introduction is necessary
Mr. Raghavendra of a Proprietary business enterprise, requests for a Term Loan of Rs. 10 lacs for purchase of three Photocopying machines costing Rs. 12 lacs under the scheme for financing of Professionals and Self Employed under Priority sector.
Ans 5 (b)
The loan cannot be sanctioned under professional and self employeds financing scheme because value of the machinery in this case is 12 lakhs. Under the scheme value of plant and machinery including borrowers margin should not exceed Rs. 10 lacs. The proposal can however, be considered under normal scheme if it is otherwise found viable.
Q 5 (c)
Mr. Shyam, a salaried Govt. employee, maintains a Savings Bank Account with your Branch. He deposited Rs. 1,000/- in cash for credit of his account which owing to an error was credited to another customers account. Mr. Shyam issued a cheque for Rs. 800/- in payment of his house rent which was dishonoured for insufficient fund in his account. Mr. Shyam threatens the Bank to file a suit claiming damages for Rs. 10,000/ - for wrongful dishonour of the cheque. 16
Guidelines - JAIIB
Ans 5 (c) A banker should not injure his customers credit by refusing to pay his cheque on unreasonable or improper grounds. In such a case a banker is liable to compensate the customer. However, if the drawer of a cheque is not a trader or businessman, any financial loss or damage to his goodwill for wrongful dishonour of his cheque would be nominal and therefore he can claim nominal compensation. In this case, Mr. Shyam being a salaried Govt. employee his claim for such a large amount as damages may not be sustainable in a court of law. In a similar case of Mrs. Gibbons vs. West Minister Bank (1939 31 T.L.R. 334) Justice Lawrence held a person who is not a trader is not entitled to recover substantial damages for the wrongful dishonour of his cheque. Thus she was awarded a nominal damage of 40 shillings only for dishonour of her cheque for payment of rent under the impression that there were insufficient funds in her account. Q 5 (d) Mr. Mohan maintains one Current and one Savings Bank Account with your Branch. He had issued a cheque for Rs. 5,000/- on his current account. When the cheque was presented for payment, the balance in the account being insufficient, the Branch Manager transferred the requisite amount of shortfall from the Savings Bank account of Mr. Mohan, without his consent, and paid the cheque. Mr. Mohan now threatens to file a suit against the Branch for damages for transfer of funds from one account to the other without his consent. Ans 5 (d) Here the question involved is whether a banker has a right to combine two accounts of a customer and transfer assets and liabilities from one account to another without the consent of the customer. For a long time it was the practice with the banks to do so for the convenience of the bank and also to keep up the prestige of the customer. This was based on the decision given in the case of Gamete Vs. Mackvem. However, in another case, viz Greenhawlsh V/s. Union Bank of Manchester, the court took a different view. In this case the Honble Judge observed if a banker agrees with the customer to open two accounts he has in my opinion without the consent of the customer no right to move either assets or liabilities from one account to another. In view of this it is generally believed that the banker should not ordinarily combine accounts in a customers name. A practical way out is to take a letter from the customer who opens in the same capacity more than one account authorising the bank to combine the accounts whenever necessary to pay the customer cheques. 17
The Indian Institute of Bankers It is therefore, difficult to say what view the court will take if Mr. Mohan really files a suit against the bank. Much will depend on the nature of payment covered by the cheque. Q 5 (e) Mrs. Gayatri maintains a current account with your Branch. She had signed a balance confirmation certificate in respect of the account as on 31.12.97 on 5th January 1998. However, in the month of May 1998, she came to know after examining the statement of her current account that three cheques with forged signatures were paid in November 1997. So she demanded refund of the amounts of these cheques which was refused by the branch saying that she had already confirmed the balance and that she had brought the matter to the notice of the branch after a long time. Mrs. Gayatri threatens legal action against the branch. Ans 5 (e) It is well established that a paying bank is not entitled to any protection for paying a forged cheque. As soon as the customer comes to know about the forgery, she should lodge a FIR with the police authorities and inform the Bank. As all these steps were taken by Mrs. Gayatri, the confirmation of balance sent by her earlier is of no consequence. The customer cannot be held guilty of negligence and the bank would be liable to compensate her for the loss. A similar judgement was delivered by the court in the case of Allahabad Bank Ltd. V/s. Kulbhushan and others (AIR 1971 PUN 571) Q 5 (f) Shri Ramprasad is a client of your Branch. He gave several cheques for credit of his Savings Bank account maintained with your Branch to one Shri Kalidas, a cashier of your Branch. The employee cashed the cheques and misappropriated the amounts. He made false and fictitious entries in the Pass Book of Shri Ramprasad under his signature. On making demand of the amount, the Branch refused to repay on the ground that Shri Kalidas had no authority to authenticate entries in a Pass Book. Ramprasad threatens legal action against the branch for recovery of the amount. Ans 5 (f) If a bank employee makes wrong payment of fraudulent entry in a Pass Book which is to the detriment of the customer, the bank will be liable for such entries and the bank will have to compensate the loss caused thereby to the customer, provided such action was done by the bank employee during the course of his employment. As Shri Kalidas, a cashier of the bank, cashed the cheques and misappropriated the money by making false and fictitious entries in the Pass book of Shri Ramprasad, the bank is vicariously liable to pay the amount. This was held by Allahabad High Court. On an appeal by the bank, the Supreme Court held that the bank was not liable to make 18
Guidelines - JAIIB
good the loss as the employee was acting as an agent of the account holder and the act was not within the scope of his employment (S.B.I. Vs. Smt. Shyamdas AIR 1978 - SC - 1263 1271). Q 6. Answer any five of the following questions. Each answer must not exceed three sentences. (a) (b) (c) (d) (e) (f) (g) (h) (i) Q 6 (a) Ans 6 (a) Describe the main instruments of selective credit control which are used by R.B.I. What is Bank Rate? Expand the following abbreviations : SHCI, DFHI, STCI and IDBI Describe the advantages that flow to banks for handling Govt. Business. What is C-D Ratio? What is its implication? Describe salient features of Differential Rate of Interest Scheme. Write a short note on Rural Infrastructure Development Fund. Mention the Cardinal Principles of Lending. Distinguish between Lease and Hire Purchase.
Describe the main instruments of selective credit control which are used by R.B.I. The main instruments of selective credit control used by RBI are : i) ii) iii) Minimum margin for lending against selected commodities Ceiling on the levels of credit Charging of minimum rate of interest on advances against specified commodities.
Q 6 (b) Ans 6 (b)
What is Bank Rate? Bank Rate is the rate at which the Reserve Bank of India rediscounts certain defined bills. Section 49 of the RBI Act defines Bank Rate as The Standard rate at which it (the RBI) is prepared to buy or rediscount bills of exchange or other commercial paper eligible for purchase under this Act.
Q 6 (c) Ans 6 (c)
Expand the following abbreviations : SHCI, DFHI, STCI and IDBI SHCI : Stock Holding Corporation of India DFHI : Discount and Finance House of India 19
The Indian Institute of Bankers STCI : Securities and Trading Corporation of India IDBI : Industrial Development Bank of India Q 6 (d) Ans 6 (d) Describe the advantages that flow to banks for handling Govt. Business. The advantages of conducting Govt. Business are : i) Bank may earn commission on the volume of transactions undertaken by them on Govt. Accounts. ii) It gives access to large number of corporate and other persons like contractors who receive from Govt. payment of goods and services supplied by them to various Govt. Dept. and make payment to Govt. on account of taxes and duties at the branches of the banks conducting Govt. business. As a result they may prevail upon their parties to open account with the bank. This gives good opportunity to mobilise deposits and other business in the shape of remittances/collection etc. iii) It also enables them to get from RBI the facility of currency chest which facilitates timely cash management and adds to profitability. Q 6 (e) Ans 6 (e) What is C-D Ratio? What is its implication? C-D Ratio means credit deposit ratio. Govt. of India / RBI have issued guidelines to bank to ensure that CD ratio in rural and semi-urban areas should be atleast 60%. This issue is discussed at the meeting of DLCC and SLBC. The objective of this stipulation has been to provide adequate credit in such areas atleast in a ratio of deposit mobilised from rural and semi-urban branches mainly to minimise the flight of resource scarce rural areas to urban regions and thereby help reduce the regional imbalances. Q 6 (f) Ans 6 (f) Describe salient features of Differential Rate of Interest Scheme. The scheme is meant for the weaker sections of the society engaged in modest production activities and cannot offer any security or margin money for bank loan and cannot bear normal interest rate burden. Salient features are : i) Annual family income should not exceed Rs. 7200 in urban, semi urban and metropolitan areas and Rs. 6400/- in rural areas. ii) Loan amount : Term loan upto 5000/- and working capital upto Rs. 1500 within an overall limit for both up to Rs. 6500/20
Guidelines - JAIIB
iii) iv) Q 6 (g) Ans 6 (g) Interest : 4% p.a. Repayment : A liberal programme normally up to 5 years.
Write a short note on Rural Infrastructure Development Fund. RIDF : Fund created and maintained by NABARD with the contribution from the Commercial banks who fail to achieve the stipulated goal of 18% of net bank credit to Agricultural advances. The fund is made available to State Govts. for infrastructural development like irrigation, roads etc. as a soft loan assistance, Banks are paid interest @ 11.5% p.a.
Q 6 (h) Ans 6 (h) Q 6 (i) Ans 6 (i)
Mention the Cardinal Principles of Lending. Cardinal Principles of lending are safety, security, liquidity and profitability. Distinguish between Lease and Hire Purchase. Lease in ordinary parlance refers to the renting out of immovable property by the owner (lessor) to the tenant (lessee) in a specified rent for a specified period. It is a contract whereby the owner (Lessor) transfers his right to use to the other party (Lessee) on payment of a fixed rent (lease rent) periodically. Hire purchase on the other hand is an agreement whereby a buyer hires durable consumer goods viz. commercial vehicles, machinery/equipment etc. from its owners at a fixed rate with an option to purchase. Hire charges are paid at a predetermined rate and on payment of all installments the ownership of the goods passes to the hirer. Hirer has a right to posses and use the goods.
SECTION IV Q 7. What are the basic changes which have been brought about by Financial Sector Reforms in rural areas of India. Ans 7 Though banking was initially an urban-oriented financial services, its rural orientation began in 1956 after the nationalisation of the Imperial Bank of India and the establishment of State Bank of India which was given a mandate to go rural. The RBI adopted the Branch Licensing Policy in the late sixties to induce the commercial banks to open rural branches. The introduction of Lead Bank Scheme in 1970 gave a further fillip to rural banking. The Lead Banks were entrusted with the responsibility of identifying unbanked centres in each district allotted to them and to extend banking facilities to these centres. As a result of these efforts, 21
The Indian Institute of Bankers during the decade 1970 to 1980, there had been an unprecedented increase in the number of rural branches. A large number of hitherto unbanked centres appeared on the banking map of the country. With the increase in the branch network in the rural areas, there has been an increase in credit deployment in rural areas. The latest position of the banking activities in rural areas can be seen from the following table : June 69 Total number of Branches Rural Branches % share of rural branches in total number of branches Rural deposits (Rs. in crores) % share of rural deposits Rural credit (Rs. in crores) Total Bank Credit (Rs. in crores) % share of rural credit Rural credit deposit Ratio Change in outlook The outlook of the bankers in favour of the priority and neglected sectors has completely changed. The bankers today feel committed to help the backward sectors. This change in their outlook and spirit has been a significant achievement. The consideration of security has undergone radical change Traditionally, the safety of funds is ensured by securing a charge over the tangible assets of the borrower, which may easily be liquidated in order to recover the loan in case of default by the borrower. Now the banker largely depends upon the desirability of purpose and the economic viability of the project for which credit is needed. No security except the hypothecation of assets purchased with the banks loan, is taken for loans upto Rs. 25000/ - Bankers now largely rely on the technical ability, managerial competence and integrity of the borrower. 22 22.5% 145 3.1% 54 3609 1.5% 37.2 51.9% 45,000 (approx.) 13% 28000 (approx) 250000 (approx) 11% 55% 8262 1860 June 97 63511 32981
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Govt. Support with subsidised programmes. Govt. sponsored credit programmes like I.R.D.P., KVIC margin money scheme provided a good boost to rural credit. These subsidy-linked poverty alleviation programmes have been found an effective tools for fulfilling the credit needs of the rural masses. Service Area Approach (SAA) Service Area Approach which was introduced from 1st April 1989, linked all villages of the country with banks. 15-25 villages were allocated to each branch which is called its `Service Area with the responsibility of fulfilling the credit needs. Annual Credit Plans are prepared in respect of each village and the performance under the plan is monitored under Lead Bank Scheme. Local Area Banks (LABs) Recently, RBI has decided to issue license for `Local Area Banks which will be established by NGOs whose operational area will be a cluster of two/three districts. LABs under private sector with new technology are being treated as a competitor to Regional Rural Banks.
OR Q 7. Discuss the salient aspects of the recommendations of Abid Hussain Committee on small Scale Industries. Ans 7 The following is a summary of the recommendations of the Abid Hussain Committee (Report submitted in January 1997) which looked into various issues concerning small enterprises. The Premises : The Expert Group recommends that the guiding principle of the future course of small scale enterprise (SSE) development policy should be their accelerated growth and competitiveness. The concept of the small scale sector now be widened to include small scale business and service enterprises. Mechanisms of Promotion : The Expert Group recommends that the policy of protection be replaced by promotion as the cornerstone of future policy. Adequate supply of credit, services, technology assistance, infrastructure and low transaction costs are the hallmarks of the proposed strategy for promotion of SSEs. Focus on clusters : The centre-piece of the new approach is an increasing public private 23
The Indian Institute of Bankers partnership in setting up support systems, particularly in clusters of small scale enterprises. The thrust of the future policy for SSEs should be to bolster growth in existing clusters by redirecting current investments in regional development (i.e. backward areas) to such centres of growth. The Expert Group, therefore, recommends that state governments identify the existing SSE clusters and then promote new types of organisations which are joint ventures between the State governments or local authorities and business associations in these clusters. Development Roles for Central and State Governments : The Expert Group proposes that policy support be broadened from the current support of only small scale industries to all small scale enterprises. The development of SSEs is an aspect of regional development that is best pursued by State governments. The Central Governments tasks should be confined to policy formulation, legal and institutional development. Revitalising District Industry Centres (DICs) : DICs need to be redesigned as autonomous District Enterprise Promotion Agencies (DEPAs) with participation from business associations, government agencies, banks, etc. and must have a special focus on the assistance of tiny units. Corporatisation of Government Extension Agencies : The Expert Group suggests that Central Government organisations for the delivery of business services to small enterprises be corporatised. They should also specialise in a few core activities to develop their competitiveness. It is recommended that SIDBI open a special window for the funding of technical consultancy organisation and other support services. Abolish Reservations : The policy of reservation of products manufactured only by SSIs has done little for the promotion of small enterprises and played only a negative role of keeping out large enterprises. This policy is now/inconsistent with the current trade reform which allows the free import. Conversely, a large number of reserved products are either not manufactured at all by the small scale sector or their sales turnover is insignificant. The Committee recommends removal of reservations so that adequate new investment and technology upgradation take place in these industries and that existing units are allowed to upgrade. The government must make simultaneous transitional arrangements to assist small scale units affected by this dereservation. Transitional Arrangements for Small Scale Industries Affected by Dereservation : The Expert Group recommends that the Ministry of Industry should immediately set up a joint 24
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mechanism between the government and industry representatives to identify specific industries/items in which small scale units are likely to be affected by the proposed dereservation. The Expert Group recommends that the government should provide annual resources of the order of Rs. 500 crores over the next five years, thereby totalling Rs. 2500 crore, to the Ministry of Industry for providing the proposed support. These resources would be used to leverage greater resources from SIDBI, banks and other financial institutions to provide concessional funding in terms of equity support and interest rate concession to such units for expansion, technology upgradation, modernisation and training. Raising Investment Limits : The Committee recommends an investment limit of Rs. 25 lakhs for tiny units. In the case of small scale enterprises and ancillary units, the threshold level is recommended to be raised to Rs. 3 crore. Restructuring of SFCs and SIDCs : The Expert Group recommends that the IDBI in association with SIDBI devise a new scheme to revitalise SFCs and SIDCs. The approach should be to make these institutions autonomous by reducing government equity to less than 50%. Specialised Commercial Bank Branches and Local Area Banks : Mechanisms for credit recovery should be strengthened by community guarantees, credit rating and creation of data bases on the credit record of companies. The Expert Group recommends that the Reserve Bank of India should promote the speedy establishment of the local area banks in the districts where SSI clusters have been identified. Other Fundings Sources of SSEs : Other sources of finance can also be tapped if the 24 per cent ceiling on equity participation by large companies and foreign direct investment in SSEs is removed. SIDBI should also be allowed to raise funds in international markets. Finally, the fund base of venture capital funds can be increased considerably if FIIs are allowed to invest in them. Addressing the Credit Needs of tiny Enterprises : For ensuring that the tiny sector is not bypassed by the commercial banking system, the Expert Group proposes that it should earmark a minimum of 70 per cent of the priority lending allocated to the small scale sector to the tiny sector. It is suggested that a Revolving Collateral Reserve be created at the intermediary level, to help fund tiny units. Support for Research and Development : Research and development services could be provided most effectively through institutions based around clusters of similar industries so 25
The Indian Institute of Bankers that they are able to specialise as well as reap economies of scale. The Expert Group recommends that a National Research Institute for Small Scale Industries be established. It is proposed that this institute should be promoted jointly by the Central Government and apex industry associations. Training : Technology upgradation in the small scale sector will throw up large requirements for training of entrepreneurs, managers and employees. The Ministries of Industry, Labour and Education should set up a special Task Force to work out the modalities for special training scheme for SSEs and provision should be made in the Ninth Five year Plan for the provision of seed capital for this scheme which must be designed to elicit equivalent contributions from the private sectors. Marketing Assistance : The Expert Group also recommends that a suitable mechanism be evolved to promote marketing outlets specialising in marketing the produces manufactured by the tiny sector. Efforts may also be made to develop common brand names for such products. Institutional and Legal Innovation : The Expert Group recommends a separate law for small enterprises. The objective of the law would be to define the small enterprise sector and outline the broad framework for the promotion of the sector. A new single business law called the Basic Law for small Enterprises should be enacted. End to Inspector Raj : The single law for small enterprises should help to reduce the number of officials visiting factories. The Expert Group recommends that transparency be introduced in such inspection arrangements. Inspectors for different laws could be clustered and then inspection of units made on an open random basis, based on random drawing of units in defined clusters. Monitoring of the New Policy Approach : The Expert Group recommends that the Ministry of Industry set up a Steering committee under the chairmanship of the Industry Minister to oversee the evolution of the new policy approach suggested. Q 8. Critically evaluate the performance of co-operative banks in India. Please describe the recent changes that have occurred in the co-operative banking scene subsequent to the reform measures initiated by the Govt. of India. Ans 8 The co-operative movement in India has played a significant role as an important instrument of operationalising developmental initiatives. Today, the cooperative credit structure boasts 26
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of over 96600 Primary Agricultural Credit Societies 364 District Central Co-operative Banks with over 8900 branches and 28 State Cooperative Banks with over 500 branches. This network of about 1,04,000 outlets accounts for 62% of total rural credit supply as against 38% share of commercial banks with 9 network of about 35000 branches. The Co-operative Banks came under the purview of Banking Regulation Act, 1949 w.e.f. 1st April 1966. All Co-operative Banks having a paid up capital of Rs. 1 lakh or more have come under the control of Reserve Bank of India. There has been really a marked improvement in the progress of cooperative credit movement in our country aided frequently by the government support and the intervention of Reserve Bank of India RECENT CHANGES We shall now enumerate the recent changes that have occured in the Co-operative Banking Scene, subsequent to the reform measures initiated by the Government. During 1992-93 the Reserve Bank of India liberalised the licensing policy for new Primary Urban Co-operative Banks greatly; prescribed the entry point viability norms and advised to follow the guidelines relating to their operations and advised to adopt norms in respect of income recognition, classification of assets and provisioning on the lines stipulated for commercial banks. During 1993-94 the National Co-operative Bank of India (NCBI) was registered on 5th August 1993 as a Multi-State Co-operative Society. A Co-operative Development Fund was set up by NABARD to help the Co-operative Banks to improve managerial systems and skills. For the first time Scheduled Urban Co-operative Banks were permitted to invest their surplus funds in Certificate of Deposits and Commercial Papers of those Institutions / Corporates with credit rating P1 / A1 from CRISIL / ICRA. During 1994-95 with a view to improving the viability as also the strengthening the credit delivery systems, the Co-operative Credit Institutions were advised to prepare Development Action Plans (DAPs) and enter into Memorandum of Understandings (MOUs) with NABARD and concerned State Governments for their effective implementation. With a view to maintaining the rural credit flow uninterrupted from SCBs and RRBs the relaxation in the stipulation that they must recover loans at least 40% of the demand for the 27
The Indian Institute of Bankers previous year to be eligible for refinance from NABARD was extended upto June 30, 1996. Lending and deposit rates of all Co-operative Banks were deregulated in various phases. Effective from April 24, 1995, PCBs were allowed to invest their surplus funds in equity bonds of all India Financial Institutions in addition to their investment in PSU Bonds within the ceiling of 10% of their deposits. Effective from August 24, 1995 State Co-operative Banks and Central Co-operative Banks were permitted to invest 5% of their non-SLR surplus fund, according to the discretion of the local management. In February 1996, PCBs were allowed to invest their surplus funds in Certificate of Deposits issued by banks and other financial institutions, approved by the Reserve Bank subject to fulfilling certain conditions. During 1995-96, all Scheduled PCBs were brought under the purview of the provisions of the Banking Ombudsman Scheme, 1995. In April 1996, Scheduled PCBs were allowed to undertake equipment leasing and hire purchase financing activities after complying with certain prudential requirements. Nonscheduled PCBs desiring to undertake the above activities were required to approach the Reserve Bank through the Regional Offices concerned. Consequent to allowing PCBs to extend their area of operation, to the entire district of registration, including rural areas, in the context of the credit gap in agricultural sector effective December 1996, PCBs were permitted to extend direct finance for agricultural activities which would be counted as priority sector advances. All scheduled and non-scheduled PCBs with deposits of over Rs. 50 crore were required to introduce the system of concurrent audit. The prudential accounting norms viz, income recognition, asset classification, provisioning for bad and doubtful debts and capital adequacy were applied to State Co-operative Banks and Central Co-operative Banks form the year 1996-97 in two phases viz., 1996-97 and 1997-98. Suggestions for improvement in the cooperative sector 1. Control over cooperatives by State and Central Government should be minimised. 28
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NABARD should act only as a refinance agency and not a directive issuing body. 2. DCCBs and PACs should be given autonomy to function without any political intervention 3. The scope of functioning of DCCBs should be widened so that they may function more or less on the lines of commercial banks. Restrictions on DCCBs for accepting long term deposits should be removed. DCCBs should be self-relient in regard to deposit mobilisation and similarly, there should be no restriction on their investments. 4. Primary co-operative Credit Societies should not restrict itself to the credit portfolio. These societies at grassroot level can become a good tool for development such societies can take up the job of distribution of essential items and profitable venture besides providing credit to its members. These should function like a profitable unit. 5. Recovery of advances should be invariably done. It is observed that instead of recovery the loan, an enhanced limit is sanctioned to the farmer. A suitable system should be devised in this regard. Loan waiver should be a social crime and should not take place. 6. The interest spread should be sufficient to make the functioning of DCCBs as well as PACs - a profitable venture. The deregulation of interest structure may be considered in a broader aspect. 7. Recapitalisation of DCCBs on annual basis as per MOUs.
Agriculture Review Committee headed by Prof. A. M. Khusro, the working group on Agriculture credit and co-operation headed by Mr. P. Kotiah, the study group for strengthening the Rural Credit Structure headed by Mr. J. N. L. Srivastava and other such panels are unanimous in their view that the package for revamping the co-operative credit structure must include, among other things, immediate financial assistance to cleanse the balance sheets of cooperative credit institutions. Working group on Agriculture Credit and Co-operation for formulation of the Ninth Plan has indicated that the credit flow for all agencies is expected to increase from Rs. 33375 crores in 1997-98 to Rs. 60,842 crore in 2001-2002 and co-operative credit institutions must also
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The Indian Institute of Bankers play their due role in this growth process. The answer should cover the following aspects : i) ii) in 1992-93 RBI liberalised licensing policy for new primary urban co-op. banks. RBI advised the banks to follow IRAC norms on the lines stipulated for commercial banks. iii) A Co-operative Dev. fund was set up by NABARD to help the co-op. banks to improve managerial systems and skills. iv) Introduction of the systems of Development Action Plan and Memorandum of understanding (MOUs) to be finalised and monitored by NABARD. v) vi) Deregulation of lending and deposit rate of all co-op. Banks PCBs allowed to invest their surplus funds in equity bonds of AIFIS in addition to PSU bonds within the ceiling of 10% of their deposits and also in certificates of Deposits of Banks and FIs. vii) PCBs are allowed to underake equipment leasing and hire purshase financing activities. (for details please see pages 170-172 or IIBs publication referred to above). OR Q. 8 What do you understand by Non-Fund Limits? Describe how the Letters of credit limit is estimated by a banker for a borrowing limit for purchase of raw materials. Ans 8 The difference between Fund based and Non-fund based credit assistance provided by a banker is mainly in a cash out flow. While the former involves an immediate cash out flow, the latter may or may not involve cash out flow from a bank account. This is of course not to suggest that there is more risk in fund based lending than non fund based facilities. On the other hand the experience of bankers in general has been that the risk exposure in non-fund based credit facilities has been much higher than fund based credit facilities. The various forms of non-fund based credit facilities being provided by the bank are as follows : a) Bank guarantees - Performance and financial 30
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b) c) Deferred payment guarantees Letters of credit - Capital goods and working capital
Letters of credit is a mechanism which helps a trade transaction to be put through between a seller and buyer. This is an arrangement whereby a banker at the request of his borrower, undertakes to pay to the latters suppliers by a given date according to agreed terms and conditions and against presentation of stipulated documents evidencing despatch of goods, the value of goods / services sold/provided to the borrower by the supplier. The supplier can obtain immediate payment of his bill by discouting it with any banker under the letters of credit issued by the buyers bank and the latter may get payment from the buyers bank by presenting it to that bank on the due date under the terms of the letters of credit issued by that bank. Estimation of letter of credit limit requirements of a customer is done in the following manner. 1. 2. 3. 4. 5. Value of raw materials consumed per annum Value of raw materials to be brought on credit. Time for advising L.C. Shipment time Credit period agreed upon between the seller and the borrower or the credit period projected as available in CMA format for calculation of MPBF whichever is less. 6. Time that will be taken for completion of one cycle of operation of L.C. which is equal to 4+5+6 above. 7. Assuming 360 days a year the number of rotation/cycle possible in a year 360 days
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Item 6 8. The limit of L/C per rotation / cycle will be Raw material quantity to be bought on credit in a year = -------------------------------------------------------------------------Number of rotation / cycle in a year 31
The Indian Institute of Bankers Example : Suppose 1 2 3 4 5 6 = = = = = = Rs. 3600 lacs Rs. 2400 lacs 10 days 20 days 30 days 10 + 20 + 30 = 60 days 360 7 = ------- = 6 cycles / rotation 60 Rs. 2400 lacs 8 = ------------------ = Rs 400 lacs 6 cycles
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BUSINESS COMMUNICATION & CUSTOMER RELATIONS
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BUSINESS COMMUNICATION & CUSTOMER RELATIONS
Q 1.
Write whether the following statements are true or false and give the reasons for your answer in not more than two sentences. (a) If the letterhead reads Graphics Limited, you may address your letter Graphics Ltd. (b) If you do not know the marital status of Amita Sheth, you may address your letter Ms. Amita Sheth. (c) A letter addressed to Image Systems, with an attention line to Miss Gupta, would have the salutation Sirs. (d) In the modified block form, the date is on the right and the complimentary close is at the left margin
Q 1 (a) Ans 1 (a) Q 1 (b)
If the letterhead reads Graphics Limited, you may address your letter Graphics Ltd. False. Use the exact wording as on the companys letterhead when writing to a company. If you do not know the marital status of Amita Sheth, you may address your letter Ms. Amita Sheth.
Ans 1 (b) Q 1 (c)
True. This form is acceptable when not sure whether it should be Mrs. or Miss. A letter addressed to Image Systems, with an attention line to Miss Gupta, would have the salutation Sirs.
Ans 1 (c)
True. Salutation always agrees in number and gender with first line of inside address. A company/firms is a group of persons.
Q 1 (d)
In the modified block form, the date is on the right and the complimentary close is at the left margin
Ans 1 (d)
False. Date and complimentary close are indented to the right and aligned in modified blockform 35
The Indian Institute of Bankers Q 2. Fill in the blanks in the following sentences using not more than 15 words for a blank. (a) One disadvantage of the full block form is that it looks overcrowded on the left and black on the right. Another disadvantage is that it is difficult to refer to the date without opening the file fully. (b) Feedback helps the sender of the message to check how the message has been received and the receiver to make sure that he has understood the message properly. (c) Under COPRA, a dispute arises when the party against whom the allegation of deficient service has been made. denies the charge. (d) The opening paragraph of a letter should create a pleasant feeling in the reader (attract the readers attention/win the readers favourable response/establish rapport with the reader) and should not repeat the subject line (should not be full of jargon phrases/ should not waste time in meaningless dead phrases)
SECTION II Q 3. Answer two of the following using not more than 50 words for each answer. (a) Describe the communication skills you need, when a pensioner approaches you for information about a new investment scheme. (b) Enumerate the publics of your branch and state what your branch can do to build up good public relations with any one of your publics. (c) Give an instance from your office experience with a customer, when silence might be the most effective method of communication, and explain why. (d) Ans 3 Q3a How is selling different from marketing?
Answers may include the following points, suitable examples should be given. Describe the communication skills you need, when a pensioner approaches you for information about a new investment scheme.
Ans 3 a
When a pensioner approaches, knowledge and full understanding of the scheme consideration of customers age. Explanation with clarity and with concentration on the 36
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customers need. Cheerful and helpful manner and tone; willingness to help; patience in answering questions. Careful attentive and patient listening to the customer. Q3b Enumerate the publics of your branch and state what your branch can do to build up good public relations with any one of your publics. Branchs publics. Customers, households, individuals and corporate, potential customers in the locality, institutions in the locality, municipal and other authorities, local police station, suppliers of various products and services needed by the branch office, staff, invitations to functions, festival greeting cards, calendars, information brochures may be sent. Q3c Give an instance from your office experience with a customer, when silence might be the most effective method of communication, and explain why. Silence can communicate many things depending on facial expression and on the contest, with customer who is angry and complaining, silence can convey empathy and understanding. Q3d Ans 3 d How is selling different from marketing? Selling is making efforts to sell whatever products or services are available; marketing is creating products/services which are needed by customer. Selling is interested in sellers needs and is focused on the product, while marketing is interested in buyers needs and is customer-focused. Q 4. Rewrite the following sentences to make them customer-friendly. The revised version should not be longer, than the given matter. (a) This is to acknowledge your letter sent under date of 20 November, which we are glad to answer, related to information about our new scheme of loans to women entrepreneurs. (b) We are surprised by your letter in which you complain that we did not pay out your cheque promptly. We pay out all cheques according to the time norms displayed in our branch office. However, we are looking into the matter. (c) We state that under the RBI rule the instalment which was fixed cannot be changed without permission from the authority. Your letter says that you want to repay the loan in smaller installments. We appreciate your wanting to repay the loan but under the circumstances we cannot help you. As a banker we hope from all our customers that they will cooperate with us. 37
Ans 3 b
Ans 3 c
The Indian Institute of Bankers Ans 4 : The following are suggested revisions. Any courteous, customer-friendly, concise. jargonfree version are accepted. Q4a This is to acknowledge your letter sent under date of 20 November, which we are glad to answer, related to information about our new scheme of loans to women entrepreneurs. Ans 4 a Thank you for your letter of 20 November asking about our new scheme of loans for women entrepreneurs. Q4b We are surprised by your letter in which you complain that we did not pay out your cheque promptly. We pay out all cheques according to the time norms displayed in our branch office. However, we are looking into the matter. Ans 4 b We are sorry to learn from your letter that there was delay in payment of your cheque. Please give the details of the cheque and the time and date and when this happened to enable us to find out why the time norms were not met on this occasion Q4c We state that under the RBI rule the instalment which was fixed cannot be changed without permission from the authority. Your letter says that you want to repay the loan in smaller installments. We appreciate your wanting to repay the loan but under the circumstances we cannot help you. As a banker we hope from all our customers that they will cooperate with us. Ans 4 c We appreciate your need to have the repayment installments on your loan reduced to a smaller amount. We have referred your request to the Head Office with a recommendation for favourable consideration, and will get back to you as soon as we receive the reply. Q 5. Answer two of the following in not more than five lines. (a) (b) (c) (d) Q5a Define Group and identify three discussion groups. How is the postscript used in sales promotion letters? What is secondary source in market research? Give two examples. What essential points would you include in refusing a customers request?
Define Group and identify three discussion groups. 38
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Ans 5 a Group is a social unit of two or more persons who interact with one another and work together for a common purpose. Examples are committee, quality circles. conference, seminar, workshop Q5b Ans 5 b How is the postscript used in sales promotion letters? The position of the postscript at the end and separate from the body of the letter makes it a good device for reinforcing a point and to make a firm impression on the readers memory. It can be used to impress last date or to urge action or emphasise any desired point. Q5c Ans 5 c What is secondary source in market research? Give two examples. Secondary source is material already published or available as office records. Books, journals, reports, the banks account opening forms, ledger and registers. Q5d Ans 5 d What essential points would you include in refusing a customers request? An acceptable reason for not being able to comply with the request; an apology; and whenever possible, alternative offer or suggestion to help the customer to meet his needs.
SECTION III Q 6. (a) Write any one of the following letters with full layout in any form of your choice, keeping in mind the importance of good customer relations. (i) A lady had hired a safe deposit locker in your bank on payment of three years rent. A month before the expiry of the three years, you sent her letter asking her to renew the lease. As she did not respond, you wrote again asking her to renew the lease by paying rent for a further period or surrender the locker. She has not responded to your letters. Write to her urging her to take action immediately and pointing out the banks right to take action if she does not respond within a specified period. (ii) Draft a letter to be sent to your customers informing them of a new facility you have just introduced for all account holders. (b) Draft one of the following letters with full layout in any form of your choice, keeping in mind the principles of internal communication. (i) A loan of a large sum beyond the discretionary powers of the branch 39
The Indian Institute of Bankers manager has been granted to a customer without prior sanction from Head Office, and has been reported for post facto sanction. The Head Office has asked the branch manager for a proper justification for granting the loan in a hurry. Draft the branch managers letter explaining why it was necessary to grant the loan without delay. (ii) The Manager of a branch where there has been very little increase of business in the last one year, has asked for additional staff. Draft a letter from the Regional Manager asking the branch manager to give a detailed justification for his request for more staff. Ans 6 Each letter carries 8 marks. 2 marks are generally allotted to layout. Any form of layout is acceptable. Emphasis is on customer-friendly tone and style, and positive attitude. Internal letters are expected to be clear in explanations, confident and dignified in tone. Q 7. Draft one of the following reports using appropriate format. (a) A committee of three branch managers in your region has been appointed to study the problem of the somewhat unfavourable public image of the bank among customers and to make recommendations for improving customer relations. Draft the committees report. (b) A branch manager has appointed a senior officer from the branch to survey the command area of the branch and suggest measures for deposit mobilisation. Draft the officers report. Ans Marks 14. 4 marks are generally reserved for layout and 10 for content. Committee report must be in schematic form with sub-headings. It must have a title, address, signatures of all members, date and place in proper place. It may or may not have a covering letter. This report does not get passing marks if it is in letter form. Individual report may be in letter form or schematic form. It must have logical presentation.
SECTION IV Q 8. What is body language? Explain the importance of body language when making a presentation
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OR What are the essential qualities of effective written communication? Ans 8 These are easy type question. Candidates should refer to the study material for detailed answers. First choice Answer should include the following points: Facial expressions, gesture, posture, body and hand movements, eye contact, voice quality, speed of speaking, tone, volume and pitch of voice, grooming, dress and clothing., style of using visual aid etc. How all these make impact on audience and how they can be used effectively. Second choice Essentials of written communication include the Cs, You attitude, easy style free from jargon. Each should be explained in full, with examples. Q 9. Explain Quality Circles movement. How does it benefit the banking industry? OR Explain the benefit of the Banking Ombudsman Scheme. Briefly explain how the scheme is different from the COPRA Ans 9 First choice Quality circles origin, how the function in banks; what subject are discussed; benefits in the form of inexpensive, customer friendly training to staff, commitment because the ideas originate with staff, reduction in customer complaints; better retention of customers. Second choice Ombudsman Scheme of 1995; reason for establishment. Emphasis is on the Ombudsman scheme, there should not be any long explanations of COPRA. Q 10. Discuss any three barriers to communication which operate between the banks customers and the counter staff. What can be done to overcome them? OR 41
The Indian Institute of Bankers What communication skills are required by bankers to develop ability to communicate effectively with customers? Ans 10 First choice Poor listening and impatience on the part of both. Lack of clarity in explanation of procedures/ schemes by bank staff. Self-centred attitudes which prevent each one from tuning in to the other. Poor state of health which affects concentration and attention. Those in the service industry must train themselves for better communication and overcome their defects. Second choice Bankers need oral and written communication skills. Clarity of perception and in their style; use of simple language and clear explanations. The ability to listen to and understand customers needs. Interpersonal skills. Effective body language. Ability to get feedback from customers. Presentation skills to explain schemes/procedures and persuade new customers Effective letter writing.
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SPECIAL AND PREFERRED SECTOR FINANCE
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GUIDELINES FOR ANSWERING ASSOCIATE EXAMINATION-FEBRUARY 1999 SPECIAL AND PREFERRED SECTOR FINANCE
SECTION I 1. Define the following terms (Attempts any five. Each item carries 1 mark) (i) (ii) (iii) (iv) (v) (vi) (vii) Ans 1(i) Poverty line Export Finance Mixed Cropping and Mixed Farming Tiny Industrial Sector Non Performing Assets Agricultural Marketing Deemed Exports
Poverty line : Poverty line refers to the cut-off level of annual income of the household. The households having an annual income less than this cut-off are said to be poor or below the poverty line (BPL). The cut-off is based on the minimum subsistence level of consumption in nutritional terms. In India the per capital nutritional requirement per day is estimated at 2400 calories in rural areas and 2100 calories in urban areas. This when converted into monetary terms amounts to Rs. 11,000 per family in rural areas and Rs. 11,850 per family in urban areas.
Ans 1 (ii)
Export Finance : An exporters need for working capital financial assistance at any stage of execution of an export order from the time of receipt of an export order till the time of realisation of the export proceeds, is called export finance. It could be in the form of pre-shipment credit and/or post shipment credit.
Ans 1 (iii) Mixed Cropping and Mixed Farming : The practice of cultivating more than one crop in a given piece of land at a time is called mixed cropping and carrying out of more than one enterprise on the same farm during the same year is called mixed farming. While growing of 45
The Indian Institute of Bankers bajra and arhar in the same field is an example of mixed cropping, rearing of cows/buffaloes along with persuing of crop husbandry is an example of mixed farming. Ans 1 (iv) Tiny Industrial Sector : The tiny industry is a sub-category of small scale industrial sector. It basically refers to those industrial units whose investment in plant and machinery does not exceed Rs. 15 lakhs. This limit is recently enhanced from the previous limit of Rs. 5 lakhs. Most of the units in the traditional industrial sector in rural areas belong to this category. The credit policy has stipulated that at least 40 percent of the net SSI credit be given by the banks to the tiny sector. Ans 1 (v) Non Performing Assets : A credit facility is treated as past due when it remains outstanding for 30 days beyond the due date. An NPA is defined generally as a credit facility in respect of which interest or instalment of principal is in arears for two quarter or more. In respect of agricultural loans, if interest has not been paid during the last two seasons of harvest after it has become past due, such advances should be treated as NPA. Credit facilities granted for other allied agricultural activities as well as the non-farm sector activities should be treated as NPA, if amounts of principal and/or interest remain outstanding for a period of 30 days beyond the two quarters from the due date. Ans 1 (vi) Agricultural Marketing : Agricultural marketing is a process which starts with a decision to produce a saleable farm commodity and it involves all aspects of marketing system both functional and institutional based on technical and economic considerations. In terms of visible activities it includes post-harvest operations of assembling, grading, storage, transportation and distribution. Ans 1 (vii) Deemed Exports : Deemed exports normally mean those transactions in which goods supplied do not leave the country of origin and payment for such goods is made within the country by the recipient of the goods. In deemed exports, therefore, goods are supplied locally and payment is also made locally, either in local currency or foreign currency. The underlying idea for deemed exports is foreign exchange saved is foreign exchange earned. Q2 Fill in the blanks with appropriate terms/phrases. (Attempt any ten. Each item carries 1/ 2 mark) (i) (ii) Short term direct agricultural production loans are also known as Crop loans. Among all the credit plans prepared by the banks at different levels under the Service 46
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Area Approach in a particular district the Village credit plan is the smallest in size. (iii) In India, between 1960-61 and 1990-91, the percentage share of land-holders categorised as Marginal farmers in total number of land holdings has continuously gone up. (iv) Repatriation of funds by Indian citizens working abroad is an example of Invisible exports from India. (v) (vi) State Bank of India was the first Bank to start the ADBs and ABDs. If an agricultural loan remains overdue for a period exceeding 3 years it is classified as Doubtful asset. (vii) (viii) ECGC is a company wholly owned by Government of India. Public distribution system is one of the important components of the poverty alleviation programme known as Minimum Needs Programme (ix) The decision for setting up the WTO was taken at Uruquay or Seventh or Uruquacy (1986) Round (x) In India General Insurance Corporation of India or GIC is the operating agency for the Comprehensive Crop Insurance Scheme. (xi) Cultivation of tree crops for timber and fuel wood in village common lands and/or the government land along side roads is termed as Social forestry. (xii) In 1991-92 the Reserve Bank of India appointed a Committee under the Chairmanship of P. R. Naik to examine the adequacy of institutional credit for SSI Sector. Q3 State with reasons in brief whether the following statement are True or False (i) The loan provided to a young architect for acquiring business premises is treated as a loan for small business under the priority sector credit policy. (ii) The declining trend in the percentage share of farm sector in the Gross Domestic Product is a sure indicator of the very poor performance of the farm sector. (iii) Indias export trade has exhibited substantial structural changes over time. 47
The Indian Institute of Bankers (iv) (v) (vi) Multiple cropping and double cropping are one and the same thing. Indira Awaas Yojana is a part of Employment Assurance Scheme. The expert who headed the Committee which suggested the setting up of the RRBs was also the head of the Committee which recommended their merger with their sponsoring banks. (vii) A countrys export are always calculated at FOB basis and its imports are always valued at CIF basis. Q. 3 (i) The loan provided to a young architect for acquiring business premises is treated as a loan for small business under the priority sector credit policy. Ans 3 (i) The statement is false because a young architect is defined as a professional for the purpose of priority sector finance. The definition of small business excludes professionals for the purpose of priority sector loan. Q 3 (ii) The declining trend in the percentage share of farm sector in the Gross Domestic Product is a sure indicator of the very poor performance of the farm sector. Ans 3 (ii) The statement is false because a declining trend in percentage share of a particular sector in the total GDP of a country indicates only a relative performance. The farm sector may be performing very well in absolute terms but if other sectors are growing faster than the farm sector. The percentage share of the farm sector would certainly show a declining trend. In fact, this is the general trend all over the world and is indicative of positive growth of the economy. Q 3 (iii) Indias export trade has exhibited substantial structural changes over time.
Ans 3 (iii) The statement is true because in Indias export basket the percentage share of primary products have been declining and the manufactured goods have been growing in their relative share. Besides, there has been a perceptible increase in the invisible items of exports from India. Q 3 (iv) Multiple cropping and double cropping are one and the same thing.
Ans 3 (iv) The statement is false because double cropping means taking two crops in a given piece of land in a year whereas taking more than two crops on the same piece of land during the year is called multiple cropping. Multiple cropping indicates a higher cropping intensity as compared 48
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with double cropping. Q 3 (v) Ans 3 (v) Indira Awaas Yojana is a part of Employment Assurance Scheme. The statement is true because the STREAM I of JRY consisting of Indira Awaas Yojana (IAY) and Million Wells scheme has been separated from JRY and has been merged with the Employment Assurance Scheme (EAS). Originally IAY was a part of JRY. Till 1-1-1996 IAY and EAS were separate scheme. Q 3 (vi) The expert who headed the Committee which suggested the setting up of the RRBs was also the head of the Committee which recommended their merger with their sponsoring banks. Ans 3 (vi) The statement is false because the Committee which suggested the setting up of RRBs was headed by Shri M Narasimham and the Committee which recommended the merger of RRBs with their sponsoring banks was headed by Prof A M Khusro. Q 3 (vii) A countrys export are always calculated at FOB basis and its imports are always valued at CIF basis. Ans 3 (vii) The statement is true because the exports at FOB basis indicates the amount of foreign exchange which the exporting country has to pay for imports.
SECTION II Q4 Pick on out of 4 options and explain the reasons for your choice (Attempt any eight) (i) During which one of the following periods did Reserve Bank of India play a more aggressive promotional role for rural India? (a) 1982 to 1987 (c) 1960 to 1968 (ii) (b) 1969 to 1982 (d) 1951 to 1959
Which one of the following inputs accounts for the largest percentage share in the total cost of all inputs in Indian agriculture ? (a) Feed for livestock (c) Irrigation charges (b) (d) 49 Seed Chemical Fertilizers
The Indian Institute of Bankers (iii) What percentage of total output of the Export Oriented Units (EOUs) producing farm products could be sold in the Domestic Tariff Area (DTA) in India without losing the benefits of duty free imports? (a) Nil (c) 25 (iv) NREP has been merged into : (a) EAS (c) JRY (v) (b) (d) NRY PMRY (b) (d) 66 50
In respect of public sector commercial banks in India what percentage of total demand of direct agricultural loans remained as overdue in 1995? (a) between 20 to 22 (c) between 30 to 33 (b) (d) between 60 to 66 between 40 to 44
(vi)
As per Foreign Exchange Regulation Act 1973 which one of the following forms is to be used by the exporter for declaring the exports made to all countries otherwise than by post? (a) PP Forms (c) V P Forms (b) (d) G R Forms COD Forms
(vii)
In respect of which one of the following types of land used in India the percentage in total geographical area has consistently gone down from 1950-51 onwards? (a) Forest Land (c) Land put to non-agricultural use (b) (d) Barren and unculturable land Gross Sown area
(viii) Who was the chairman of the Committee which recommended the setting up of the National Co-operative Bank of India? (a) A M Khushro (c) B Shivaraman 50 (b) (d) V Kurien None of these
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(ix) Which one of the following Committes introduced the concept of weaker sections within the priority sector for the first time in India? (a) Ojha Committee (b) Nariman Committee none of these
(c) Krishnaswamy Committee (d) (x)
In India, the drought in which one of the following years was categorised as SEVERE? (a) 1979 (c) 1987 (b) (d) 1966 All these years
(xi)
At which one of the following centres one of the Software Parks is located? (a) Gandhinagar (c) Kandla (b) Cochin (d) None of these
(xii)
In respect of which one of the following co-operative institutions the percentage share of deposits in their total financial resources is the lowest among all the institutions given in the list? (a) PACS (c) SCB (b) (d) DCCB PLDB
Q4i
During which one of the following periods did Reserve Bank of India play a more aggressive promotional role for rural India?
Ans 4 i
The correct option is B i.e. 1969 to 1982 because during the period 1969 to 1982 the major commercial banks were nationalised and the banking sector was directed to finance rural areas. This period also saw the emergence of Lead Bank Scheme and Priority Sector Credit Policy. It was during this period when the RRBs were set up and the IRDP was introduced. All this was done at the instance and/or under the guidance of the Reserve Bank of India (P. 233 to 235)
Q. 4 ii
Which one of the following inputs accounts for the largest percentage share in the total cost of all inputs in Indian agriculture ? 51
The Indian Institute of Bankers Ans 4 ii The correct option is À i. e. feed for livestock because India still depends largely on the bullock power on one hand and the animal husbandry on the other. This being the case the feeding of livestock becomes the most dominant item of expenditure for farm enterprise. In fact, during 1990-91 the feed of livestock accounted for 46.2 per cent of the total cost of all inputs in Indian agriculture. It was as high as 59.4 per cent in 1960-61 and not less than 50 per cent in 1970-71 and 1980-81 (P. 521) Q 4 iii What percentage of total output of the Export Oriented Units (EOUs) producing farm products could be sold in the Domestic Tariff Area (DTA) in India without losing the benefits of duty free imports? Ans 4 iii The correct option is D i.e. 50 because as a part of export promotion strategy during eighth five year plan the specific policy towards farm exports was introduced in March 1993. Accordingly, the EOUs engaged in agriculture, acquaculture, animal husbandry, floriculture, pisciculture, poultry and sericulture were allowed to sell 50 per cent of their output in the DTA. The limit for non-farm sector EOUs was fixed at 25 per cent (P. 366) Q 4 iv Ans 4 iv NREP has been merged into : The correct option is C i.e. JRY because the NREP and RLEGP were merged together and a new more comprehensive programme known as Jawahar Rozar Yojna (JRY) was launched on 28th April 1989. The basic objectives of the NREP were retained and the JRY was evolved with more comprehensive coverage and better implementing arrangement (P. 137) Q4v In respect of public sector commercial banks in India what percentage of total demand of direct agricultural loans remained as overdue in 1995? Ans 4 (v) The correct option is D i.e. between 40 to 44 because the overdue percentage of demand of direct agricultural loans given by the public sector commercial banks usually remained above 40 per cent but generally below 45 per cent is most of the years. For instance it was 40.4 per cent in 1995, 42.4 per cent is 1994 and 41.9 per cent in 1991. Q 4 vi As per Foreign Exchange Regulation Act 1973 which one of the following forms is to be used by the exporter for declaring the exports made to all countries otherwise than by post? Ans 4 vi The correct option is B i. e. G R Forms because the PP, VP and COD forms are used for declaring the exports made to all countries by post under various arrangements and only the 52
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GR Form is used for exports made to all countries through the channels other than the post (PP 649-650) Q 4 vii In respect of which one of the following types of land used in India the percentage in total geographical area has consistently gone down from 1950-51 onwards? Ans 4 vii The correct option is B i.e. Barren and unculturable land because with the improvement in land utilisation pattern and double/multiple cropping net sown area as well as the grow sown area have gone up. More land has been brought into use by converting barren and unclulturable land into cropped area. With the growth of the economy more and more land is required for non-agricultural uses such as roads, buildings, factories etc. Similarly with the conscious effort the land under forest has also gone up. Thus the percentage share of barren and unculturable land has continuously declined over the period. In fact it has gone down from 11.6 percent to 5.9 percent between 1950-51 and 1992-93. Q 4 viii Who was the chairman of the Committee which recommended the setting up of the National Co-operative Bank of India? Ans 4 viii The correct option is A i.e. A M Khushro because it was the RBI Committee on Agricultural Credit Review (1991) under the Chairmanship of Prof A M Khusro which had strongly recommended the setting up of the National Co-operative Bank of India. The Committee felt that the co-operative banking system has grown vast and complex enough to warrant the need for a separate Apex Bank for itself (P 76) Q 4 ix Which one of the following Committes introduced the concept of weaker sections within the priority sector for the first time in India? Ans 4 ix The correct option is C i.e. Krishnaswamy Committee because the Committee appointed by the Reserve Bank of India on the modalities of Implementation of Priority Sector Lending and the Twenty Point Economic Programme was headed by Dr. K. S. Krishnaswamy. This Committee recommended for fixing up separate targets for the weaker sections in priority sector as a whole and also within the important segments of the priority sector such as agriculture and Small Scale Industry (P. 72) Q4x Ans 4 x In India, the drought in which one of the following years was categorised as SEVERE? The correct option is C i.e. 1987 because the droughts in 1987 affected 49.2 percent area of the country and hence it was categorised as a SEVERE one. In comparison the droughts 53
The Indian Institute of Bankers in 1979 and 1966 were categorised as MODERATE because the area affected by drought during those years was less than 40% of total area of the country (P. 599) Q 4 xi Ans 4 xi At which one of the following centres one of the Software Parks is located? The correct option is A i.e. Gandhinagar because as a part of export promotion strategy the Government of India has launched the Special Scheme for setting up of various export oriented units. The Software Park is one such scheme and seven such parks have been set up so far. One of these seven parks is located at Gandhinagar, Cochin and Kandla are, the Centres for Export Processing Zone and Free Trade Zone, respectively (P. 668) Q 4 xii In respect of which one of the following co-operative institutions the percentage share of deposits in their total financial resources is the lowest among all the institutions given in the list? Ans 4 xii The correct option is D i.e. PLDB because the Land Development Banks including Primary Land Development Banks are not working as banks in the normal sense of the term and hence do not mobilise deposits as a source of funds. They mostly depend upon borrowings including debentures and refinance for their financial resources. Deposits constitute only 1 percent of their total funds (P. 257) Q5 Answer the following questions in about 3 lines (Attempt any thirteen) (i) State the main difference between the direct and indirect agricultural finance and give some illustrations also (ii) Why some countries prefer to import certain items even though they are in a comfortable position to produce them domestically? (iii) What are the various credit plans prepared for implementing the Service Area Approach adopted by the banks in India? (iv) What type of policy is adopted by the Government of India in respect of farm mechanisation and why? (v) (vi) Highlight the impact of NPA on the banks in India What was the most important recommendation of the CRAFICARD which has been implemented by the Government of India? 54
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(vii) The Bretton Woods Conference recommended the setting up of some international organisations. Give their names. (viii) What is the definition of agro-processing industry as adopted by the Agricultural Credit Review Committee? (ix) (x) State the overall objective of the EXIM Bank of India. What type of refinance is given by the NABARD to different types of primary lending agencies? (xi) What is the role assigned to the foreign banks in India in respect of priority and preferred sector finance? (xii) Briefly discuss the meaning of technological changes and techniques in the farm sector. (xiii) What is pre-shipment finance? (xiv) Indicate the name and functions of the agency set up by the Government for promoting freshwater fish farming in India. (xv) Who are classified as agricultural labourer and non-agricultural labourer in India?
(xvi) Give the meaning and composition of the transaction costs in rural banking. Q5i State the main difference between the direct and indirect agricultural finance and give some illustrations also Ans 5 i Direct agricultural finance is given to the farmers who are the ultimate users of the inputs for which the finance is given. It is given for raising crops, pursuing allied activities and for investment purposes in the farm sector. The indirect loans are basically given to the agencies and organisations which supply certain inputs and services to the farmers (P. 9-10) Q 5 ii Why some countries prefer to import certain items even though they are in a comfortable position to produce them domestically? Ans 5 ii Some countries prefer to import certain items even though they are in a comfortable position to produce them domestically because of comparative costs in production and importing those items. It is explained by the theory of comparative costs and the Opportunity cost 55
The Indian Institute of Bankers Theory. These theories essentially indicate that a country exports those things which it can produce cheaper in exchange of what others can provide at a lower cost (PP 611) Q 5 iii What are the various credit plans prepared for implementing the Service Area Approach adopted by the banks in India? Ans 5 iii The Credit Plans prepared for the implementation of the Service Area Approach include Village Credit Plan. Service Area Credit Plan, Block Credit Plan, Potential Linked Credit Plan, and the District Credit Plan (P 34-35) Q 5 iv What type of policy is adopted by the Government of India in respect of farm mechanisation and why? Ans 5 iv The Government of India has adopted a policy of selective farm mechanisation. This policy encourages those aspects of mechanisation which ultimately create more employment and discourages that kind of operation which displaces human labour. For example, the use of pumpset for irrigation has been encouraged, the use of tractors has been permitted and the use of combine harvestors is discouraged (P. 422) Q5v Ans 5 v Highlights the impact of NPA on the banks in India The emergence of NPAs has many adverse effects on the banks such as (i) decrease in the lending capacity (ii) impairing the capacity to raise refinance (iii) decline in the profitability and viability and (iv) lowering the morale of the bank staff and management (PP 311-312) Q 5 vi What was the most important recommendation of the CRAFICARD which has been implemented by the Government of India? Ans 5 vi One of the most important recommendation of the CRAFICARD was regarding the setting up of the National Bank for Agriculture and Rural Development to work as the Apex bank in the area of rural banking. The Government of India accepted the recommendation and established the NABARD on 12th July 1982. The setting up of NABARD opened a new era in the institutional structure of rural banking for all practical purposes NABARD is the Reserve Bank for rural banking (P. 76 and 240) Q 5 vii The Bretton Woods Conference recommended the setting up of some international organisations. Give their names. Ans 5 vii The Bretton Woods Conference recommended the setting up of three international 56
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organisations. They are (i) International Monetary Fund (IMF), (ii) International Bank for Reconstruction and Development (IBRD), and (iii) International Trade Organisation (ITO) (P. 790) Q 5 viii What is the definition of agro-processing industry as adopted by the Agricultural Credit Review Committee? Ans 5 viii The Agro-processing industry has been defined as follows : Agro-processing industries would be those which use not less than 50 per cent of the raw materials from agriculture and where the value added as a result of processing undertaken is not more than 50 per cent of the final value of output (P 502) Q 5 ix Ans 5 ix State the overall objective of the EXIM Bank of India. The overall objective of the EXIM Bank of India is to provide financial assistance to exporters and importers and to functions as the principal institution for co-ordinating the working of institutions engaged in financing export and import of goods and service with a view to promoting Indias international trade (P. 693) Q5x What type of refinance is given by the NABARD to different types of primary lending agencies? Ans 5 x NABARD gives following types of refinance facilities to different primary lending agencies : (i) (ii) (iii) Short term, medium term and long term refinance to co-operative credit institutions; Short medium and long term refinance to Regional Rural Banks; Refinance for co-operative marketing and distribution; and (iv) Refinance against term lending for agriculture and rural development by the commercial banks (P. 241) Q 5 xi What is the role assigned to the foreign banks in India in respect of priority and preferred sector finance? Ans 5 xi The foreign banks in India are given the following targets for priority and preferred sector finance : 57
The Indian Institute of Bankers (i) (ii) (iii) (iv) 32% of the net bank credit to all priority and preferred sectors put together; At least 12.5* per cent of the net bank credit to small scale industries; At least 12.5* percent of the net bank credit for export; and The shortfall in the targets is to be kept as deposits with the SIDBI at concessional rates of interest i.e. at 10 per cent (pp. 14-15) (N.B. : Because of some ambiguity in the literature even 12% should also be taken as correct answer). Q 5 xii Ans 5 xii Briefly discuss the meaning of technological changes and techniques in the farm sector. Technological changes in agriculture are defined as the use of new or modern inputs such as chemical fertilizers, high yielding varieties of seeds, plant protection measures, tractors, pumpsets, threshers and combine harvestors. Techniques refer to actual mix of input factors whether traditional or modern or both which is a function of technology and relative prices of input factors (P. 458) Q 5 xiii Ans 5 xiii What is pre-shipment finance? Pre-shipment finance means working capital finance mainly inventory finance extended to an exporter in anticipation of his exporting of goods. It is given to enable the eligible exporters to procure raw materials and process / manufacture / warehouse / ship the goods for export (P. 722) Q 5 xiv Indicate the name and functions of the agency set up by the Government for promoting freshwater fish farming in India. Ans 5 xiv For promotion fresh fish farming the Government has set up fish farmers Development Agencies (FFDA) in the districts with potentials for inland fisheries. These agencies identify farmers, guide them in fish production, arrange for fish seedlings and even finance (P. 420) Q 5 xv Ans 5 xv Who are classified as agricultural labourer and non-agricultural labourer in India? In India agricultural labourer is the one who is engaged in the farm activities as a labourer and derives at least 50 percent of his income by way of working on activities related to agriculture. Similarly the non-agricultural labourer is engaged in non-farm activities and derives at least 50 percent of his income from working on those activities as a labourer (P. 23) 58
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Q 5 xvi Ans 5 xvi Give the meaning and composition of the transaction costs in rural banking. The transaction costs in rural banking are essentially the organisational costs for carrying out the day to day operations of the institutions involved in rural banking. They mainly include manpower related costs, office/space related costs and statutory costs etc. When the productivity of manpower goes up, the transaction cost per unit of business comes down and it improves the viability of banking. This is all the more important because banking is a highly human input intensive activity.
SECTION III Q6 Write short notes on any five of the following (i) (ii) (iii) (iv) (v) (vi) (vii) Traditional and Modern Agriculture : Comparative Picture Service Area Approach : Major steps involved in the implementation Approach and main recommendations of Khushro Committee Pre-shipment and Post-shipment Finance : Comparative statement Agriculture and Rural Debt Relief Scheme of the Government of India Sequence of Actions which led to the establishment of World Trade Organisation Main categories of Non-Credit Linked Poverty Alleviation Programmes and their distinct characteristics (viii) Appraisal system for financing the High-tech Agriculture. A. Introductory remarks : Each question in this section expects a write up of about 20 lines. The candidate is expected to discuss the most important aspects of the theme included in the question. The fully satisfactory answer should incorporate not only the points, but should indicate their inter-relationship and implications as well. Since the reading material provides a proper treatment of the themes at one place in the respective units it is considered proper to give the reference of the paragraphs and pages rather than reproducing the full write-up. The examiner is requested to refer to the concerned paragraphs and pages for the requisite answer. 59
The Indian Institute of Bankers B. Questionwise suggestions : Q6i Ans 6 i Traditional and Modern Agriculture : Comparative Picture Refer to pages 374-375 para 2.2 The discussion on the following pattern should be considered as the proper treatment of the theme. i) Highlighting of the points given in tabular form on page 375 which include the important features of the traditional and modern agriculture. ii) The points/features should be elaborated with the help of illustrations drawn from para one and two immediately preceding the tabular presentation. Q 6 ii Ans 6 ii Service Area Approach : Major steps involved in the implementation Refer to page 33 to 37 para 2.7 The proper answer should be on the following pattern : i) ii) iii) Listing of five steps is a must. Sequencing of steps should be maintained. Only the main points should be included in the elaborated discussion. For instance, the first step on identification and allocation may be elaborated as : Each rural and semi-urban branch of commercial banks has been allocated 15-20 villages on the basis of certain criteria such as proximity and past involvement. Similarly RRBs and urban branches are also.... Q 6 iii Ans 6 iii Approach and main recommendations of Khushro Committee Approach of the Committee : i) The basic approach adopted by the Committee indicated that in future, all agricultural credit system should be based on seven buildings blocks. The blocks are given on page 81. ii) Recommendations : The Committee made many recommendations but the following eight points could be considered most important. 60
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a) b) c) d) e) f) g) h) Q 6 iv Ans 6 iv Pt. 28 on page 84 (Refer to NCBI) Pt. 10 on page 82 (Refer to RRB) Pt. 18 on page 82 (Refer to NABARD) Pt. 6, 7, 8 on page 82 (Refer to target groups) Pt. 21 on page 82 (Refer to target and their revision) Pt. 12 on page 82 (Refer to IRDP) Pt. 3 on page 81 (Refer to dry farming) Pt. 17 on page 83 (Refer to crop Insurance)
Pre-shipment and Post-shipment Finance : Comparative statement Refer to pages 732-733 para 7.9 Nine points indicating the comparative characteristics of pre-shipment and post-shipment finance give a comprehensive treatment of the theme. The comparison can be made in terms of eligibility criteria for the borrowers, purpose of finance, tenure of finance, form and nature of finance, minimum evidence required, and terms and conditions of finance etc. These are clearly indicated in para 7.9
Q6v Ans 6 v
Agriculture and Rural Debt Relief Scheme of the Government of India Refer to page 314 Pt. C of para 6.6 is quite comprehensive and hence this should be taken as the model answer. This para clearly mentions, the date of scheme, its coverage, eligibility criteria for the loans and borrowers, extent of relief, the credit Institutions involved, stake of the government/s and the budgetary support etc.
Q 6 vi Ans 6 vi
Sequence of Actions which led to the establishment of World Trade Organisation Refer to pages 789 to 791, para 10.2. The answer should include the following points: i) After the World War Second a need to evolve a system to smoothen international 61
The Indian Institute of Bankers trade and monetary relations was urgently felt. ii) Bretton Woods Conference in 1944 recommended the setting up of three international organisations. iii) iv) IMF and IRDB were set up in 1945 without controversy. Setting up of ITO was a matter of controversy and hence the GATT was set up as an initial step in 1947. v) vi) vii) viii) ix) Q 6 vii Developing and developed countries perceived the utility of the GATT differently. Seven rounds between 1949 and 1986 were held to resolve the issue. In the last round the Dunkel Draft was proposed. Draft was adopted in 1993. WTO was set up in 1995.
Main categories of Non-Credit Linked Poverty Alleviation Programmes and their distinct characteristics Refer to page 131 Four categories of Non-Credit Linked Poverty Allegation Programmes (NCLPAPs) are listed in the beginning of the page. Their distinct characteristics are given in para 6.2 on page 131 and 132. They provide comprehensive framework. Four categories of NCLPAPs are (i) Area Development Programmes (ii) Employment Generation Programmes (iii) Specific Target Group Oriented / Sectoral Programmes and (iv) Minimum Needs Programme. Each category contains a number of specific programmes / schemes/ Activities which are sufficiently elaborated in the reference material indicated.
Ans 6 vii
Q 6 viii Ans 6 viii
Appraisal system for financing the High-tech Agriculture. Refer to page 487-489 para 7.6.4 titled Appraisal;. The discussion should specifically recapitulate four parameters of new method of appraisal viz. (i) BC Ratio, (ii) IRR, (iii) DSCR and (iv) BEP as against incremental income approach of traditional method.
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SECTION IV Q7 Highlight the principal, milestones / landmarks in the evolution of rural credit system in India and discuss its various components together with their role in the supply of rural credit. A. Introductory Remarks : Each question should be answered in about 50 to 60 lines. The discussion should give a fairly comprehensive treatment of the theme. Since the reading material has been prepared keeping in view the nature of such long term questions also the guidelines mainly give the reference pages and paragraphs rather than reproducing the material. In fact, the model answers are very much obvious in the paragraphs and pages indicated in the questionwise guidelines. b. Ans 7 i) Questionwise Suggestions : Six milestones/land-marks are given on page 195 and 196. They are elaborated in the subsequent para on the volume. ii) Component of rural credit system are given in column 2 of table 1 on page 197 and 198. iii) Role is indicated in the last column of the same table. It shows the type of activity undertaken by various components of the credit system as the nature of finance extended by them. iv) Number and mode of disbursement indicated in the tabel are not essential for the answer but they add to the quality of the answer if included. Q8 Describe the rationale, objective and components of the Integrated Farm price Policy adopted in India and highlight the mechanism created for its implementation. Ans 8 The para 9.7.3 i.e. Integrated Price Policy (IPP) Era on pages 527-529 gives the required material for stating the rationale. Objectives of components. The mechanism for implementation is given in para 9.8 on pages 529-531 and para 10.5.1 on page 549. The theme should be presented on the following lines : i) ii) The IPP is a part of new agricultural strategy Objectives of IPP are referred to as points a. b. c. on page 527-529 and may be 63
The Indian Institute of Bankers reproduced. iii) Components of IPP are a) Minimum Support Price b) Procurement Price c) iv) Issue Price
Mechanism a) Fixation of Minimum Support Price : CACP and its function and mode of working. b) Procurement System and agencies : FCI, CCI, JCI and other agencies c) Storage, buffer stock and distribution.
These are discussed in various paragraphs of Unit 9 and 10 of Module 3 on Agricultural Finance. The specific sr. no. of paras and the pages are also indicated. Q 9. Discuss the major dimensions and principal segments of Priority Sector Lending Policy being operated in India and specify the targets stipulated for various segments and credit institutions under the policy. Ans 9 i) ii) Major dimensions are given in para 1.2 on pages 3 and 4. Principal segment should be taken from Table 1 which are given in the form of ten components /. items under the column composition (Page 14) iii) Target should be taken from Table 2 which give the targets for segments / sectors on one hand and for the participating institutions on the other. (Page 14 and 15) iv) The discussion could be elaborated on the basis of para 1.4 on Page 7 and 8.
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BASIC ACCOUNTANCY
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BASIC ACCOUNTANCY
SECTION I Q1 State with reasons whether the following statements are True of False : (a) Assets are to be shown in the balance sheet at the values realisable on liquidation. (b) The convention of conservatism has usually the effect of overstating losses and understating the income. (c) Money Measurement Concept takes into account changes in the value of monetary unit. (d) The dual aspect concept results in the accounting equation : Capital + Liabilities = Assets (e) Contingent liability is shown in the balance sheet due to convention of disclosure. Ans 1 (a) False : According to accounting standards-10 and the practice of Historical Cost Concept in Accounting assets are to be shown in the balance sheet at cost. Ans 1 (b) True. The concept of conservatism is a policy of safe and has its origin in making provisions for future possible losses and not considering any gain or income until the same has been realised. Ans 1 (c) False. Money measurement concept is a practice in accounting that all transactions are recorded in the books of account are expressed in terms of the currency of the country. It does not take into account the changes in the value of money. Ans 1 (d) True. The dual aspect concept is the core principle of double entry system of accounting where every transaction ends in the accounting equation capital + Liabilities = Assets. Ans 1 (e) True. The convention of disclosure and the Accounting Standards-4 demands that any significant information materially affecting the preparation of financial statements should be disclosed. Hence contingent liability is shown in the Balance Sheet. 67
The Indian Institute of Bankers Q2 Fill in the blanks : (a) An increase in the owners equity at the end of the period is the result of profit made by the business. (b) Increase in one equity with no change in the assets will result in decrease of another item on the liability side. (c) (d) Decrease in one asset with no change in equities will result in increase of another asset. The Principle of accountancy which recognises the double aspect of a business transaction is known as dual aspect concept (e) Under the consistency concept, events of the same character must be treated by the same accounting method, unless there are compelling reasons to change the method. Q3 Write the correct answer with reasons in your Answer Book : (a) Assets are usually shown in the balance sheet at (i) Unexpired Cost
(ii) Replacement Cost (iii) Revalued Cost (b) Depreciation charge will be heavy in the earlier years under (i) Straight line method
(ii) Diminishing balance method (iii) Sinking fund method (c) The most acceptable method of measuring income is (i) to match the costs with revenue
(ii) to find out the difference in net worth as on two dates (iii) to apply normal rate of return on capital employed (d) During a period of rising prices higher profits can be shown by valuing stock at (i) LIFO basis 68
Guidelines - JAIIB
(ii) FIFO basis (iii) Weighted average price (e) Unexpired cost carried forward will be more under the following method of depreciation (i) Straight line method
(ii) Diminishing balance method (iii) Sum of digits method Q3a Ans 3 a Assets are usually shown in the balance sheet at Unexpired cost : Reason : According to Accounting Standards -10 and the principle of Historical Cost Except all assets are usually shown in the balance sheet at cost less depreciation. Q3 b Ans 3 b Depreciation charge will be heavy in the earlier years under Diminishing Balance Method Reason : As the rate of depreciation is charged on the Written Down Value, the Depreciation charge (Expense) will be heavy in the earlier years and less in the later years. Q3c Ans 3 c The most acceptable method of measuring income is To match the costs with revenue. Reason : According to Accounting Standards-9 and the practice of matching concept, Income is recognised by matching costs with revenue. Q3d Ans 3 d During a period of rising prices higher profits can be shown by valuing stock at FIFO Basis Reason : FIFO stands for `First In First Out. Hence the goods purchased first will be treated as sold first for the purpose of valuation of closing stock. Hence the closing stock will be valued at Higher prices resulting in higher profits. Q3e Ans 3 e Unexpired cost carried forward will be more under the following method of depreciation Straight line Method Reason : In both diminishing Balance Method and sum of Digits method the derpreciation expenses will be more in the initial stages. Hence order straight line method the unexpired 69
The Indian Institute of Bankers cost carried forward will be more in the initial years. (Note : This also depends on the Rate of Depreciation Charged.)
SECTION II Q4 a) b) Distinguish between Promissory Note and Bill of Exchange Give the necessary journal entries that would appear in À books for the following transactions : 1997 May 5 A drew three bills B for Rs. 5,000, Rs. 4,000 and Rs. 3,000 payable at 4, 3 and 2 months respectively. B accepted the bills and returned them to A. May 6 May 8 May 26 A endorsed the first bill in favour of this creditor C at Rs. 4,750. He discounted the second bill with his bank at 18% per annum. B paid the proceeds of the third bill at a rebate of Rs. 70
On the due date, the first and the second bills were dishonoured. Q4a Ans 4 a Distinguish between Promissory Note and Bill of Exchange The distinction can be done as follows : Basis of Distinction 1. Promise/Order Bill of Exchange It contains an unconditional order to pay 2. Maker 3. No. of parties It is made by a creditor There are three parties Drawer, Drawee and Payee 4. Acceptance Acceptance by debtor is necessary to become a valid instrument Promissory Note In contains an unconditional promise to pay. It is made by a debtor There are two parties Maker and Payee No acceptance is required
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5. Noting of Dishonour On dishonour of a bill, it has to be noted by the Notary Public 6. Nature of Liability The liability of the drawer is secondary and conditional Ans 4 (b) In the Books of A : Journal Date 1997 May 5 Bills receivable A/c To B A/c (Being three acceptances received from B) May 6 C A/c Discount A/C To Bills receivable A/c (Being the bill for Rs. 5000 received from B endorsed infavour of C for Rs. 4750) May 8 Bank A/C Discount A/C To Bills Receivable A/c (Being the bill for Rs. 4000 received from B discounted with the Bank @ 18% p.a. for 3 months) May 26 Bank A/C Rebate A/C To Bills Receivable A/C (Being proceeds of the Bill Rs. 3000 received from B at a rebate of Rs. 70) 71 Dr. Dr. 2930 70 3,000 Dr. Dr. 3820 180 4,000 Dr. Dr. 4750 250 5.000 Dr. 12,000 12,000 Particulars Debit Rs. Credit Rs. The liability of the maker is primary and absolute Noting is not necessary
The Indian Institute of Bankers Aug 8 B A/C To Bank A/C (Being dishonour of bill which was discounted with the Bank) Sept 8 B /AC To C A/C (Being dishonour of Bill which was endorsed to C) 5. State with reasons whether the following are Capital or Revenue Expenditure : (a) (b) Freight and Cartage on the new machine Rs. 150 and erection charges Rs. 2000. Fixtures of the book value of Rs. 1,500 were sold off at Rs. 600 and new fixtures of the value of Rs. 1,000 were acquired, cartage on purchase Rs. 5. (c) (d) A sum of Rs. 1,000 was spent on painting the factory. A sum of Rs. 5150 was spent on repairs before using a second-hand car purchased recently, to put it in usable condition. Q5a Ans 5 a Freight and Cartage on the new machine Rs. 150 and erection charges Rs. 2000. Capital Expenditure Rs. 350/- (Rs. 150/- + Rs. 200/-) Reason : Freight, cartage and erection charges are incurred for acquiring or bringing into existence the new machine, hence capital. Q5b Fixtures of the book value of Rs. 1,500 were sold off at Rs. 600 and new fixtures of the value of Rs. 1,000 were acquired, cartage on purchase Rs. 5. Ans 5 b Rs. 900 is Revenue Expense and Rs. 1005 is Capital Expenditure. Reason : Loss of sale of fixtures (i.e. Rs. 1500-Rs. 600) is revenue as it represents the reduction in the value of fixtures due to usage or passage of time. AND purchase price Rs. 1000 of new fixtures and cartage on purchase Rs. 5 will be the total cost of fixtures, an asset, hence it is treated as capital. Q5c A sum of Rs. 1,000 was spent on painting the factory. 72 Dr. 5,000 5,000 Dr. 4000 4,000
Guidelines - JAIIB
Ans 5 c Revenue Expenditure : Reason : Painting the factory is incurred to maintain the factory in good condition hence such expense is treated as revenue. Q5d A sum of Rs. 5150 was spent on repairs before using a second-hand car purchased recently, to put it in usable condition. Ans 5 d Capital Expenditure Reason : The amount spent on repairs before using a second hand car purchased recently, to put it in usable condition will be added to the cost of the CAR.
SECTION III 6. Write Short notes on (a) (b) (c) (d) Ans 6 a Accountancy Financial Statements Accounting Standards Computerised Accounting
Accountancy : Accountancy is the language of the Business. It gives information in such a way that the receiver is in a position to understand the state of affairs of the business. The information is written through the process of Book Keeping and Accounting. This process is an art of recording all business transactions, which can be expressed in monetary terms, is an analytical form. The recorded transactions are classified under appropriate headings and summarised periodically, At the end of the Accounting period, the financial results and the financial position is interpreted.
Ans 6 b
Financial Statements: A financial statement is a set of documents which shows the results of business transactions during a given period, how the results are achieved and the financial position of the firm at a given point of time. These are statements prepared to fulfill the objectives of financial accounting. Financial statements generally refer to : 1) 2) The balance sheet, which shows the financial position of at a given point of time The profit and loss account, also known as Income Statement, which shows the financial 73
The Indian Institute of Bankers results of the firm at the end of an accounting period 3) 4) Statement of changes in financial position. Explanatory statements, notes and relative schedules.
In general financial statements gives an analysis to understand the progress made by the Business. Ans 6 c Accounting Standards : Accounting standards are the policy statements and guidelines given by the Accounting Standards Board. These standards are established to bring uniformity in terminology. Convention and concepts, approach and presentation of accounting results. Accounting standards in India are formulated giving due consideration to the International Accounting Standards and integrating them with the applicable laws, customs and business practices of India. Ans 6 d Computerised Accounting : Computerised Accounting is system of using computer software for accounting operations. In this system all the books of accounts are generated automatically by the computer, once the basic source documents of the transactions are fed into the system. The recording, classifying, summerising and interpretation of accounting data are assigned to the computer and a package of Financial Information System is developed. It takes the role of an accountant of an organisation and helps the management to make right and quick decisions. Q7 Distinguish between (a) (b) (c) (d) Q7a Ans 7 a Journal and Ledger Trial Balance and Balance Sheet Provision and Reserve Account Current and Current Account
Journal and Ledger Journal is a book of first or original entry while the ledger is the book of second entry. Initially all entries are recorded in the Journal in a chronological order and then it gets posted to the ledger. Journal records all entries and ledger classifies them. The process of recording entries in the Journal is called Journalising and reprocess of recording entries in Ledger is called Posting At the end of Journal entries Narration is written. No such Narration is required in 74
Guidelines - JAIIB
a Ledger account. The purpose of Journal is to identify the account heads and the Debit and Credit of accounting, while the purpose of a Ledger Account is to know the balances at a given point of time. Q7b Ans 7 b Trial Balance and Balance Sheet A Trial Balance is a statement prepared on a particular date which gives the list of balances, debit and credit, of the accounts in a ledger. Its main purpose is to ascertain the arithmetical accuracy of the accounts and to know the balance of any ledger account at a glance. On the other hand a Balance Sheet is a statement prepared on a particular date to show the financial position of an organisation. It gives information about the assets, liabilities and the owners equity. Q7c Ans 7 c Provision and Reserve : The main difference between a provision and a reserve is that, a provision is made when a company foresees any definite loss, liability or expenditure, the amount of which is not certain at the time of creation of provision. A provision will reduce the profit made by the company or increase its losses. On the other hand, a reserve is created to safeguard the company against future business risks and to enhance the financial wealth or Networth of the owners equity. A reserve can be created only if the company has earned some profit. Q7d Ans 7 d Account current and current account Account current is a statement of account given by one party to another indicating the several transactions between the two parties and the calculations of interest payable and receivable among them. On the other hand current account which has no relationship with Account Current, is a type of deposit account with banks where the customers of the banks are allowed to deposit and withdraw any number of times without any restriction. Normally the deposits of a current account does not carry any interest.
SECTION IV 8. Following is the Balance Sheet of A and B who share profits in the ratio of 70% and 30% respectively as on 31st December, 1997. C was admitted as a partner with effect from 1st January, 1998 and he brought into business Sundry Debtors Rs. 5,000 (subject to 10% provision for bad debts). Creditors Rs. 1,600 and Goodwill Rs. 4,000. He agreed to maintain his capital at Rs. 20,000 for 1/5th share in the profits of the firm. 75
The Indian Institute of Bankers Balance Sheet of A & B as at 31st December 1997 Liabilities Amount Rs Creditors Bank Overdraft General Reserve As Capital Bs Capital 10,600 9,000 5,400 45,000 19,000 Cash Debtors Stock Building Other Assets Truck Total 89,000 Total Assets Amount Rs. 3,800 14,000 21,200 26,000 7,000 17,000 89,000
The assets were adjusted as follows : Stock increased by Rs. 5,200, Building and Truck were increased by 10% and other assets were decreased by Rs. 800. A Reserve for Doubtful Debt was created at 5% on Debtors. It was agreed to adjust the partners capitals in profit sharing ratio. Show the partners Capital Accounts, Revaluation Account and Balance Sheet of the reconstituted firm. Ans 8 First Alternative Revaluation A/C Dr. Rs. To other Assets To provision for doubtful Debts To As Capital To Bs Capital 800 700 5,600 2,400 9,500 76 9,500 By Stock By Truck By Building Cr. Rs. 5,200 1,700 2,600
Guidelines - JAIIB
Partners Capital Accounts Dr. Details To Balance C/d (See W Note 2) By Sundry Assets (See W note 1) By Revaluation A/c By General Reserve By Cash A/c (Balancing Figures) 56,000 24,000 20,000 5,600 3,780 1,620 -56,000 2,400 1,620 980 -24,000 ----20,000 --20,000 A 56,000 B 24,000 C 20,000 Details By Balance c/d A 45,000 B 19,000 Cr. C --
Balance Sheet of the firm after admission as on 1-1-1998 Liabilities Creditors (10,600+1,600) Bank Overdraft Capital Accounts A B C 56,000 24,000 20,000 1,00,000 Rs. 12,200 9,000 Assets Rs.
Cash (3,800 + 1620 + 980 + 13100) 19,500 Sundry Debtors (5000 + 14000) Less Provision (500 + 700) Stock (21,200 + 5,200) Other Assets (7000 - 800) Trucks (17000 + 1700) Building (26000 + 2600) Goodwill 17,800 26,400 6,200 18,700 28,600 4,000 1,21,200
1,21,200 77
The Indian Institute of Bankers Working Note 1. Cs Capital is Rs. 20,000 It consists of Debtors less provisions (5000 - 500) Goodwill Cash (Balance figure) Rs. 4000 Rs. 4500
Rs. 13100 Rs. 21600
Less Creditors Total 2.
Rs.
1600
Rs. 20000
Calculation of capitals of A and B taking C as base Cs share is 1/5 and capital is 20000 . . . Total firms capital = 20000 x 5 = 1 Less Cs capital Continued capital of A & B 70 As Capital = 80,000 x ---------- = Rs. 56000 100 30 Bs Capital = 80,000 x ---------- = Rs. 24000 100 OR Rs. 20000 Rs. 80000 Rs. 100000
From the following information relating to Maharaja Club, prepare Income & Expenditure Account for the year ended 31st March, 1998 and Balance Sheet as on that date. Abstract of the Cash Book for the year is as follows : 78
Guidelines - JAIIB
Dr. Receipts Amount Rs. To Members Subscriptions To Members Admission Fees To Sale of old balls and bats To Ground Rent To Subscriptions for Tournament To Bank - Cash drawn To Donations 5,000 300 50 300 1,000 4,000 10,000 By Upkeep of Field & Pavilion By Tournament Expenses By Rates & Insurance By Telephone By Stationery By General Charges By Secretarys Honorarium By Grass Seeds By Bats and Balls By Bank Lodgements 20,650 Assets on 1st April, 1997 : Cash at Bank Rs. 3,000. Stationery Rs. 200, Stock of Bats & Balls Rs. 1,500, Subscription Due Rs. 500. Liabilities on 1st April, 1997 : Nil Donations and surplus on account of tournament should be kept in Reserve for a permanent pavilion. Subscriptions due as on 31st March, 1998, Rs.750. Write off 50% of bats and balls and 25% of printing and stationery accounts. Payments Cr. Amount Rs. 2,000 700 200 50 100 50 170 30 700 16,650 20,650
Ans
Second Alternative
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The Indian Institute of Bankers MAHARAJA CLUB Income and Expenditure A/c for the year ended 31-3-1998 Dr. Expenditure To upkeep of field & pavilion To Rated and Insurance To Telephone To GeneralCharges To Secretarys Honorarium To Grass seeds To bats and balls written off Opening stock Add purchase 1500 700 2200 Less closing stock 1100 To Stationery Consumed Opening stock Add purchase 200 100 300 Less Closing stock (75%) To Surplus 225 75 2225 5900 5900 1100 By Ground Rent 300 By sale of old bates and balls 50 Rs. 2000 200 50 50 170 30 By members administration fees 300 Income By Members Subscription Amt Received Less Last year dues 5000 500 4500 Add Current years dues 750 5250 Cr. Rs.
Note : Alternatively members administration fees may be added to the CAPITAL FUND.
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Balance sheet as on 1-4-1997 Liabilities Capital Fund (Balancing figure) Rs. 5200 Assets Cash at Bank Stock of Bats and balls Stock of Stationery Subscriptions due 5200 Rs. 3000 1500 200 500 5200
Balance Sheet as on 31-3-1998 Liabilities CAPITAL FUND Opening Balance Add surplus Reserve for permanent pavilion Donations Tournament surplus (1000-700) 10000 300 10300 Stock of bats and balls Stock of stationery Subscriptions due 17725 1100 225 750 17725 Less cash drawn 5200 2225 7425 Rs. Assets Cash at Bank Opening Balance Add Bank lodgements 3000 16650 19650 4000 15650 Rs.
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The Indian Institute of Bankers 9. On 31st March, 1998, the following Trial Balance was exacted from the books of DNV Dr. Rs. Capital Account Plant & Machinery Sales Purchase Returns Opening Stock Discount Bank Charges Sundry Debtors Sundry Creditors Salaries Manufacturing Wages Carriage Inward Carriage Outward Bad Debts Provision Rent, Rates and Taxes Advertisements Cash in hand Cast at Bank Furniture & Fittings Total 10,000 2,000 900 6,000 20,000 5,29,075 5,29,075 26,800 40,000 750 1,200 525 2,60,000 6,000 30,000 350 75 45,000 25,000 800 5,750 80,000 4,07,000 Cr. Rs. 90,000
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You are asked to prepare the Trading and Profit & Loss Account of DNV for the year ended 31st March 1998 and the Balance Sheet as on the date. The following adjustments are required to be made : (a) (b) Closing stock Rs. 35,000 Depreciation on Plant and Machinery @15% p.a. and on Furniture and Fittings @10% p.a. to be provided. (c) (d) (e) Bad Debts Provision to be adjusted to Rs. 500. Interest on Capital to be allowed @10% p.a. 15% of the Profits remaining after providing interest on capital is to be carried to General Reserve. Ans 9 Trading and Profit and Loss account of DNV for the year ended 31-3-1998 Details To opening stock To purchases Less returns 260000 5750 254250 40000 750 111000 436000 436000 Rs 30000 Details By Sales Less Returns By closing stock 407000 6000 401000 35000 Rs.
To Manufacturing wages To carriage inward To Gross profit C/d
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The Indian Institute of Bankers Details To Salaries To Carriage Outward To Rent, Rates and Taxes To Advertisement To Discount To Bank Charges To Depreciation on plant & machinery On furniture To Interest on capital To General Reserve (15% of Rs. 48,400) To net profit 41140 111825 111825 12000 2000 9000 7260 Rs. 26800 1200 10000 2000 350 75 Details By Gross Profit b/d By Discount By Provision for bad debts (existing) Less Required 525 500 25 Rs. 111000 800
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Guidelines - JAIIB
Balance Sheet as on 31-3-1998 Liabilities Sundry Creditors General reserve Capital Add interest Add net profit 90000 9000 41140 140140 Rs. 25000 7260 Assets Fixed Assets Plant and machinery Less Depreciations Furniture and fittings Less Depreciation Current Assets Stock Sundry debtors Less Provision Cash at Bank Cash in hand 172400 45000 500 44500 6000 900 172400 35000 80000 12000 20000 2000 18000 68000 Rs.
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INTRODUCTION TO COMPUTERS
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INTRODUCTION TO COMPUTERS
SECTION I Q1 (a) (i) Define IT (Information Technology)
(ii) What is the expansion form for SWIFT (iii) What is the expansion form of EBCDIC (iv) What does ALPM stand for. (v) What does YTM stand for Q1ai Ans 1 a i Define IT (Information Technology) Technology relating to Computers (Hardware/Software) and Communication together is described as Information Technology. While computers help in processing the information, the communication technology helps in transmitting the information from one location to the other. What is the expansion form for SWIFT Society for World-wide Inter-bank Financial Telecommunication What is the expansion form of EBCDIC
Q 1 a ii Ans 1a ii Q 1 a iii
Ans 1 a iii Extended Binary Coded Decimal Interchange Code Q 1 a iv What does ALPM stand for.
Ans 1 a iv Advanced Ledger Posting Machine. Q1av What does YTM stand for
Ans 1 a v There is no such term in computer terminology. YTM popularly stands for Yield to Maturity. It could be ATM which stands for Automated Teller Machine. (b) Fill in the blanks with suitable words (i) While the first electronic computer developed by the US army was named as ENIAC, the first commercial computer was named as UNIVAC. (ii) No doubt, Charles Babbage really laid foundation for the development of 89
The Indian Institute of Bankers Computer through his invention of Analytical Engine, but real breakthrough came in the development of the concept of stored programme proposed by John Von Neumann. (iii) iv) Expansion form of BIT is Binary Digit, and one byte contains eight bits. In UK by and large the payment system has been automated and the payments are made by BACS or CHAPS. (v) RBI net is the communication software for transmitting unstructured messages by banks to RBI and vice-versa. (c) State with reason (not more than 3 lines) whether the following statements are true or false. (i) Computers can process the information using their own priorities and judgements. (ii) (iii) (iv) For effective functioning of LAN server, UPS is a must. Telebanking is nothing but simply a telephone answering system. As of now, Fibre Optics is the most common transmission media in India (v) Qaci Ans a c i EFT is essentially a Paperless System
Computers can process the information using their own priorities and judgements. False. Computer can only process the information as per the directions of the software program. Computer has to follow the step by step instructions of the program and can not have its own priority and judgement. For effective functioning of LAN server, UPS is a must. True. Any sensitive application run on a LAN requires the security and integrity of data at every stage of processing. Data may be lost due to power failure which can be protected by the use of UPS. Telebanking is nothing but simply a telephone answering system.
Q a c ii Ans a c ii
Q a c iii
Ans a c iii False. In telebanking, on the basis of the query made the computer processes the relevant information and produces the result to be asnwered. Therefore, telebanking is much more than simple telephone answering system. 90
Guidelines - JAIIB
Q a c iv As of now, Fibre Optics is the most common transmission media in India
Ans a c iv False. Fibre optic is most reliable and efficient communication medium. Due to its very high cost the progress of laying the fibre optic communication networks is very slow. Twisted pair and co-axial cables are still used as communication media in a big way. Qacv EFT is essentially a Paperless System
Ans a c v True. Under EFT the payment messages are transmitted either through magnetic media like magnetic tape, floppy or cartridge or through electronic media between computers. It is therefore, essentially a paperless system.
SECTION II Q2 (a) Indicate correct answer and briefly explain the reasons for your choice in 50 words (i) Modern Computers represent Characters and numbers internally using one of the following number systems. (a) binary (ii) (b) Octal (c) Hexa
You are assigned the job of auditing computerised branches in your bank. Which computer will you prefer (a) Mini (b) Desktop (c) Laptop
(iii)
BIOS is (a) RAM (b) ROM (c) SW (d) OS
(iv)
For scientific applications most useful language is (a) COBOL b) FORTRAN (c) SQL (d) HTML
(v)
Payroll system is essentially (a) On-line (b) Batch processing (c) Real time
Q2ai
Modern Computers represent Characters and numbers internally using one of the following number systems. binary. In binary system the two states viz. presence and absence of the electronic impulse/ voltage can be represented by 1 or 0 respectively. The combinations of eight binary digits (bits) represent different characters (alphabets, numbers, special symbols). In all, 256 characters can be represented with different positioning of 0s and 1s which is sufficient to represent any character in modern computers. 91
Ans a i
The Indian Institute of Bankers Q 2 a ii You are assigned the job of auditing computerised branches in your bank. Which computer will you prefer
Ans 2 a ii Laptop. The auditor is required to move from one branch to the other for auditing the branch. He will prefer to use Laptop for the purpose as it is easy to carry it with him. The laptops are having the same speed and storage capacity as is available in Desktop and can store large amount of data and programs. The auditor can do the analysis at his convenience if the required information is available on his Laptop. Q 2 a iii BIOS is
Ans 2 a iii ROM. i.e. Read only Memory. The BIOS is part of embedded chip on which basic input output system including real time clock (RTC) runs. The embedded instructions of BIOS can not be altered. Q 2 a iv For scientific applications most useful language is
Ans 2 a iv FORTRAN : The FORTRAN is short form of FORmula TRAnslation. This language has primarily been developed for scientific applications involving intricate calculations with speed and precision. Q2av Payroll system is essentially
Ans 2 a v Batch Processing : The payroll system is most common application running across the organizations. The monthly pay and allowances of the employees in a organization are processed on batch processing mode. The data flows from various units and processed in batches as and when received. (b) Answer briefly in not exceeding 7 to 8 lines. (i) (ii) (iii) (iv) (v) Q2bi Ans 2 b i What are CISC processors and in which type of computers they are used? What is mUltimedia? What is binary equivalent to the decimal number 139? What is MICR technology and where it is used in Indian Banks? What is Y2K problem?
What are CISC processors and in which type of computers they are used? CISC stands for Complex Instruction Set Computing. CISC processor is one of the methodologies under which microcomputer CPUs are designed. It is the most common type of microprocessor found in small computers. It contains large instruction set with hundreds of instructions. 92
Guidelines - JAIIB
Q 2 b ii What is multimedia?
Ans 2 b ii The early generation computers were performing only complex numerical tasks. Todays computers can perform variety of tasks not only in scientific research and business but also in the area of arts and music. The computer can now handle input and output, the output in the form of graphics, voice/sound in audio and visual mode. The audio, visual representations known as multimedia. Q 2 b iii Ans 2 b iii What is binary equivalent to the decimal number 139? 2! 139 2!69 2! 34 2! 17 2! 8 2! 4 2! 2 2!1 2! 0 Remender 1 1 0 1 0 0 0 1
The binary equivalent to the decimal number 139 10001011 Q 2 b iv What is MICR technology and where it is used in Indian Banks?
Ans 2 b iv MICR stands for Magnetic Ink Character Recognition. This system uses specialized character shapes printed in ink containing magnetisable particles. The magnetic ink induces a current in a reading circuit. The current induced will be proportional to the area of ink being scanned. The MICR technology is used in cheque clearing system for sorting the cheques on the basis of banks/branches and capturing amount details, etc. Q2bv What is Y2K problem?
Ans 2 b v Y2K stands for year 2000. The Y2K problem or the millennium bug is the result or representing the year in two digits instead of full four digits. After expiry of year 1999, which has usually been represented by 99 to save few bytes, it is not sure what the system would represent. It could be 00. The machine generally prefixed 19 with any year field therefore the year 2000 could have been read as 1900 and all the calculations would have gone wrong. The problem relates to both hardware and Software. 93
The Indian Institute of Bankers SECTION III Q3 Attempt any four: (a) Depict with the help of diagram the five components of an electronic computer and briefly explain their functions. (b) (c) (d) (e) (f) Ans 3 (a) Differentiate between System Software and Application Software. With the help of a flowchart describe customer transaction on an ATM. Describe Banknet and its utility to Indian commercial banks Differentiate between Credit-card, Debit card and Smart Card. Briefly describe different approaches to Computer Audit.
The five component of electronic computer are depicted as below
Memory Unit Output Unit Control Unit
Input Unit
Arithmatic/ Logical Unit
The five components of an electronic computer are i) Input Unit, iv) Control Unit, ii) Output Unit, iii) Memory Unit,
iv) Arithmetic-Logical Unit (ALU) 94
Guidelines - JAIIB
The functions of these components are as follows : i) Input Unit : The function of Input Unit is to help in receiving the data that can be used for processing to generate the desired results or output. It also helps to receive the set of instructions or programs. Example : Key Board. ii) Output Unit : The function of output Unit is to present the results after processing. It may display or print the results. Example : Printer, Monitor. iii) Memory Unit : The data / information received by the computer is stored and the intermediate results and output are also stored for further processing and producing results. The Memory and storage Units perform these functions. Example : Random Access Memory (RAM), Hard Disk Drive. iv) Control Unit : This unit has over all control over the processing sequence. It selects the instructions, interpret and execute them in order to maintain the order and overall control. v) Arithmetic - Logical Unit (ALU) : The computer performs calculations which are broken into basic arithmetic calculations like addition, subtraction, multiplication and division. In addition computers compares values or set of characters. All calculations as well as comparisons are performed by the Arithmetic and Logical Unit. Q3b Ans 3 b Differentiate between System Software and Application Software. Software can be classified into System Software and Application Software. Software, which contributes to the control and performance of the computer system, is called system software e.g. operating systems, assemblers, languages, etc. Application Software does specific jobs for the user / organization for scientific, business and other applications related to the business or allied activities of the organization. The System Software is generally procured long with the machine. In the era of main frame systems, system software particularly, operating system used to be proprietary which was meant for particular types of machines. Now in the era of microprocessors, most of the system software are open and work across the machines. The main sources of application software are (i) in-house development, (2) development by the vendor (out sourcing) or (3) acquiring off- the shelf software. The off-the shelf software is developed by the vendors keeping in view the requirement of a large number of organisations. viz. software for branch automation. These packages come with lot of parameterisations and can be customised to suit the requirements of a particular organisation. 95
The Indian Institute of Bankers Q3c Ans 3 c With the help of a flowchart describe customer transaction on an ATM. The flowchart describing the customer transaction on an ATM is depicted below
Start
Insert Card
Is card Yes in stole list No Enter Pin
Retain Card
Stop
Is Pin Matching Yes Enter Request
No
Are 4 attempts over? Yes Retain Card
No
Stop
Request
Deposits Take Envelop Deposit Cash/Chq. insert envelop Enter Amount Is Amount within limit?
Withdraw
Cash Even
Any More Transaction
Card Returned Print Giver Stop
Flow Chart of ATM Operations. 96
Guidelines - JAIIB
Q3d Ans 3 d Describe Banknet and its utility to Indian commercial banks Banknet is the common data communication network set up by the RBI for facilitating the transfer of inter-bank and intra-bank messages. It is a terrestrial Wide Area Network set up in February 1991. It has connected 7 cities namely Mumbai, Delhi, Calcutta, Chennai, Nagpur, Hyderabad and Bangalore. High-end servers in the National Clearing Cells at four metros are connected to the network with mesh topology to provide alternate routes for communication with a switching center at Nagpur. It has connected Hyderabad and Bangalore from Chennai through a PAD at Chennai. The NCCs act as focal points for monitoring the network and facilitating information flow. It uses leased DoT lines as communication backbone. It is a packet switched X.25 based network. Initially, the software called COMET developed by the CMC was used over this network for communication this software had a number of deficiencies. Subsequently, a new software called RBInet was developed in-house by the RBI to overcome the deficiencies of COMET and is currently being used for electronic messaging and file transfer over this network among the member banks. The EFT scheme runs on Banknet infrastructure. The Section 42 return data also flows through this network. Now, a satellite based network INFINET has already been launched by the Institute for Development and Research in Banking Technology, Hyderabad. The use of Banknet will be gradually reduced as and when the INFINET is stabilized. Q3e Ans 3 (e) Differentiate between Credit-card, Debit card and Smart Card. In the modern day commerce, the plastic cards have acquired a fairly prominent and pervasive role. With the increasing use of plastic cards the society is moving towards cashless transactions. In India, the use of cards is restricted to small value and small numbers and most of the financial transactions are through cash or paper instruments like cheques, demand drafts etc. A credit card is the card in which the user of the card enjoys a credit facility and has to pay the amount after sometime from the date of transaction. The user of the card has to pay some fee for the use of the card and for enjoying the credit facility. In the case of a debit card the account of the cardholder is debited as soon as the transactions is notified to the issuers. If the balance is insufficient to cover the debit either the transaction is rejected or the difference becomes payable immediately or a service charge is levied. ATM card and EFTPoS cards are the examples of the debit card as the amount is immediately 97
The Indian Institute of Bankers debited while using these cards on on-line systems. The smart card is a card with an integrated circuit (IC) or a chip. The IC contains memory and can store the value of transactions. There are two types of smart cards viz. memory smart card or store value card and microprocessor cards. The memory smart cards have been around for several years, being used in pay phones, identification, access control, etc. These are used to store a value which is counted down until the card is exhausted and then thrown away. The processor smart cards are the most advanced, and are ideally suited for banking and finance where reuse of the card is allowed with the security features. These cards have a built in memory and the processor, along with the software and encryption to perform certain financial operations. These cards are used for the fund transfers etc. A smart card project SMARS was launched in collaboration with the IIT Bombay, RBI, IDRBT, SBI and Canara Bank at the IIT Campus Powai. The project has been successful and has done the standardization for replication to other locations. Q3f Ans 3 (f) Briefly describe different approaches to Computer Audit. Computer Audit or EDP audit assumes greater importance in the context of accelerated pace of computerization taking place in the banking sector. Even though computerization leads to improvement in customer service, housekeeping, decision- making, productivity and profitability, uncontrolled use of computer may cause loss of important data and vulnerable to its abuses and frauds. Thus, protecting the assets of EDP Viz. hardware, software and data is of vital importance. Computer error may prove to be costly in the long run and loss of confidential data may attract claims for compensation. Hence it is always desirable to have a well protected and secured EDP system with proper audit and controls. Computer audit can be defined as a process of collecting and evaluating evidence to determine whether a computer system could safeguard assets through adoption of adequate security and control measures, maintain data integrity, achieve the goals of the organization effectively and result in efficient use of resources available. Approaches to Computer Audit Although the principle of audit does not undergo any change under computerized set-up, the computer audit should consider the following component of EDP environment as they effect the design of accounting system and related controls. (i) Organisational structure 98
Guidelines - JAIIB
(ii) (iii) Nature of processing Design and procedural aspects
Control measures for Computer applications Controls are necessary to achieve the objective of preventing the negative impact of certain events. Preventive controls keep undesirable events from occulting. Major EDP controls are: (i) (ii) (iii) (iv) (v) vi) System development/maintenance controls Data security / access controls Database controls Telecommunications controls Contingency planning through back-up recovery and redundancies and Systems software controls
Different methods of EDP Auditing Under computer/EDP audit, besides those methods used under manual auditing such as enquiry, observation and sampling methods, various sophisticated methods aided by computer assisted audit techniques (CAATs) are widely used. The auditing under computerized environment can be done through the following approaches. (i) (ii) (iii) Auditing around computer Auditing through computer Concurrent audit techniques
SECTION IV Q4 (a) Describe various generations of computers and discuss their advantages and disadvantages. (b) (c) Q4a Describe current trends in Hardware and Software. Critically examine the impact of Information Technology on Indian Banks.
Describe various generations of computers and discuss their advantages and disadvantages. 99
The Indian Institute of Bankers Ans 4 a Originally the term generation was limited to only hardware technology. But nowadays it has been extended to software also. The generations discussed below mainly refer to the changes in hardware technology and the respective advantages and disadvantages. The approximate period is mentioned for each generation although some overlapping may exist between the two consecutive generations. (i) FIRST GENERATION (1942-1955)
The first electronic computer ENIAC (Electronic Numerical Integrator and Calculator was designed primarily to calculate the trajectory of missiles. It consisted of high speed vacuum tube switching devices. It had a very small memory and took about 200 microseconds to add two digits and about 2800 microseconds to multiply. The use of vacuum tubes was a costly affair and those machines typically used about 10,000 tubes each with limited age. A major breakthrough in this generation was the development of concept of stored program proposed by Prof. John Von Neumann in 1946. He introduced the concept by which it became possible to store instructions in the memory along with data. These instructions could themselves be modified as required by the other instructions. Commercial production of electric computers with stored programs began in early 50s when UNIVAC was built. Writing a program on this machine was very difficult. Mostly programmer had to be a good electronics engineer so as to understand the logical structure of a computer in detail. (ii) SECOND GENERATION (1955-1964)
The greatest revolution in electronics took place with the invention of transistors. Transistors were highly reliable as compared to tubes. The switching circuits for computers made with transistors were more reliable and faster. Also they dissipated one-tenth heat and occupied one-tenth space as that of tubes. They were much cheaper than tubes. The second main step in this generation was the invention of the magnetic core storage. Magnetic cores could be used to construct large random access memories. Magnetic disk storage was also developed during this period. Writing programs on such machines was comparatively easy task. There was no need to possess the knowledge of internal structure of the machine. Programming languages like FORTRAN (Formula Translation), COBOL (Common Business Oriented Language) were developed during this period. FORTRAN was mainly used for scientific and engineering 100
Guidelines - JAIIB
calculations and COBOL for business data processing. Use of computer started dominating the industry during this period. Around 80% computers were deployed for business and industrial applications. Applications like Payroll, Inventory Control, Production planning, etc. were developed. New professions such as Programmers, Systems Analysts emerged in this generation giving new opportunities to professionals. (iii) THIRD GENERATION (1965-1974)
In this generation Germanium transistors were replaced by silicon transistors. This period witnessed the use of ICs (integrated Circuits), circuits consisting of transistors, resistors and capacitors mounted on a single chip of silicon. The technology developed from small-scale integrated circuits having 10 transistors per chip to medium scale integrated circuits having 100 transistors per chip. Switching speed and reliability increased almost ten times, resulting in to powerful CPUs with the capacity of carrying out 1 million instructions per second. Magnetic core memories were replaced by semi-conductor memories. Because of high memory, powerful CPU and large disk capacity it became possible to share the CPU time by more than one user the concept of multi-user, time-sharing emerged. (iv) FOURTH GENERATION (1975-Till now)
This generation may be identified by the arrival of microprocessor chip. The technology moved from medium scale integrated circuits to Very Large Scale Integrated Circuits (VLSI) which can hold around 50000 transistors in a single chip. This has led to emergence of extremely powerful PCs and rapid reduction of cost of computers. This also resulted into decentralization of computing with computer networking and distributed computer systems. Many improvements have taken place in speed,. memory and storage capacity. The machines became highly portable and smaller in size. (v) FIFTH GENERATION
The fifth generation of computers has been identified with the artificial intelligence. Lot of research is being done in this area with little success. Machines are being trained to mimic human capabilities beyond rule-based instructions. Efforts are being made to develop knowledge-based problem solving ability in the machine to provide human-machine interface. The input and output for the machines will be in the form of graphical images or speeches. Some success has been achieved in this regard. However, it will take a long way to develop 101
The Indian Institute of Bankers a thinking computer to mimic the human thinking process. Q. 4 b Ans 4 b Describe current trends in Hardware and Software. During the last decade there has been an unprecedented development in the Hardware and Software Technology improving the computing power tremendously. This has also led to fast obsolescence of technology. Developments in Hardware : The processing power, memory and storage of computers have been increasing day by day due to improvements in hardware technology. Spread of microprocessors has led to down sizing computing. The smart card technology and spread of kiosks has also been the result of developments in technology at an affordable cost to common man. The multimedia technology has enhanced the utility of the computer. Instructions are the basic unit for commanding the microprocessor telling it what to do. These instructions tell the microprocessor to carry out a list of steps that make up one operation. A complete collection of these lists corresponding to each instruction is called the microprocessor microcode. Instructions are hardwired into the design of the microprocessor so that the instructions can be executed at higher speeds. John Cocke analysed the uses of instructions and found that most of the work done by the computer involves relatively few basic instructions. He designed a computer that was based on a few instructions that could be executed quickly. He invented Reduced Instruction Set Computer (RISC). Intel specialized in manufacture of Complex Instruction Set Computer (CISC) processors. The RAID technology i.e. Redunant Array of Inexpensive Disks provides data protection by storing the data on array of disks in a network environment. Thus the computers are becoming smaller, faster, capable and more versatile. More and more computers will control and monitor systems used in homes, offices shops and drive equipments. Development in Software User friendly software systems, Graphic User Interface (GUI) based packages, packages for Word Processing, spread sheet, RDBMS and other office suits, groupware, software to support multimedia, Interactive software, presentation /DTP/3d/CAD software, Graphics / animation software, CASE tools, etc has enhanced the utility of the computers tremendously in different work areas. 102
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The recent development of front-end Software tools like Visual Basic, Powerbuilder, Developer 2000 etc. to work as front end tools for database like oracle, access, etc. has made the software development simpler and faster. These tools have all the facilities to develop evolutionary prototypes of the existing system, actually designing the forms to capture the data, generating reports, etc. These front-end tools can also be used for developing applications which do not require a DBMS for data support. Intelligent software agents on the Internet are set to revolutionise the way in which we search and retrieve the information, manage mail, do on-line shopping and get advice. An intelligent software agent is a self-contained, autonomous software package to act as personal assistant and to accomplish task on behalf of the user. It can work in the background; roam the Internet looking for information the user needs and collaboratively work with other agents to accomplish its task. Java programming environment is designed for use in applications that venture into industrial devices, toys, cars, cellular phones, appliances, or anything using a microprocessor. Java is widely used principally because of its platform independence. Applets written in Java can be run on any machine without any processes like compilation or linking required. Q4c Ans 4 c Critically examine the impact of Information Technology on Indian Banks. Information Technology has revolutionalised the functioning of banks and financial institutions the world over. In industrialized countries, access to any financial entity is one an on-line basis. Banks in India have only recently entered the world of Information technology. It will take sometime for Indian banks to adopt the Information Technology in a big way. While the branches of the foreign banks and the new private sector banks are fully computerized, the progress of computerisation of public sector banks has been very slow due to variety of reasons. The legacy problems due to large number of branches, opposition from trade unions, lack of infrastructure, large presence in rural areas, overstaffing, etc. are the major problems of these banks causing slow progress of computerization. However, the financial sector reforms and the opening up of the economy and its integration with global markets have created an environment to facilitate speedier computerization in the banking sector, as a means to minimizing the costs of operations and improving customer service and overall efficiency of the banking system. Impact of IT on operating cost In India the operating cost of banks is very high compared to developed countries. As per 103
The Indian Institute of Bankers some estimates the operating cost works out to be about 2.3% of the total assets resulting into higher rate of interest on credit. The extensive use of IT definitely helps in reducing the cost of operations. However, the investments in IT assets are large, it requires a large volume of transactions and operations to achieve the benefit of economy of scale as the variable cost of transactions is negligible. Impact on customer service The banks are facing tremendous pressure of competition is a liberalised environment. The biggest strategic advantage of use of IT in banks in its impact on customer service. The anywhere banking, anytime banking, the ATMs, the EFT, EFTPoS, ECS and other modes of electronic payments and settlements has given lot of convenience and leverage to the customers. With the interconnectivity of branches the funds transfers have become almost instantaneous. This has ultimately helped in reducing the business cycle, less errors, less waiting time at the branch, facility to operate remotely etc. Efficiency of the Banks Computer and communication technology has lot of impact on efficiency of banks. Use of IT has resulted in speed, accuracy, better record keeping and improving personnel productivity. The communication technology has helped in faster fund transfers, interbank and inter-branch reconciliation. The IT has also helped in auditing and implementing controls. If IT has been implemented after process re-engineering it has brought about lot of strategic advantages in terms of improved product and service and reducing costs. New Private Sector Banks and foreign Banks manage with very less number of staff and less space. Saving on staff and real estate rentals. They generally perform back office jobs at a remote locations using communication technology, like generation of different books of account, customers statements, sending cheque book, etc. and only front office jobs which require customer interface are performed in the branch.
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Guidelines - JAIIB

Chief Executive Officer February 1999

The Indian Institute of Bankers

Business Communication and Customer Relations ................................................................................................... 31

Special and Preferred Sector Finance ...................................................................... 41

Basic Accountancy ..................................................................................................... 61

Introduction to Computers ......................................................................................... 85

The Indian Institute of Bankers

INDIAN FINANCIAL SYSTEM & COMMERCIAL BANKING

The Indian Institute of Bankers

GUIDELINES FOR ANSWERING ASSOCIATE EXAMINATION-FEBRUARY 1999

Q2b Ans 2 b Q2c

ii) Foodgrains production of the country 9

Q 6 (b) Ans 6 (b)

Q 6 (c) Ans 6 (c)

Q 6 (h) Ans 6 (h) Q 6 (i) Ans 6 (i)

BUSINESS COMMUNICATION & CUSTOMER RELATIONS

The Indian Institute of Bankers

GUIDELINES FOR ANSWERING ASSOCIATE EXAMINATION-FEBRUARY 1999

Q 1 (a) Ans 1 (a) Q 1 (b)

Ans 1 (b) Q 1 (c)

Define Group and identify three discussion groups. 38

SPECIAL AND PREFERRED SECTOR FINANCE

The Indian Institute of Bankers

(c) Krishnaswamy Committee (d) (x)

Q 6 viii Ans 6 viii

The Indian Institute of Bankers

GUIDELINES FOR ANSWERING ASSOCIATE EXAMINATION-FEBRUARY 1999

Rs. 13100 Rs. 21600

Less Creditors Total 2.

To Manufacturing wages To carriage inward To Gross profit C/d

The Indian Institute of Bankers

The Indian Institute of Bankers

GUIDELINES FOR ANSWERING ASSOCIATE EXAMINATION-FEBRUARY 1999

SECTION I Q1 (a) (i) Define IT (Information Technology)

BIOS is (a) RAM (b) ROM (c) SW (d) OS

The five component of electronic computer are depicted as below

Memory Unit Output Unit Control Unit

Arithmatic/ Logical Unit

iv) Arithmetic-Logical Unit (ALU) 94

Is card Yes in stole list No Enter Pin

Is Pin Matching Yes Enter Request

Are 4 attempts over? Yes Retain Card

Any More Transaction

Card Returned Print Giver Stop

Flow Chart of ATM Operations. 96

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