Sr. No. Particulars 01 What is CASA Deposits ?

The share of current and saving accounts (CASA) deposits significantly influence the cost structure of commercial banks. Current accounts are primarily meant for companies, public enterprises and entrepreneurs having numerous banking transactions daily. On the other hand, savings accounts are the most common operating account for individuals and others for non-commercial transactions. Banks pay no interest on current accounts and an interest rate of 3.5 per cent on savings accounts. Thus, as compared to other modes of deposits, say fixed deposits, CASA deposits represent the cheapest mode of raising money. Consequently, the higher the CASA component in total deposits of a bank, the cheaper is its cost of deposits. The CASA (current and savings account) ratio is the ratio of deposits in the current and savings accounts of a bank to its total deposits. In the Indian context, the CASA deposits constitute more than a third of the total deposits. The declining share of CASA deposit in total deposits and the deceleration in their growth may pose a challenge for the banking sector. This is because as mentioned above, the CASA deposits constitute the cheapest source of funds for the banking sector. In case of drying up of this source, alternate sources may be not only difficult but also prove expensive. In the context of impending revival of economic growth, with commensurate increase in the credit needs of the economy, the banking industry may require to take initiatives to attract more CASA deposits. 02 What is ALCO Committee in Banks ? What is its Role ? RBI has introduced the Asset- Liability Management (ALM) System, as a part of the Risk Management and control Systems in banks. The ALCO committee is basically a decision making unit responsible for balance sheet planning from risk-return perspective including the strategic management of interest rate and liquidity risks. The scope of ALM function can be described as follows: - Liquidity risk management (i.e. observing a bank's ability to meet its liabilities as they become due) - Management of market risks (including Interest Rate Risk) (Interest rate risk is the risk where changes in market interest rates might adversely affect a bank's financial condition. Changes in interest rates affect both the current earnings (earnings perspective) as also the net worth of the bank (economic value perspective). - Funding and capital planning - Profit planning and growth projection - Trading risk management


1934. SLR restricts the bank¶s leverage in pumping more money into the economy. The other difference is that to meet SLR. 04 What is CRR? In terms of Section 42(1) of the RBI Act 1934. at the close of the business on any day. that a financial institution must maintain in its reserves. are required to maintain in India. Scheduled Commercial Banks are required to maintain with RBI an average cash balance. precious metals or other short-term securities. an amount of which shall not. banks can use cash. a) in cash. The objectives of SLR are: To restrict the expansion of bank credit. On the .R. by increasing or decreasing it respectively. such as cash. or Cash Reserve Ratio. or c) in unencumbered approved securities valued at a price as specified by the RBI from time to time. 1934 (i. This counter acts by decreasing or increasing the money supply in the system respectively. CRR.03 What is SLR ? What is the difference between SLR & CRR ? Statutory Liquidity Ratio is the amount of liquid assets. be less than 25 per cent or such other percentage not exceeding 40 per cent as the RBI may from time to time. On the other hand. the amount of which shall not be less than three per cent of the total of the Net Demand and Time Liabilities (NDTL) in India. in addition to the average daily balance which they are required to maintain under Section 42 of the RBI Act. To augment the investment of the banks in Government securities. of the total of its demand and time liabilities in India as on the last Friday of the second preceding fortnight. is the portion of deposits that the banks have to maintain with the Central Bank. gold or approved securities whereas with CRR it has to be only cash. 1949 all Scheduled Commercial Banks. CRR is maintained in cash form with RBI. To ensure solvency of banks.e CRR). Act. by notification in gazette of India. SLR restricts the bank¶s leverage in pumping more money into the economy. on a fortnightly basis and RBI is empowered to increase the said rate of CRR to such higher rate not exceeding twenty percent of the Net Demand and Time Liabilities (NDTL) under the RBI Act. specify. whereas SLR is maintained in liquid form with banks themselves. In terms of Section 24 (2-A) of the B. or b) in gold valued at a price not exceeding the current market price. The SLR is commonly used to contain inflation and fuel growth.

and/or destination of illegally gained money. such person or entity shall be guilty of offense of money-laundering. RBI has introduced KYC guidelines for all banks first time in 2002. The objectives of the KYC framework should be two fold. The other difference is that to meet SLR. is the portion of deposits that the banks have to maintain with the Central Bank. The Prevention of Money-Laundering Act. CRR is maintained in cash form with RBI. to ensure appropriate customer identification and to monitor transactions of a suspicious nature. . source. or Cash Reserve Ratio. 05 What is KYC ? Know your customer (KYC) is the due diligence and bank regulation that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them. Section 3 of the said Act makes the offense of money-laundering cover those persons or entities who directly or indirectly attempt to indulge or knowingly assist or knowingly are party or are actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property.other hand. whereas SLR is maintained in liquid form with banks themselves. 2004 came into effect on 1 July 2005. CRR." In India. RBI has issued several guidelines relating to identification of depositors and advised the banks to put in place systems and procedures to help control financial frauds. identify money laundering and suspicious activities. banks can use cash. gold or approved securities whereas with CRR it has to be only cash. More briefly it may be defined as "taking any action with property of any form which is either wholly or in part the proceeds of a crime that will disguise the fact that the property is the proceeds of a crime or obscure the beneficial ownership of said property. 06 What is Money Laundering? Money laundering is the practice of engaging in financial transactions to conceal the identity. and for scrutiny/monitoring of large value cash transactions.

.e an asset which has stopped yielding income. (v) The investments in debentures / bonds which are deemed to be in the nature of advance are subjected to NPI norms as applicable to investments. (ii) This applies mutatis-mutandis to preference shares where the fixed dividend is not paid. Bank Guarantee-i is not a financing instruments but merely a guarantee.1 per company on account of the non-availability of the latest balance sheet in accordance with the Reserve Bank of India instructions. (iii) In the case of equity shares. As per RBI guidelines.07 What is NPA? NPA is Non Performing Asset i. The Bank agrees to discharge the customer's liability in case of defaults. is one where: (i) Interest/ installment (including maturity proceeds) are due and remain unpaid for more than 90 days. in the event the investment in the shares of any company is valued at Re. Guarantee in regard to goods: Refers to the guarantee provided by a person to the owner of a goods who had placed or deposited his goods with a third person. (iv) If any credit facility availed by the issuer is NPA in the books of the bank. A non-performing investment (NPI). Guarantee on a person : Refers to the guarantee provided by a person (1st party) to the 2nd Party whereby the 1st Party guarantees joint-responsibility with the 3 rd Party. whereby any subsequent claim by the owner for his goods must be met by the guarantor and the third person. b) Bank Guarantee may be issued in respect of µPerformance of a task'. investment in any of the securities issued by the same issuer is treated as NPI and vice versa. 08 What is Bank Guarantee? State its types. in case of default by a third party in fulfilling their obligations under the terms of the Bank Guarantee-i. those equity shares are also reckoned as NPI. ii. Customer approaches the Bank for guaranteed surety. Bank Guarantee Bank Guarantee-i is an irrevocable obligation in the form of written undertaking of a Bank to pay an agreed sum. Bank Guarantee 1. The Bank gives the guarantee under the concept of Kafalah. similar to a non-performing advance (NPA). a) The concept of Al-Kafalah refers to guarantee in regard to two categories i.

1. 1. Advance Payment Guarantee allows the government to gives advance payment to the contractor in order to carry out government projects according to the terms and conditions of the contract. 09 What is Letter of Credit ? State its types. 1. . This will act as an assurance that the contractor will fulfill his obligation. it acts as a security deposit. The contract requires the contractor to provide the principal with a deposit for a nominal sum of the contract value in lieu of which a performance guarantee provided by the bank is acceptable. Tender Guarantee/Bid Bond is required as an indication of good faith that the tenderer is serious in tendering for the contract. 1.4 Custom Bond This type of guarantee is only issued to the Custom Department. For instance. commercial letter of credit (LC[1]) is a document issued mostly by a financial institution.5 Guarantee for Exemption of Custom Duties This guarantee is used for import ation of goods into Malaysia on temporary basis goods are exempted from import duties provided they are re-exported.Types of guarantee: 1. Also included under this category is the guarantee in respect of temporary importation of goods into Malaysia .6 Advance Payment Guarantee The Bank issues this guarantee to government bodies that have granted the contract to the customer (the contractor).2 Performance/Contract Guarantee Sometimes called Security Guarantee.7 Guarantee for Honouring of Cheque This type of guarantee is issued to government departments to ensure that such issuance cheque would be good for payment upon presentation. semi-government or private bodies in lieu a certain sum to be deposited with them as µEarnest Money' when they call for tenders. 1. a forwarding agent is required to furnish to the Custom Department a custom bond to guarantee the good behaviour of its employees. which usually provides an irrevocable payment undertaking.1 Tender Guarantee/Bid Bond This guarantee is issued to government. It is issued on behalf of the successful tenderer in favour of the principal. Certain goods are imported as samples or for temporary use. used primarily in trade finance. A standard. 1.3 Credit Guarantee/Supply Guarantee This guarantee is issued to a supplier who extended his credit facility to our customer for the purchase of goods on credit and therefore. The Custom Department requires a bank guarantee to ensure that the goods are re-exported on time failing which a claim will be made under the bank guarantee.

10 What is ADR & DGR ? ADR stands for American Depository Receipt. Mumbai).Types of Letter of Credit 1. A credit is known as backtoback credit when a L/c is opened with security of another L/c. . etc. if there is no such indication the credit will be deemed as irrevocable. Form an exporters point of view it is believed to be more beneficial. Back to Back Letter of Credit L/c Back to Back Letter of Credit is also termed as Countervailing Credit. this type of L/c is more beneficial for the beneficiary as it doubles the guarantee. 3. Revocable Letter of Credit L/c A revocable letter of credit may be revoked or modified for any reason. and the beneficiary. Sight Credit and Usance Credit L/c Sight credit states that the payments would be made by the issuing bank at sight. payment will be made. 4. Hence they cannot be confirmed. In case of usance credit. An irrevocable letter of credit from the issuing bank insures the beneficiary that if the required documents are presented and the terms and conditions are complied with. There is no provision for confirming revocable credits as per terms of UCPDC. companies in India issue shares which are traded on Indian stock exchanges like BSE (The Stock Exchange. 5. Irrevocable Letter of CreditL/c In this case it is not possible to revoked or amended a credit without the agreement of the issuing bank. on demand or on presentation. Confirmed Letter of Credit L/c Confirmed Letter of Credit is a special type of L/c in which another bank apart from the issuing bank has added its guarantee. The credit will indicate whether the usance draft are to be drawn on the issuing bank or in the case of confirmed credit on the confirming bank. 2. It is rarely used in international trade and not considered satisfactory for the exporters but has an advantage over that of the importers and the issuing bank. Although. Thus. at any time by the issuing bank without notification. the cost of confirming by two banks makes it costlier. NSE (National Stock Exchange). Every publicly traded company issues shares ± and these shares are listed and traded on various stock exchanges. It should be indicated in LC that the credit is revocable. Similarly. GDR stands for Global Depository Receipt. draft are drawn on the issuing bank or the correspondent bank at specified usance period. the confirming bank.

Each receipt amounts to a claim on the predefined number of shares of that company. the company has to comply with the policies of those stock exchanges. Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks. each receipt having a fixed number of shares as an underlying (Usually 2 or 4). which are traded like ordinary stocks. The bank issues receipts against these shares. As a result.These shares are sometimes also listed and traded on foreign stock exchanges like NYSE (New York Stock Exchange) or NASDAQ (National Association of Securities Dealers Automated Quotation). They behave exactly like regular stocks ± their prices fluctuate depending on their demand and supply. are called Depository Receipts. banks would prefer to keep their money with the RBI (which is absolutely risk free) instead of lending it out (this option comes with a certain amount of risk) Consequently. it is called a Global Depository Receipt. If the depository receipt is traded in the United States of America (USA). it means the RBI will borrow money from the bank and offer them a lucrative rate of interest. But many good companies get listed on these stock exchanges indirectly ± using ADRs and GDRs. If the reverse repo rate is increased. banks would have lesser funds to lend to their customers. the policies of these exchanges in US or Europe are much more stringent than the policies of the exchanges in India. it is called an American Depository Receipt. or a GDR. Many times. If the depository receipt is traded in a country other than USA. But to list on a foreign stock exchange. This helps stem the flow of excess money into the economy. This deters these companies from listing on foreign stock exchanges directly. These receipts. it stores the shares on behalf of the receipt holders. 11 What is Repo Rate & Reverse Repo Rate Repo rate is the interest rate at which the reserve bank of India lends money to other banks. These receipts are listed on the stock exchanges. while repo signifies the rate at which . Reverse repo rate is return banks earn on excess funds parked with the central bank against Government securities. These receipts are then sold to the people of this foreign country (and anyone who is allowed to buy shares in that country). or an ADR. and depending on the fundamentals of the underlying company. The company deposits a large number of its shares with a bank located in the country where it wants to list indirectly. The issuing bank acts as a depository for these shares ± that is.

SLR.liquidity is injected. Repo Rate & Reverse Repo rate all are explained above. . 12 State various Monetary tools available with RBI to control money flow in the country The various tools available are ± CRR.

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