Volume - XIII No.07 July 2010 Rs.20 per copy Annual Subscription Rs.

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B anking Update
events

The Journal of Institute of Banking Career & Studies, Chandigarh

Contents of this Issue

BANKING FEATURES : 2-11, 20 Nepal Remittance Scheme Dealing with Dishonoured cheque Secondary Market Derivative Products Senior Citizens' Saving Scheme Liberalised Remittance Scheme National Saving Certificate Photograph Rules Non-Convertible Debentures Diary of events - Jun, 2010: 13
Policy, Economy

Banking Developments Capital Markets & Insurance

General Awareness : 15
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Multi-Option questions:16-18
Alteration

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BANKING POLICY : 19 in Cheques

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Banking events updatE July 2010

Indo-Nepal Remittance Facility

Indo-Nepal Remittance Facility is a cross-border scheme to transfer funds from India to Nepal, available under the NEFT system. A separate Transaction Code (No. 51) has been allotted in the NEFT system to facilitate the transfer of funds from India to Nepal. A remitter can transfer funds up to Indian Rupees 50,000 from any of the NEFT-enabled branches in India to Nepal. The beneficiary would receive funds in Nepalese Rupees. Account with a bank in India : This is not a mandatory requirement. Under the Indo-Nepal Remittance Facility Scheme, even a walk-in customer in India can deposit cash up to Rs.50,000 for transfer of funds to the beneficiary in Nepal. Account with a bank in Nepal : This is not mandatory. It would be ideal if the beneficiary maintains an account with a bank branch in Nepal to which the credit could be afforded. In Nepal, the IndoNepal Remittance Facility Scheme is handled by Nepal SBI Ltd. (NSBL). If the beneficiary resides in a locality or area in Nepal not serviced by a bank branch, an arrangement has been entered into by NSBL with a money transfer company in Nepal (called Prabhu Money Transfer) who would make arrangements for delivery of cash (in Nepalese Rupees) to the beneficiary. Documents: If the remitting customer maintains an account with a bank branch in India there is no need for any additional information, documents or identification. Else, the remitter has to submit documents for proof of identification such as Passport / Permanent Account Number / Driving License / Telephone Bill / Certificate of Identification issued by his employer with photograph and other details. The information will be captured in the NEFT system as part of compliance with the Know Your Customer (KYC) requirements. Complete address and telephone / mobile number of the beneficiary in Nepal will also be required. Transactions flow from India to Nepal: Remittances can be originated from any of the NEFT-enabled branches in India. The transactions from the originating bank branch flow in the NEFT system to the designated branch of State Bank of India (SBI) in India. SBI then consolidates all such remittance information received during the day. At the end of the day, the remittance information is conveyed electronically in a secured mode to Nepal SBI Bank Ltd. (NSBL). NSBL then makes arrangements for credit to the bank account of the beneficiary if the beneficiary account details are available. Else, NSBL disburses funds in cash to the beneficiary through the authorised money transfer company. The beneficiary has to approach the local branch of the money transfer company, furnish the UTR number (also called as the Unique Transaction Reference number that uniquely identifies a transaction in the NEFT system that can be obtained from the remitter), and produce a photo identity document (generally Nepal Citizenship Certificate) to prove his identity. If the beneficiary does not approach the money transfer company within a week from the date of the transaction, the money transfer company would make arrangements for return of the remittance to the originator. Money not delivered : The amount of remittance will flow back to the originating bank branch in India through the NEFT system and

the bank branch would then communicate to the remitter about return of the remittance. If the remittance was originated by debit to an account of the remitter with the bank branch, the returned amount will be credited to the account. If the remittance was by a walk-in customer through a cash deposit, the remitter has to produce evidence of proof of remittance (counterfoil of the remittance application form) for refund of the cash deposited. Charges : As the facility is targeted at the migrant Nepali workers in India, concessional charges are envisaged for transfer of funds under the Indo-Nepal remittance scheme. The charges are as under a. Originating bank branch in India Maximum Rs. 5 per transaction. b. State Bank of India in India Rs. 20 per transaction if the beneficiary maintains an account with Nepal SBI Ltd. (NSBL). c. State Bank of India shares this amount equally with NSBL. NSBL would not charge any additional amount for crediting the account of the beneficiary. d. In case the beneficiary does not maintain an account with NSBL, an additional amount would be charged @ Rs. 50 for remittances up to Rs. 5,000 and Rs. 75 for remittances above Rs. 5,000. The charges would, thus, be a minimum of Rs. 25 or a maximum of Rs. 100 depending on the value of transaction and the manner in which credit is afforded to the beneficiary. Originating bank branches have been advised to recover the entire charges from the remitter as per the structure detailed above and pass on the appropriate amount to SBI after retaining their share (of Rs. 5). Number of remittance: An originator in India is allowed to remit a maximum of 12 remittances in a year under the scheme. Redressal of grievances: In case of complaints relating to non-credit or delay in credit to the beneficiary account or for complaints of any other nature, the NEFT Customer Facilitation Centre (CFC) of the respective bank (the originating bank and / or SBI) can be contacted. Details of NEFT Customer Facilitation Centres of banks are available on the websites of the respective banks. If the issue is not resolved satisfactorily, the NEFT Help Desk (or Customer Facilitation Centre of Reserve Bank of India) at National Clearing Cell, Reserve Bank of India, Mumbai may be contacted.
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Dealing with Dishonoured Cheque

As part of Customer Service guidelines, RBI has framed following Rules to be followed by banks, in case of dishonour of cheques: Returning of dishonoured cheques: These instruments should be despatched to the customer promptly without delay, in any case within 24 hours.
Procedure for return/ despatch of dishonoured cheques

COURSE

CORRESPONDENCE

(i) The paying bank should return such cheques presented through clearing houses strictly as per the return discipline prescribed for respective clearing house in terms of Uniform Regulations And Rules for Bankers Clearing Houses. (ii) In relation to cheques presented direct to the paying bank for settlement of transaction by way of transfer between two accounts with that bank, it should return such dishonoured cheques to payees/ holders immediately. (iii) Cheques dishonoured for want of funds in respect of all accounts should be returned along with a memo indicating therein the reason for dishonour as insufficient funds.
Information on dishonoured cheques

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Data in respect of each dishonoured cheque for amount of Rs.1 crore and above should be made part of banks MIS and concerned branches should report such data to their respective controlling office / Head Office. Data in respect of cheques drawn in favour of stock exchanges and dishonoured should be consolidated separately by banks irrespective of the value of such cheques as a part of their MIS relating to broker entities, and be reported to their respective Head Offices / Central Offices.
Dealing with incidence of frequent dishonour

(i) With a view to enforce financial discipline among the customers, banks should introduce a condition for operation of accounts with cheque facility that in the event of dishonour of a cheque valuing Rs.1 cr and above drawn on a particular account of the drawer on 4 occasions during the financial year for want of sufficient funds in the account, no fresh cheque book would be issued. Also, the bank may consider closing current account at its discretion. However, in respect of advances accounts such as cash credit or overdraft account, the need for continuance or otherwise of these credit facilities and the cheque facility relating to these accounts should be reviewed by appropriate authority higher than the sanctioning authority. (ii) For introduction of the condition mentioned at (i) above in relation to operation of the existing accounts, banks may, at the time of issuing new cheque book, issue a letter advising the constituents of the new condition. (iii) If a cheque is dishonoured for a 3rd time on a particular account of the drawer during the financial year, banks should issue a cautionary advice to the customer drawing his attention to the condition and consequential stoppage of cheque facility in the event of cheque being dishonoured on 4th occasion on the same account during the financial year. Similar cautionary advice may be issued if a bank intends to close the account. General: (i) For the purpose of adducing evidence to prove the fact of dishonour of cheque on behalf of a complainant (i.e. payee / holder of a dishonoured cheque) in any proceeding relating to dishonoured cheque before a court, consumer forum or any other competent authority, banks should extend full co-operation, and should furnish him/her documentary proof of fact of dishonour of cheques. (ii) Banks should place before their Audit/ Management Committee, every quarter, consolidated data in respect of the matters referred to above.
Framing appropriate procedure for dealing with dishonoured cheques

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Course is based on exam pattern of IIB&F. A large no. of candidate have succeeded in all 3 papers in first attempt with our study material. Course Kit : The course kit include: (a) subject-wise basic study material, (b) assignment to improve retention (c) objective type practice exercise (d) mock test papers. Fee : Rs.850 per subject. Fee payable in advance by DD on Chandigarh or in cash across our counter or credit to our PNB-CBS account. How to enrol : To enrol, advise name, address for correspondence, eMail id, mobile phone, bank name, subjects for enrolment.

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Banks have also been advised to adopt, appropriate procedure for dealing with dishonoured cheques with inherent preventive measures and checks to prevent any scope for collusion of the staff of the bank or any other person, with the drawer of the cheque for causing delay in or withholding the communication of the fact of dishonour of the cheque to the payee/ holder or the return of such dishonoured cheque to him.

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Banking events updatE July 2010

Secondary Capital Market

Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. It comprises of equity markets and the debt markets.
Primary market and the secondary market

In the primary market, securities are offered to public for subscription for raising capital. Secondary market could be either auction or dealer market. While stock exchange is the part of an auction market, Over-theCounter (OTC) is a part of the dealer market.
SEBI and its Role in the Secondary Market

The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto.
Products available in the Secondary Market

Following are the main financial products/instruments dealt in the secondary market: Equity: The ownership interest in a company of holders of its common and preferred stock. The various kinds of equity shares are as follows:Equity Shares: An equity share, commonly referred to as ordinary share also, represents the form of fractional ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holders of such shares are members of the company and have voting rights. Rights Issue / Rights Shares: The issue of new securities to existing shareholders at a ratio to those already held. Bonus Shares: Shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years. Preferred Stock / Preference shares: Owners of these kinds of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the companys creditors, bondholders / debenture holders. Cumulative Preference Shares: A type of preference shares on which dividend accumulates if remains unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares. Cumulative Convertible Preference Shares: A preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into company's equity capital. Participating Preference Share: The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for, is paid. Participation right is linked with the quantum of dividend paid on the equity shares over and above a particular specified level.
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BANKING FEATURES Security Receipts: Security receipt means a receipt or other security, issued by a securitisation company or reconstruction company to any qualified institutional buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, title or interest in the financial asset involved in securitisation. Government securities (G-Secs): These are sovereign (credit risk-free) coupon bearing instruments which are issued by the RBI on behalf of Govt of India, in lieu of the Central Governments market borrowing programme. These securities have a fixed coupon that is paid on specific dates on half-yearly basis. These securities are available in wide range of maturity dates, from short dated (less than one year) to long dated (up to 30 years). Debentures: Bonds issued by a company bearing a fixed rate of interest usually payable half yearly on specific dates and principal amount repayable on particular date on redemption of the debentures. Debentures are normally secured / charged against the asset of the company in favour of debenture holder. Bond: A negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan. The various types of Bonds are as follows: Zero Coupon Bond: Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond. Convertible Bond: A bond giving investor, the option to convert the bond into equity at a fixed conversion price. Commercial Paper: A short term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary. It is usually issued by companies with a high credit standing in the form of a promissory note redeemable at par to the holder on maturity and therefore, doesnt require any guarantee. Commercial paper is a money market instrument issued normally for tenure of 90 days. Treasury Bills: Short-term (up to 91 days) bearer discount security issued by the Government as a means of financing its cash requirements. Regulatory requirements specified by SEBI for corporate debt securities: The Corporate Bonds includes all debt securities issued by institutions such as Banks, Public Sector Undertakings, Municipal Corporations, bodies corporate and companies having a tenure of more than 365 days. Such an issue of bonds, if offered to the public shall be required to comply with the SEBI (Disclosure and Investor Protection Guidelines), 2000. Also, a private placement of corporate bonds made by a listed company shall be required to comply with provisions contained in SEBI Circulars in this regard.

BANKING FEATURES

Banking events updatE July 2010

Derivative Products in Capital Market

Derivatives : The term Derivative indicates that it has no independent value,

i.e. its value is entirely derived from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. A derivative means a forward, future, option or any other hybrid contract of pre-determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities. Futures Contract : Futures Contract means a legally binding agreement to buy or sell the underlying security on a future date. Future contracts are the organized/standardized contracts in terms of quantity, quality (in case of commodities), delivery time and place for settlement on any date in future. The contract expires on a pre-specified date which is called the expiry date of the contract. On expiry, futures can be settled by delivery of the underlying asset or cash. Cash settlement enables the settlement of obligations arising out of the future/option contract in cash. Option contract: Options Contract is a type of Derivatives Contract which gives the buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying asset at a predetermined price within or at end of a specified period. The buyer / holder of the option purchases the right from the seller/ writer for a consideration which is called the premium. The seller/writer of an option is obligated to settle the option as per the terms of the contract when the buyer/holder exercises his right. The underlying asset could include securities, an index of prices of securities etc. An Option to buy is called Call option and option to sell is called Put option. Further, if an option that is exercisable on or before the expiry date is called American option and one that is exercisable only on expiry date, is called European option. The price at which the option is to be exercised is called Strike price or Exercise price. An option contracts can be settled by delivery of the underlying asset or cash.
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Futures contract based on an index i.e. the underlying asset is the index, are known as Index Futures Contracts. For example, futures contract on NIFTY Index and BSE-30 Index. These contracts derive their value from the value of the underlying index.
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Risk Management Financial Management

The options contracts, which are based on some index, are known as Index options contract. Unlike Index Futures, the buyer of Index Option Contracts has only the right but not the obligation to buy / sell the underlying index on expiry. Index Option Contracts are generally European Style options i.e. they can be exercised / assigned only on the expiry date. An index, in turn derives its value from the prices of securities that constitute the index and is created to represent the sentiments of the market as a whole or of a particular sector of the economy. Indices that represent the whole market are broad based indices and those that represent a particular sector are sectoral indices. Bond Index: A bond index is used to measure the performance of bond markets. The index is used as a benchmark against which investment managers measure their performance. It is also used as a measure to compare the performance of different asset classes. The government bond market is the most liquid segment of the bond market. Volatility Index : It is a measure of expected stock market volatility, over a specified time period, conveyed by the prices of stock / index options. It depicts a collective sentiment of market on the implied future volatility.

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BANKING FEATURES admissible under the scheme.

Minimum limit for deduction of tax at source : Tax is to be deducted at source if the interest paid or payable exceeds Rs.5000/- during the financial year. (GOI letter F. No.2/8/ 2004/NS-II dated June 06, 2006). Nomination : The depositor may nominate a person or persons or change the nomination, on Form C. Nomination can be made in joint account also. In such a case, the joint holder will be the first person entitled to receive the amount payable in the event of death of the depositor. The nominees claim shall arise only after the death of both the joint holders. In case of a joint account, if the first holder / depositor expires before the maturity of the account, the spouse may continue the account on the same terms and conditions as specified under the SCSS Rules. However, if the second holder i.e. spouse has his / her own individual account, the aggregate of his/her individual account and the deposit amount in the joint account of the deceased spouse should not be more than the prescribed maximum limit. In case the maximum limit is breached, then the remaining amount shall be refunded, so that the aggregate of the individual account and deceased spouses joint account is maintained at the maximum limit. Retirement benefits for the purpose of SCSS Rules have been defined as any payment due to the depositor on account of retirement whether on superannuation or otherwise and includes Provident Fund dues, retirement / superannuation gratuity, commuted value of pension, cash equivalent of leave, savings element of Group Savings linked Insurance scheme payable by employer to the employee on retirement, retirement-cum-withdrawal benefit under the Employees Family Pension Scheme and ex-gratia payments under a voluntary retirement scheme (Rule 2 (a) of the Senior Citizens Savings Scheme (Amendment) Rules, 2004 notified on October 27, 2004) In case an investor has attained the age of 60 years and above, the source of amount being invested is immaterial. However, if the investor is 55 years or above but below 60 years and has retired under a voluntary scheme or a special voluntary scheme or has retired from the defence services, only the retirement benefits can be invested in the SCSS. Period prescribed for opening deposit account under the SCSS scheme:

Senior Citizen's Saving Scheme 2004

The scheme provides assured return to Senior Citizens. The salient features are: Tenure : 5 years (can be extended by 3 more years). Rate of interest : 9 per cent per annum. Frequency of computing interest is Quarterly. Taxability & TDS : Interest is fully taxable. Tax will be deducted at source. Facility of submission of Form 15H or 15G is available to avail the exemption from TDS. Investment limit: Max Rs. 15 lakh in multiple of Rs.1000. Minimum eligible age for investment: 60 years (55 years for those who have retired on superannuation or under a voluntary or special voluntary scheme). The retired personnel of Defence Services (excluding Civilian Defence Employees) shall be eligible to invest irrespective of the age limits (by fulfillment of other specified conditions). Transferability and tradabilty : Not transferable to others and not tradable also. Modes of holding: Accounts can be held both in single and joint holding modes. Joint holding is available only with spouse. Operation of the scheme: Post Offices, designated branches of 24 public sector banks and 1 private bank. Non resident Indians, Persons of Indian Origin and HUF are not eligible to open an account under the scheme. Transfer from one deposit office to another: Transfer of account from one deposit office to another in case of change of residence is permitted by submitting Form G. If the deposit amount is Rs.1 lac or above, a transfer fee of Rs.5 per lakh of deposit for the first transfer and Rs.10 per lakh of deposit for the second and subsequent transfers shall be payable. Loan : The facility of pledging the deposit / account under the SCSS, 2004 for obtaining loans, has not been permitted. Premature withdrawal of the deposits: It is available after completion of 1 year from the date of opening of account after deducting the penalty amount as given below : (i) If the account is closed after 1 year but before expiry of 2 years from the date of opening of the account, an amount equal to 1.5% of deposit amount shall be deducted. (ii) If the account is closed on or after the expiry from the date of opening of the account, an amount equal to 1% of the deposit shall be deducted Age of the spouse in case of a joint account : In case of a joint account, the age of the first applicant / depositor is the only factor to decide the eligibility to invest under the scheme. There is no age bar/limit for the second applicant / joint holder (i.e. spouse). Share of the joint account holder in the deposit: The whole amount of investment in an account under the scheme is attributed to the first applicant / depositor only. Both the spouses can open individual and / or joint accounts with each other with the maximum deposits upto Rs.15 lakh each, if both are individually eligible to invest. Income tax rebate : No income tax / wealth tax rebate is

If the investor is 60 years and above, there is no time period prescribed for opening the SCSS account(s). However for those below 60 years, the time period prescribed are : (a) the persons who have attained the age of 55 years or more but less than 60 years and who retired under a voluntary retirement scheme or a special voluntary retirement scheme on the date of opening of an account under these rules, subject to the condition that the account is opened by such individual within 3 months of the date of retirement. (b) the retired personnel of Defence Services (excluding Civilian Defence Employees) shall be eligible to subscribe under the scheme irrespective of the above age limits.

BANKING FEATURES

Banking events updatE July 2010

Indian Economy - Statistics

On May 31 , 2010, the Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation, released the revised estimates of national income for the financial year 2009-10, both at constant (2004-05) and current prices. At Constant Prices (2004-05) Parameter 2009-10 2008-09 %chg GDP at factor cost 4464081 4154973 7.4% Gross National Income 4439072 4138174 7.3% Per Capita National income 33588 31821 5.6% At current prices (2009-10) GDP at factor cost 5868331 5228650 12.2% Gross National Income 5835493 5207534 12.1% Per Capita National income 44345 40141 10.5% Private final consumption exp 3571999 3218198 Govt. final consumption exp 767409 653132 Gross Fixed capital formation 2018916 1839499 Other important information: 1. In the agriculture sector, the third advance estimates of crop production released by the Ministry of Agriculture showed a growth rate of 0.2 per cent, as against the growth rate of (-) 0.2 per cent in the Advance estimates. 2. In the case of mining and quarrying, the Index of Industrial Production of Mining (IIPMining) registered a growth rate of 9.7 per cent during 2009-10, as against the growth rate of 8.3 per cent during April-November, 2009, which was used in the Advance Estimates. Due to this increase in the IIP-Mining, the growth rate in GDP is now estimated at 10.6 per cent, as against the advance estimate growth rate of 8.7 per cent. 3. Similarly, the IIP of manufacturing registered a growth rate of 10.9 per cent during 2009-10, as against the growth rate of 7.7 per cent during April-November, 2009. Due to this increase in the IIP, the GDP of manufacturing sector is now estimated at 10.8 per cent, as against the Advance estimate growth rate of 8.9 per cent. 4. The sectors which showed growth rates of 5 per cent or more, are mining and quarrying (10.6 per cent), manufacturing (10.8 per cent), electricity, gas and water supply (6.5 per cent) construction (6.5 per cent), trade, hotels, transport and communication (9.3 per cent), financing, insurance, real estate and business services (9.7 per cent), and community, social and personal services (5.6 per cent). The agriculture, forestry and fishing sector, however registered a growth rate of 0.2 per cent.
st

Credit Risk Claims - Risk Weights for CAR

Assets/Claim Risk Weight Fund and non-fund based claims on Central Govt. 0% Direct loans/credit exposure to State Govt. 0% Loans guaranteed by State Govt. 20% Claim on RBI, DICGC and CGTMSE 0% Claims on ECGC 20% Amount receivable from Govt. of India under Agr Debt 0% Waiver Scheme 2008
Claims

on Foreign govt : AAA, AA rating from S&P/Fitch 0% (20% for A, 50% for BBB, 100% for BB and B, unrated 100%) Claims on foreign public sector enterprises: Same as in case of foreign govt. Monetary Fund and Multi-lateral development banks (like IBRD, IFC, ADB etc.) 20% (other than investments) on Domestic Banks with CAR of 9% or above - 20% (50% for CAR of 6% to < 9%, 100% for CAR of 3% to < 6%, 150% for CAR of 0% to < 3% and 625% for negative CAR) Claims on foreign banks with AAA and AA rating from S&P 20% (50% for A & BBB, 100% for BB and B, for unrated 50%) Long term Claims on domestic corporate with AAA rating 20% (30% for AA, 50% for A, 100% for BBB and unrated 100%) CRISIL 20% (30% for P1, 50% for P2, 100% for P3, 150% for P4 & P5) (loan amount up to Rs.5 cr) 75%

Claims on Bank for international Settlement, International

Claims

Short term claims on domestic corporate with P1+ rating from

Claim in regulatory retail portfolio including education loans

House loans with Loan to value ratio up to 75% for loan up to Rs.30 lac 50% (for loan above Rs.30 lac 75% House loans with Loan to value ratio more than 75% Commercial Real estate exposure 100% 100%

Capital

Market exposure, credit cards, personal loans, consumer loans 125% Unsecured portion of NPA where provision is less than 20% (if provision is at least 20% - 100% and if provision is at least 50% - 50% 150% Claims on venture capital funds 150% Staff loans secured by mortgages or charge on superannuation benefits 20% Other staff loans 75%
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BANKING FEATURES

Liberalised Remittance Scheme

RBI allowed (Feb 04, 2004) resident individuals to freely remit up to USD 25000 (raised to US $ 200000 later on) per financial year, including the remittances towards gift and donation. Eligibility: All resident individuals including minors, are eligible. The facility is not available to corporates, partnership firms, HUF, Trusts, etc. Other features: Remittances under the facility can be consolidated in respect of family members subject to individual family members complying with the terms and conditions of the Scheme. For undertaking transactions under the Scheme, it is mandatory to have PAN number to make remittances under the Scheme. Foreign currency accounts with a bank outside India can be opened, maintained and held without prior approval of RBI. These may be used for all transactions connected with or arising from remittances eligible under this scheme. The facility is in addition to those already available for private travel, business travel, donations, studies, medical treatment etc. Purpose of remittance: For any current /capital account transactions or a combination of both such as: for acquiring and holding immovable property or shares (of listed companies or otherwise) or debt instruments or any other asset outside India. for purchasing objects of art. for remittance of funds for acquisition of ESOPs. The Scheme is in addition to acquisition of ESOPs linked to ADR / GDR and acquisition of qualification shares. investment in units of Mutual Funds, Venture Funds, unrated debt securities, promissory notes, etc. An individual who has availed of a loan abroad while as a non resident, can repay the same on return to India under the Scheme as a resident. Mode of remittance: The Scheme can be used for outward remittance in the form of a DD either in the resident individuals own name or in the name of beneficiary with whom he intends putting through the permissible transactions at the time of private visit abroad, can be effected, against self declaration of the remitter in the format prescribed. Loan facility : Banks should not extend any kind of credit facilities to resident individuals to facilitate remittances under the Scheme. Remittances not available underthe scheme: i. Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery/sweep stakes, tickets, prescribed magazines etc.) or item restricted under Schedule II of FEMA (Current A/c Transactions) Rules, 2000. ii. Remittances made to Bhutan, Nepal, Mauritius or Pakistan. iii. Remittances made to countries identified by the Financial Action Task Force (FATF) as non co-operative countries and territories as available on FATF website (viz Cook Islands, Egypt, Guatemala, Indonesia, Myanmar, Nauru, Nigeria, Philippines and Ukraine) or as notified by RBI. iv. Remittances to individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by RBI to the banks. Reporting of the transactions: The remittances made will be reported in the RReturn in the normal course. The ADs may also prepare and keep on record dummy Form A2, in respect of remittances exceeding USD 5000. Beginning from April 2008, AD Category I banks are required to furnish the information on a monthly basis, to RBI on or before 5th of the following month to which it relates. This statement in the revised format should be forwarded through Online Returns Filing System (ORFS).

Accounts of Foreign Nationals / Tourists

Who can open: Foreign tourists during their short visit to India can open a Non-Resident (Ordinary) Rupee (NRO) account (Current / Savings) with any AD bank dealing in foreign exchange. Such account can be opened up to a maximum period of 6 months. Documents : Passports and other valid identification proofs are required for opening the accounts. AD banks are also required to follow the Know Your Customer norms while opening of the accounts. Credits to account: Funds remitted from outside India through banking channel or those obtained by sale of foreign exchange brought by the tourists to India can be credited to the NRO account. Debits: Tourists can freely make local payments through the NRO account. All payments to residents exceeding INR 50,000 can be made only by means of cheques / pay orders / demand drafts. Repatriate of the balance held in their NRO account: AD banks have been allowed to convert the balance in the account for payment to the account holder at the time of departure from India into foreign currency, provided the account has been maintained for a period not exceeding six months and the account has not been credited with any local funds, other than interest accrued thereon. Account maintained for more than 6 months: In such cases, applications for repatriation of balance may be made on plain paper to the Foreign Exchange Department of the Regional Office concerned of RBI through the AD bank maintaining the account. Foreign nationals resident in India : Foreign nationals resident in India can open and maintain a resident Rupee account in India in terms of Notification No.5/2000-RB dated May 3, 2000 viz., Foreign Exchange Management (Deposit) Regulations, 2000, as amended from time to time. Remittance of proceeds of such accounts on closure: Proceeds can be remiitted. But AD Category-I banks should ensure that the funds to be repatriated outside India were either received from abroad or they are repatriable in nature or permissible in terms of RBI notification dated 3rd May 2000, as amended from time to time.

BANKING FEATURES

Banking events updatE July 2010

National Saving Certificate

NSCs are certificates issued by Deptt of Post, Govt of India and are available at all post office counters. It is a long term savings option for the investors. The scheme combines growth in money with reductions in tax liability as per the provisions of the Income Tax Act, 1961. Features Maturity: The duration of a NSC is 6 years. Denomination: NSCs are issued in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. Maximum amount of investment: There is no prescribed upper limit on investment. Who can purchase: Individuals, singly or jointly or on behalf of minors. Trust and HUF cannot invest. Nomination: One person can be nominated for certificates of denomination of Rs. 100. More than one person can be nominated for higher denominations. Transferability: The certificates are easily transferable from one person to another through the post office. There is a nominal fee for registering the transfer. They can also be transferred from one post office to another. Loan: A loan can be obtained against the security of NSC by pledging it to a scheduled bank or a co-operative society, a corporation or a government company, a housing finance company approved by the National Housing Bank etc with the permission of the concerned post master. Premature encashment: Under sub-rule (1) of rule 16 it is possible after the expiry of 3 years from the date of purchase of certificate. Tax benefits : Benefits are available on amounts invested in NSC u/s 88, and exemption can be claimed u/s 80L for interest accrued on the NSC. Interest accrued for any year can be treated as fresh investment in NSC for that year and tax benefits can be claimed under section 88. Investment up to Rs. 1,00,000/- per annum qualifies for IT Rebate under section 80C of IT Act. Return : It is having an interest rate at 8% compounded half yearly. Post maturity interest will be paid for a maximum period of 24 months at the rate applicable to individual savings account. The maturity value of a Rs1000 certificate will Rs. 1601 on completion of 6 years. Amount of Annual Interest for NSC Certificate of Rs 1000. At the end of 1 year: Rs 81.60 At the end of 2 year: Rs 88.30 At the end of 3 year: Rs 95.50 At the end of 4 years: Rs103.30 At the end of 5 years: Rs 111.70 At the end of 6 years: Rs 120.80
Risk Management 4th Edn Rs.150 Financial Mgmt 4th Edn Rs.125 General Mgmt 4th Edn Rs150

Customer Photograph Rules

As per RBI guidelines on Customer Service, the Banks should obtain and keep on record photographs of all depositors/account holders in respect of accounts opened by them subject to the following clarifications: (i) The instructions cover all types of deposits including fixed, recurring, cumulative, etc. (ii) They apply to all categories of depositors, whether resident or non-resident. Only banks, Local Authorities and Government Departments (excluding public sector undertakings or quasi-Government bodies) will be exempt from the requirement of photographs. (iii) The banks may not insist on photographs in case of accounts of staff members only (Single/Joint). (iv) The banks should obtain photographs of all persons authorised to operate the accounts viz. Savings Bank and Current accounts without exception (v) The banks should also obtain photographs of the Pardanishin women. (vi) The banks may obtain 2 copies of photographs and obtaining photocopies of driving licences/passport containing photographs in place of photographs, would not suffice. (vii) The banks should not ordinarily insist on the presence of account holder for making cash withdrawals in case of self or bearer cheques unless the circumstances so warrant. The banks should pay self or bearer cheques taking usual precautions. (viii) Photographs cannot be a substitute for specimen signatures. (ix) Only one set of photographs need be obtained and separate photographs should not be obtained for each category of deposit. The applications for different types of deposit accounts should be properly referenced. (x) Fresh photographs need not be obtained when an additional account is desired to be opened by the account holder. (xi) In the case of operative accounts, viz. Savings Bank and Current accounts, photographs of persons authorised to operate them should be obtained. In case of other deposits, viz., Fixed, Recurring, Cumulative, etc., photographs of all depositors in whose names the deposit receipt stands may be obtained except in the case of deposits in the name of minors where guardians photographs should be obtained.
Accounting & Finance 4th Edn Legal Aspects of Banking 4th Edn Legal Aspects of Banking 4th Edn

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BANKING FEATURES depositories approved by and registered with SEBI. 2. CP will be issued at a discount to face value as may be determined by the issuer. 3. No issuer shall have the issue of CP underwritten or co-accepted. Preference for Dematerialisation :While option is available to both issuers and subscribers to issue/hold CP in dematerialised or physical form, issuers and subscribers are encouraged to prefer exclusive reliance on dematerialised form of issue/ holding. Wef June 30, 2001, banks, FIs and PDs are can make fresh investments and hold CP only in dematerialised form. Payment of CP : The initial investor in CP shall pay the discounted value of the CP by means of a crossed account payee cheque to the account of the issuer through IPA. On maturity of CP when , CP is held in physical form, the holder of CP shall present the instrument for payment to the issuer through the IPA. However, when CP is held in demat form, the holder of CP will have to get it redeemed through the depository and receive payment from the IPA. Stand-by Facility : In view of CP being a stand alone product, it would not be obligatory in any manner on the part of the banks and FIs to provide stand-by facility to the issuers of CP. Banks and FIs have, however, the flexibility to provide for a CP issue, credit enhancement by way of standby assistance/credit, back-stop facility etc. based on their commercial judgement. Non-bank entities including corporates may also provide unconditional and irrevocable guarantee for credit enhancement for CP issue subject to certain conditions. Procedure for Issuance : Every issuer must appoint an IPA for issuance of CP The issuer should . disclose to the potential investors its financial position as per the standard market practice. After the exchange of deal confirmation between the investor and the issuer, issuing company shall issue physical certificates to the investor or arrange for crediting the CP to the investors account with a depository. Investors shall be given a copy of IPA certificate to the effect that the issuer has a valid agreement with the IPA and documents are in order.
Role and responsibilities of IPA:

Commercial Paper
Commercial Paper (CP), introduced in 1990, is an unsecured, privately placed, money market instrument, issued in the form of a promissory note.
Who can Issue Commercial Paper (CP):

Corporates, primary dealers (PDs) and the all-India financial institutions (FIs) that have been permitted to raise short-term resources under the umbrella limit fixed by RBI. Eligibility criteria for a corporate: (a) Minimum tangible net worth of Rs.4 crore, as per the latest audited balance sheet, (b) company has been sanctioned working capital limit by bank/s or financial institution/s; and (c) the borrowal account of the company is classified as a Standard Asset. Rating Requirement: All eligible participants shall obtain the credit rating for issuance of Commercial Paper from either CRISIL or ICRA or CARE) or FITCH Ratings India Pvt. Ltd. The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies. The issuers shall ensure that at the time of issuance of CP, the rating so obtained is current and has not fallen due for review. Maturity: CP can be issued for maturities between a minimum of 7 days and a maximum up to one year from the date of issue. The maturity date of the CP should not go beyond the date up to which the credit rating of the issuer is valid. Denominations: CP can be issued in denominations of Rs.5 lakh or multiples thereof. Amount invested by a single investor should not be less than Rs.5 lakh (face value). Limits and the Amount of Issue of CP : CP can be issued as a stand alone product. The aggregate amount of CP from an issuer shall be, within the limit as approved by its Board of Directors or the quantum indicated by the Credit Rating Agency for the specified rating, whichever is lower. Banks and FIs will, however, have the flexibility to fix working capital limits duly taking into account the resource pattern of companies financing including CPs. Issue of CP by FIs: An FI can issue CP within the overall umbrella limit fixed by the RBI, i.e., issue of CP together with other instruments, viz., term money borrowings, term deposits, certificates of deposit and inter-corporate deposits should not exceed 100 per cent of its net owned funds, as per the latest audited balance sheet. Time limit: The total amount of CP proposed to be issued should be raised within a period of 2 weeks from the date on which the issuer opens the issue for subscription. CP may be issued on a single date or in parts on different dates provided that in the latter case, each CP shall have the same maturity date. Every issue of CP, including renewal, should be treated as a fresh issue. Who can Act as Issuing and Paying Agent (IPA) : Only a scheduled bank can act as an IPA for issuance of CP. Investment in CP :CP may be issued to and held by individuals, banking companies, other corporate bodies registered or incorporated in India and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs). However, investment by FIIs would be within the limits set for their investments by Securities and Exchange Board of India (SEBI). Mode of Issuance :1. CP can be issued either in the form of a promissory note or in a dematerialised form through any of the
Source : Website of RBI

(i) IPA would ensure that issuer has the minimum credit rating as stipulated by RBI and amount mobilised through issuance of CP is within the quantum indicated by CRA for the specified rating or as approved by its Board of Directors, whichever is lower. (ii) Every CP issue should be reported to RBI. (iii) IPAs should report the details of CP issue on NDS platform within two days from the date of completion of the issue.

Banking events updatE July 2010 11

Credit Cards
The credit card refers to a plastic card assigned to a cardholder, with a credit limit, that can be used to purchase goods and services, on credit. Mechanism: Credit cards allow cardholders to pay for purchases made over a period of time and to carry the balance from one billing cycle to the next. The payment for these purchases normally becomes due after a free credit period, during which no interest or finance charge is imposed. Interest is charged on the unpaid balance after the payment is due. Cardholders may pay the entire amount due and save on the interest that would otherwise be charged.
Parties in Credit Card Scheme:

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Cardholders - persons who are authorized to use credit cards for the payment of goods and services; Card issuers - institutions including banks, which issue credit cards; Merchants - entities which agree to accept credit cards for payment of goods and services; Merchant acquirers Banks/NBFCs which enter into agreements with merchants to process their credit card transactions; and Credit card associations - organisations that license card issuers to issue credit cards under their trademark, e.g. Visa and MasterCard, and provide settlement services for their members (i.e. card issuers and merchant acquirers).
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Balance

1. Banks in India can undertake credit card business either departmentally or through a subsidiary company set up for the purpose. They can also undertake domestic credit card business by entering into tie-up arrangement with one of the banks already having arrangements for issue of credit cards. 2. Prior approval of RBI is not necessary for undertaking credit card business by banks where their networth is at least Rs.100 crore. 3. Most of the card issuing banks in India offer general purpose credit cards categorised by banks as platinum, gold or classic to differentiate the services offered on each card and the income eligibility criteria. Banks may, at the request of a cardholder, issue a supplementary card (also referred to as add-on cards) to another individual who is usually an immediate family member of the cardholder. Credit cards and KYC: The card issuing banks/NBFCs are solely responsible for fulfillment of all KYC requirements. Interest rates and other charges: Banks are free to determine the rate of interest on credit card dues without reference to their BPLR. Wrongful billing: In case, a customer protests any bill, the bank/NBFC should provide explanation to the customer within a maximum period of 60 days. Unsolicited cards :In case, an unsolicited card is issued and activated without the written consent of the recipient and the latter is billed for the same, the issuing bank shall not only reverse the charges forthwith, but also pay a penalty without demur to the recipient amounting to twice the value of the charges reversed. Redressal of Grievances: A time limit of 60 days may be given to the customers for preferring their complaints / grievances. If a complainant does not get satisfactory response from the bank/NBFC which is a subsidiary of a bank within a maximum period of 30 days from the date of his lodging the complaint, he will have the option to approach the Banking Ombudsman for redressal of his grievance/s. Fraud Control: With a view to reducing the instances of misuse of lost/stolen cards, RBI has suggested that banks may consider issuing (i) cards with photographs of the cardholder (ii) cards with PIN and (iii) signature laminated cards. Right to impose penalty: RBI reserves the right to impose any penalty under the provisions of the Banking Regulation Act, 1949/the Reserve Bank of India Act, 1934, respectively for violation of any of the guidelines.

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Banking Ombudsman Cases Case-1 A cheque drawn by the EPF Department on the ABC Banks Nasik branch for Rs.21.36 lakh was sent to XYZ Bank, New Delhi for credit to the account of the complainant. The amount was not credited to the complainants account advising that it had not received the cheque. The complainant, however, obtained the Proof of Delivery from Post Office in support of the claim that it was delivered to the XYZ bank. It transpired that the XYZ bank had actually misplaced the cheque before sending it for collection to ABC Bank and it had already furnished an affidavit to the EPF Department reporting the misplacement of the cheque and requesting for a duplicate cheque. With the intervention of Ombudsman, the bank credited an amount of Rs.18,894/- as interest on the delayed payment since date of deposit of the cheque. Case-2 : The complainant was holding a credit card of a foreign bank. He complained that a caller from the bank persisted in selling Medical Insurance Benefit Scheme to the card holder though he as well as his family members did not require the same. After a few days he received a policy in the name of his son and daughter without taking his approval. When he called up the bank in June 2006, he was assured that the policies would be cancelled and later it was confirmed as well. But after a few days, he was advised to send a cancellation request by fax. The statement received showed unpaid balance. The complainant again sent two faxes in August and September 2006 for cancellation of the policies. In the conciliation meeting held by Ombudsman on 19 January 2009, the bank official stated that there was a recorded telephonic conversation with an Insurance Company and the bank had debited the account of the customer on the mandate received by the Insurance Company. There was no written mandate with the bank from the customer for debiting his account for premium of the policies of the Insurance Company. The bank failed to resolve the complaint for 2/3 years. However, with the intervention of Ombudsman, the debits of Rs.23,246/- were reversed. Case-3: The complainant maintaining an account at Bank A attempted a withdrawal of Rs.25,000/- from Bank Bs ATM, but no cash was dispensed. However, his account was debited. He immediately complained to Bank A and then to Banking Ombudsman subsequently. Bank A retrieved the JP log of 20.4.2008 from Bank B, which was not legible and confirmed that the transaction was successful. However, Ombudsman observed that the JP log appeared to be of 20.1.2008 and not of 20.4.2008, the reply was that actually the digit was 4 but appearing as 1 because of faulty printing. As Ombudsman insisted for a legible copy of JP log, Bank A informed after one month that they had received the amount from Bank B and the complainants account had been credited. In fact, Bank B had possibly misinformed Bank A. Case-4: An employee of a PSU had availed a housing loan of Rs 385000/- from XYZ Bank, under the tie-up arrangement between the bank and the PSU. The loan was offered at fixed rate of 7.5%. The bank subsequently increased the rate of interest from 7.5% to 8.5% and changed the EMI. When the matter was taken up with the bank, he was informed that as per the terms and conditions and the MOU, the fixed rate applicable for housing loan is adjusted interest rate on the date of the agreement. The adjusted interest rate was quoted rate +/- changes in the BPLR of the bank on the date of agreement between the bank and the employees of the PSU. At the time of sanction of the loan, the BPLR was 11.50%
*Source : Website RBI.

ROBLEMS ON

RACTICAL BANKING

so the adjusted interest rate would be 8.5% and therefore the bank had charged the interest accordingly which would be reset after 5 years i.e. from 26.9.2006. As the banks response was not convincing, he approached the Ombudsman. On calling for their comments, the bank informed that they were charging the interest in terms of the MOU entered between the bank and the PSU and that it was in sync with the terms and conditions of the loan. Ombudsman advised the bank to furnish copies of the sanction letter, agreement with the complainant and copy of the MOU. On scrutinizing the documents, it was observed that the rate of interest mentioned in the agreement at clause 7 was 8.5% (Fixed) and at clause 6 which was applicable to Floating rate, no entries were made. The sanction letter indicated 8.5% at fixed rate for 5 years to be reset after 5 years. Scrutiny of housing loan passbook disclosed that the bank was charging 7.5 % fixed interest from November 26, 2006 for 168 months at an EMI of Rs 3710/-. The bank had not carried out the documentation of the loan properly, as there was a discrepancy in the housing loan passbook and the agreement with respect to rate of interest. The increase in EMI was not justifiable. Therefore, Ombudsman passed the benefit of doubt to the complainant and directed the bank to consider the rate of interest at 7.5% fixed for 5 years and reset thereafter and refund the excess EMI recovered. Case-5: A complainant approached the Ombudsman regarding return of her ECS payment despite holding sufficient balance in her account. Two banks were involved in the complaint. The receiving bank maintained that the ECS was not honoured by the complainants banker and produced a copy of return memo. Subsequently, on the complainant taking up the matter, the complainants banker issued a certificate that credit has been passed to the receiving bank. However, the receiving bank denied having received the credit. Because of the dispute between the two banks, the complainant was left high and dry. Ombudsman called the officials of both the banks and held a meeting and advised them to investigate the matter immediately. The complainants banker at last located the credit which was lying with their service branch. Thus, it came to light that the bank had issued the certificate without conducting adequate internal enquiry. The complainants banker was, therefore, advised to pay interest for the period of delay besides tendering apology to the complainant for misrepresentation of facts and inconvenience caused to its customer (complainant).

Banking events updatE July 2010 13

IT FIRMS CAN OUTSOURCE JOBS TO SEZs: IT Companies can outsource their overseas jobs to units in Special Economic Zones. The Govt. has also allowed employees of IT Units in SEZs to work from Home or off-site locations. Earlier this relaxation was given only to decapacitated employees or those who were travelling. CME TO LAUNCH NIFTY FUTURS: The Chicago Mercantile Exchange (CME) and NSE, entered into an agreement during March 2010 for cross-listing arrangements. This would be the second exchange after the Singapore Stock Exchange (SGX) to introduce trading on Nifty Futures. CABINET NOD FOR GOVT. STAKE SALE IN PSUs: The Cabinet Committee on Economic Affairs (CCEA) gave its nod for a vital change in the process of shares sale in state-run firms. The appointment of Merchant bankers and other intermediaries will now be taken up simultaneously with the process of seeking CCEA approval as soon as the Minister-in-charge has approved the case. RBI WARNS OF FICTITIOUS OFFERS FROM ABROAD: RBI has cautioned the Public against the fictitious offers for release of cheap funds claimed to have been remitted by overseas entities to banks in India. Once contract is established, the offer is followed by a request seeking of details of Bank Accounts and asking the recipients some amount to be remitted, as initial deposit or commission, so that the money, on offer could be transferred. O&M LAUNCHES ISLAMIC BRANDING PRACTICE: Ogilvi & Mother has launched Ogilvi Noor, a first ever Multidisciplinary Global Islamic Branding Practice that aims to help brands better engage with Muslim Consumers Worldwide. It has also come up with an Index that reflects the appeal of certain brands to Muslim Consumers. SBI OFFERS ONE TIME SETTLEMENT OF NPA: SBI has come out with One Time Settlement Scheme for NPA of SME Sector. The scheme is for loans availed on or after March 31,2009 and with outstanding up to Rs.1 Crore, for any reason except cases involved fraud, malfeasance, willful default or cases already decreed by courts. UN BODY FORECASTS GROWTH: UN Department for Economic and Social Affairs predicted the Global economy to grow by 3% this year and then by another 3.1% the following year in its 2010 World Economic Situation and Prospects report. Indias growth at 7.9% this fiscal has been predicted as against slightly lower than 8.5% predicted by the Government. CENTRALISED TAX PROCESSING CENTRE: The Union Finance Minister has dedicated to the Nation the Income Tax Departments Centralised Processing Centre (CPC) at Bangalore. The CPC will be used to process electronic tax returns from all over the country as also the physical returns of Karnataka and Goa regions. CBDT has also announced plans to set up CPCs in Ahmedabad and Faridabad to improve taxpayer services. RBI RAJBHASHA SHIELD FOR UBI: Union Bank of India has been awarded two First prizes under RBI Rajbhasha Shield Competition 2008-09, which is introduced by RBI for promotional use of Hindi in Public Sector Banks and Financial Institutions. BIOMETRIC CARDS TO NREGA WORKERS: In an innovative move, Biometric cards will be given to those working under NREGA to bring more transparency in the implementation of the Centres Employment Programme, facing complaints of gross irregularities and malpractices in many parts of the country. HIGHER GARATUITY LIMIT: The Parliament in the recently concluded Budget session passed the Payment of Gratuity (Amendment) Act, 2010 to hike the gratuity payment limit to Rs.10 Lakh from existing limit of Rs.3.5 Lakh. The higher limit would be allowed for all gratuity payments made on or after May 24. GDP GROWTH BEATS FORECASTS FOR 2009-10: The strong 4th quarter performance by Industry and Services, coupled with upward revisions for JulyDecember, has led to overall GDP growth of 7.4% in 2009-10. This is higher than the Central Statistical Organisations (CSO) estimate of 7.2%. M & As IN BANKING OUT OF CCI AMBIT: The Corporate Affairs Ministry has said that Mergers and Acquisitions (M&As) in the Banking Sector will be kept out of the Competition Commission of Indias (CCI) ambit for the time being. One of the objectives is to allow enough consolidation to take place in banking. NO BANK LICENCE IF LOAN DEFAULT: Corporate Houses seeking Banking Licences will come under the scrutiny of both RBI and the Finance Ministry, which are keen to restrict the entry of players involved in the dubious transactions. The books and accounts of all Group Companies will be examined before granting the

Diary of Events
new Banking licence. FM FOR NEW METHOD FOR TAX REFUNDS: According to the Finance Ministry, Tax Payers will have to mention receipt Number of TDS Forms in the returns to claim refunds from this Fiscal. Tax payers will have to mention this number along with his Permanent Account Number (PAN) and Tax Deduction Account number (TAN) of the deductor, otherwise refunds may not be considered. RBI TO HAVE CORE BANKING PLATFORM: Keeping in view the fact that all Commercial Banks are racing ahead to put all their operations on the Core Banking Solution (CBS) Platform, RBI too has decided to embark on the same path. RBI is planning to have its own CBS Platform whereby there will be a Single General Ledger for the entire Bank encompassing all departments and regional offices. RBI PROPOSES MODE FOR EFFECTIVE LOAN SCREENING: RBI, in its draft guidelines for Securitised Transactions by NBFCs, has asked the originators or issuers of securitised products to retain a portion of each securitised pool. This is a Mechanism to improve align incentives and ensure more effective screening of loans. INDIA NOT FOR GLOBAL BANK TAX: Cabinet Finance Minister made it clear in the G20 Summit in Busan that India was not in favour of imposing any special tax on Banks globally to build a corpus to be used for bailing out banks in times of financial crises. India would, instead favour a regulatory mechanism for Banks as is being followed for Indian Banks. PUBLIC HOLDING IN LISTED COMPANIESAMENDMENT: The Government has amended the Securities Contracts (Regulation) Rules to increase the Non-promoter holdings in Indian Companies. As per amendment, the minimum threshold level of public holdings has been raised to 25% for all listed companies and requiring

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Banking events updatE July 2010

existing listed companies having less than 25% public holding to reach the minimum 25% level by an annual addition of not less than 5% to public holding. BANKS TO GET TECH SAVVY AS BIG STAFF EXIT: The Government has said the Commercial banks should come up with a strategy to leverage technology and business process reengineering to make up to bridge the gap created by shortage of staff. The Banks must build a pool of talent that can take up Leadership positions. DIVIDEND DISCLOSURE IN RUPEE TERMS: SEBI has asked Fund Houses to disclose their dividend payouts in rupee terms, instead of %age. It also asked Mutual funds to benchmark returns on investment against Sensex & Nifty instead of Sectoral Indices. CAPITAL INFUSION IN FOUR BANKS: The Government has infused Rs.1500 Crore into four Public Sector banks as part of their recapitalization package. Of the total, Vijaya Bank got Rs.700 Crore, UCO Bank Rs.300 Crore, Central bank of India and United Bank of India received Rs.250 Crore each. AHEAD OF BASE RATE BANKS SEEK LEAGAL CHECK UP: Fearing court cases after the implementation of the base rate regime next month, Public sector Banks have decided to go for a legal check on all loan documents signed by them. The Bankers also decided that the borrowers needed to be familiarized with the new regime as over the years they have got used to talking in terms of BPLR Minus rates. IRDA TOUGH WITH CORPORATE AGENTS: IRDA has asked Insurers to carry out inspections on their Corporate Agents to curb irregularities. The process of inspections should be completed by September 30 every year starting from 2010. The Insurers should ensure that the policies were being sold only by Licensed Agents or Specified persons and there should be no payments other than permissible commissions. IRDA WITHDRAWS LICENCES OF CORPORATE AGENTS: IRDA has said that 4261 Corporate Agents out of 7000 in the country were not authorised to sell policies from March 31, 2010. These Corporate Agencies were due for renewal on or before March 31, 2010 but have not been renewed and so their licences have been withdrawn. It cautioned the Insurers and General public not to transact any insurance business through them. TAX AUTHORIY TO HIVE OFF E-PAYMENT SERVICES: The Finance Minister has asked the CBDT to consider hiving off its technology-driven taxpayer services to a Special Purpose Vehicle (SPV) that could better deliver such services in the Public-PrivatePartnership (PPP) mode. Presently, the Income tax Department is providing a slew of technology-related services including Efiling of returns, E-payment of taxes. PUBLIC SECTOR BANKS TO RECRUIT MORE: Union Finance Minister has said that Public Sector Banks will need to make large recruitments of the right quality in the next few years to bridge the gap that is likely to be caused by a large number of retirements. The Banks have to strengthen institutional skill levels, specially in the sales and marketing, service operations, risk management and overall organisational performance ethics. FIN PANEL WANTS LISTED DEFAULTERS NAMED: the High Level Coordination Committee on Financial Markets (HLCCFM) is considering mandatory disclosure of loan defaults by listed companies. The HLCCFM is a High-level Forum for interface among financial sector regulators. The move aims to protect shareholders interest and increase investor confidence. SUPREME COURT VERSION ON AMALGAMATED CO.: The Supreme Court has ruled that a Company which has amalgamated with another can evict a Tenant of the old firm from its premises for bona fide requirement of the new Company which has come into existence . ACCOUNTING FOR AGRICULTURE: Accounting for agriculture will change radically when companies will formulate Accounting
Compilation : SP Sharma & Sapandeep Toor

Policy consistent with IAS-41 equivalent Indian Accounting Standard. IAS -41 requires that a biological asset should be measured on initial recognition and at the end of each reporting period at its fair valueless costs to sell. Similarly, agriculture produce harvested from biological assets should be measured fair value less costs to sell at the point of harvest. FITCH RAISES INDIAS DEBT OUTLOOK: FITCH Ratings revised the outlook on Indias long-term local currency issuer default rating (IDR) to Stable from Negative. But FITCH affirmed Indias Long Term Foreign and Local Currency IDR at BBB, the Short Term foreign Currency IDR at F3 and the country ceiling at BBB. NEW TAX CODE TO CHECK HOT MONEY ENTRY: As per the Revised Discussion Paper of the Direct Tax Code (DTC), Foreign Institutional investors will have to classify income from the capital market transactions as capital gains and not as business income. This move would check hot money flow into Indian markets. NOD FOR SEZ UNIT MIGRATION: The Government has allowed Industrial Units to shift from one Special economic Zones (SEZs) to another after approval of the Apex Authority, the Board of Approval (BOA). Allowing SEZ Units to shift base could help in business consolidation as companies with several units in different SEZs would have the option of bringing them under one roof. IRDA CLERIFIES RBI CIRCULAR: The pricing guidelines pertaining to equity shares, compulsorily convertible preference shares and equity instruments to be issued/ transferred to a Resident outside India notified by RBI are not applicable to the Insurance sector. The guidelines are applicable to an Indian company in Sectors other than financial sector. NEW TAX GRIEVANCE REDRESSAL SYSTEM: The Income Tax department will soon launch an Integrated-based Grievance Redressal System for tax payers to lodge their complaints with Taxman. The new Online Facility will also enable tax-payers to register their complaints and put applications to the IT Ombudsman present in 12 cities across the country. FARM LOANS OUTSIDE BASE RATE: RBI has assured the bankers that it will keep agriculture loans outside the Base Rate ambit, which means Banks will be allowed to extend these loans at interest rates lower than the Base Rate. The Base Rate guidelines have barred lending below the Rate. The Base Rate regime comes into effect from July 1. TIME LIMIT EXTENSION FOR DUTY DRAWBACK: The Finance Ministry has made certain amendments in the Duty Drawback rules. Current rules mandated filing the drawback claim within 3 months from the date of Let Export order by the Customs. The latest amendment allows a further period of 9 months for filing the claim, subject to payment of a nominal fee. MORE SERVICES BY NPCI: National Payments Corporation of India will be providing more services after obtaining RBI approvals. ATM switching was the first service to be operational by NPCI. The next in line is Cheque Truncation System at Chennai. NPCI is the umbrella organisation for all retail payment systems in the country owned and operated by Banks. All Public sector banks are now part of the NFS network. RBI IMPOSES PENALTY ON BANK: RBI has imposed a monetary penalty of Rs.5Lakh on the Postal and RMS Employees Cooperative Bank Ltd. at Ambala Cantt, Haryana for violation of RBI directives. It opened a Branch in New Delhi without obtaining an Authorisation/Licence under Section 23 of the Banking Regulation Act,1949. MORE TIME FOR NEW DEBT VALUATION NORMS: SEBI has postponed the deadline for implementing new norms for valuation of Mutual Fund Houses Debt and Money Market Instruments by a month. The new rules call for these instruments to be valued on Mark-to-Market basis. now the norms will come into effect from August 1 instead of July 1.

DIARY OF EVENTS

Source : Financial Newspapers, Financial News-Magazines & Financial and Institutional Web-sites

Banking events updatE July 2010 15

GENERAL AWARENESS
With the bearthing of the First Supramax Vessal MV Malavikaat Hazira in District Surat, Essar has become the Second largest Private Port Operator in the country. According to the Study by International Property Consultant C.B. Rechard Ellis, UK is number one Destination for Retailers. India has moved to the 39th position in 2009 from the position of 44 in 2008. Mumbai-based Reliance Big Pictures adventure film, Kites, is First Bollywood Film in US Top 10. US Mathematician John Torrence Tate, received Norways Abel Prize worth 6 million Kroner ($900,000) at a Ceremony in Oslo. Punjab became the First State in the Country to launch Online National Permit for Trucks and heavy Vehicles . Canara bank has informed the BSE that its Equity shares would be delisted from the Bangalore Stock Exchange Ltd. However its Equity shares will continue to be listed with the NSE & BSE which have nationwide trading terminals. RBI has conferred upon Allahabad bank the First prize for its in-house Magazine Triveni Dhara among all Public Sector Banks and Financial Institutions in the Bilingual House Magazine Competition held for the year 2008-09. Three US Scientists whose work helped map the Universe are among the Recipients of the One Million US Dollar Shaw Prize, known as the Asian Noble. The Worlds First Paperless Technology, Entertainment and Design (TED) Event was organised locally by authorised Licence Holders on 31st May in Chandigarh. Allahabad Bank, the Corporate Agent of LIC of India has been awarded First Position in first premium growth rate, based on its performance during 2009-10 amongst all the Channel Partner Public Sector Banks of LIC. Mr. O.P Bhatt, CMD of State Bank of India is set to take over as the new Chairman of the Indian Bank Association. According to the Political and Economic Risk Consultancy, India, Indonesia and Philippines have Asias Most Inefficient Bureaucracies, with Red Tape a constant blight to citizens and deterrent to foreign investment. As per Study by Ernst & Youngs 2010, Rankings of China & India are 66% and 61% respectively as the Most Attractive Regions for FDI Projects in the next 3 years. Indias Fifth Ultra Mega Power Plant will be set up at Sarguja District in Chattisgarh. RBI has constituted a Committee to be headed by Mr. M. Damodaran, previous Chairman of SEBI to look into the various aspects of services rendered by Banks to Retail and Small Customers.

Mr. K.G.Balakrishnan, former Chief Justice of India, has been appointed as Chairperson of the National Human Rights Commission. The US-India Business Council has presented its Award for Global Leadership to Mr. Y.C.Desheshwar , Chairman ITC Ltd. for his commitment to empowering Indias Rural Agricultural Community. India Toped the Consumer Greendex, compiled by National Geographic which studied 17000 consumers in 17 countries. Indians are the Most Eco-friendly people while Americans the Least. IDBI Bank opened its First Overseas Branch at Dubai International Finance Centre. The East India Company, which once ruled over India and established in 1600 is one of the Most Recognised Brands in the World and set to launch its First Luxury Goods Store in Mayfair, London. The French Government is selling off 1700 properties including chateaux, barracks and Parisian mansions, in part, to cut the countrys $1.79 trillion debt. Labelling the Bhopal Gas Tragedy as the Worlds Worst Industrial Accident, Global Media has censured the Indian Govt. for a Callous and Confused approach to corporate liability. Over two Lakh employees of State Bank of India will undergo intensive training at various levels in banking technology, e-learning and other areas. Mr. C.S.Verma has taken over charge as the Chairman of Steel Authority of India Ltd. IT major, Tata Consultancy Services (TCS) ranked Fifth Overall, and Toped the List for IT Services in Bloomberg Business weeks 12th Annual Tech 100, a ranking of the Worlds best performing tech companies. Higher Education Regulator, UGC, has issued a ban on offering Physiotherapy courses in Distance Mode because this course involves large component of practical teaching and can not be properly imparted in Distance Mode. Maharashtra accounts for nearly 45% of the countrys tax revenue. The Top Five Indian IT Companies by revenues are-TCS, Infosys, Wipro, Cognizant and HCL. Although India has become synonymous with outsourcing, Indian Companies created nearly 60,000 jobs in the US between 2004 and 2009 through nearly 500 investment and acquisition deals worth $26.5 billion. According to the IMF , with India and China leading the way, the recent

recession has underlined the emergence of Asia as a Global Economic Powerhouse. Microsoft Office 2010, latest version of its popular office software went on sale Worldwide. According to the 8th Biospectrum-able Survey for 2009-10, Biocon is once again the Countrys No.1 Biotechnology Company by revenue, while Bangalore has lost the Crown to Mumbai as Biotech City by a revenue margin of Rs.200 Crore. The Union Cabinet has approved the CSIR proposal to set up an Academy of Scientific and Innovative Research (AcSIR). Once the AcSIR is set up, it would enable registration of Scientists pursuing research. The 6th Economic Census set to take off next year, will provide the Country with a National Business Register (NBR) for the First Time, containing the details of every business establishment in the country. India on June 18th successfully test fired the indigenously developed, nuclearcapable, ballistic missile, Prithvi-II from the Integrated Test Range at Chandipur off the Orissa Coast. Haryana claimed to have become the First State in the Country to have launched a web Portal-based Centralised Public Grievance Redress and Monitoring System. According to the Delhis Top Consumer Court, the Bank is justified in closing the account of a customer who fails to provide PAN Card details. Bombay Stock Exchange (BSE) has created a separate Company, called Indian Clearing Corporation in order to consolidate its clearing and settlement business. Bhopal (MP) will be Indias First Riskaverse Data Centre which can even withstand an earthquake of seven on the Richter scale for two minutes and remain intact for a nuclear attack. Uttar Pradesh has excelled in a Central Credit Scheme for the Self Employed in the unorganized sector by achieving over 88% of the target. According to a Global Wealth Report, the number of millionaires in India grew by more than a 50% in 2009,after having witnessed a sharp fall in 2008. IDRBT, Hyderabad has picked Karur Vyasa Bank for the Best IT Infrastructure Management 2009 Award. IDBI Bank has been awarded the ISO 9001:2008 Certification for all its Currency Chests in the country. Mr. Rana kapoor, Founder & MD of YES Bank has been given the India Business Leader of the Year Award at the Global Indian Business Meet in Madriad (Spain).
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16 Banking events updatE July 2010

MOCK-TEST PAPER
Questions based on Basel 2 Capital Fund Instruments 01 Which of the following instrument is part of Tier-1 capital fund under Basel2 guidelines, in India: a Redeemable non-cumulative preference shares b Subordinated Debts c Innovative Perpetual Debt Instrument d Revaluation Reserves 02 Total amount raised through Innovative Perpetual Debt instruments should not exceed ___, as per Basel-2 guidelines in India: a 15% of risk weighted assets b 15% of capital fund c 15% of Tier I d 15% of Tier II 03 For Innovative Perpetual Debt instruments, the call option is available to ___ after___: a investor after 10 years b bank after 10 years c investor after 15 years d bank after 15 years 04 Which of the following statement is not correct regarding Innovative Perpetual Debt instruments: a there is no ceiling on maximum amount, which can be decided by Board of Directors of the bank b the call option can be used by the bank with permission of Board of Directors c rate of interest can be fixed or floating d the step up option can be used but cost will not be more than 100 basis points. 05 Which of following risk is there to an investor by investing in Innovative Perpetual Debt instruments: a bank shall pay interest at bank rate instead of rate of interest offered in the offer document, if CAR of the bank falls below the minimum regulatory requirement of RBI b bank shall not be able to pay interest if CAR of the bank falls below the minimum regulatory requirement of RBI c bank shall pay interest at repo rate instead of rate of interest offered in the offer document, if CAR of the bank falls below the minimum regulatory requirement of RBI d bank shall pay interest at reverse repo rate instead of rate of interest offered in the offer document, if CAR of the bank falls below the minimum regulatory requirement of RBI

06

a b c d 07 a b c d 08

a b c d 09 a b c d 10

a b c d 11

a b c d 12

What the maximum amount of Innovative Perpetual Debt Instrument that can be issued on foreign currency: 74% of the eligible amount 51% of the eligible amount 49% of the eligible amount no issue can be there in Foreign Currency Total amount of Perpetual noncumulative preference shares within Tier I capital fund can be maximum: 15% of Tier I capital fund 40% of Tier I capital fund 40% of total capital fund. 40% of Tier I capital fund including the amount of innovative perpetual debt instruments Perpetual non-cumulative preference shares can be issued with (a) Put option (b) Call option (c) step up option. a to c all b and c only c only b only If a Perpetual non-cumulative preference shares is issued with call option, it can be exercised : before 15 years after 5 years after 10 years cannot be issued with such option On Perpetual non-cumulative preference shares, which of the following is correct regarding dividend payment: dividend can be paid provided the level of CAR is above the minimum regulatory requirement of RBI dividend payment can be on cumulative basis rate of dividend can be maximum 15% dividend can be paid even if there are losses. Which of the following statement regarding investment in Perpetual non-cumulative preference shares is not correct: FII investment can be within overall limit of 49% NRI investment can be within overall limit of 24% Investment in each FII can be more than 10% Investment in each NRI can be more than 10% Which of the following statement regarding Perpetual non-cumulative preference shares is correct (a) for CRR purposes, the amount is included

a b c d 13 a b c d 14 a b c d 15

a b c d 16

a b c d 17

a b c d 18

in NDTL (b) for SLR purposes, the amount is included in NTDL (c) Banks can grant loan against security of PNCPS. a to c all only b and c only a and b none of these is correct The maximum amount of Upper Tier II instruments can be ____: 15% of Tier I capital fund 40% of Tier I capital fund 100% of Tier I capital fund 100% of Tier I capital fund along with other Tier II instrument The maturity period of Upper Tier II instruments can be ____: maximum 10 years minimum 10 years maximum 15 years minimum 15 years The upper Tier II instruments can be issued with which of the following options (a) Put option (b) Step up option (c) call option a and b only b and c only a and c only a to c all The Upper Tier II instruments are subject to discount when their maturity period is less than 5 years. Which of the following discount rate does match: if remaining maturity is less than one year 100% if remaining maturity is more than one year but less than two years 80% if remaining maturity is more than two years but less than three years 50% if remaining maturity is more than three years but less than four years 40% Tier II capital instruments such as Perpetual cumulative preference shares or Redeemable noncumulative preference shares or redeemable cumulative preference shares are to be shown in ____ in the balance sheet: Schedule 3, for deposits Schedule 4, for borrowing Schedule 5, for other liabilities Schedule 9, for loans and advances Tier II capital instruments such as Perpetual cumulative preference shares or Redeemable noncumulative preference shares or redeemable cumulative preference shares can have maturity of: minimum 15 years

b c d 19

minimum 10 years maximum 15 years minimum 15 years Total amount of Perpetual cumulative preference shares or Redeemable noncumulative preference shares or redeemable cumulative preference shares, alongwith other Tier II instruments can be: a maximum 100% of capital fund b maximum 100% of Tier I capital c maximum 50% of Tier I capital d maximum 40% of capital fund 20 Subordinated debt with initial maturity period of ___ or with a remaining maturity period of ___ is not to be included in Tier II capital: a less than 10 year, less than 5 years b less than 10 year, less than 1 years c less than 5 year, less than 5 years d less than 5 year, less than 1 years 21 If a subordinated debt bond is issued in the last quarter of the financial year i.e. between Jan 01 to Mar 31, its minimum tenure should be: a 84 months b 75 months c 63 months d 60 months 22 In which of the following Tier I or Tier II capital instruments, the call option can be exercised by the bank, after 5 year: a innovative perpetual debt instruments b perpetual cumulative preference shares c redeemable non-cumulative preference shares d subordinated debt bonds Questions based on Terms used in Basel 2 23 The _____ comprises assets and liabilities which are contracted on account of relationship or to be held till maturity for earning of income: a trading book

b c d 24 a b c d 25

a b c d 26

a b c d 27 a b c d 28

a b c d 29

banking book investment book loans and investment book The term core capital in the context of Basel 2 represents which of the following: paid up capital and reserves Tier I capital funds Tier II capital funds Total capital funds comprising Tier 1, Tier II and Tier III Unabsorbed depreciation and carry forward of losses which can be setoff against future taxable income which is considered as timing differences result in _____. Deferred liability Intangible assets Deferred tax assets Contingent assets The ____ is the rate of change in the value of the option / portfolio with respect to change in the price of the asset(s) underlying the option(s). Delta Alpha Gamma Modified duration _____ measures the price volatility of fixed income securities. derivative option forward duration ____ is the net difference between the amounts payable and amounts receivable in a particular instrument or commodity. position duration option derivative The ___ is the rate of change of the options / portfolios delta with respect to the change in the price of the asset(s) underlying the option (s).

a b c d 30

a b c d 31

a b c d 32

a b c d 33

a b c d 34 a b c

Banking events updatE July 2010 17 Delta Alpha Gamma Rho The capital market instruments that combine certain characteristics of equity and certain characteristics of debt, are called: subordinated loans Debentures hybrid debt capital instruments bonds The _____or volatility of an interest bearing security is its Macaulay duration divided by one plus the coupon rate of the security. derivative option modified duration simulation To calculate Net NPA, which of the following is required to be deducted from Gross NPA (a) balance in suspense accounts (b) DICGC/ECGC claims received and held pending adjustment (c) part payment received and kept in suspense account (d) Total provisions held: a to d all a, b and c only b, c and d only c and d only The business activities of a bank that generally do not involve booking assets (loans) and taking deposits, are called: merchant banking activities portfolio management off-balance sheet exposure contingent liabilities and assets A long position refers to a position where ____ from a rise in the value of the underlying. losses arise losses decline gains arise

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18 Banking events updatE July 2010

d 35 a b c d 36 a b c d 37 a b c d 38

a b c d 39

a b c d 40 a b c

gains decline ____ results from the existence of a net long or net short position in the particular instrument or commodity. over sold position over bought position open position all the above ____ is the rate of change in the value of an option / portfolio with respect to change in the level of interest rates. Theta Alpha Gamma Rho A short position refers to a position where ____ from a decline in the value of the underlying. losses arise losses decline gains arise gains decline In the event of the bankruptcy or liquidation of the debtor, ___only has a secondary claim on repayments, after other debt has been repaid. unsecured loans subordinated debt hybrid debt capital instruments redeemable cumulative preference shares The ___ of an option / a portfolio of options is the rate of change in the value of the option / portfolio with respect to passage of time, with all else remaining the same. Theta Alpha Vega Rho The term supplementary capital in the context of Basel 2 represents which of the following: Tier I capital funds Tier II capital funds Perpetual non-cumulative shares

d 41

innovative perpetual debt instruments The ___refers to the assets that are held primarily for generating profit on short-term differences in prices/yields. a Banking Book b Asset Book c Liability Book d Trading Book 42 ____ is a method for calculating and controlling exposure to market risk. a simulation b value at risk c duration d modified duration 43 The ___ is the rate of change in the value of the option / portfolio with respect to volatility of the asset(s) underlying the option(s) a Theta b Alpha c Vega d Rho Questions based on latest policy of RBI 44 Banks may waive margin/security requirements for agricultural loans up to Rs. ___ a Rs.25000 b Rs.50000 c Rs.100000 d discretion of banks 45 What is RBI projection for GDP growth for annual credit and monetary policy for the year 2010-11: a 7% with upside bias b 8% with downside bias c 8% with upside bias d 9% with upside bias 46 In the event of an existing customer or the beneficial owner of an existing account, subsequently becoming a PEP, banks should obtain ____ approval to continue the business relationship a senior management approval b Board approval c Customer Service Committee approval

d 47

d
48 a b c d 49 a b c

no such approval required. Bank can continue the relationship As per KYC policy, the banks should not allow opening and/or holding of an account on behalf of a client/s by professional intermediaries, like Lawyers and Chartered Accountants, etc., : who are refuse to disclose true identity of the owner of the account/funds due to any professional obligation of customer confidentiality. who are disclose true identity of the owner of the account/funds due to any professional obligation of customer confidentiality. who are unable to disclose true identity of the owner of the account/ funds due to any professional obligation of customer confidentiality. all the above
Alterations are not allowed on cheques under CTS-2010. The effective date of implementation is: April 01, 2011 Dec 01, 2010 Oct 01, 2010 April 01, 2010 While approving a compromise proposal, what additional requirement out of the following is to be fulfilled: controlling office has to add a certificate that settlement has been in conformity with the RBI guidelines. next higher authority has to add a certificate that settlement has been in conformity with the RBI guidelines. sanctioning authority has to add a certificate that settlement has been in conformity with the RBI guidelines. any of the above authority has to add a certificate that settlement has been in conformity with the RBI guidelines.
c c d c c a c d d a 02 07 12 17 22 27 32 37 42 47 c d d b d d a c b c ANSWERS 03 b 04 08 d 09 13 d 14 18 a 19 23 b 24 28 a 29 33 c 34 38 b 39 43 c 44 48 b 49 b c d b b c c a c c 05 10 15 20 25 30 35 40 45 b a b d c c c b c

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A few references were received by RBI from banks and members of the public seeking certain clarifications on legal validity, effective date of implementation, etc. RBI has clarified (June 22) that the prescription on prohibiting alterations / corrections on cheques i.has been formulated on the basis of recommendations of a working group constituted for examining the need for standardisation of cheque forms and enhancement of security features therein and after consultations with banks; ii.has been introduced to curtail cheque frauds on account of alterations in the various fields of cheques and to give protection to customers as well as banks; iii.will be applicable only for cheques cleared under the image-based Cheque Truncation System (CTS). Collecting banks should ensure, ab initio, that such cheques are not accepted for presentment in CTS. iv.is not applicable to cheques cleared under other clearing arrangements such as MICR clearing, non-MICR clearing, over the counter collection (for cash payment) or direct collection of cheques outside the Clearing House arrangement. This prescription will be effective from December 1, 2010. Banks have been advised to ensure that adequate care is taken to educate the customers and to create awareness among them so that the entire process is carried out in a smooth manner. Compromise/Negotiated/One Time settlement of NPAs Of late, certain serious concerns have been expressed in different quarters and by the Debt Recovery Tribunals over the manne,r the compromise settlements have been effected by banks. One of the DRTs had also observed that banks adopted different parameters to different borrowers, and agreed for a lesser amount as against claimed amount, despite availability of ample securities and by ignoring RBI guidelines. In this connection, RBI has advised banks (June 21, 2010) that adequate care should be taken to ensure that the compromise settlements are done in a fair and transparent manner and in full compliance with RBI guidelines on the matter. RBI has decided that henceforth, the officer/authority sanctioning a compromise/one time settlement should append a certificate stating that the compromise settlements are in conformity with the RBI guidelines. Agricultural Loans Waiver of Margin/Security Requirements On the basis of representations received seeking enhancement of limits, RBI has decided (June 18, 2010) that banks may waive margin/security requirements for agricultural loans from the existing level of Rs. 50,000/- to Rs. 1,00,000/- with immediate effect. Know Your Customer (KYC) norms/Anti-Money Laundering (AML) standards/Combating of Financing of Terrorism (CFT)/Obligation of banks under Prevention of Money Laundering Act (PMLA), 2002. RBI direction vide circular dated June 09, 2010: Suspicion of money laundering/terrorist financing Whenever there is suspicion of money laundering or terrorist financing or when other factors give rise to a belief that the customer does not, in fact, pose a low risk, banks should carry out full scale customer due diligence (CDD) before opening an account. Filing of STR A bank should not open an account (or should consider closing an existing account) when it is unable to apply appropriate CDD measures. It has been further clarified that in the circumstances when a bank believes that it would no longer be satisfied that it knows the true identity of the account holder, the bank should also file an STR with FIU-IND. Politically Exposed Persons (PEPs) In the event of an existing customer or the beneficial owner of an existing account, subsequently becoming a PEP, banks should obtain senior management approval to continue the business relationship and subject the account to the CDD measures as applicable to the customers of PEP category including enhanced monitoring on an ongoing basis. The instructions are also applicable to accounts where a PEP is the ultimate beneficial owner. Further, in regard to PEP accounts, RBI has reiterated that banks should have appropriate ongoing risk management procedures for identifying and applying enhanced CDD to PEPs, customers who are close relatives of PEPs, and accounts of which a PEP is the

Banking events updatE July 2010 19

ANKING POLICY

Alterations in Cheques

ultimate beneficial owner. Principal Officer The role and responsibilities of the Principal Officer should include overseeing and ensuring overall compliance with regulatory guidelines on KYC/AML/CFT issued from time to time and obligations under the Prevention of Money Laundering Act, 2002, rules and regulations made thereunder, as amended form time to time. RBI direction vide circular dated June 10, 2010: Client accounts opened by professional intermediaries Banks should not allow opening and/or holding of an account on behalf of a client/s by professional intermediaries, like Lawyers and Chartered Accountants, etc., who are unable to disclose true identity of the owner of the account/funds due to any professional obligation of customer confidentiality. Further, any professional intermediary who is under any obligation that inhibits banks ability to know and verify the true identity of the client on whose behalf the account is held or beneficial ownership of the account or understand true nature and purpose of transaction/s, should not be allowed to open an account on behalf of a client. RBI direction vide circular dated June 15, 2010: Countries which do not or insufficiently apply the FATF recommendations. RBI has clarified that banks should also give special attention to business relationships and transactions with persons (including legal persons and other financial institutions) from or in countries that do not or insufficiently apply the FATF Recommendations and jurisdictions included in FATF Statements. Further, RBI advised that banks should examine the background and purpose of transactions with persons (including legal persons and other financial institutions) from jurisdictions included in FATF Statements and countries that do not or insufficiently apply the FATF Recommendations. Further, if the transactions have no apparent economic or visible lawful purpose, the background and purpose of such transactions should, as far as possible be examined, and written findings together with all documents should be retained and made available to Reserve Bank/ other relevant authorities, on request. Shell Banks Banks should not enter into relationship with shell banks and before establishing correspondent relationship with any foreign institution, banks should take appropriate measures to satisfy themselves that the foreign respondent institution does not permit its accounts to be used by shell banks. These guidelines have been issued under Section 35A of the Banking Regulation Act, 1949. Any contravention thereof or non-compliance shall attract penalties under Banking Regulation Act.

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Registration RNI No. 67802/98

20 Banking events updatE July 2010

Postal Regn No.CHD / (0001) 2009-11

Licensed to Post Without Prepayment at PO Sector 47, Chandigarh No.PP/PB-3/0005/2009-11

Non-Convertible Debentures
Non-Convertible Debenture (NCD) means a debt instrument issued by a corporate (including NBFCs) with original or initial maturity up to one year and issued by way of private placement. RBI issued the directions u/s 45K, 45L and 45W of RBI Act, 1934 for issue of NCDs to come into effect wef Aug 02, 2010. Eligibility parameters for a corporate to issue NCDs: i. Minimum tangible net worth Rs.4 crore, as per the latest audited balance sheet; ii. Sanctioned working capital limit or term loan by bank/s or financial institution/s; and iii.the borrowal account is classified as a Standard Asset by bank/s or institution/s. Rating Requirement : Credit rating may be obtained from CRISIL, ICRA, CARE, FITCH Ratings India Pvt. Ltd or such other agencies registered with SEBI. The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies. The rating should be current and has not fallen due for review. Maturity: (a) Min 90 days from the date of issue and maximum one year. (b) The exercise date of option (put/call), if any, attached to the NCDs shall not fall within the period of 90 days from the date of issue. (c) The tenor of the NCDs shall not exceed the validity period of the credit rating of the instrument determined by the rating agency. Denomination : NCDs may be issued in denominations with a minimum of Rs.5 lakh (face value) and in multiples of Rs.1 lakh. Limits and the Amount of Issue of NCDs: 1. The aggregate amount of NCDs issued by a corporate shall be within such limit as may be approved by the Board of Directors of the corporate or the quantum indicated by the Credit Rating Agency for the rating granted, whichever is lower. 2. The total amount of NCDs proposed to be issued shall be completed within a period of 2 weeks from the date on which the corporate opens the issue for subscription. Procedure for Issuance :1. The corporate shall disclose to the prospective investors, its financial position as per the standard market practice. 2. The auditors of the corporate shall certify to the investors that all the eligibility conditions set forth in these directions for the issue of NCDs are met by the corporate. 3. The requirements of all the provisions of the Companies Act, 1956 and the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008, or any other law, that may be applicable, shall be complied with by the corporate. 4. The Debenture Certificate shall be issued within the period prescribed in the Companies Act, 1956 or any other law as in force at the time of issuance. 5. NCDs may be issued at face value carrying a coupon rate or at a discount to face value as zero coupon instruments as determined by the corporate. Debenture Trustee :1. Every corporate issuing NCDs shall appoint a Debenture Trustee (DT) for each issuance of the NCDs. 2. Any entity that is registered as a DT with the SEBI under SEBI (Debenture Trustees) Regulations, 1993, shall be eligible to act as DT for issue of the NCDs only subject to compliance with the requirement of these Directions. 3. The DT shall submit to RBI such information as required by it from time to time. Investment in NCD:1. NCDs may be issued to and held by individuals, banks, Primary Dealers (PDs), other corporate bodies including insurance companies and mutual funds registered or incorporated in India and unincorporated bodies, NRIs and FIIs. 2. Investments by Banks/PDs shall be subject to approval of the respective regulators. 3. Investments by the FIIs shall be within such limits as may be set forth in this regard from time to time by the SEBI. Preference for Dematerialisation: While option is available to both issuers and subscribers to issue/hold NCDs in dematerialised or physical form, they are encouraged to issue/ hold NCDs in dematerialised form. However, banks, FIs and PDs are required to make fresh investments in NCDs only in dematerialised form. Reporting to RBI: (a) The DTs shall report, within 3 days from the date of completion of the issue, the issuance details to RBI. (b) Further, the DTs should submit to RBI (on a quarterly basis) a report on the outstanding amount of NCDs of maturity up to year. (c) DTs are to report immediately, on occurrence, full particulars of defaults in repayment of NCDs to RBI.
Sh. N S Toor can be reached by readers at ns.toor@gmail.com

DATA COLUMN
Business of Banks
(Rs.in Cr) Mar31'09 Aggregate deposits 4086865 Cash in hand/RBI 201249 Investments 1247820 Bank Credit: 2771441 -Food 46750 -Non-Food 2724691 Cash-Deposit Ratio 5.16 Investment-Deposit 32.11 Credit-Deposit 71.55 Money Stock (Rs.in Cr) Mar31'10 M3 (Out of which) 5579567 (a) Currency with public 768048 (b) Demand deposits-Banks 714157 (c) Time Deposits - Banks 4093577 (d) Other deposits with RBI 3785 (a) Net Bank credit to Govt 1668258 (b) Bank credit to Comrcl sector 3483253 (c) Net Forex assets of Banks 1275039 Jun04'10 4541302 303235 1435703 3288074 52149 3166974 6.68 31.61 72.40 Jun04'10 5688508 826087 647344 4211438 3639 1715934 3529930 1280452

Sources of Money Supply

Important Banking Indicators

Bank rate 06.00% (29.04.2003) Statutory Liqdity Ratio 25.00% (07.11.2009) Cash Reserve Ratio 06.00% (24.04.2010) Prime Lending Rate 11.0-11.75% (Leading banks) Reverse Repo Rate 03.75% (20.04.2010) Repo Rate 05.25% (20.04.2010) Federal Reserve(US) rate: 1.00% Bank of England Rate : 0.50% European Comm. Bank 1.00%

Capital & Money Market Indicators

Parameter end-May 10 Call rates (percent) 3.75 Dollar-spot TT (Rs.) 45.75 Euro-spot TT (Rs.) 55.17 BSE - Sensex (points) 16863 NSE - Nifty(S&P CNX) 5067 Foreign reserves(Million $) 273300 A year back 3.50 50.09 66.35 11403 3473 254207

INDIAN ECONOMY-IMPORTANT PARAMETERS

RBI's growth estimate for 2010-11 : 8.0% GDP growth-2009-10 (revised estimate) : 7.4% GDP at factor cost 2009-10 (cr) : 5868331 Share of service sector in GDP : 64.5% Share of manufacturing sector in GDP : 18.2% Share of agriculture sector in GDP : 17.3% Current Inflation Rate (Wholesale) - Dec09: 7.03% Money Supply (M3) expansion Jun"10 : 14.6% Exports during 2008-09 : 168.0 bn Trade deficit (2007-08) : 80.6 Bn Current Account position (Apr-Mar 08) : 17.4 Bn Export target for 2010-11 (in $) : 200 bn GDP at factor cost (2009-10 Cr) : 4303654 India's share in world merchandise export : 1.45% Food grain production (2007-08) -Estimate : 227.3 Poverty line ratio (2004-05) : 22% India's currency rating (S&P) : BB Postv India's external debt (Dec 2009) US $ : 251.4 Bn Fiscal Deficit Target (2010-11) 5.5% of GDP : 381408 cr Revenue Deficit Target (2010-11) 4.% of GDP : 276512 cr Tax-GDP ratio (2008-09) : 11.2% Apr- Dec 2009:Export 147.57 bn Imports : 253.9 bn Per capita Income 2009-10 (Rs.) : 44345 Indian economy's ranking in world in PPP : 3rd Indian economy's ranking in world in value: 10th

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DATE OF DESPATCH - July 7 / 10, 2010

Published by Gurmeet Toor (Mrs.) at 1008, Sector 45-B, Chandigarh- Printed by Gurmeet Toor (Mrs) at Golden Graphics 'n' Printers, Industrial Area, Ram Darbar, Chandigarh on behalf of INFOTECH & FINANCIAL SERVICES (Prop-Gurmeet Toor Mrs) - Editor- Gurmeet Toor(Mrs)