First Right Of Appropriation Jargon

How to exercise the First Right Of Appropriation

Picture the scene… Your wages from your part-time job are due to be paid into your bank
account and you need the money to cover your electricity and food bills. However, you have
exceeded your agreed overdraft limit by a couple of hundred pounds and the bank wants to
use any money coming in to reduce this.

So what could you so?

This page explains what the first right of appropriation means and how you can exercise this
right to stay in control of your money.

What does First Right Of Appropriation mean?

Put simply it means that when you pay money into your account, you have the right to tell
the bank how you want that money to be used. Therefore you must inform them how you
want the money to be used at the time of payment. If you don’t give your bank instructions
at the time of payment then they may decide how the money should be used.

How can you exercise your right?

It is preferable to send written instructions to your bank in case of any later dispute. An
example of such a letter can be found later on. It is also a good idea to request that the
bank acknowledge your letter or you could send it via recorded delivery.

When is it not useful?

 Although appropriation can be a useful tool in the short term, the bank is only likely
to accept instructions for a short time before withdrawing banking facilities, so at
some point you may need to open another bank account elsewhere.
 Where you have a current account and a personal loan with the same bank,
appropriation cannot be used to stop an internal transfer to the loan account.

What can I do if the bank won’t accept instructions?

Pay the money in elsewhere
If the money has been paid in and the bank won’t return it, immediately commence the
bank’s complaints procedure.

Example wording for a letter giving instructions to your bank.

Dear Sir / Madam,
Re: (Insert name, address and account number)
I enclose a cheque for £500 for credit to my account number xxxxxxx / my wages will be
paid into my account on (Insert Date). I am exercising my first right of appropriation over
these funds and wish you to pay the following items from them:

£200 Cheque number xxxx payable to ‘Cash’ to cover my living expenses.

£160 Cheque to Mr Rivers to cover my rent.
£40 Direct Debit to Phone Co on 5th August

£20 Direct Debit to NPOWER on 6th August.

How a garnishee order works

A default judgement is usually obtained by a creditor either when a debt has gone unpaid,
you haven’t been able to come to any agreement with the creditor about repaying the debt,
or other alternative debt collection avenues have been exhausted.

If a garnishee order is made against you, then your bank, financial institution, or employer
will likely be notified rather than you. Garnishee orders can be served to anyone that owes
you money, such as tenants or contractors.

A garnishee order made on your bank accounts

Garnishee orders can be made on banks and financial institutions, compelling them to put a
freeze on your accounts. If this happens, your creditor can typically take the full amount
owing from your account, if you have the funds availabl

What is Garnishee Order ?

Garnishee Order is an order issued by court under Civil Procedure Code 1908 as per order
XXI, rule 46, for recovery of amount due to judgement creditor. In other words, it is an order
by court to attach money or goods belonging to the judgement debtor held with bank.

Judgement Creditor – A person (creditor) who initiates the garnishment action or at whose
request garnishee order is issued.
Judgement Debtor – A person who owes money to judgement creditor and whose funds are
blocked.

Garnishee – Garnishee means a judgement debtor’s debtor.

Income Tax Department’s Attachment Order

Income Tax (IT) Attachment Order is an order issued under Sec.226(3) of Income Tax Act,
1961, by an Income Tax Department for recovery of statutory dues from a person under
respective law. Unlike Garnishee Order that is issued in two stages (order NISI and Order
Absolute), attachment order issued by Income Tax Department is direct.

The order is issued in case of income tax default. The Assessee’s credit balance in the bank
can be attached. The attachment may be for debt due and payable, debts due but not
payable on date, amount received subsequently.

Reserve Bank of India Act, 1934 was enacted on 6 March, 1934 to constitute the Reserve
Bank of India. This law commended from April 1, 1935. It provide

Functions of Reserve Bank

1. Issue of Notes —The Reserve Bank has the monopoly for printing the currency notes in
the country. It has the sole right to issue currency notes of various denominations except
one rupee note (which is issued by the Ministry of Finance). The Reserve Bank has adopted
the Minimum Reserve System for issuing/printing the currency notes. Since 1957, it
maintains gold and foreign exchange reserves of Rs. 200 Cr. of which at least Rs. 115 cr.
should be in gold and remaining in the foreign currencies.
2. Banker to the Government–The second important function of the Reserve Bank is to act
as the Banker, Agent and Adviser to the Government of India and states. It performs all the
banking functions of the State and Central Government and it also tenders useful advice to
the government on matters related to economic and monetary policy. It also manages
the public debt of the government.
3. Banker’s Bank:- The Reserve Bank performs the same functions for the other commercial
banks as the other banks ordinarily perform for their customers. RBI lends money to all the
commercial banks of the country.
Structure of Banking Sector in India
4. Controller of the Credit:- The RBI undertakes the responsibility of controlling credit
created by the commercial banks. RBI uses two methods to control the extra flow of money
in the economy. These methods are quantitative and qualitative techniques to control and
regulate the credit flow in the country. When RBI observes that the economy has sufficient
money supply and it may cause inflationary situation in the country then it squeezes the
money supply through its tight monetary policy and vice versa.
Where do Printing of Security Papers, Notes and Minting take Place in India?
5. Custodian of Foreign Reserves:-For the purpose of keeping the foreign exchange rates
stable, the Reserve Bank buys and sells the foreign currencies and also protects the
country's foreign exchange funds. RBI sells the foreign currency in the foreign exchange
market when its supply decreases in the economy and vice-versa. Currently India has
Foreign Exchange Reserve of around US$ 360bn.
6. Other Functions:-The Reserve Bank performs a number of other developmental works.
These works include the function of clearing house arranging credit for agriculture (which
has been transferred to NABARD) collecting and publishing the economic data, buying and
selling of Government securities (gilt edge, treasury bills etc)and trade bills, giving loans to
the Government buying and selling of valuable commodities etc. It also acts as the
representative of Government in International Monetary Fund (I.M.F.) and represents the
membership of India.

BASEL III
• It is a comprehensive set of Reform measures
• developed by the Basel Committee on Banking Supervision (BCBS)
• to strengthen the regulation,
• Supervision &
• risk management of the Banking Sector.

• Capital Requirement-

Raising the quality, Quantity, Consistency & transparency of the capital base to
ensure that Banks are in a better position to absorb the losses

• Buffers-Capital Conservation Buffer (CCB): It will be over & above the minimum
prescriptions of common equity Tier-I Capital
Strengthening the ability of Banks to withstand adverse economic conditions & will
help in increasing their resilience
 Counter cyclical Buffers- increasing capital in good times to serve as a fall back
during difficult times

• Leverage ratio-It aims to put a cap on the extent of leverage in the banking sectors
one of the causes of crisis was the build up of excessive on & off balance sheet
leverage in the banking system

• Liquidity ratio-
Liquidity Coverage Ratio: to promote short term resilience by ensuring that Banks
have sufficient high quality liquid assets to survive 30 days of significant stress
Net Stable Funding Ratio” Banks should have enough funding resources over the
next 12 months to cover the expected funding needs over the same period

Cash Reserve Ratio

 CRR is the percentage of total deposits, which a commercial bank has to keep as
reserves in the form of cash with the Central Bank of India( Sec 42,RBI act 1934)
 The banks are not allowed to use that money, kept with RBI, for economic and
commercial purposes.
 It is a tool used by the Central Bank of India to regulate the liquidity in the economy
and control the flow of money in the country
 Therefore, if the RBI wants to increase the money supply in the economy, it will
reduce the rate of CRR while, if RBI seeks to decrease the money supply in the
market then it will increase the rate of CRR.

SLR-Statutory liquidity ratio

 SLR, is a percentage of Net Time and Demand Liabilities kept by the bank in the
form of liquid assets( Sec 24of Banking Regulation Act)
  Time Liabilities mean the amount of money which is made payable to the customer
after a period of time while the demand liabilities means the amount of money
which is made payable to the customer at the time when it is demanded.
 It is used to maintain the stability of banks through limiting the credit facility offered
to its customers.
 The banks hold more than the required SLR

LAF – Liquidity adjustment facility(Repo & Reverse Repo)

 LAF is a facility extended by RBI to scheduled commercial banks

(excluding RRBs) to avail of liquidity in case of requirement or
park excess funds with the RBI in case of excess liquidity on an overnight basis
against the collateral of Government securities including State Government
securities.
 The operations of LAF are conducted by way of repurchase agreements (repos and
reverse repos with RBI being the counter-party to all the transactions )
 The Repo is an instrument for borrowing funds by selling securities with an
agreement to repurchase the said securities on a mutually agreed future date at an
agreed price which includes interest for the funds borrowed. Thus under Repo,
banks borrow from RBI and thus liquidity comes to banking system.
 Reverse Repo : The reverse of the repo transaction is called ‘reverse repo’ which is
lending of funds against buying of securities with an agreement to resell the said
securities on a mutually agreed future date at an agreed price which includes
interest for the funds lent. Thus, under Revere Repo banks lend money to RBI and
thus liquidity reduces in the banking system

MSF- Marginal Standing Facility(long term in nature)

 MSF is a window for banks to borrow from the Reserve Bank of India in an
emergency situation when inter-bank liquidity dries up completely.
 Banks borrow from the central bank by pledging government securities at a rate
higher than the repo rate under liquidity adjustment facility
Under MSF, banks can borrow funds up to one percentage of their net demand and time
liabilities (NDTL).
Colaterised borrowing & lending obligation
 This is another money market instrument used in India.
 This is operated by the Clearing Corporation of India Ltd. (CCIL),
for the benefit of the entities who have either no access to the inter bank call money
market
or have restricted access in terms of ceiling on call borrowing and lending
transactions.
 Types of financial institutions eligible for CBLO membership include insurance firms,
mutual funds,
nationalized banks,
private banks,
Pension Funds and private dealers.

Why Retail Lending?

Corporate loans are given due to un-due pressure from the political elements which has led
to large scale NPAs.
To counter this banks are now resorting to Narrow banking involves banks taking deposits
and giving out only retail loans. This takes out of the equation the ability of the corporate
borrower to use political influence to get a loan from a public sector bank.
Advantages of Retail lending

1-Consumer loans are presumed to be of lower risk and NPA perception.

2- Low processing cost
3- Cross selling opportunities are more
How to increase retail lending?

 Constant product innovation to match the requirements of the customer segments

 Quality service and quickness in delivery
 Introduction of new delivery channels
 Tapping of unexploited potential and increasing the volume of business

What is CASA Ratio?

CASA stands for Current and Savings Account. Different kinds of deposits like current
account, savings account and term deposits form the major source of funds for banks. CASA
ratio is the share of current and savings account deposits to the total deposits of the bank.
In India, interest rates paid on current and savings account deposits is administered by
banking regulator - the Reserve Bank of India.

Why is it important for banks?

1-cheaper source of fund.- banks don’t pay interest on the current account deposits and
money lying in the savings accounts attracts a limited interest rate.

2- higher the CASA ratio means better the net interest margin, which means better
operating efficiency of the bank.

3-Scope of cross selling is more.

4- CASA are interest insensitive and less bargaining for additional interest.

How to increase number of CASA accounts:-

Product-
1. For current accounts restriction on number of transactions if any must be completely
removed.
2. There should not be any restrictions with regard to ATM withdrawal from other
banks ATMs.
3. Online transactions from current accounts must be encouraged by tie ups with
various e-commerce giants.
4. Overdraft facility should be given to all customers & if they are good high value
customers penalty charges must not be levied in case of delay for initial certain
number of times.

Place- In terms of distribution network there should be multiple number of touch points
to open CASA accounts.
Promotion-

Benefits of Digital Banking

1. Improved customer service
saves him time and expense- he no longer has to travel to a bank to carry out
transactions.

does not have to wait in unending queues

Online services make it possible for him to sit in the comfort

2- 24×7 Availability:
check his bank records anytime
Transferring money is easier, quicker, and safer.
3-online Bill Payments:
4- Lower Overheads:
reduced the operating costs of banks.
Digital banking has drastically This has made it possible for banks to charge lower fees for
services and also offer higher interest rates for deposits. Lower operating costs have meant
more profits for the banks.

5-Human error in calculations and recordkeeping is reduced, if not eliminated

6- With records of every transaction being maintained electronically, it is possible to

generate reports and analyze data at any point, and for different purposes.

How to increase digital banking in india?

1- Increase confidence of digital banking users –Reduce consumer liability in case of

reported fraudulent digital transactions,

2- Separate grievance redressal mechanism for digital modes of payment.

3- Educate the customers not comfortable with digital banking modes & reward them
for using it by cash backs & discounts.
4- Make the digital platforms easier to access, understand & operate even for the less
educated.
5- Seamless operation across smart phones & even feature phones.

Sources of Non-interest income are:-

1-Payments & remittances
Traditional- bank drafts, travellers cheque
Electronic – NEFT, RTGS, Internet & mobile banking
2-Bill collection services- Invoice, BoE etc
3-Cash management services-Collection & payment services
4- Other business
Demat accounts
MFs
Insurance
Merchant banking
Advisory services
Safe deposit lockers
Why Sources of Non-interest income are important for banks?
In the current economic situation in which banks are burdened by NPA, non income sources
can help banks recover faster.
Banks have a huge distribution network which they can leverage for that purpose.
The risk of non income sources is also less.
Banks assets can fully utilized by pushing these sources of income
Diversified customer portfolio-Helps increase penetration in market
Improved Profitability

Bancassurance
Bancassurance in simple terms means marketing of insurance products under the same roof
of a Bank branch. It thus facilitates a customer to carry out all his financial and investment
needs with just a visit to his bank branch.

Importance of Bancassurance for banks

1- Diversified customer portfolio-Helps increase penetration in market
2- Improved Profitability due to non interest income
3- Customer loyalty & retention- From the data of existing customers customized
insurance products can be delivered which will enhance customer trust & loyalty.
4- Increased CLV- Customer Life Time Value

Why mutual fund penetration low in India?

Less than 1.5% of India’s population invests in MFs

1- Indians have an affinity towards savings only rather than investing & taking risk.
2- Lack of Awareness about MFs.
 3- Inadequate financial literacy of financial products.
4- Complexity of MFs.
How to increase MF penetration
1- Financial literacy
2- Adv- Testimonials showing power of compounding
3- Increasing number of advisories- Create a huge number of MF advisors.
4- Make way for ethical selling- leading to happy customers creating positive word of
mouth.
5- Faster adoption of technology

Why insurance penetration low in India?

1- By nature insurance is an unsought product.
2- Lack of Awareness
3- Inadequate financial literacy of financial products.
4- Delay in processing of claims.
5- Bureacracy in claim settlements.

How to increase increase insurance penetration?

1- Financial literacy
2- Adv showing testimonials of claimants.
3- Increase number of insurance agents who can double up as councellors.
4- Using online delivery channels effectively & efficiently.
5- Product level innovation catering to different market segments

Reasons for huge NPAs

According to RBI the reasons are:-
1- Willful defaulters
2- Agressive lending
3- Corruption
4- Loan frauds
5- Economic slowdown leading to bankruptcy of debtors.

Other reasons are

 Social banking leading dilution of profitability
 Too much govt intervention
 Stricter Basel III norms
Managing NPAs
Govt has adopted a 4R strategy- recognition, resolution, recapitalisation and reforms
Latest figure is Rs 8.06 lakhs
In 2015 Asset quality review was done to clean up balnce sheets
& stressed assets were reclassified as NPAs
Futher to expedite & enable rsolution of NPA following reforms were made

1- IBC- The Object of the present Insolvency and Bankruptcy Code (IBC), 2016 is to
consolidate the existing framework by creating a single law for Insolvency and
Bankruptcy.
2- DRT- Debts Recovery Tribunal DRT speed up the recovery in the case of Non-
performing assets of Banks and Financial Institutions.
3- SARFAESI Act / Legal Action
4- Sale of immovable secured assets through private treaty
5- Recovery through Lok Adalat
6- Asset Recostruction companies- special type of financial institution that buys the
debtors of the bank at a mutually agreed value and attempts to recover the debts or
associated securities by itself.

Credit Risk-

Credit risk is the risk arising out of failure of borrower/ counter party to meet the
obligations on agreed terms.
 It includes both quantity & quality of risk
 Quantity of risk – outstanding loan balance on the date of default
 Quality of risk-The severity of loss defined by probability of default.

Tools for credit risk management

 Exposure ceilings
 Review/ Renewal
 Risk rating model
 Risk based pricing
 Portfolio management
 Loan Review mechanism

Market risk
Market risk is the risk of loss in on & off balance sheet positions arising from
movements in market forces.
 Liquidity risk
 Interest rate risk
 Forex risk
 Country risk
 Commodity risk
Operational Risk
 Operational risk is the risk of loss arising out of inadequate or failed internal
processes, people & systems or from external events.
 Internal Control
 Internal Audit
 Risk Education

 Interest rate risk. Interest rate risk is present in all debt securities and depends on a
variety of macroeconomic factors. Interest Rate Risk is the risk that interest rates
may rise, causing a fall in value of traded debt instruments.
 liquidity risk. The risk arising from the lack of possibility to either buy or sell a
security quickly as per one’s requirement is called liquidity risk. Debt securities have
minimum liquidity risk and can be easily bought and sold after due listing.

capital adequacy ratio

 The capital adequacy ratio is the percentage of Bank’s capital funds in relation to the
risk weighted assets of the Bank.
 The first pillar of Basel II accord consists of minimum capital requirement
Regulators track a bank's CAR to ensure that it can absorb a reasonable amount of
loss and complies with statutory Capital requirements.

Financial inclusion

Provision of appropriate financial services to the vulnerable groups at affordable

cost in sustainable manner by mainstream financial institutions

Why excluded
Supply side issues
• High transaction costs in dealing with a large number of small accounts
• Coverage of large geographical areas
• Lack of collateral security in the case of loans
• Human resources related constraints both in terms of inadequacy of manpower and
lack of proper orientation/ expertise
 • Lack of data base and absence of credit history of people

Demand side issues

• Lack of awareness
• High transaction costs at the client level due to expenses such as travel costs, wage
losses, incidental expenses, opportunity cost
• Documentation issues
• Non-availability of ideal products to suit the requirements
• Easy availability of timely and doorstep services from money lenders/ informal
sources

Features of PMJDY
• Account can be opened with ‘Zero’ Balance. No need to keep any minimum
balance.
• To provide these banking services banking outlets to be provided within 5 KM
distance of every village.
• RuPay Debit Card & Mobile Banking
facility.
• Accident insurance upto Rs 1,00,000
• Overdraft facility of Rs 5000 after 6 months if the account is in operation.

Commercial Paper
This Money Market Instrument highly rated corporate borrowers to diversify their sources
of short-term borrowings and to provide an additional instrument to investors.
 Corporates, primary dealers (PDs) and the All-India Financial Institutions (FIs) are
eligible to issue CP
 No. A corporate would be eligible to issue CP provided –
 a. the tangible net worth of the company, as per the latest audited balance sheet, is
not less than Rs. 4 crore
 b. company has been sanctioned working capital limit by bank/s or all-India financial
institution/s; and
 c. the borrowal account of the company is classified as a Standard Asset by the
financing bank/s/ institution/s.
External commercial borrowing (ECBs) are loans in India made by non-resident
lenders in foreign currency to Indian borrowers. They are used widely in India to
facilitate access to foreign money by Indian corporations and PSUs (public
sector undertakings). ECBs include commercial bank loans, buyers' credit, suppliers'
credit, securitised instruments such as floating rate notes and fixed rate bonds etc.
Most of these loans are provided by foreign commercial banks and other institution