Roll No.

: D050
SAP Id: 80101190635

Q. No.1
Buyer’s Credit is a short term trade financing facility provided by the banks to the importers
of the country to pay the exporter in foreign currency.
Process of Buyers credit
• The importer approaches his consultant which would be the importers bank with the
documents of importing the goods and asks them to provide the credit to pay the bill
to the exporter.
• The importer bank will then approach an overseas bank with regard to this credit to
pay the exporter, the overseas bank will then quote a price for his services and if
accepted by the importer will provide offer letter to the importer.
• For this, the importer would be requesting his bank to issue him Letter of
Understanding via SWIFT to the foreign bank. Bank before transferring through
SWIFT will require 100% margin in the account of importer.
• After this, the foreign bank will pay the amount to the exporter’s bank or to the
Nostro account of the importers bank.
• And on the due date foreign bank will recover the credit amount and its charges for
the services provided from the importer.
• The example of this is the PNB fraud case which we did in class.
A letter of credit is a fund based working capital service provided by the bank to its customer
as a proof that if his customer defaults in the payment of goods to the supplier then the bank
will pay the whole amount.
Types of Letter of Credit:
• Inland Letter of Credit: This type of letter of credit facility is provided to the customer
who is willing to engage in domestic trade.
• Foreign Letter of Credit: This is a type of Letter of Credit which is provided to the
customer who requires to meet hie requirement for international trade.
• Sight Letter of Credit: This is a Letter of Credit which is to be paid immediately as the
required documents are presented in the trade.
• Usance Letter of Credit: Once all the required documents are presented in the trade, a
date is determined after that and the amount is payable on or before that date, such an
LC is called Usance Letter of Credit.
• Stand-by Letter of Credit: This type of Letter of Credit is issued which works as a
guarantee for the beneficiary that the importer will perform his part of the contract in
this deal.
• The above mentioned are some of the important Letter of Credit facility provided by
the bank. Other types of Letter of Credit would include Revolving LC, Transferrable
LC, Deferred Payment LC, etc.
Process Flow of Letter of Credit:
• Step 1 is that the importer and exporter enter into a contract of sale/purchase of goods.
• Exporter demands a guarantee for its goods, for which importer requests his bank to
issue LC in favour of the exporter.
• The importer’s bank issues the LC in the favour of the exporter’s bank. Exporter’s
bank verifies it and passes it to the exporter.
• Exporter than ships the goods to the importer and provides all the pertinent documents
to his bank, who in turn passes it to importer’s bank.
• The importer’s bank verifies all the documents and sends its to the importer and the
importer takes possession of the goods and makes the payment and if the importer
does not then his/her bank needs to pay the amount to the exporter.
Different documents required in the LC:
Some of the documents that are required for smooth LC process are:
• Bill of Exchange
• Bill of Lading
• Purchase Order (PO)/Proforma Invoice
• Transport documents such as Airway receipt, waterway receipt, etc.
• Goods insurance policy receipt
• Weight Certificate to check the weights of goods whether they are of accurate weight
or not
• License of the importer and exporter
• The application of LC signed and stamped
• Goods origin certificate.
Q. No. 2
1.
Tier 1 Capital:
Common Equity Tier 1
Particulars Amount (Rs. in Crores)
Equity Share Capital (CET 1) 1500
Statutory Reserves 170
Capital Reserves 62
Total 1732

Additional Tier 1
Particulars Amount (Rs. in Crores)
Non-cumulative Preference share capital 200
Total 200

Tier 2 Capital
Particulars Amount (Rs. in Crores)
Revaluation Reserves (16*0.45) 7.2
Cumulative Redeemable Preference Share Capital 500
Subordinated Debt 100
Total 607.2

2.
Risk Weighted Assets:
Assets Amount (Rs. in Risk Weight Risk Weighted
Crores Amount (in Crores)
Cash Balance with 10 0% 0
RBI
Balance with other 18 20% 3.6
banks
Other Investments 36 100% 36
Loans and advances 16.5 0% 0
guaranteed by the
government
Loans and Advances
others (home loans):
Up to Rs.30 lakh 2000 50% 1000
(LTV≤ 80%)
Up to Rs.30 lakh 3000 50% 1500
(LTV> 80% and ≤
90%)
 Above Rs.30 lakh 675 50% 337.5
and up to Rs.75 lakh
(LTV≤ 80)
Premises, Furnitures 78 100% 78
and Fixtures
Guarantee and other 800 100% 800
obligations
Acceptances, 4800 100% 4800
Endorsements and
LC
Total 8555.1

CRAR
• Tier 1 = 1732 + 200 = 1932
• Tier 2 = 607.2
• RWA = 8555.1
• Tier 1 Capital Ratio = 1932/8555.1 = 22.5%
• Tier 2 Capital Ratio = 607.2/8555.1 = 7.09%
• CCB = 1732/8555.1 = 20.24%

3.
There is no shortfall in CRAR
Q. No. 3
1.
Current Assets = 10,00,000 + 1,00,000 + 4,50,000 + 2,50,000 + 50,000 = 18,50,000
Current Liabilities = 5,00,000 + 2,50,000 = 7,50,000
• MPBF under Tandon Committee method 1:
MPBF = 0.75 (CA-CL other than Bank Borrowings)
= 0.75 (18,50,000 – 7,50,000)
= 8,25,000
• MPBF under Tandon Committee method 2:
MPBF = 0.75*CA – CL other than Bank Borrowings
= 0.75*18,50,000 – 7,50,000
= 6,37,500
2.
Calculation of ANBC
Particulars Amount
Bank Credit in India 12000
Less: Bills Rediscounted 1000
Net Bank Credit 11000
Add: Outstanding Deposits under RIDF, NABARD, NHB, SIDBI for previous 1000
shortfall
Less: Eligible Amounts for exemptions 3500
Less: Advance extended in India 500
Add: Non SLR Held to maturity category 2000
Adjusted Net Bank Credit 10000

Thus, ANBC is greater than Off balance sheet items which is Rs. 8000.Therefore for PSL
calculation we will use ANBC
• Total Priority Sector Lending = 0.4*10000 = 4000
• Agriculture Sector = 0.18*10000 = 1800
• This includes 8% to small and marginal farmers = 800
• Micro enterprise sector = 0.075*10000 = 750
• Weaker Sections lending = 0.1*10000 = 1000
Q. No. 4
a.
Calculation of Provisions
Particulars Provisions (in lakhs)
Standard Assets:
Standard Assets Home Loan (0.25% of 2000) 5
Standard Assets Agricultural Loan (0.25% of 1000) 2.5
Standard Assets Other Loans (0.4% of 14000) 56
Sub Standard Assets (Unsecured = 25% 0f 3000) 750
Doubtful 1 (Secured = 25% of 500) 125
Doubtful 1 (Unsecured = 100% of 500) 500
Doubtful 2 (Secured = 40% of 300) 120
Doubtful 2 ( Unsecured = 100% of 200) 200
Doubtful 3 (100% of 300) 300
Total Provisions 2058.5

b.
Gross NPA = 50000 Lakhs
Provisions other than standard assets = 1995 Lakhs
Net NPA = 48005 Lakhs
c.
• First is that, it has different resolving procedures for different sets of people like
individuals, companies, or partnership.
• The whole process is overlooked by the Insolvency and Bankruptcy Board of India.
• The employee of the IBC shall be the licensed professional for these proceedings to
get into the management.
• IBC has NCLTs for companies and DRTs for individuals.