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Though we had taken enough care to go through the notes provided here, we shall not be
responsible for any loss or damage, resulting from any action taken on the basis of the contents.
We request everyone to go through the RBI / individual bank’s website and other internal
circulars and update yourself with the latest information through RBI website and other
authenticated sources. In case you find any incorrect/doubtful information, kindly update us
also (along with the source link/reference for the correct information).
Sl No Topic Page No
1 Key Highlights of Union budget 2019-20 4
2 Highlights of the latest monetary policy announced by RBI 10
3 Latest Policy Rates 11
4 Various Acts/Laws related to Banking and their important Sections 11
5 Garnishee Order and Income Tax Attachment Order 26
6 Bank and Customer Relationship 28
7 Non Resident Indians – Products 34
8 Banking Codes and Standards Board of India (BCSBI) 41
9 Anti Money Laundering (AML)/Know Your Customer (KYC)/CKYC/EASE 45
10 Business Correspondents / Business Facilitators (BCBF) Model 51
11 Basel III 53
12 Startup India 61
13 Make in India 62
14 Stand up India 63
15 Real Estate Investment Trusts (REITs) Funds 64
16 Payment Banks 67
17 Small Finance Banks 69
18 Licensing of New Banks in the Private Sector 71
19 Goods & Services Tax (GST) 72
20 Types of Banking 73
21 Risk Management 74
22 Important Committees on Banking 78
23 USBs / Direct Benefit Transfer (DBT) / Subprime Lending 81
24 Money Market Instruments / CDs / CPs / Call/Notice/and Term Money 82
25 Ways and Means Advances (WMA) 83
26 Bank Rate / Repo Rate / Reverse Repo Rate / CRR / SLR / MSF 84
27 Net Demand and Time Liability(NDTL) / Liquidity adjustment facility (LAF) 84
28 Derivatives / Futures / Options / MBS / CDO / Swap 85
29 NBFC / MFI / Mutual Funds / ECB 86
30 ADR / GDR / IDR 87
31 Take-out Financing / Bill Discounting / Factoring / Forfaiting 87
32 BSE / NSE 88
33 Balance Sheet Analysis 89
34 IRAC Norms & Recovery of NPA 91
35 Wilful Defauters / Non-Cooperative Borrower 92
36 SARFAESI / DRT / CERSAI / Lok Adalat 92
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37 CGTMSE 93
38 Period of limitation at a glance 94
39 Restrictions on loans and advances / Selective Credit Control Methods of 95
RBI / Fair Practice Code
40 Credit Information Companies (CIC’s) 96
41 Credit Syndication/Consortium Financing/Multiple Financing/MCLR/RLLR 96
42 Collateral/Security : Indemnity / Guarantee / Bailment / Pledge / 99
Hypothecation / Assignment / Mortgage
43 Corporate Debt Restructuring-CDR/Asset Reconstruction Companies-ARC 107
44 Credit Appraisal 108
45 Net present value (NPV) / Internal rate of return (IRR) 111
46 Fund based / Non-fund based lending 112
47 Working Capital / Term Loan Assessment 113
48 Prompt Corrective Action (PCA) Framework for Commercial Banks 118
49 Ratio Analysis 121
50 Priority Sector Lending 130
51 PMSBY / PMJJBY / APY / MUDRA 137
52 Pradhan Mantri Fasal Bhima Yojana (PMFBY) & Weather Based Crop 138
Insurance Scheme (WBCIS)
53 PSB Loans in 59 Minutes 140
54 Foreign Exchange 141
55 Digital Banking : Information Technology in Indian Banking Sector 143
56 Latest Schemes And Programmes Launched By Indian Government 151
57 Banking Terms 158
58 Latest Developments in Indian Banking 162
59 Some Important Things to Remember 166
Update Yourselves (Very Important)
60 Major Ratios of Your Bank 170
61 Performance Data of Your Bank 171
62 Bank Specific Deposit Products 171
63 Retail Schemes / MSME Schemes 171
64 Agriculture & Rural Development/Corporate Credit 171
65 Various Policies : Retail Lending Policy / Customer Grievances Redressal 171
Policy / MSME Policy / Loan Policy / Monitoring Policy / Valuation Policy
/ Recovery Policy
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The Union Budget for 2019-20 was announced by Ms Nirmala Sitharaman, Minister for Finance and
Corporate Affairs, Government of India, in Parliament on July 05, 2019. India is all set to become US$ 3
trillion economy by the end of FY20. The budget focusses on reducing red tape, making best use of
technology, building social infrastructure, digital India, pollution free India, make in India, job creation in
Micro, Small and Medium Enterprises (MSMEs) and investing heavily in infrastructure.
Total expenditure for 2019-20 is budgeted at Rs 2,786,349 crore (US$ 417.95 billion), an increase of
14.09 per cent from 2018-19 (budget estimates).
India was a US$ 1.85 trillion economy in 2014 and it has reached US$ 2.7 trillion in five years, the
fastest growing major economy and the sixth largest economy in world, compared to 11th
largest in 2013-14.
Metro rail network of 657 km has become operational in the country.
India target to become US$ 5 trillion economy in the next five years and might become a US$ 10
trillion economy in the next eight years thereafter.
The Indian economy grew at 6.8 per cent in 2018-19 and fourth quarter growth slumped to 5.8
per cent which was a 17 per cent quarter low.
Movement of cargo on Ganga is estimated to rise four times in next four years.
Total capital expenditure will be Rs 876,209 crore (US$ 131.43 billion) for 2019-20.
Centrally sponsored schemes have been allocated Rs 331,610 crore (US$ 49.74 billion) in 2019-
20.
Defence budget is Rs 305,296 crore (US$ 45.79 billion) for the first time in 2019-20.
Amount of Rs 174,300 crore (US$ 26.14 billion) has been approved for pension in the budget
2020.
The government has allocated Rs 184,220 crore (US$ 27.63 billion), Rs 79,996 crore (US$ 11.99
billion) and Rs 37,478 crore (US$ 5.62 billion) for Food, fertiliser and Petroleum subsidies
respectively.
National Sports Education Board to be setup under Khelo India to prepare youth for new age
skills, Artificial Intelligence, IoT, Big Data, 3D Printing, Virtual Reality etc.
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Infrastructure
Ministry of Railways have been allocated Rs 94,071 crore (US$ 14.11 billion) in 2019-20.
The government has suggested the investment of Rs 5,000,000 crore (US$ 750 billion) for
railways infrastructure between 2018-2030.
Metro rail network has reached to 657 Km.
Operating ratio improved by 95 per cent in 2019-20.
Government has announced to invest Rs 10,000,000 crore (US$ 1.5 trillion) in infrastructure
over the next five years
To upgrade 1,25,000 kms of road length over the next five years, the estimated cost of Rs 80,250
crore (US$ 12.03 billion) is envisaged under Pradhan Mantri Gram Sadak Yojana-III (PMGSY)
30,000 kms of PMGSY roads have been built using Green Technology, Waste Plastic and Cold
Mix Technology.
Government has ensured power availability to states at affordable rates through model – One
Nation, One Grid.
Government has proposed to permit investments made by Foreign Institutional Investor’s
(FIIs)/Foreign Portfolio Investments (FPIs) in debt securities issued by Infrastructure Debt Fund.
Road - Bharatmala phase 2 going to be launched to develop the state road networks.
Government has finalised the model tendency law- promotion of rental housing.
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Government has proposed granting of loans up to Rs 1 crore (US$ 0.15 million) for MSMEs
within 59 minutes through a committed online portal. Under the Interest Subvention Scheme
for MSMEs, Rs 350 crore (US$ 52.50 million) has been allocated for FY 2019-20
Government will create a payment stage for MSMEs to enable filing of bills and payment thereof
on the platform itself.
The Government e-Marketplace (GeM) is being extended to all Central Public Sector Enterprises
(CPSEs), providing more opportunities for MSMEs to sell their products.
Tax Proposals
Individual taxpayers with annual income up to Rs 500,000 (US$ 7,500) will get full tax rebate and
hence will not be required to pay any tax.
Tax Deducted at Source (TDS) of 2 per cent on cash withdrawal exceeding Rs 1 crore (US$ 0.15
million) in a year from a bank account to promote less cash economy
Effective tax rate for individuals having taxable income above Rs 2 crore (US$ 0.30 million) has
been increased.
Limit for applicability of lower corporate tax rate of 25 per cent increased from Rs 250 crore
(US$ 37.50 million) to Rs 400 crore (US$ 60 million)
Enhanced interest deduction up to Rs 350,000 (US$ 5,250) for purchase of an affordable house.
The government increased income tax surcharge for HNIs (high net worth individuals) earnings
more than Rs 2 crore (US$ 0.30 million) a year. Those earning between Rs 2-5 crore (US$ 0.30-
0.75 million) will have shell out 3 per cent more, with surcharge rate being increased from 15
per cent to 25 per cent. Those earning above Rs 5 crore (US$ 0.75 million) will have to shell out a
surcharge of 37 per cent, from current 15 per cent.
No charges or Merchant Discount Rate (MDR) on specified digital mode of payments. These
modes are to be compulsorily provided by large businesses.
The government announced Rs 150,000 (US$ 2,250) income tax deduction on interest paid on
loans for purchase of electric vehicles.
Sabka Vishwas Legacy Dispute Resolution Scheme proposed for quick closure of service tax and
excise related litigations.
To increase Special Additional Excise duty and Road and Infrastructure Cess each by one rupee a
litre on petrol and diesel.
It also proposed to increase custom duty on gold and other precious metals from 10 per cent to
12.5 per cent.
Scheme of faceless electronic tax assessment
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Aadhaar and PAN to be interchangeable and permit those who do not have PAN to file Income
Tax returns by only citing their Aadhaar number.
Taxpayers having annual turnover of less than Rs 5 crore (US$ 0.75 million) can now file
quarterly returns.
Fully automated GST refund module shall be implemented.
An electronic invoice system is proposed that will eventually eliminate the need for a separate
e-way bill
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Direct Taxes
Tax rate reduced to 25 per cent for companies with annual turnover up to Rs 400 crore
Surcharge increased on individuals having taxable income from Rs 2 crore to Rs 5 crore and Rs 5
crore and above.
Direct tax revenue increased by over 78 pc in past five years to Rs 11.37 lakh crore
Those who don't have PAN can file tax returns using Aadhaar
Pre-filling of Income-tax Returns for faster, more accurate tax returns
AFFORDABLE HOUSING
Additional deduction up to Rs 1.5 lakhs for interest paid on loans borrowed up to March 31,
2020 for purchase of house valued up to Rs 45 lakh
Overall benefit of around Rs 7 lakh over loan period of 15 years.
Capital gains exemptions from sale of residential house for investment in start-ups extended till
FY21.
'Angel tax' issue resolved- start-ups and investors filing requisite declarations and providing
information in their returns not to be subjected to any kind of scrutiny in respect of valuations
of share premiums.
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Funds raised by start-ups to not require scrutiny from Income Tax Department
E-verification mechanism for establishing the identity of the investor and source of funds
Special administrative arrangements for pending assessments and grievance redressal
No inquiry in such cases by the Assessing Officer without obtaining approval of the supervisory
officer.
No scrutiny of valuation of shares issued to Category-II Alternative Investment Funds.
Indirect Taxes
Basic customs duty increased on cashew kernels, PVC, tiles, auto parts, marble slabs, optical
fibre cable, CCTV camera, etc.
Exemptions from custom duty on certain electronic items now manufactured in India withdrawn
End use based exemptions on palm stearin, fatty oils withdrawn
Exemptions to various kinds of papers withdrawn
5 per cent basic custom duty imposed on imported books
Customs duty reduced on certain raw materials such as inputs for artificial kidney and
disposable sterilised dialyser and fuels for nuclear power plants, etc.
Capital goods required for manufacture of specified electronic goods
Increase in special additional excise duty and road and infrastructure cess each by rupee one per
litre on petrol and diesel
Custom duty on gold and other precious metals increased
Ease of Living
About 30 lakh workers joined the Pradhan Mantri Shram Yogi Maandhan Scheme that provides
Rs 3,000 per month as pension on attaining the age of 60 to workers in unorganized and
informal sectors.
Approximately 35 crore LED bulbs distributed under UJALA Yojana leading to cost saving of Rs
18,341 crore annually.
NPAs of commercial banks reduced by over Rs 1 lakh crore over the last year
Record recovery of over Rs 4 lakh crore effected over the last four years.
Domestic credit growth increased to 13.8 per cent
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Digital Payments
TDS of 2 per cent on cash withdrawal exceeding Rs 1 crore in a year from a bank account
Business establishments with annual turnover more than Rs 50 crore shall offer low cost digital
modes of payment to their customers and no charges or Merchant Discount Rate shall be
imposed on customers as well as merchants
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Following are the highlights of the Reserve Bank of India’s (RBI) fifth bi-monthly monetary policy
statement (05.12.2019) of 2019-20.
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Definition of banks
In India, the definition of the business of banking has been given in the Banking Regulation Act, (BR
Act), 1949. According to Section 5(c) of the BR Act, 'a banking company is a company which
transacts the business of banking in India.' Further, Section 5(b) of the BR Act defines banking as,
'accepting, for the purpose of lending or investment, of deposits of money from the public,
repayable on demand or otherwise, and withdrawable, by cheque, draft, order or otherwise.'
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This definition points to the three primary activities of a commercial bank which distinguish it from
the other financial institutions. These are: (i) maintaining deposit accounts including current
accounts, (ii) issue and pay cheques, and (iii) collect cheques for the bank's customer
(1) No company other than a banking company shall use as part of its name 15[or, in connection with its
business] any of the words bank, banker or banking and no company shall carry on the business of
banking in India unless it uses as part of its name at least one of such words.
(2) No firm, individual or group of individuals shall, for the purpose of carrying on any business, use as
part of its or his name any of the words bank, banking or banking company.
(3) Nothing in this section shall apply to-
(a) a subsidiary of a banking company formed for one or more of the purposes mentioned in sub-section
(1) of section 19, whose name indicates that it is a subsidiary of that banking company;
(b) any association of banks formed for the protection of their mutual interests and registered under
section 25 of the Companies Act, 1956 (1 of 1956).]
Provisions of the Banking regulation Act, 1949 are not in substitution of other laws applicable, unless
otherwise expressly said (Section 2 sub 56 (b)
Banking Policy
“Banking Policy” means policy specified by RBI from time to time in the interest of
Banking system
Monitory stability
Sound economic growth
Interest of depositors
Volume of deposits and other resources of the bank
Efficient use of the deposits and resources …..Section 5(ca)
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Every bank is required to keep cash reserve, with itself or by way of balance in the current account
with RBI or Central / District Co-operative Bank or net balance in all such way, of minimum
prescribed % amount of its DTL as of last Friday of fortnight
A return about this has to be submitted to RBI before 15thof each month about alternate Friday
Bank shall maintain unencumbered approved securities, valued not exceeding the current market
price, or an amount which shall not be less than 24% of the total of its demand and time liabilities
(DTL).
Notwithstanding anything to the contrary contained in section 77 of the Companies Act, 1956 (1 of
1956), no banking company shall,
(a) grant any loans or advances on the security of its own shares, or
(b) enter into any commitment for granting any loan or advance to or on behalf of
any of its directors,
any firm in which any of its directors is interested as partner, manager, employee or guarantor,
or
any company [not being a subsidiary of the banking company or a company registered under
section 25 of the Companies Act, 1956 (1 of 1956), or a Government company] of which 61[or
the subsidiary or the holding company of which] any of the directors of the banking company is
a director, managing agent, manager, employee or guarantor or in which he holds substantial
interest, or
any individual in respect of whom any of its directors is a partner or guarantor.
Save as hereinafter provided, no company shall carry on banking business in India unless it holds a
licence issued in that behalf by the Reserve Bank and any such licence may be issued subject of such
conditions as the Reserve Bank may think fit to impose.]
Every banking company in existence on the commencement of this Act, before the expiry of six
months from such commencement, and every other company before commencing banking business
69[in India], shall apply in writing to the Reserve Bank for a licence under this section.
The Reserve Bank or the National Bank, or both, if they consider it in the public interest so to do, may
publish any information obtained by them under this Act in such consolidated form as they think fit.
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The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any
direction issued under sub-section (1), and in so modifying or cancelling any direction may impose such
conditions as it thinks fit, subject to which the modification or cancellation shall have effect.
1. (a) caution or prohibit banking companies or any banking company in particular against entering into
any particular transaction or class of transactions, and generally give advice to any banking company;
(b) on a request by the companies concerned and subject to the provision of section 149[44A], assist, as
intermediary or otherwise, in proposals for the amalgamation of such banking companies;
(c) give assistance to any banking company by means of the grant of a loan or advance to it underclause
(3) of sub-section (1) of section 18 of the Reserve Bank of India Act, 1934 (2 of 1934);
2. The Reserve Bank shall make an annual report to the Central Government on the trend and progress
of banking in the country, with particular reference to its activities under clause (2) of section 17 of the
Reserve Bank of India Act, 1934 (2 of 1934), including in such report its suggestions, if any, for the
strengthening of banking business throughout the country.
3. The Reserve Bank may appoint such staff at such places as it considers necessary for the scrutiny of
the returns, statements and information furnished by banking companies under this Act, and generally
to ensure the efficient performance of its functions under this Act.
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which, whether before or after the commencement of the Banking Companies (Amendment) Act,
1959 (33 of 1959), has been refused a licence under section 22, or prohibited from accepting fresh
deposits by a compromise, arrangement or scheme sanctioned by a court or by any order made in
any proceeding relating to such compromise, arrangement or scheme, or prohibited from accepting
deposits by virtue of any alteration made in its memorandum; or
whose licence has been cancelled under section 22, whether before or after the commencement of
the Banking Companies (Amendment) Act, 1959 (33 of 1959).
2. Where the Reserve Bank is satisfied that any such banking company as is referred to in sub-section
(1) has repaid, or has made adequate provision for repaying all deposits accepted by the banking
company, either in full or to the maximum extent possible, the Reserve Bank may, by notice
published in the Official Gazette, notify that the banking company has ceased to be a banking
company within the meaning of this Act, and thereupon all the provisions of this Act applicable to
such banking company shall cease to apply to it, except as respects things done or omitted to be
done before such notice.]
1. 36AA. Power of Reserve Bank to remove managerial and other persons from office.
Sec 5(b) Banking : Banking means acceptance of deposit for the purpose of lending or investment, the
deposit of money from the public, repayable on demand or otherwise & withdrawal by cheque, draft,
order or otherwise.
Sec 5(c) Banking Company : It means any co. which transacts the business of banking in India.
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Sec 6 Forms of Banking Business : In addition to the banking business, a banking co may deals in bills of
exchange, hundis, PN, issue LC/BG, buying or selling of foreign exchange, safe custody, safe deposit
locker, acting as an agent for any Govt. or local authority, undertaking the administration of estate of
executor, trustee, leasing, mortgaging etc. or any other form of business which Central Govt. may notify.
Sec 7 Use of words Bank/Banking/Banking Co. : A banking co carrying on banking business in India must
use the word Bank, Banking, Banker, or Banking Co in its name & no other organisation can use these
names.
Capital Structure : The ratio of authorise, subscribed and paid up capital must be minimum 4:2:1
Sec 19(2) Holding shares of any Co : No banking co shall hold shares in any co. whether as pledgee,
mortgagee, or absolute owner of an amount exceeding 30% of paid up capital of that co. or 30% of its
own paid up capital + reserves whichever is less.
Sec 20 Restriction on advance against its own shares : No banking co shall grant loans/advance on the
security of its own shares
Sec 21 Power to control advance : RBI can restrict the banks from lending against certain notified
commodities, maintenance of a min margin, ceiling limit of advance or charging of min rate of interest.
Sec 21(a) No scrutiny of rate of interest : A transaction between the banking co and its debtors can not
be reopened by any court on the basis of excessive charging of rate of interest.
Sec 24 Maintenance of SLR : Banking co is required to maintain at the close of business on any day a
certain percentage of its total demand & time liabilities in India in form of cash, gold & unencumbered
approved securities. This is SLR. SLR is to be maintained with reference to total demand & time liabilities
as on the last Friday of 2nd preceding fortnight. SLR can be max 40%.
Sec 45(y) Preservation of Bank records : Guidelines for returning the paid instruments to instrument to
customer by keeping a true copy.
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Sec 2(e) Scheduled Bank- A schedule bank means a bank whose name is included in the 2nd schedule of
RBI Act 1934. For inclusion, a bank should satisfy conditions laid down in sec 42(6). The essential
condition of capital is that such banks have paid capital and reserves of not less than Rs.5 lac & further
that RBI is satisfied that the affairs will be conducted by the bank in a manner that will not jeopardize
the interest of the depositors. Banks which are not included in the 2nd schedule of RBI are called Non
schedule Bank.
Sec-28- Rules of Refunding value : RBI can frame rules for refunding value of mutilated , soiled or
imperfect notes as a matter of grace.
Sec 42(1)- Define Cash Reserve Ratio : Every bank is required to maintain with RBI an average daily
balance equal to a percentage of the net demand & time liabilities as stipulated by RBI from time to
time. This is known as CRR. There is no minimum or maximum limit for CRR. Further RBI does not pay
interest on balance held for CRR purpose. Currently CRR is 7.75%.
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Sec 45-H-T Provision relating to NBFC : No NBFC shall commence business or carry on business without
obtaining a certificate of registration & having net owned fund of Rs.25 lac
Sec 49-Declaration of Bank rate : RBI shall declare bank rate from time to time which is the rate at
which it buys or rediscount bills of exchange or other commercial paper eligible for purchase under this
act.
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Characteristics
1. Freely transferable
2. Title of holder free from all defects
A person who is holding negotiated instrument he is free from a defect in the title of the transferor
Ex: S sells certain goods to B. B gives a promissory note to S for the price. He refuses to pay the
promissory note, claiming that the goods are not according to order. If S sues B on the note, B’s defence
is good. But if he negotiates the note to H, a holder in due course, B’s defence will be of no avail.
3. Recovery - A holder of the negotiable instrument can sue for recovery of the amount.
4. Presumptions
5. Negotiable instrument is for consideration
6. Dated
7. Reasonable Time of acceptance
8. Before the maturity it should transferred
9. Stamp when there is a dishonour
Negotiable by statue
Promissory note
Bill of exchange
Cheque
Sec 5 Bills of exchange : Bills of exchange is an instrument in writing, signed by the maker containing an
unconditional order directing a person to pay certain sum to bearer.
Sec 6 Cheque : A cheque is a bill of exchange drawn on specified banker to be paid only on demand.
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Sec 7 Drawer, Drawee& Payee : Maker of bill of exchange/cheque is called drawer & person thereby
directed to pay is called drawee. The person named in the instrument to whom or to whose order the
money is directed to pay is called the payee.
Sec 8 Holder : Holder of a negotiable instrument means a person entitle in his name to possession & to
receive/recover the amount.
Sec 9 - Holder in due course : Holder in due course means a person who for consideration became
possessor of NI before the instrument became payable.
Sec 10-Payment in due course : If payment is made according to apparent tenor of the instrument, in
good faith & without negligence to the person having possession of the instrument under circumstance
which do not afford a reasonable ground of suspicion that he is not entitle to receive the payment.
Sec 13 NI : NI means promissory note, bill of exchange or cheque payable to order or bearer.
Sec 18 Difference in words & figure : When there is difference in amount in words & figure, the amount
in words is to be treated as the amount ordered by the drawer to pay.
Sec 45(a) Holder’s right to duplica : NI which has been lost before it is over due, the person who was
the holder of it may apply to the drawer to give him another instrument of the same tenor, giving
security to the drawer, if required, to indemnify him against any possible loss.
Sec 85(1) Protection in case of Order cheque : Paying banker is protected by payment in due course of
an order cheque which is properly endorsed by payee or its agent.
Sec 85(2) Protection to paying banker in case of Bearer Cheque : Paying banker is protected by
payment in due course of a bearer cheque which is properly endorsed by payee or its agent.
Sec 123- General Crossing : Where a cheque bears across its face parallel transverse lines with or with
crossing & the cheque is said to be crossed.
Sec 124- Special crossing : Where cheque bears across its face addition of name of banker with/without
words “not negotiable” this addition specially.
Sec126- Payment of crossed cheque : Where a cheque is crossed generally, the banker on whom it is
drawn shall not pay it otherwise than to a banker & where a cheque is crossed specially, the banker on
whom it is drawn shall not pay it otherwise than to a banker to whom it is crossed or his agent for
collection.
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Sec 131- Protection available for collecting banker : Banker who in good faith, without negligence
received payment for customer of crossed cheque, shall not incur any liability to the true owner of the
cheque in case the title to the cheque proves defective.
Sec 138- Dishonor of cheque : Where any cheque drawn by a person maintaining a/c in bank, for
payment to another person out of that a/c, returns unpaid for want of sufficient balance in a/c, such
person shall presumed to have committed offence & shall be punishable with imprisonment upto max 2
year or twice the amount of cheque.
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The public Information Officer should furnish the information within 30 days of receipt of
application (for life or liberty of a person within 48 hours)
Penalty Rs.250/- per day maximum of Rs.25000/-
Not applicable in Jammu & Kashmir.
Any person can appeal (FIRST) within 30 days from receipt of decision or expiry period. Second
appeal can be made within 90 days from receipt of decision of first appeal or expiry.
Exemption from disclosure of info is available in terms sec 8 and for rejection as per sec 9.
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Person 60 years & above can open Maximum total amount of deposit is Rs.15 lakhs
Person 55 years & above can open provided they have retired either on superannuation or VRS etc.
maximum amount cannot exceed the total retirement benefits or Rs.15 lakhs whichever is less
(Retirement benefits received should be respectively deposited within one month of its
receipt).Armed force personnel who retires on superannuation can open irrespective of age
criterion subject to max retirement benefits or 15 lakhs whichever is less
Interest is payable quarterly @ 9.2% p.a. WEF 01/04/2013
It can be opened for 5 years on expiry of 5 years It can be extended for a block of 3 years
If closed prematurely after one year but before 2 years 1.5% of amount deposited will be deducted.
If closed after 2 years 1% of the amount deposited will be deducted. On the extended block of 3
years no penalty will be charged if account is closed after one year
More than One nominee is permitted.
Nominees Photo & signature to be obtained
TDS to be deducted at source
A person can have more than one a/c but the total of all the a/cs should not exceed the cap amount
It can be transferred from Post office to Bank & vice versa Upto 1 lakh no charge for transferring the
a/c for the 1st transfer a fee of Rs. 5/- per Lac or part thereof & for subsequent transfer Rs.10/- per
Lac & part thereof.
NO Agency commission is to be paid by branches WEF 01/12/2011
Only authorized branches who can open PPF a/c can open SCSS, 2004
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Jurisdiction
Up to Rs 20.00 lacs - District forum
20 to 100 Lacs - State commission
Above 100 Lacs - National commission.
BR ACT 1949
SECTION DEALS WITH
5 Definition of Banking
20 Cannot lend against own shares, will tantamount to depletion in capital
21 Powers of RBI
24 SLR, Max 40%, Minimum NIL
26 Annual Return – Unclaimed Deposits over 10 years
29 To publish B/S, P&L
35 Inspection by RBI
45 ZA TO ZF Nomination to Deposit accounts, Safe Deposit Articles and Lockers
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COPRA 1986
Purpose of Act : Transactions in respect of Goods & Services. Better protection to Consumers
Consumer Redressal Forums
District Retired Dist. Court Judge – Claims upto Rs. 20 lacs – Verdict can be challenged at State
Forum by depositing 25,000/‐ or 50% of the compensation whichever is lower
State Retired High Court Judge–Claims above 20 lacs and upto 100 lacs–Verdict can be challenged
at National Forum by depositing 35,000/‐ or 50% of the compensation whichever is lower
National Retired Supreme Court Judge–Claims above Rs.100 lacs–Verdict can be challenged at
Supreme Court by depositing 50,000/‐ or 50% of the compensation whichever is lower
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Garnishee Order
A garnishee order is an attachment order issued by a competent court under section 60 of civil
procedure code (Rule 46 of Order XXI of schedule) at the request of a creditor to attach his debtor’s
funds in the hands of a Banker.
A garnishee order is issued in two stages, first an order Nisi and then an order Absolute
Banker – Garnishee; Person approached the court - judgment creditor and person whose funds are to be
attached - Judgment Debtor.
Order Nisi
An order Nisi requires the banker to explain as to why the funds of the depositors should not be
attached
On receipt of order Nisi the bank is bound to stop operation in the depositors account
Bank must immediately inform the customer about the receipt of the order.
Order Absolute
After receipt of the explanation from the bank the court may issue order Absolute.
On receipt of an order Absolute the bank should pay the amount to the court.
Production of pass Book/ Deposit receipt not necessary for making such payment
Amount of the Garnishee Orders.
A Garnishee order usually does not mention the amount. In case, no amt is mentioned, the entire
balance to be attached. If issued for specific amount only that amount to be attached
Accounts to be attached
Garnishee order extends only to those accounts, which are held in the same capacity in which the
order is issued.
If the order is in the name of A and the account is in the name of a partnership firm
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Banker’s Rights : has three rights namely (i) Right of Lien (ii) Right of Set Off (iii) Right of Appropriation
Right of Lien : Lien is the right of creditor to retain possession of goods and securities belonging to the
debtor till the debts due to him (creditor) are paid. This right is available only on goods and securities
and not on balances in the accounts. Lien entitles retention of possession of goads but the creditor
cannot sell the goods. Lien can be Particular lien (Sec 170 of the Indian Contract Act) or General Lien.
Right of General Lien, is available only to bankers, factors, wharfingers, attorneys (Section 171 of the
Indian Contract Act). Banker's Lien is also a general lien but it is an implied pledge because the banker
has right to retain as well as sell goods of the borrower after giving him reasonable notice.
For exercising right of lien, (a) the goods or securities and debt should be in the same right and same
capacity (b) Loan should be due or overdue and lawful (c) Reasonable notice is given. Further, Right of
Lien is available on the goods and securities received in the ordinary course of business. It is not
available when the goods or securities have been deposited for a specific purpose; goods received for
safe custody or lying in safe deposit vault or goods left by the debtor negligently.
However, in the case of loans against pledge of jewellery, bank can exercise right of general lien on the
ornaments left in the possession of the bank after adjustment of the jewellery loan in case some other
advance is outstanding.
Negative lien is a declaration from the borrower to the effect that securities/goods offered as security
are not encumbered and that the borrower will not create any charge over them without bank's
permission. This undertaking does not create any charge in favour of the bank and therefore advance
against negative lien are treated as dean advance.
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Right of Set off: Set off is the right to combine two or more accounts having debit and credit balance. It
is not defined in any Act. This right arises when two parties are debtor as well as creditor to each other
i.e. one account should be in debit and another account should be in credit. In the case of banks, this
right arises when wants to combine its loan due from a borrower with his deposit accounts. For
exercising right of set off following conditions should be satisfied (i) Both accounts should be in same
right and same capacity (ii) The debt should be due and not accruing due. Reasonable notice should be
sent to the depositor before exercising set off. Right of set off can be exercised even in case of loans
which are time barred. It can be applied on fixed deposit when it matures and not on FD which is not
due as yet. Similarly it can’t be applied for adjusting term loan or CC or overdraft which are regular and
not overdue. If a loan is in the name of an individual, set off can be exercised on credit balance in his
individual account and sole proprietorship account. Set off can not be exercised on deposit accounts
which are held jointly with other individuals, or partnership in which the borrower is partner, or client
account maintained by a solicitor or account of minor under guardianship where borrower is the
guardian or on the credit balance of a trust in which borrower is trustee. If loan is in joint names, set off
can be exercised on credit balance in joint account as well as credit balance in individual accounts of
joint borrowers. If loan is in the name of a partnership firm then set off can be exercised on credit
balance in the name of firm, partners and any other partnership firm which has just same partners as
are in the borrowing firm. For exercising right of set off, all branches of a bank are considered as one.
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credit or overdraft. As per Clayton's rule, credit entry will set off debits in the chronological order of
time. This means that first item on the debit side will be discharged first by a credit and so on.
Garnishee Order : A Garnishee Order is an order issued by court under section 60 (Order 21, Rule 46) of
the Code of Civil Procedure, 1908. Through this order the court attaches the deposit of a particular
depositor with the bank. The bank upon whom the order is served is called Garnishee. The depositor
who owes money to another person is called judgement debtor while the person to whom money is due
is called judgement creditor. The court first issues order Nisi requiring the bank to explain as to why the
funds in the account not be utilised to meet the judgement creditor's claim. After this order, the order
Absolute is issued directing the bank to freeze the entire balance or a portion of credit balance in the
account of the judgement debtor. Upon receipt of Garnishee Order Nisi, the operation in the account
are suspended, the bank has to earmark desired balance in the account of the judgement debtor.
Garnishee Order applies to existing debts as also debts accruing due i.e. SB/CD/RD/FD.
Garnishee Order applies only to those accounts of Judgement Debtor which have credit balance. The
relationship between bank and judgement debtor is of debtor and creditor. Bank is the debtor of
Judgement Debtor who is a creditor of the bank. Garnishee order does not apply to money deposited
subsequent to receipt of Garnishee order. It also does not apply to cheques sent for collection but yet to
be realized. But if credit was allowed in the account before realization with power to withdraw to
customer, GO will be applicable on this amount. Garnishee order does not apply to unutilized portion of
overdraft or cash credit account of the borrower as no debt is due to judgement debtor. Bank can
exercise right of set off before applying Garnishee Order. Garnishee order is-applicable only if both
debts are in same right and same capacity. Garnishee order issued in a single name does not apply to
accounts in the joint names of judgement debtor with other person(s). But if Garnishee order is issued in
joint names, it will apply to individual accounts also of the same debtors. When Garnishee Order is in
the name of a partner it will not apply to partnership account but when Garnishee order is in the name
of firm, accounts of individual partners are covered. Garnishee Order can be served on Head Office of
the bank and it can take reasonable time to communicate the same to its branches, If amount is not
specified in the order, then it will be applicable on the entire balance in the account. However, if it is for
specific amount, the cheques can be paid from the balance available after setting aside the amount as
mentioned in the Garnishee order. Garnishee order is applicable on accounts of deceased persons but
not applicable if depositor declared insolvent. Garnishee order not applicable on fixed deposit taken as
collateral security.
Income Tax Attachment Orders : Income Tax Authorities issue Attachment Orders in terms of Section
226(3) of Income Tax Act, 1961. On receipt of this order, banker is required to remit the desired amount
to income tax authorities. An order without mentioning the amount is not a valid order. Attachment
Order is different from Garnishee order in following respects (i) Attachment order applies to money
deposited in the account after receipt of order also till it is fully satisfied whereas Garnishee order does
not apply to subsequent deposits. (ii) Attachment Order in single name applies to joint accounts also
proportionately unless the contrary is proved whereas Garnishee order in single name does not apply to
joint accounts. In case banker fails to comply with Attachment Order, it will be liable for the amount of
order and deemed as an assessee in default. However, right of set off is available to bank before
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applying the order. When both Garnishee order and Attachment Order are received simultaneously,
priority should be given to attachment order.
NOMINATION PROVISIONS
Nomination is compulsory for single name accounts. If customer does not want nomination, he has
to give in writing.
Name of nominee - If customer requests for name of nominee to be written on FDR or pass book,
banks to follow his instruction.
2 Witnesses in nomination - Only for thumb impression. Not for signatures.
Nomination is allowed for all types of Deposits—domestic and foreign currency (Section 45-ZA&ZB
of Banking Regulation Act, for safe deposit of articles (Sec 45-ZC&ZD) and lockers (Sec ZE &ZF).
Legal Status of nominee: A trustee for legal heirs.
Nomination can be for individual accounts only (not for firms, companies, trusts, societies etc.)
Who can be nominee: Only an individual can be a nominee. He can be Resident or Non-resident,
minor or even insolvent person.
Nomination can be made any time from. opening of account to closure of account. It can be
cancelled and changed any time.
No. of nominee: One only in case of (a) Deposit accounts (b) Safe deposit of article accounts, (c)
locker accounts in single name and joint locker either or survivor. For joint operation locker account,
as per IBA, max no. of nominees in joint lockers can be 2.
On death of account holder bank to make the payment or deliver the articles to nominee only
(except in case of Court Orders). Objection from legal heirs or any other person to be ignored.
In case of FDR, if renewal is within same account, previous nomination continues.
In case of joint deposit account, all persons to sign the nomination.
In case of death of one, in joint deposit accounts, payment shall be made to survivor and legal heirs.
The nominee can be entertained only when all account holders have died.
In case of death of one, in case of jointly operated locker, the articles will be delivered to survivors
and the nominee.
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Joint accounts
Joint accounts can be opened with various types of operating instructions like Either or Survivor,
Joint Operation or Former or Survivor or Either or Joint or Survivor. The position in such cases as
under:
Either or Survivor (E or S): It means anyone can operate the account till both are alive. After the
death of either of them, the bank can pay the balance to the survivor without any formality.
To be operated jointly: Account will be operated by both jointly till both are alive and, if one of the
two expires, the bank would pay the final balance to the survivor, along with all the legal heirs of the
deceased.
Jointly or by Survivors: Account can be operated by both / all the person jointly during their lifetime
and, in the event of death of any one, the balance is payable to the surviving persons jointly.
Former or Survivor: Till the first named person is alive, the second named person has no right to
withdraw/operate the account. After the death of the first named person, the payment will be made
to second named person.
In case of "either" or "either or survivor" or "joint" operation any one of the account holders can
stop payment of the cheque. The revocation in case of either or either or survivor can be done by
either but in case of joint operation, revocation has to be done by all jointly. In case of Former or
Survivor accounts, stop payment of cheque can be done by Former and revocation of stop payment
can also be done by Former.
In case of "either of survivor" alteration on the cheque can be confirmed by any of the account
holders.
Any authority to a third party has to be with the consent of all joint account holders.
Joint accounts are joint property. Therefore, unless there is clear mandate in the account opening
form that anyone can undertake the following functions, these should be done by all joint account
holders jointly under signatures of all (a) opening the account (b) closure of account (c) making or
altering nomination (d) raising loan against term deposit (e) premature payment of term deposit (1)
addition or deletion of names.
In case of joint accounts with either or survivor instruction, if any of the account holders becomes
insane, the balance will be paid jointly to the account holders other than who has become insane
and guardian of the insane minor appointed by court.
In all types of joint accounts, Garnishee order issued in joint names will be applicable on joint
accounts but Garnishee order issued in the name of one of the account holders will not be
applicable on joint account.
Bank accounts of minor : Minor can open 2 kinds of bank a/cs i.e. self operated and guardian operated.
In-Operative Accounts
Banks to make an annual review of deposit accounts in which there are no operations for more than
one year.
In these accounts, letter to be sent to customer for operations. If on an enquiry, the reply given by
the account holder is satisfactory, banks can continue classifying the same as an operative account
for one more year
Savings /current account to be treated as inoperative / dormant if there are no transactions for over
a period of two years.
For classifying an account as 'inoperative', debit & credit transactions induced at the instance of
customers as well as third party should be considered.
Accounts opened for the beneficiaries under various Central/State Government schemes are
exempted.
Interest: Interest on savings bank accounts should be credited on regular basis whether the account
is operative or not. If a Fixed Deposit Receipt matures and proceeds are unpaid, the amount left
unclaimed with the bank will attract savings bank rate of interest.
Deceased Accounts
In case of deceased accounts, the payment be made within 15 days from date of receipt of complete
papers.
Credit received after death (called pipe-line credit), can be credited with permission of survivor,
legal heirs or nominee only.
Pre-mature payment of term deposit can be allowed with out any penalty, but no loan can be
allowed.
Interest in case of current account and saving bank account to be paid as per saving bank rate till
date of payment from date of death.
Interest in case of Term Deposit, if matured before death to be paid at contracted rate till maturity
and at SB rate after maturity till date of payment.
Interest in case of Term Deposit, if matured after death to be paid at contracted rate till maturity
and from date of maturity till date of payment to be paid at rate applicable (on date of maturity) for
the period the deposit was with bank.
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Non-Resident Accounts can be opened and maintained by Person Resident outside India, Non-Resident
Indians (NRI) and Persons of Indian Origin (PIO). Person Resident outside India means a person who is
not resident in India. It also defined as a person who has gone out of India, or who stays outside India
for the purpose of employment, carrying on business or vocation or for any other purpose under the
circumstances indicating an uncertain period of stay. Person includes Individual, HUF, Firm, Company
and Association.
Non-Resident Indian :
A person resident outside India, who is a citizen of India or is a person of Indian Origin. Persons who visit
India for temporary visit are treated as Non-Resident Indian. Students going abroad for studies are
treated as Non-Resident Indians.
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The recent RBI guidelines allowed Non-Resident Indians (NRIs) to operate resident bank accounts on
“either or survivor” basis. Banks may include an NRI close relative in existing/new resident bank
accounts as joint holder with the resident account holder on “either or survivor” basis, subject to
fulfillment of a few conditions. An NRI can be a joint holder in more than one account. Cheques,
instruments, remittances, cash, card or any other proceeds belonging to the NRI relative shall not be
eligible for credit to this account.
Besides, the NRI relative shall operate such account only for and on behalf of the resident for domestic
payment and not for creating any beneficial interest for himself. Due to any eventuality, if the NRI
becomes the survivor of such an account, it shall be categorized as Non-Resident Ordinary Rupee (NRO)
account.
The joint account holder facility may be extended to all types of resident accounts including savings
bank accounts. While extending this facility, the banks should satisfy itself about the actual need for
such a facility and also obtain a declaration, duly signed by the NRI account holder.
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Limit up to which foreign currency A person resident in India may credit to the EEFC account 100%
may be credited from out of the foreign exchange earnings
Permissible credits to EEFC accounts Inward remittance through normal banking channels, other
than the remittance received pursuant to any undertaking given
to the Reserve Bank or which represents foreign currency loan
raised or investment received from outside India, or those
received for meeting specific obligations by the account holder.
Payment received in foreign exchange by a unit in Domestic
Tariff Area (DTA) for supplying goods to a unit in Special
Economic Zone out of its foreign currency account.
Payment received by an exporter from an account maintained
with AD for the purpose of counter trade, in accordance with
the approval granted in terms of regulation 14 of FEMA (Export
of goods & Services) Regulations 2000.
Advance remittances received towards export of goods /
services. Payments received towards export of goods/ services
from India, out of funds representing repayment of state credit
in USD held in the account of Bank for foreign economic affairs,
Moscow with an AD in India.
Professional Earnings including Director’s fees, consultancy
fees, lecture fees, honorarium and similar other earnings
received by a professional by rendering services in his individual
capacity.
Interest earned on the funds in the account.
Re credit of unutilized foreign currency earlier withdrawn.
However, the amount withdrawn in rupees shall not be eligible
for conversion into foreign currency and for re-credit to the a/c.
Amount representing repayment of loans/ advances granted to
the account holder’s importer customer.
Representing the disinvestments proceeds received by the
resident account holder on conversion of shares held by him to
ADRs / GDRs under the sponsored ADR / GDR scheme approved
by the Foreign Investment Promotion Board of Govt. of India.
Permissible debits to EEFC account Payment outside India towards any current account
transactions in terms of FEMA Current Account Transaction
Rules 2000 and towards a capital account transaction
Permissible under FEMA (Permissible Capital Account
Transactions) Regulations 2000.
Payment in foreign exchange towards cost of goods purchased
from 100% EOU or a Unit in EPZ/STP/Electronic Hardware
Technology Park. Payment of Customs Duty in accordance
within the provisions of Export Import Policy of Central
Government.
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RBI has set up BCSBI with an objective of evolving standards for bank services to depositors, borrowers
and common persons at affordable and reasonable price and monitoring the same in effective manner.
It is an independent and autonomous watchdog to monitor and ensure that the services are delivered as
promised. Banks are required to register themselves with BCSBI as members and have the code of
commitment to customers adopted by their respective Boards. BCSBI has revised “The Code of Bank’s
Commitment to Customers” and the important changes are as under:
Banks are advised to disclose the commission/fee details to the customers while selling third party
products viz., Mutual Funds / Insurance policies.
Loan application forms should be comprehensive to include information about rate of interest, interest
application intervals, penal interest, processing charges, up-front fee, prepayment charges etc.
Loan applications are to be processed within reasonable time and communicate the terms and
conditions in writing to the borrowers. Banks should give notice to the borrower about the subsequent
changes in interest rate / charges, if any.
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As per revised code, banks are advised to introduce simplified process for opening of Basic Savings bank
accounts and extend Doorstep service to the disabled customers and senior citizens. In case of
electronic frauds, if the customer incurs any direct loss due to a security breach of the internet banking
system that is not contributed or caused by the customer, the bank will bear the loss, unless it is able to
establish that the customer is guilty. However, the onus of responsibility lies on the bank that the
customer compromised the passwords, leading to the fraud.
In addition to the guidelines framed based on the recommendations of the committees, RBI had been
giving instructions to banks as and when required. Over the years, the customer service in banks has
improved considerably with the introduction of technology based products. Further, the Government of
India introduced the concept of Citizens’ Charter at all bank branches with an objective to exercise in
setting benchmarks for prompt delivery of banking services, including the pricing thereof. In the year
2010, RBI constituted a committee under the chairmanship of Sri.M.Damodaran to look into the
customer service aspects in Banks. The recommendations of the committee are as under:
Bank should offer a basic bank account with privileges such as certain number of transactions,
cheque facility, ATM/Debit Card etc., without any prescription of minimum balance.
The Passbook/Statement of accounts should indicate the account number, name, address and ID of
the customer, MICR Code, IFSC Code, Toll free customer care number, Ombudsman contract details,
instrument number and payee name on all debit entries and the full details of TDS (Gross Interest
credited and TDS debited).
Before marking the account as inoperative, the banks must intimate the account holder by SMS.
Banks should introduce Uniform Account Opening forms and Account Number Portability across the
banks.
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Banks should take Unique Identification Number (issued under Aadhar project) as KYC compliance
for opening of accounts.
The term deposit renewal notices should be sent to customers preferably in electronic form. A single
Form 15G/H linked to a customer ID across the branches in a bank should be issued.
Service charges should be reasonable. No charges are to be levied on Non-Home Branch
transactions.
The users of electronic bank platforms for making collections may offer small discounts to their
customers to favour electronic payments.
Cheque Drop Box should provide receipt/acknowledgement along with the image of the cheque.
Reason for penal interest on loan accounts, rate of interest charged should be mentioned in
Passbook/Statement of Account.
Banks must ensure that loan statements are issued to the borrowers periodically giving full details
including demand, repayments, interest component and charges.
The title deeds should be returned to the customers within a period of 15 days after the loan
closure.
Bank should provide Most Important Terms and Conditions (MITC) of the product explicitly in Arial
font and size 12 for better readability.
All home loans should permit a switchover between fixed to floating or viceversa at least once
during the loan tenure at an appropriate and reasonable fee. Home loans backed by insurance
products, the procedure should be explained upfront to the customers.
Banks should provide prioritized service to the senior citizens/physically handicapped persons.
Banks should put a system in a place for Automatic updation of the customers to the senior citizen
category based on the date of birth.
Pensioner may be allowed to submit the annual life certificate at any of the branches of the bank.
Bank should make arrangements to disburse pension to sick and disabled pensioners at their door
steps.
SHG members should not be forced to take insurance products.
Banks should ensure that at least one of the staff members in Tribal / North-East areas is conversant
with local language.
The staff manning Customer Service Departments in banks should receive specialized training so
that customer complaints are professionally handled.
With regard to “one-man branches” – Banks should place Proper systems for safety of cash and also
continuity of services in case of leave etc.
In case of frauds in the accounts of the customers, bank is required to credit the amount to their
accounts after obtaining due affidavit.
Banks should put in place secure systems like Multi-factor Authentication to minimize the fraud
instances.
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Frauds involving cloned cards, unauthorized online transactions, ATM transactions not done by the
customers etc., cannot be valid transactions as they are not authorized by the customers. The onus
should be on the bank to prove that the customer has done the transaction.
Banks to install CCTV at all ATMs. For Debit/Credit cards at POS, PIN based authorization should be
made mandatory.
Banks should ensure that ECS Mandate Management System is working effectively to comply with
the mandate given by the customer.
For transaction deficiencies, there should be in-built mechanism to pay compensation to the
customers.
Bank should provide for online registration of grievance in its website.
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Minority community.
Sikhs
Muslims
Christians
Zoroastrians
Buddhists
……………………………………………………………………………………………………………………………………............................
The Banking Ombudsman Scheme was first introduced in India in 1995, and was revised in 2002. The
current scheme became operative from 1 January 2006, and replaced and superseded the banking
Ombudsman Scheme 2002. There are 17 regional offices of Banking Ombudsmen in India. The latest
office is opened in Dehradun in December 2016.
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KYC FAQ
Q1. What is KYC? Why is it required?
KYC means “Know Your Customer”. It is a process by which banks obtain information about the identity
and address of the customers. This process helps to ensure that banks’ services are not misused. The
KYC procedure is to be completed by the banks while opening accounts. Banks are also required to
periodically update their customers’ KYC details.
Q2. What are the KYC requirements for opening a bank account?
To open a bank account, one needs to submit a ‘proof of identity and proof of address’ together with a
recent photograph.
Q3. What are the documents to be given as ‘proof of identity’ and ‘proof of address’?
The Government of India has notified six documents as ‘Officially Valid Documents’ (OVDs) for the
purpose of producing proof of identity. These six documents are Passport, Driving Licence, Voters’
Identity Card, PAN Card, Aadhaar Card issued by UIDAI and NREGA Job Card. You need to submit any
one of these documents as proof of identity. If these documents also contain your address details, then
it would also be accepted as ‘proof of address’. If the document submitted by you for proof of identity
does not contain address details, then you will have to submit another officially valid document which
contains address details.
Q4. If I do not have any of the documents listed above to show my ‘proof of identity’, can I still open a
bank account?
Yes. You can still open a bank account known as ‘Small Account’ by submitting your recent photograph
and putting your signature or thumb impression in the presence of the bank official.
Q5. Is there any difference between such ‘small accounts’ and other accounts
Yes. The ‘Small Accounts’ have certain limitations such as:
balance in such accounts at any point of time should not exceed Rs.50,000
total credits in one year should not exceed Rs.1,00,000
total withdrawal and transfers in a month should not exceed Rs.10,000
Foreign remittances cannot be credited to such accounts.
Such accounts remain operational initially for a period of twelve months and thereafter, for a further
period of twelve months if the holder of such an account provides evidence to the bank of having
applied for any of the officially valid documents within twelve months of the opening of such account.
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Q6. Would it be possible, if I do not have any of the officially valid documents, to have a bank account,
which is not subjected to any limitations as in the case of ‘small accounts’?
A normal account can be opened by submitting a copy of any one of the following documents as Proof
of Identity (PoI):
(i) Identity card with person’s photograph issued by Central/State Government Departments,
Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, and Public
Financial Institutions;
or
(ii) letter issued by a gazetted officer, with a duly attested photograph of the person.
For Proof of Address (PoA), you may submit the following documents:
Utility bill, which is not more than two months old, of any service provider (electricity,
telephone, post-paid mobile phone, piped gas, water bill);
Property or Municipal Tax receipt;
Bank account or Post Office savings bank account statement;
Pension or family Pension Payment Orders (PPOs) issued to retired employees by Government
Departments or Public Sector Undertakings, if they contain the address;
Letter of allotment of accommodation from employer issued by State or Central Government
departments, statutory or regulatory bodies, public sector undertakings, scheduled commercial
banks, financial institutions and listed companies. Similarly, leave and license agreements with
such employers allotting official accommodation; and
Documents issued by Government departments of foreign jurisdictions or letter issued by
Foreign Embassy or Mission in India.
This, however, is not a general rule and it is left to the judgement of the banks to decide whether this
simplified procedure can be adopted in respect of any customer.
Q7. If my name has been changed and I do not have any OVD in the new name, how can I open an
account?
A copy of the marriage certificate issued by the State Government or Gazette notification indicating
change in name together with a certified copy of the ‘Officially Valid Documents’ in the prior name of
the person is to be furnished for opening of account in cases of persons who change their names on
account of marriage or otherwise.
Q8. Are banks required to categorise their customers based on risk assessment?
Yes, banks are required to classify their customers into ‘low’, ‘medium’ and ‘high’ risk categories
depending on their AML risk assessment.
Q10. If I refuse to provide requested documents for KYC to my bank for opening an account, what may
be the result?
If you do not provide the required documents for KYC, the bank will not be able to open your account.
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Q15. If I am staying in Chennai but if my proof of address shows my address of New Delhi, can I still
open an account in Chennai?
Yes. You can open a bank account in Chennai even if the address in the “Officially Valid Document” is
that of New Delhi and you do not have a proof of address for your Chennai address. In such case, you
can submit the officially valid document having your New Delhi address, together with a declaration
about your Chennai address for communication purposes.
Q16. Can I transfer my existing bank account from one place to another? Do I need to undergo full KYC
again?
It is possible to transfer an account from one branch to another branch of the same bank. There is no
need to undergo KYC exercise again for such transfer. However, if there is a change of address, then you
will have to submit a declaration about the current address. If the address appearing in the ‘Officially
Valid Documents’ (OVDs) submitted for proof of address is no longer your valid address (i.e. neither
your permanent address nor your current address), you need to get an Officially Valid Document for
Proof of Address containing the current or the permanent address and furnish the same within six
months. In case of opening an account in another bank, however, you will have to undergo KYC exercise
afresh.
Q17. Do I have to furnish KYC documents for each account I open in a bank even though I have
furnished the documents of proof of identity and address?
No, if you have opened a KYC compliant account with a bank, other than a ‘small account’, then for
opening another account with the same bank, furnishing of documents is not necessary.
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PAN number needs to be quoted for transactions such as account opening, transactions above
Rs.50,000 (whether in cash or non-cash), etc. A full list of transactions where PAN number needs to be
quoted can be accessed from website of Income Tax Department at the following URL:
http://www.incometaxindia.gov.in/_layouts/15/dit/pages/viewer.aspx?grp=rule&cname=CMSID&cval=
103120000000007541&searchFilter=&k=114b&IsDlg=0
Q20. I do not have a bank account. But I need to make a remittance. Is KYC applicable to me?
Yes. KYC exercise needs to be done for all those who want to make domestic remittances of Rs. 50,000
and above and all foreign remittances.
Q22. Do I need to submit KYC documents to the bank while purchasing third party products (like
insurance or mutual fund products) from banks?
Yes, all customers who do not have accounts with the bank (known as walk-in customers) have to
produce proof of identity and address while purchasing third party products from banks if the
transaction is for Rs.50,000 and above.
Q23. My KYC was completed when I opened the account. Why does my bank insist on doing KYC again?
Banks are required to periodically update KYC records. This is a part of their ongoing due diligence on
bank accounts. The periodicity of such updation varies from account to account depending on its risk
categorisation by the bank. Periodic updation of records also helps prevent frauds in customer
accounts.
Q25. What if I do not provide the KYC documents at the time of periodic updation?
If you do not provide your KYC documents at the time of periodic updation, bank has the option to close
your account. Before closing the account, the bank may, however, impose ‘partial freezing’ (i.e. initially
allowing all credits and disallowing all debits while giving an option to you to close the account and take
your money back). Later, even credits also would not be allowed. The ‘partial freezing’ however, would
be exercised by the bank after giving you due notice.
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Q26. How is partial freezing imposed? Partial freezing is imposed in the following ways:
Banks have to give due notice of three months initially to the customers before exercising the
option of ‘partial freezing’.
After that a reminder for further period of three months will be issued.
Thereafter, banks shall impose ‘partial freezing’ by allowing all credits and disallowing all debits
with the freedom to close the accounts.
If the accounts are still KYC non-compliant after six months of imposing initial ‘partial freezing’
banks shall disallow all debits and credits from/to the accounts, classifying them inoperative.
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Money Laundering
Money laundering is the process of creating the appearance that large amounts of money obtained
from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source.
There are three steps involved in the process of laundering money: placement, layering, and
integration.
Placement refers to the act of introducing "dirty money" (money obtained through illegitimate,
criminal means) into the financial system in some way;
"layering" is the act of concealing the source of that money by way of a series of complex
transactions and bookkeeping gymnastics; and
integration refers to the act of acquiring that money in purportedly legitimate means.
Based on the recommendations made by Whole Time Directors & senior executives of Public Sector
Banks (PSBs) in PSB MANTHAN held on November 11.12.2017, a PSB Reforms Agenda to improve the
performance of the PSBs has emerged. The Agenda recommends the reforms on six themes which are
grouped as EASE- Enhanced Access & Service Excellence.
The Board approves Bank’s Plans to implement PSB Reforms Agenda and monitor in meetings quarterly.
Boston Consulting Group (BCG) is entrusted to conduct the survey of nationalised banks to rate/rank
them on the prescribed themes.
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BFs can refer clients, pursue the clients' proposal and facilitate the bank to carry out its transactions,
but cannot transact on behalf of the bank.
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The products that can be canvassed by the BC acting also as Business facilitator are:
a. Loans against Valuable securities/own deposits
b. Gold Loans
c. General purpose Credit card (GCC)
d. Kisan Credit Card (KCC)
e. Loans to SHGs/JLGs
f. Current Account
g. Savings Bank account (other than No Frills Account)
h. Term Deposits
I. Recurring Deposits
j. Mutual funds on a referral basis
k. Insurance (Life and Non Life), Pension and any other third party financial product.
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Basel III
Basel III is an extension of the existing Basel II Framework, and introduces new capital and liquidity
standards to strengthen the regulation, supervision, and risk management of the whole of the banking
and finance sector. It was agreed upon by the members of the Basel Committee on Banking Supervision
in 2010–2011, and was scheduled to be introduced from 2013 until 2015. However, changes made from
April 2013 extended implementation until March 31, 2018. The Basel III requirements were in response
to the deficiencies in financial regulation that is revealed by the 2000’s financial crisis. Basel III was
intended to strengthen bank capital requirements by increasing bank liquidity and decreasing bank
leverage.
Capital requirements
The Basel III rule introduced the following measures to strengthen the capital requirement and
introduced more capital buffers:
Capital Conservation Buffer is designed to absorb losses during periods of financial and economic
stress. Financial institutions will be required to hold a capital conservation buffer of 2.5% to
withstand future periods of stress, bringing the total common equity requirement to 7% (4.5%
common equity requirement and the 2.5% capital conservation buffer). The capital conservation
buffer must be met exclusively with common equity. Financial institutions that do not maintain the
capital conservation buffer faces restrictions on payouts of dividends, share buybacks, and bonuses.
Countercyclical Capital Buffer is a countercyclical buffer within a range of 0% and 2.5% of common
equity or other fully loss absorbing capital is implemented according to national circumstances. This
buffer serves as an extension to the capital conservation buffer.
Higher Common Equity Tier 1 (CET1) constitutes an increase from 2% to 4.5%.
Minimum Total Capital Ratio remains at 8%. The addition of the capital conservation buffer
increases the total amount of capital a financial institution must hold to 10.5% of risk-weighted
assets, of which 8.5% must be tier 1 capital. Tier 2 capital instruments are harmonized and tier 3
capital is abolished.
Leverage ratio
Basel III introduced a minimum "leverage ratio". The leverage ratio was calculated by dividing Tier 1
capital by the bank's average total consolidated assets; the banks were expected to maintain a leverage
ratio in excess of 3% under Basel III. In July 2013, the US Federal Reserve Bank announced that the
minimum Basel III leverage ratio would be 6% for 8 SIFI banks and 5% for their bank holding companies.
Liquidity requirements
Basel III introduced two required liquidity ratios:
Liquidity Coverage Ratio (LCR) ensures that sufficient levels of high-quality liquid assets are
available for one-month survival in a severe stress scenario.
Net Stable Funding Ratio (NSFR) promotes resilience over long-term time horizons by creating more
incentives for financial institutions to fund their activities with more stable sources of funding on an
ongoing structural basis.
Changes to Counterparty Credit Risk (CCR) : Basel III introduced capital requirements to cover Credit
Value Adjustment (CVA) risk and higher capital requirements for securitization products.
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Pillar 1: Minimum Regulatory Capital Requirements based on Risk Weighted Assets (RWAs):
Maintaining capital calculated through credit, market and operational risk areas.
Pillar 2: Supervisory Review Process: Regulating tools and frameworks for dealing with peripheral risks
that banks face.
Pillar 3: Market Discipline: Increasing the disclosures that banks must provide to increase the
transparency of banks.
Pillar 1: Minimum Regulatory Capital Requirements based on Risk Weighted Assets (RWAs)
Capital Adequacy at Group / Consolidated Level: All banking and other financial subsidiaries except
subsidiaries engaged in insurance and any non-financial activities (both regulated and unregulated)
should be fully consolidated for the purpose of capital adequacy.
Capital Adequacy at Solo Level: While assessing the capital adequacy of a bank at solo level, all
regulatory adjustments to be made.
Banks are required to maintain a minimum Pillar 1 Capital to Risk-weighted Assets Ratio (CRAR) of
9% on an on-going basis (other than capital conservation buffer and countercyclical capital buffer
etc.).
Components of Capital:
Total regulatory capital will consist of the sum of the following categories:
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Basel III implemented w.e.f. 01 Apr 2013 with the mission to comply by 31.03.2019 on phased manner.
Capital conservation buffer fixed to achieve by 31.03.2019 is extended and to be achieved by 31.03.2020.
CREDIT RISK
Risk weight is calculated under standardised approach for on balance sheet as well as off balance sheet
assets of the bank. Based on the nature of the asset the Risk weight is range from 0%.
External rating agencies have been approved by RBI for this purpose.
Fund/non-fund based loan / claim of (I) Central 0% Govt. or (ii) State Govt. or (iii) loans 0
guaranteed by Central Govt. or (iv) amount receivable from Govt. of India under Agt. Debt
Waiver Scheme 2008
(i) Loans guaranteed by State Govt. (ii) Claims on ECGC 20
Claim on (i) RBI, (ii) DICGC, (iii) Credit Guarantee Fund Trust for MSE and (iv) Credit Risk 0
Guarantee Fund for Low Income Housing.
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Claims on Foreign governments with AAA to AA rating from S&P / Fitch / Moody's (It is 20% for 0
A, 50% for BBB, 100% for BB and B, 150% for below B and 100% for 1Ir2!-1 Claims on foreign,
public sector enterprises AAA to AA rating from S&P, Fitch / Moody's (It is 50% for A, 100% for
BBB to BB, 150% for below BB and 100% for unrated.
Claims on Foreign Public sector enterprises with AAA to AA rating from S&P / Fitch / Moody's 20
(It is 20% for A, 50% for BBB, 100% for BB and B, 150% for below B and 100% for 1Ir2!-1 Claims
on foreign, public sector enterprises AAA to AA rating from S&P, Fitch / Moody's (It is 50% for
A, 100% for BBB to BB, 150% for below BB and 100% for unrated.
Claims on Bank for International Settlement, International Monetary Fund and Multi-lateral 20
development ;like IBRD IFC, ADB etc.)
Claims (other than investments) on Domestic Banks with applicable CET1 + applicable CCB and 20
above - (It is 50% for 75% to less than 100% of applicable CETI + CCB, 100% for 5 0 % to less
than 75% of applicable CETI + CCB, 150°k for 0% to less than 50% of applicable CET1 + CCB and
625% if CET1 is less than minimum)
Claims on foreign banks with AAA and AA rating from S&P / Fitch / Moody's (It is 50% for A & 20
BBB, 100% for BB and B, 150% for below B and 50% for unrated)
Long term loans to domestic corporate or 20% Primary Dealers(PDs) / NBFCs with AAA rating (It 20
is 30% for M, 500/0 for A, 100% for BBB, 150% for below B and 100% for unrated and 150%
for exposure above Rs.200 cr
Short term loans to domestic corporate or PDs with Al+ rating from any of 6 SEBI/RBI approved 20
Indian rating agencies (It is 30% for Al, 50% for A2, 100% for A3 and 150% for A4
and 100% for unrated and 150% for exposure above Rs.200 cr)
Regulatory Retail loans [means (i) max amount Rs.5 cr or (ii) max loan to single party 0.2% of 75
overall retail loans portfolio or (iii) annual turnover for small business less than Rs.50 cr).
(include education loans but exclude housing loans)
Individual House loans:
(a) up to Rs.30 lac with LTV ratio up to 80% 35
(b) LTV ratio above 80% to 90% 50
> Rs.30 lac up to Rs. 75 lac LTV max 80% 35
(a)above Rs.75 lac with LTV max 75% 50
Commercial real estate -- Residential Housing 75
Commercial Real estate 100
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Certain transaction-related contingent items (e.g. performance bonds, bid bonds, warranties, 50
indemnities and standby letters of credit related to particular transaction).
Short-term self-liquidating trade letters of credit arising from the movement of goods 20
The risks pertaining to interest rate related instruments and equities in the trading book; and
Foreign exchange risk (including open position in precious metals) throughout the bank (both
banking and trading books).
The minimum capital requirement is expressed in terms of two separately calculated charges,
Specific risk charge for each security, which is designed to protect against an adverse movement in
the price of an individual security owing to factors related to the individual issuer, both for short
(short position is not allowed in India except in derivatives and Central Government Securities) and
long positions, and
General market risk charge towards interest rate risk in the portfolio, where long and short
positions (which is not allowed in India except in derivatives and Central Government Securities) in
different securities or instruments can be offset.
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Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes,
people and systems or from external events. This definition includes legal risk, but excludes strategic
and reputational risk.
Figures for any year in which annual gross income is negative or zero should be excluded from both the
numerator and denominator when calculating the average.
Gross income means net interest income plus net non-interest income.
The New Capital Adequacy Framework (NCAF), banks were required to have a Board-approved policy on
Internal Capital Adequacy Assessment Process (ICAAP) and to assess the capital requirement as per
ICAAP The main aspects to be addressed under the SRP, and therefore, under the ICAAP, would include:
The risks that are not fully captured by the minimum capital ratio prescribed under Pillar 1;
The risks that are not at all taken into account by the Pillar 1; and
The factors external to the bank.
The Basel Committee also lays down the following four key principles in regard to the SRP envisaged
under Pillar 2:
Principle 1: Banks should have a process for assessing their overall capital adequacy in relation to
their risk profile and a strategy for maintaining their capital levels.
Principle 2: Supervisors should review and evaluate banks’ internal capital adequacy assessments
and strategies, as well as their ability to monitor and ensure their compliance with the regulatory
capital ratios. Supervisors should take appropriate supervisory action if they are not satisfied with
the result of this process.
Principle 3: Supervisors should expect banks to operate above the minimum regulatory capital ratios
and should have the ability to require banks to hold capital in excess of the minimum.
Principle 4: Supervisors should seek to intervene at an early stage to prevent capital from falling
below the minimum levels required to support the risk characteristics of a particular bank and
should require rapid remedial action if capital is not maintained or restored.
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The purpose of Market discipline is to complement the minimum capital requirements (detailed under
Pillar 1 and the supervisory review process (detailed under Pillar 2).
Banks are required to make Pillar 3 disclosures at least on a half yearly basis, irrespective of whether
financial statements are audited, with the exception of following disclosures:
The disclosures as indicated at (i), (ii) and (iii) above will be made at least on a quarterly basis by banks.
The CCB is designed to ensure that banks build up capital buffers during normal times (i.e. outside
periods of stress) which can be drawn down as losses are incurred during a stressed period. The
requirement is based on simple capital conservation rules designed to avoid breaches of minimum
capital requirements.
Banks have been given time until 2019 and in case banks do not comply with the guidelines, and then
they may not be allowed to declare/pay dividends to the shareholders. The drawdown table of CCB as
given by RBI is given below:
Common Equity Tier 1 Ratio after including Minimum Capital Conservation Ratios
the current periods retained earnings (expressed as a percentage of earnings)
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Startup India
First of all we need to understand what Startup is according to Startup India scheme.
Any entity incorporated or registered and headquarters in India not prior to seven years (up to 10
years for biotechnology startups from its date of incorporation / registration).
Turnover for any fiscal year should not be exceeding INR 25 crore.
Should be working towards innovation, development/improvement of products/processes/services.
A scalable business model with a high potential of employment generation or wealth creation.
Entity should not have been formed by splitting up or reconstruction a business already in existence
In case of Labour Laws, no inspection will be conducted for a period of first 3years and in case of
environment laws, Startups which fall under the ‘white category’ would be able to self-certify
compliance and only random checks would be carried out in such cases.
Startup India Hub is created to help startups to provide information related to technology, Finances,
Management, etc at a single platform.
For more info click: https://www.startupindiahub.org.in/content/sih/en/home-page.html
Special developed Mobile App is there to provide the instant status of Fresh or Pending Registration,
Compliances and also obtaining clearances information and other approval status as required. App
link: https://play.google.com/store/apps/details?id=com.startupindia&hl=en
Under this scheme startups can claim an 80% rebate in patent costs E.g. if a startup applies for a
patent, the government will fund the defence of the patent, and give rebate of 80% in the fees. The
government will also pay fees of the facilitator for helping the startup obtain the patent.Patent filing
procedures to be simplified and there is significant reduction in fees for filing Patents.
Startups in the manufacturing sector are exempted from the criteria of prior ‘experience and
turnover’ but without any relaxation in quality standards. But at the time of applying for a
Government Tendering Project, prescribed eligibility criteria needs to be fulfilled.
Apart from providing handholding for procedures, StartUp India scheme will assist startups in
offering financial assistance. Government has set up Rs10,000 crore fund and 2,000 crore of credit
guarantee fund for startups through National Credit Guarantee Trust Company / SIDBI.
Income Tax exemption will be there for first three years with a condition of obtaining certificate
from the Inter-Ministerial Board, setup for this purpose.
There a provision for easy exit if a startup fails to succeed, within 90 days under insolvency &
Bankruptcy code.
If an investor invests in fund of funds recognized by the government, the investor can claim capital
gains tax exemptions. In addition, existing capital gain tax exemption for investment in newly
formed MSMEs by individuals will be extended to all startups.
To support the logistical needs of startups and other requirements which can help a startup to
function smoothly several Incubator have been set up under Public Private Partnership concept. The
Funding pattern of incubators will be modeled on the basis of Atal Innovation Mission launched by
Government. List of incubators under startup India: https://goo.gl/E6opDT
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Make in India
Make in India is an initiative of the Government of India to encourage multi-national, as well as
domestic, companies to manufacture their products in India.
Scope
Through Make in India the scope for the job seeking students will rise in coming months. It is assumed
that there will be plenty of job opportunities through Make in India by boosting the various job sectors.
Objectives
Designed to do facilitate Investment
Foster Innovation
Enhance skill development
Protect Intellectual property rights
Build Best-In-Class Manufacturing Infrastructure
Providing employment
To make healthy relationships with worldwide nations
To make India digital
Advantages Disadvantages
1. Develop Job Opportunity 1. Negligence of Agriculture
2. Ameliorate the Vicinity 2. Depletion of Natural Resources
3. Expand GDP 3. Loss for Small Entrepreneurs
4. Fortify the Rupee 4. Disruption of Land
5. Increase in Brand Value 5. Manufacturing based Economy
6. Up-gradation of Technology 6. Interest in International Brands
7. Ease of Business 7. Pollution
8. Availability of Young Minds
9. Development of Rural Areas
10. Flow of Capital
Challenges
1. Creating healthy business environment will be possible only when the administrative machinery is
efficient, India has been very stringent when it comes to procedural and regulatory clearances.
2. India should also be ready to tackle elements that adversely affect competitiveness of manufacturing.
To make the country a manufacturing hub the unfavorable factors must be removed. India should also
be ready to give tax concessions to companies who come and set up unit in the country.
3. India must also encourage high-tech imports; research and development (R&D) to upgrade “Make in
India” give edge-to-edge competition to the counterpart’s campaign allover world. To do so, India has to
be better prepared and motivated to do world class R&D. The government must ensure that it provides
platform for such research and development.
4. India’s small and medium-sized industries can play a big role in making the country taken the next big
leap in manufacturing. India should more focused to words novelty and innovation for these sectors.
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Stand up India
Features
1. Facility of bank loans worth Rs. 10 lakh and up to Rs. 1 crore will be provided to at least one SC/ST and
one woman by every scheduled commercial bank branch to assist them in setting up of their businesses.
The loan amount represents a maximum of 75 percent of the total business cost. This percentage will
not apply in case the contribution of the borrower and other support from other schemes exceeds 25
percent of the total business cost.
2. Facility of debit card (RuPay) for the withdrawal of working capital.
3. Credit history of the borrower is yet to be developed.
4. Refinance window through Small Industries Development Bank of India (SIDBI) with an initial amount
of Rs.10,000 crore.
5. Creation of a corpus of Rs. 5,000 crore for credit guarantee through NCGTC.
6 Handholding support for borrowers with extensive support for pre-loan training requirements,
facilitating loan, factoring, marketing, etc.
7. Availability of web portal for the online registrations and support services.
Objective
The scheme aims to influence and extend the institutional credit system to the undeserved strata of
society like the Scheduled Caste and Scheduled Tribes, and women entrepreneurs. The facility of bank
loans between Rs. 10 lakh and Rs. 1 crore is provided to at least one SC/ST and woman entrepreneurs
willing to start their own businesses. The enterprises may belong to trading, manufacturing, or service
sectors. The person availing loan under this scheme should hold at least 51 percent of the shareholding
and control in the enterprises.
Eligibility
1. Applicants of the loan under this scheme should be at least 18 years of age.
2. Loans under this scheme can only be availed for a greenfield project. This means the business for
which a person applying the loan should be his first business venture in the trading, manufacturing, or
service sector.
3. At least 51 percent of the shareholding and control should be owned by the borrower of the loan
under this scheme.
4. There should not be any default on the borrower’s end in any bank or financial institutions.
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Real Estate Investment funds hold inevitable significance to investors who are willing to invest in the
real estate sector and reap profits through their investments. Real Estate Investment Trust (REIT) is
created with the prime purpose of channelizing the funds that could be invested into operational
functioning or ownership of real estate that could further generate income for the investors. REIT gives
investors, big or small, the golden opportunity to hold shares of the real estate investment trust by
investing in it thereby benefitting them through good returns on the investment. It provides the
advantage of portfolio diversification and long-term capital appreciation. REIT’s are a legitimate way of
investing in the real estate sector as they have the provision of getting enlisted in the known stock
exchanges.
Eligibility of REITs
For a company to be qualified as REIT, the following criteria need to be satisfied:-
90% of the income must be distributed as a dividend to the investors
80% of the investment must be in properties that generate revenue
Only 10% of the total investment must be in real estate under-construction
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In India government is taking necessary steps to ensure solidification of such funds so created to include
common citizens’ participation in the investment formation of such funds. There have been some
developments in this regard by way of the government passing Real Estate Regulation Bill. The
Government also ensured the removal of Dividend Distribution Tax associated with the REIT funds which
were up until the given development posing an obstacle in the implementation of the Real Estate
Investment Trusts.
Objectives of REITs
The main crux of REITs is to give investors dividends generated from capital gains that are accrued from
the selling of commercial assets. The REIT allocates 90 percent of its income as dividends to its
investor’s. It provides a safe and diversified investment opportunity.
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The REITs are transparent. There is a full valuation of the REIT on a yearly basis along with a half-
yearly update
Diversification: As per the guidelines, REITs have to invest in at least two projects with the value of
one asset comprising 60 percent of the investment
Low Risk: There is low risk involved in REITs as a minimum of 80 percent of the assets are invested in
revenue-generating projects that are completed. The rest 20 percent are allocated to investments in
equity shares of properties that are listed, mortgage-based securities, equity shares deriving at least
75 percent of income from real estate activities, government securities, money market instruments,
cash equivalents, etc
Types of REITs
a. Equity REITs
They are owners of the real estate properties and lease it to companies or individuals to make money.
The income is then distributed among the REIT investors as a dividend.
b. Mortgage REITs
They are not the owners but get EMIs against the property from the owners and builders. The earnings
are via Net Interest Margin (difference of interest earned on mortgage and cost of funding the loan)
which they distribute among the REIT investors as a dividend.
c. Hybrid REITs
Invest in both Equity and Mortgage REITs.
a. Real Estate Mutual funds offer wider diversification than the REITs based on the investment strategy
and have the benefit of experts and professionals managing their portfolio, unlike the REITs
b. REITs distribute a higher amount of dividend each year to its shareholders or investors than the real
estate mutual funds
c. The value of real estate has a tendency to increase during times of inflation as property prices and
rents go up, thus giving a better return to the REIT investor
d. REIT or the Real estate mutual fund investment should be spread across several real estate categories
or funds so as to minimize the risk and it should not be more than 10% of the portfolio
The RBI’s proposal to allow banks to invest in REITs will propel a lot of companies to bring in their REITs
and get it listed on the exchange. REITs have also been approved by SEBI and thus are looked upon as a
sure measure by the Indian government to pool in greater investments in India’s realty sector. Once the
REITs are up and ready for the investment we can hope to see an increase in the retail sector
participation.
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Payment Banks
A payments bank is like any other bank, but operating on a smaller scale without involving any credit
risk. In simple words, it can carry out most banking operations but can't advance loans or issue credit
cards. It can accept demand deposits (up to Rs 1 lakh), offer remittance services, mobile payments /
transfers / purchases and other banking services like ATM / debit cards, net banking and third party fund
transfers.
They can’t offer loans but can raise deposits of upto Rs. 1 lakh, and pay interest on these
balances just like a savings bank account does.
They can enable transfers and remittances through a mobile phone.
They can offer services such as automatic payments of bills, and purchases in cashless,
chequeless transactions through a phone.
They can issue debit cards and ATM cards usable on ATM networks of all banks.
They can transfer money directly to bank accounts at nearly no cost being a part of the gateway
that connects banks.
They can provide forex cards to travellers, usable again as a debit or ATM card all over India.
They can offer forex services at charges lower than banks.
They can also offer card acceptance mechanisms to third parties such as the ‘Apple Pay.’
The Payments Bank will be set up as a differentiated bank and shall confine its activities to further the
objectives for which it is set up. Therefore, the Payments Bank would be permitted to undertake only
certain restricted activities such as
Acceptance of demand deposits (current and savings bank deposits). Payments Banks will initially be
restricted to holding a maximum balance of Rs. 1 lakh per customer. After the performance of the
Payments Bank is gauged by the RBI, the maximum balance can be raised. However, the payments bank
cannot undertake lending activities. However, as per the recent RBI guidelines, Payment Banks are
allowed to accept deposits beyond Rs. 1 lakh with sweep arrangements with other Scheduled
Commercial Bank or Small Finance Bank. This arrangement should be activated with prior written
consent of the customer.
The Payments banks will provide small savings accounts and payments/remittance facilities to migrant
labour workforce, low income households, small businesses, other unorganized sector entities and other
users through various channels including Branches, BCs, and ATMs. Cash-out can also be permitted at
Point-of-Sale terminal locations as per extant instructions issued under the PSS Act. In the case of walk-
in customers, the bank should follow the extant KYC guidelines issued by the RBI. However, these banks
are not allowed to issue credit cards.
No Pass book will be issued to the customer. However, account information will be provided to the
customers through multiple user friendly modes viz., SMS, E-mail, Internet Banking etc. They may
provide a statement of account in paper form on request on chargeable basis.
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Opening of physical access points require prior permission from RBI for the initial five years period.
A Payments Bank may choose to become a BC of another bank for credit and other services which it
cannot offer. The Payments Bank cannot set up subsidiaries to undertake non-banking financial services
activities. The other financial and non-financial services activities of the promoters, if any, should be
kept distinctly ring-fenced and not comingled with the banking and financial services business of the
Payments Bank.
The minimum paid up capital for Payments Bank shall be Rs. 100 crore. The promoter’s minimum initial
contribution to the paid up voting equity capital of Payments Bank shall be at least 40 per cent which
shall be locked in for a period of five years from the date of commencement of business of the bank.
Shareholding by promoters in the bank in excess of 40 per cent shall be brought down to 40 per cent
within three years from the date of commencement of business of the bank. Further, the promoter’s
stake should be brought down to 30 per cent of the paid-up voting equity capital of the bank within a
period of 10 years, and to 26 per cent within 12 years from the date of commencement of business of
the bank. Foreign Direct Investors (FDIs) are allowed to invest up to 74 per cent of the paid up capital of
the bank.
The Payments Bank shall be required to maintain a minimum capital adequacy ratio of 15 per cent of its
risk weighted assets (RWA) on a continuous basis, subject to any higher percentage as may be
prescribed by RBI from time to time. The minimum Tier-I & Tier-II capital should be 7.50% each. The
capital adequacy ratio will be computed under simplified Basel-I standards.
RBI has mandated that these banks are required to invest a minimum of 75% deposits collected from
the public in government securities up to one year maturity. They are allowed to hold a maximum of
25% in current / fixed deposits with other scheduled commercial banks for operational and liquidity
management purposes. These banks are required to maintain CRR and SLR as applicable to the existing
commercial banks. The Payments Bank should have a leverage ratio of not less than 3.3 per cent, i.e., its
outside liabilities should not exceed 33 times its net-worth / paid-up capital and reserves.
The main objective of payments bank is to widen the spread of payment and financial services to small
business, low-income households, migrant labour workforce in secured technology-driven environment.
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Majority of residents of Rural areas are deprived of basic banking services on account of non availability
of bank branches due to high cost operations and low volume. To address this issue RBI permitted
private players to set up Local Area Banks (LAB) in the year 1996. At present four LABs are functioning
satisfactorily and playing an important role in the supply of credit to micro and small enterprises,
agriculture and banking services in the unbanked and under-banked regions. To strengthen the existing
system further, RBI issued fresh guidelines for licensing of Small Finance Banks in the private sector in
the month of July 2014.
The objective of the Banks will be for furthering financial inclusion by extending basic banking services
to underserved and unserved sections of the population and also to extend credit facilities to small
business units, small farmers, micro and small industries and other unorganized sector entities in their
limited areas of operations through high technology & low cost operations.
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Small Finance banks can accept fixed deposits (FDs), term deposits, recurring deposits (RDs) and any
non-resident Indian deposits.
Small Finance Banks will provide banking services to small farmers, micro and small industries, the
unorganized sector.
Payment Banks
Payment banks can open small savings accounts and accept deposits of up to Rs.1 lakh per
individual.
Payment banks can issue debit cards but they are not eligible to provide credit card facilities.
Payment Banks are allowed to set up their own ATMs (automated teller machines).
Payment Banks cannot lend money to the people.
Payment banks can’t accept fixed deposits (FDs), term deposits, recurring deposits (RDs) and any
non-resident Indian deposits.
Payment Banks will provide banking services to migrant labor workforce, low-income households,
small businesses, other unorganized sector entities and other users.
FINCARE Small Finance Bank Limited (formed from Disha Bengaluru , Karnataka
Microfin Limited)
Janalakshmi Small Finance Bank Bengaluru , Karnataka
North East Small Finance Bank(NESFB)-RGVN Micro Finance Ltd. Guwahati , Assam
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GST is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a
national level. It is a part of proposed tax reforms in India having an extensive base that instigate the
applicability of an efficient and harmonized consumption tax system. The system of GST is commonly
accepted in more than 140 countries across the world.
Structural Tax Reforms: The GST will reshape the indirect tax structure by subsuming majority of
indirect taxes like excise, sales and services levies. This will do away with the complex indirect tax
structure of the country, thus improving the ease of doing business in the country.
Cost Competitiveness: Exports will become competitive as the GST regime will eliminate the cascading
impact of taxes. GST is a key 'brahmastra' for India's gross domestic product in times of challenging
global environment.
Unified Market: GST will lead to the creation of a unified market, which would facilitate seamless
movement of goods across states and reduce the transaction cost of businesses.
Increased Tax Collections: Under the GST, manufacturers will get credits for all taxes paid earlier in the
goods/services chain, thus incentivizing firms to source inputs from other registered dealers. This could
bring in additional revenues to the government as the unorganized sector, which is not part of the value
chain, would be drawn into the tax net.
Combating Corruption: Documentation is a prerequisite to claim input tax credit. Thus, the new tax
regime is seen as less intrusive, more self-policing, and hence more effective way of reducing corruption.
Tax compliance: The supplier, because of the paper trail left by the GST, knows that his evasion will be
more likely to be detected once his client is audited. It improves tax compliance in the long run.
Impact on Exports: The GST system mandates that all duties must be paid at the time of a transaction
while refund for these can be obtained after exports. This means the exporter will have to arrange funds
for the inputs, manufacturing and payment of duties and taxes. This may warrants increased working
capital requirement which need to be resolved.
The macroeconomic impact of a change to the introduction of the GST is significant in terms of growth
effects, price effects, current account effects and the effect on the budget balance. Further, in a highly
developed open economy with a high and growing service sector, a change in the tax mix from income
to consumption-based taxes is likely to provide a fruitful source of revenue. Implementation of GST
could facilitate a much needed correction in fiscal deficit.
The GST council agreed to implement rate structure with four slabs viz., 5, 12, 18 and 28%.
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Universal Banking
Universal bank is one in which all types of banking facilities are available
Universal banks apart from acceptance of various deposits, lend different kinds of loans
They also provide services namely – opening demat accounts, provision of safe deposit locker
facilities, providing safe custody service facilities; selling gold coins, mutual fund products and selling
insurance products etc.
They provide remittance services and products under retail banking and wholesale banking
Islamic banking
They do not provide interest for deposits
They also do not collect any interest for the loans granted to the borrowers
Narrow banking
They accept deposits and invest the amount received from the public in government securities
They do not engage themselves in lending activities
On account of the above, the profit available to them is found to be very low
Para Banking
Traditionally, banks were into the business of accepting deposits and making loans. With the changing
times, banks have taken up a variety of other functions such as selling insurance products, mutual funds,
accepting variety of fees, earnest money etc. All these activities form part of para banking.
Merchant Banking
The merchant bankers are those financial intermediaries who arrange for transfer of capital funds to
those borrowers who are who are looking for loans. Some common merchant banking activities are:
Management of the customers’ securities
Management of investment portfolio,
Appraisal/Management of projects
Issue management and underwriting of shares
Syndication of loans
Risk Management
What is Risk?
Risk refers to ‘a condition where there is a possibility of undesirable occurrence of a particular
result which is known or best quantifiable and therefore insurable’ . A risk can be defined as an
unplanned event with financial consequences resulting in loss or reduced earnings.
Type of Risks
The major risks in banking business as commonly referred can be broadly classified into:
Liquidity Risk
Interest Rate Risk
Market Risk
Credit or Default Risk
Operational Risk
Liquidity Risk
The liquidity risk of banks arises from funding of long-term assets by short-term liabilities, thereby
making the liabilities subject to rollover or refinancing risk.
The liquidity risk in banks manifest in different dimensions -
(a) Funding Risk: Funding Liquidity Risk is defined as the inability to obtain funds to meet cash flow
obligations. For banks, funding liquidity risk is crucial. This arises from the need to replace net outflows
due to unanticipated withdrawal/ non-renewal of deposits (wholesale and retail).
(b) Time Risk: Time risk arises from the need to compensate for non-receipt of expected inflows of
funds i.e., performing assets turning into non-performing assets.
(c) Call Risk: Call risk arises due to crystallisation of contingent liabilities. It may also arise when a bank
may not be able to undertake profitable business opportunities when it arises.
IRR can be viewed in two ways – its impact is on the earnings of the bank or its impact on the economic
value of the bank’s assets, liabilities and Off-Balance Sheet (OBS) positions. Interest rate Risk can take
different forms.
Market Risk
The risk of adverse deviations of the mark-to-market value of the trading portfolio, due to market
movements, during the period required to liquidate the transactions is termed as Market Risk. This risk
results from adverse movements in the level or volatility of the market prices of interest rate
instruments, equities, commodities, and currencies. It is also referred to as Price Risk.
The term Market risk applies to (i) that part of IRR which affects the price of interest rate instruments,
(ii) Pricing risk for all other assets/ portfolio that are held in the trading book of the bank and (iii)
Foreign Currency Risk.
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(a) Forex Risk: Forex risk is the risk that a bank may suffer losses as a result of adverse exchange rate
movements during a period in which it has an open position either spot or forward, or a combination of
the two, in an individual foreign currency.
(b) Market Liquidity Risk: Market liquidity risk arises when a bank is unable to conclude a large
transaction in a particular instrument near the current market price.
(b) Country Risk: This is also a type of credit risk where non-performance of a borrower or
counterparty arises due to constraints or restrictions imposed by a country. Here, the reason of non-
performance is external factors on which the borrower or the counterparty has no control
The major external factors are the state of Economy, Swings in commodity price, foreign exchange rates
and interest rates, etc.
Credit Risk can’t be avoided but can be mitigated by applying various risk-mitigating processes –
Banks should assess the credit-worthiness of the borrower before sanctioning loan i.e., Credit rating
of the borrower should be done beforehand. Credit rating is the main tool of measuring credit risk
and it also facilitates pricing the loan.
By applying a regular evaluation and rating system of all investment opportunities, banks can reduce
its credit risk as it can get vital information of the inherent weaknesses of the account.
Banks should fix prudential limits on various aspects of credit – benchmarking Current Ratio, Debt-
Equity Ratio, Debt Service Coverage Ratio, Profitability Ratio etc.
There should be maximum limit exposure for single/ group borrower.
There should be provision for flexibility to allow variations for very special circumstances.
Alertness on the part of operating staff at all stages of credit dispensation – appraisal, disbursement,
review/ renewal, post-sanction follow-up can also be useful for avoiding credit risk.
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Operational Risk
Basel Committee for Banking Supervision has defined operational risk as ‘the risk of loss resulting from
inadequate or failed internal processes, people and systems or from external events’. Managing
operational risk has become important for banks due to the following reasons:
Higher level of automation in rendering banking and financial services
Increase in global financial inter-linkages
Scope of operational risk is very wide because of the above-mentioned reasons.
(a) Transaction Risk: Transaction risk is the risk arising from fraud, both internal and external, failed
business processes and the inability to maintain business continuity and manage information.
(b) Compliance Risk: Compliance risk is the risk of legal or regulatory sanction, financial loss or
reputation loss that a bank may suffer as a result of its failure to comply with any or all of the applicable
laws, regulations, codes of conduct and standards of good practice. It is also called integrity risk since a
bank’s reputation is closely linked to its adherence to principles of integrity and fair dealing.
Other Risks
Apart from the above-mentioned risks, following are the other risks confronted by Banks in course of
their business operations –
(a) Strategic Risk: Strategic Risk is the risk arising from adverse business decisions, improper
implementation of decisions or lack of responsiveness to industry changes.
(b) Reputation Risk: Reputation Risk is the risk arising from negative public opinion. This risk may
expose the institution to litigation, financial loss or decline in customer base.
Risk Management
Risk Management is actually a combination of management of uncertainty, risk, equivocality and error.
Uncertainty – where the outcomes cannot be estimated even randomly, arises due to lack of
information and this uncertainty gets transformed into risk (where the estimation of outcome is
possible) as information gathering progresses.
Initially, the Indian banks have used risk control systems that kept pace with legal environment and
Indian accounting standards. But with the growing pace of deregulation and associated changes in the
customer’s behaviour, banks are exposed to mark-to-market accounting.
Therefore, the challenge of Indian banks is to establish a coherent framework for measuring and
managing risk consistent with corporate goals and responsive to the developments in the market. As the
market is dynamic, banks should maintain vigil on the convergence of regulatory frameworks in the
country, changes in the international accounting standards and finally and most importantly changes in
the clients’ business practices.
Therefore, the need of the hour is to follow certain risk management norms suggested by the RBI and
BIS.
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Here, we will discuss the role of RBI in Risk Management and how the tools called CAMELS was used by
RBI to evaluate the financial soundness of the Banks. CAMELS is the collective tool of six components
namely
Capital Adequacy
Asset Quality
Management
Earnings Quality
Liquidity
Sensitivity to Market risk
The CAMEL was recommended for the financial soundness of bank in 1988 while the sixth component
called sensitivity to market risk (S) was added to CAMEL in 1997.
In India, the focus of the statutory regulation of commercial banks by RBI until the early 1990s was
mainly on licensing, administration of minimum capital requirements, pricing of services including
administration of interest rates on deposits as well as credit, reserves and liquid asset requirements.
RBI in 1999 recognised the need of an appropriate risk management and issued guidelines to banks
regarding assets liability management, management of credit, market and operational risks. The entire
supervisory mechanism has been realigned since 1994 under the directions of a newly
constituted Board for Financial Supervision (BFS), which functions under the aegis of the RBI, to suit
the demanding needs of a strong and stable financial system.
A process of rating of banks on the basis of CAMELS in respect of Indian banks and CACS (Capital, Asset
Quality, Compliance and Systems & Control) in respect of foreign banks has been put in place from
1999.
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ALM involves identification of Risk parameters, Risk identification, Risk measurement and Risk
management and framing of Risk policies and tolerance levels.
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USBs may be set up between the base branch and BC locations to provide support to about 8-10 BC
units at a distance of 3-4 km.
…………………………………………………………………………………………………………………………………….....................
Subprime Lending
Subprime Lending means making loans to people who may have difficulty maintaining the repayment
schedule, sometimes reflecting setbacks, such as unemployment, divorce, medical emergencies, etc. The
term subprime refers to the credit quality of particular borrowers, who have weakened credit histories
and a greater risk of loan default than prime borrowers.
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limited debt experience (so the lender's assessor simply does not know, and assumes the worst), or
no possession of property assets that could be used as security (for the lender to sell in case of
default)
excessive debt (the known income of the individual or family is unlikely to be enough to pay living
expenses + interest + repayment),
a history of late or sometimes missed payments so that the loan period had to be extended,
failures to pay debts completely (default debt), and
any legal judgments such as "orders to pay" or bankruptcy (sometimes known in Britain as county
court judgments or CCJs).
…………………………………………………………………………………………………………………………………….....................
A money market is a segment of the financial market in which financial instruments with high liquidity
and very short maturities are traded. The money market is used by participants as a means for
borrowing and lending in the short term, from several days to just under a year.
CD can be issued by scheduled commercial Bank (excluding RRBs & LAB) & select all India financial
institution
Bank is free to issue any amount depending on the requirement
Minimum 1 lakh & multiple of 1 lakh
Can be purchased by Individuals, corporate, trusts, associations /NRI on non repatriation basis (NRI
cannot endorse it in secondary market)
Banks can issue for minimum 7 days & not more than 1 year
It can be fixed rate & floating rate
It attracts SLR/CRR
No loan can be given against CD. Bank cannot by back CD before maturity
If maturity date is holiday it will be payable immediate preceding working day
Duplicate can be issued subject to condition in physical form
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Unsecured money market instrument issued in the form of promissory note in terms of RBI Act Sec-
45w
Can be issued by corporate/primary dealers /all India financial institutions
Corporate can issue
If tangible net worth is not less than 4 crores as per latest Balance sheet
Company is sanctioned working capital limit by Bank or All India financial institutions
Borrowal account is standard asset
All eligible people (including corporate) must obtain credit rating from any one of the CRAs
registered with SEBI
Minimum rating of A3
Minimum 7 days maximum upto 1 year
Maturity date should fall within the period of credit rating
Minimum 5 lakhs & multiple of 5 lakhs
Total CP proposed to be raised within 2 weeks
Only a scheduled Bank can act at issuing & paying agent (IPA)
Individuals, Banking companies, other corporate bodies, NRI /FII (within the limit prescribed by SEBI)
Either a promissory or dematerialized form
…………………………………………………………………………………………………………………………………….....................
Call Money, Notice Money and Term Money markets are sub-markets of the Indian Money Market.
These refer to the markets for very short term funds. Notice Money is also known as Short Notice
Money.
All state Governments are required to maintain a minimum reserve balance with RBI, but it depends
upon the size of the economy of the state and its budget.
However, there are times, when there is a temporary mismatch in the cash flow of the receipts and
payments of the State Governments. To handle this mismatch, there is a WMA scheme / facility which
refer to Ways and Means Advances. RBI makes WMA to the state governments for a period of 90 Days.
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Bank Rate
Bank rate is the rate at which central bank (RBI) lends money to commercial banks for meeting shortfall
for a long period without selling or buying any security.
Repo rate
Rate at which central bank (RBI) lends money to commercial bank for short term liquidity needs. This
involves bank selling securities to RBI to borrow the money with an agreement to repurchase
(repurchase agreement) them at a later date and at a predetermined price.
Time Liabilities
Time Liabilities are the liabilities a commercial bank is liable to pay to the customers after a specific time
period.This includes fixed deposits, cash certificates, cumulative and recurring deposits ect..
NDTL= (Demand Liablities + Time Liabilities) - Interbanks Deposits.
While repo injects liquidity into the system, the Reverse repo absorbs the liquidity from the system.
To inject more money in to the market RBI lowers Repo rate and to absorb money from money
market RBI increases the Repo rate.
Reverse repo rate is usually 1% less than repo rate.
CRR and SLR are also used by RBI for liquidity control.
As CRR and SLR goes high, funds available with banks for providing credit to customers lower and
thus reduces money flow which in turn reduces liquidity.
…………………………………………………………………………………………………………………………………….....................
Derivatives
Derivatives are instruments that derive their value from an underlying security like a share, debt
instrument, currency or commodity. Futures and options are the two type of derivatives commonly
traded.
Futures
A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the
future at a certain price.
Such an agreement works for those who do not have the money to buy the contract now but can bring it
in at a certain date. These contracts are mostly used for arbitrage by traders. It means traders buy a
stock at a low price in the cash market and sell it at a higher price in the futures market or vice versa.
The idea is to play on the price difference between two markets for the same stock. In case of futures
contracts, the obligation is on both the buyer and the seller to execute the contract at a certain date.
Futures contracts are special types of forward contracts.
Options
An Option gives the buyer the right but not the obligation. As a buyer, you may choose to let the option
to buy call or put option lapse. The seller has an obligation to comply with the contract. In the case of a
futures contract, there is an obligation on the part of both the buyer and the seller.
'Puts' give the buyer the right, but not the obligation to sell a given quantity of underlying asset at a
given price on or before a given future date.
Mortgage-backed Securities (MBS): any kind of asset-backed security where the underlying assets are
mortgages. May have one class (tranche), as in the case of pass-through securities, or many classes.
Collateralized Debt Obligations (CDO): the underlying assets can be any kind of debt (bonds, mortgages,
even other ABS). Always has multiple tranches with different priority of payments.
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An MBS with a CDO-like structure is called a CMO (collateralized morgage obligation). There is a big
difference in the typical purpose of CMOs vs other CDOs though:
CDOs are mainly about apportioning credit risk -- the low-priority tranches buffer the high-priority
tranches from the risk that some underlying credits will default.
CMOs, on the other hand, are largely about apportioning prepayment risk. Unlike most other kinds of
debt, mortgages usually give the borrower the right to repay early. Early repayment is usually a bad
thing from the point of view of the mortgage note holder. In CMOs, the lower tranches get repaid first.
Swap
A swap is a derivative contract through which two parties exchange financial instruments. These
instruments can be almost anything, but most swaps involve cash flows based on a notional principal
amount that both parties agree to. Usually, the principal does not change hands. Each cash flow
comprises one leg of the swap. One cash flow is generally fixed, while the other is variable, that is, based
on a benchmark interest rate, floating currency exchange rate or index price.
The most common kind of swap is an interest rate swap. Swaps do not trade on exchanges, and retail
investors do not generally engage in swaps. Rather, swaps are over-the-counter contracts between
businesses or financial institutions.
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Mutual Funds
A mutual fund is an investment vehicle, which pools money from investors with common investment
objectives. It then invests their money in multiple assets, in accordance with the stated objective of the
scheme. The investments are made by an ‘asset management company’ or AMC.
Merchant Bank
A merchant bank is a financial institution providing capital to companies in the form of share ownership
instead of loans. A merchant bank also provides advisory on corporate matters to the firms in which
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they invest. A merchant bank may perform some of the same services as an investment bank, but it does
not provide regular banking services to the general public.
Take-Out Financing
The largest pool of India's savings are bank deposits, which are necessarily short-term in nature, no
longer than five years. While infrastructure projects in the very least are 7 to 20 years, takeout financing
is a means to marry short-term funding sources to long-term funding requirements.
The first five years of the loan are provided by the bank and for the balance years the loan is sold to
government owned institutions like IDFC or IIFCL which can raise long-term resources from the market.
This arrangement enables banks to avoid asset liability mismatches arising due to lending long-term.
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Bill Discounting
In bill discounting, the seller of goods draws up a bill of exchange on the buyer of the goods and then
discounts the said bill of exchange with a bank or financial company. The seller is able to get immediate
finance minus the fee charged by the finance firm. Bill discounting lets the seller recover their
receivables faster thereby improving cash flow. Before purchasing the bill, the bank or financial
institution has to consider a number of factors including the risk of non-payment associated with the bill
and the amount of time remaining for the bill to become due.
Factoring
Factoring is the non-recourse sale of accounts receivables of a business on a daily, weekly, or monthly
basis in exchange for payment. It is a more short term financing based on accounts receivables of a
business
Forfaiting
It is a new form of post shipment financing to promote exports from the country. It is the sale by an
exporter of export trade receivables, usually bank guaranteed, without recourse to the exporter. Such
receivables include Letters of Credit (with or without Bills of Exchange) Promissory Notes with Aval
(guarantee), Bill of Exchange with Aval, Bank Guarantees Payable to an Exporter in one country from an
Importer in another country.
……………………………………………………………………………………………………………………………………...........................
More than 5500 companies are listed on BSE making it world's No. 1 exchange in terms of listed
companies. The companies listed on BSE command a total market capitalization of USD 1.64 Trillion as
of Sep 2015. It is also one of the world's leading exchanges (5th largest in September 2015) for Index
options trading. BSE also provides a host of other services to capital market participants including risk
management, clearing, settlement, market data services and education.
NSE has a fully-integrated business model comprising our exchange listings, trading services, clearing
and settlement services, indices, market data feeds, technology solutions and financial education
offerings. NSE also oversees compliance by trading and clearing members and listed companies with the
rules and regulations of the exchange.
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A balance sheet provides a picture of a company's assets and liabilities, as well as the amount owned by
shareholders. A balance sheet can help you determine what a business is really worth. When reviewed
with other accounting records and disclosures, it can warn of many potential problems and help you to
make sound investment decisions.
Current Assets
To be converted to cash within one Operating Cycle
Cash & Bank balances
Investments (as per RBI guidelines)
Receivables, Sundry Debtors (up to 6 months)
Bills Receivable
Inventory- R.M., SFG, FG (excluding obsolete)
Advances to Suppliers for R.M.
Prepaid Expenses- Tax, Rent, Insurance
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Intangible Assets
Goodwill (reputation associated with business)
Copyright (amount paid to author to obtain copyright of book)
Patents (amount paid for obtaining patent over a new product)
Trade Marks, franchise ( amount paid for getting exclusive right for using a brand)
Preliminary Expenses (company formation expenses capitalised)
Losses (Debit balance in P & L a/c)
Bad Debts not provided
Deferred Revenue expenditure
Pre-operative expenses (before production)
Current Liabilities
Due within one year from date of Balance Sheet
Short term bank Borrowing ( CC/ OD)
Sundry creditors for trade, Bills Payable
Advance from customers for supply of goods
Outstanding/Accrued expenses (rent, insurance)
Unsecured loans
Provision for taxation
Installments of term Loan (due within 1 year)
Debentures, Preference Shares due in 1 year
Other current Liabilities payable within 1 year
Term Liabilities
Due after one year from date of Balance Sheet
Term Loans
Deferred payment credits
Debentures, Deposit from public
Advance from Dealers (payable after termination of dealership) Unsecured loans
Preference shares ( due after 1 year to 12 years)
Other term liabilities
Net Worth
Paid-up Capital
Preference share Capital (due after 12 years)
General Reserve
Capital Reserve (excluding revaluation reserve)
Capital Redemption Reserve
Dividend Equalisation Reserve
Unsecured loans with undertaking & conditions as Quasi Capital
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Provisions
Standard-General-0.40%
Agri/SME-0.25%
CRE-1
CRE HOUSING- 0.75%
IRAC
Sub Standard - 4
Doubtful -D1- 5
Doubtful -D2-6
Doubtful -D3-7
Loss-8
SMA
SMA 0- Interest and Principal not overdue for more than 30 days but showing stress(Return of cheques
more than 3 times within 30 days, Delay in submission of stock statement for more than 90 days,
Frequent excess in current accounts, Actual turnover and Net profit falling short of projections by 40%.
SMA 1- Over due between 31-60 days
SMA 2- Over due between 61-90 days.
RLB = LB + PWO + unrecovered amount of URI – subsidy / FD / any credit kept in nominal a/cs
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Notional due = RLB as on date of NPA + Int at the rate of 10%(simple) from the date of NPA to the date
of following month of submission of proposal + Add Legal expenses - Less Recovery after NPA
Sacrifice = Notional due - OTS offered
………………………………………………………………………………………………………………………………………………….......
Wilful Defauters
A "wilful default" is deemed to have occurred if any of the following events is noted :
Default in repayment obligations by the unit to the lender even when it has the capacity to
honour the said obligations.
Default in repayment obligations by the unit to the lender and has not utilized the finance from
the lender for the specific purposes for which finance was availed of but has diverted the funds
for other purposes.
Default in repayment obligations by the unit to the lender and has siphoned off the funds so
that the funds have not been utilized for the specific purpose for which finance was availed of,
nor are the funds available with the unit in the form of other assets.
Default in repayment obligations by the unit to the lender and has also disposed off or removed
the movable fixed assets or immovable property given by it for the purpose of securing a term
loan without the knowledge of the bank/lender.
Non-Cooperative Borrower
In effect, a non-cooperative borrower is a defaulter who deliberately stone walls legitimate efforts of
the lenders to recover their dues.
……………………………………………………………………………………………………………………………………............................
Not applicable to
Loans with outstanding upto Rs 1.00 lac
Agrilands
Where the O/s amount is less than 20% of the outstanding. Where security is not charged and
limitation period has expired.
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…………………………………………………………………………………………………………………………………………………………………
Under Sarfaesi Act-For making an Appeal to DRAT-Deposit of 50% of the due amount should be made,
DRAT may reduce it to 25%
……………………………………………………………………………………………………………………………………............................
DRT- DEBT RECOVERY TRIBUNAL-COVERS LOANS OF RS. 20.00 LACS AND ABOVE
EM to be registered within 30 days with CERSAI from the date of creation of mortgage.
Appeal can be made to DRAT(DEBT RECOVERY APPELATE TRIBUNAL) within 45 days from the date
Order subject to deposit of 75% of the due amount.
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LOK ADALAT
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Under this method, extension of credit to essential purposes is encouraged and to non-essential
purposes is discouraged. Hence these methods not only prevent the flow of credit into undesirable
channels but also direct the flow of credit to useful channels.
The following are the different methods of selective credit control methods adopted by the RBI.
Ceiling on Credit
Margin Requirements
Discriminatory Interest Rate (DIR)
Directives
Direct Action
Moral Suasion
Rationing of Credit
………………………………………………………………………………………………………………………………………………….......
The Indian Banks’ Association has drafted and circulated a voluntary code which sets the standards for
fair practice standards when dealing with individual customers. Though voluntary, the standards set by
the IBA in the Fair Practice Code provide valuable guidance to Banks in dealing with customers setting
higher standards in our dealings with customers and promotes competition and market forces.
It is, and shall be, the Bank's policy to make credit products available to all qualified applicants without
discrimination on the basis of race, caste, colour, religion, sex, marital status, age (over that of majority),
or handicap.
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They are third-party institutions which collect and maintain records pertaining to loans and credit cards
payments of individuals’ and commercial entities from various lenders. In order for a lender to get
access to such information, it has to choose to become a member of the CIC first. Then, it needs to share
its customers’ loan/ and/or credit card information with all other members. The individual’s consent is
not required. The CIC’s provide the members a summary of the credit information (Credit Score and / or
Credit Information Report) of the applicant.
The core purpose of establishing CIC’s is promoting healthy credit penetration while boosting
sustainable retail credit growth in the economy. The lenders benefit by taking informed credit decisions
leading to effective risk management.
A Credit Information Company is licensed by the Reserve Bank of India and governed by The Credit
Information Companies (Regulation) Act, 2005 and various Rules and Regulations issued by RBI. Foreign
Ownership in CIC’s is restricted to 74%.
Credit Syndication
A syndicated loan, also known as a syndicated bank facility, is a loan offered by a group of lenders –
referred to as a syndicate – that work together to provide funds for a single borrower. The borrower
could be a corporation, a large project or a sovereignty, such as a government. The loan can involve a
fixed amount of funds, a credit line or a combination of the two.
Syndicated loans arise when a project requires too large a loan for a single lender or when a project
needs a specialized lender with expertise in a specific asset class. Syndicating the loan on a project
allows lenders to spread risk and take part in financial opportunities that may be too large for their
individual capital base. Interest rates on this type of loan can be fixed or floating.
Consortium Financing
Like a loan syndication, consortium financing occurs for transactions that might not take place with a
single lender. Several banks may agree to jointly supervise a single borrower with a common appraisal,
documentation and follow-up.
Consortiums are not built to handle international transactions such as a syndication loan; instead, a
consortium may arise because the size of the project at hand is simply too large or too risky for any
single lender to assume. Sometimes the participating banks form a new consortium bank that functions
by leveraging assets from each institution and disbands after the project is complete.
Multiple Financing:
Under Multiple Lending Arrangement, the borrower avails finance from two or more banks by applying
directly. But the banks are not bound to observe common norms. But the borrower has to submit the
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quarterly statement related to the limits availed from various banks and charges on securities &
certificate from the company’s auditor.
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MCLR (Marginal Cost of Fund based Lending Rate) is the internal benchmark rate for banks used
for benchmarking floating rate loans effective from 1st April 2016
MCLR is based on cost of funds for banks and is derived as sum of marginal cost of funds,
negative carry on account of CRR, operating costs of banks and tenor premium
As MCLR is closely linked to repo rate, it will improve the transmission of RBI’s repo rate cut to
the end borrower
Banks publish MCLR for at least five durations which are overnight MCLR, 1 month MCLR, 3
month MCLR, 6 month MCLR and 1 year MCLR. However banks may publish MCLR base rates for
more than five periods. The banks may revise the MCLR rate every month.
Interest rate on each floating rate loan would be reset on based on the duration of the MCLR to
which it is linked
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From October 1, 2019, all new floating rate personal or retail loans such as your car or home loans that
are sanctioned by banks will have to be linked to external benchmarks, and the central bank’s repo rate
is one of them. Every bank will have its own Repo linked lending rate or RLLR which will keep varying
each time the Reserve Bank of India or the RBI revises the repo rate. For the uninitiated, repo rate is the
rate at which banks borrow from the RBI. The central bank reviews the repo rate on a bi-monthly basis
through its Monetary Policy Committee or MPC.
Repo Linked Lending Rate or RLLR is the lending rate which is linked to the RBI’s repo rate. However, the
effective RLLR interest rate depends on multiple factors. For example, the RLLR-linked home loan
interest rate will depend on several factors such as what the loan amount is, the loan-to-value of the
loan and even the risk group of the borrower, amongst other things. There can be a Spread or Margin
charged by the bank. To explain, a bank may have an RLLR of 6.5 per cent, but the actual home loan
interest could be 7.5 per cent, of which 1 per cent will be the Spread or Margin of the bank. Banks are
free to fix Margin while lending to the borrowers.
When banks borrow funds from the RBI, it is at the repo rate. Lowering of repo rate by the RBI makes
banks lend at a lower rate. Therefore, in case of lending based on RLLR, the home loan interest rate will
move up or down as per the movement in the repo rate. Let us see with the help of an example. Say, the
RBI’s repo rate is 5.35 per cent and is cut by 35 basis points to settle at 5 per cent, the RLLR of all banks,
having repo rate as the external benchmark, will also get reduced by 35 basis points. If the repo rate, in
the above example is hiked, the scenario is reversed.
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The reset period in MCLR linked home loan is generally 12 months while a few banks have a 6-month
too. Whatever the reset period is, the home loan interest rate and hence the EMI gets revised
accordingly. This gives a time-lag to MCLR-based loans. However, in the case of RLLR based home loans,
the reset-period for the interest rate and hence the EMI to reset is to be at least three months.
In the case MCLR loans, the banks are allowed to charge a spread, mark-up or margin. For example, if
the MCLR of the bank is 8.6 per cent, then it may lend at 9 per cent after factoring in 40 basis points of
mark-up. In RLLR, the Spread is as per the loan amount and the risk group of the borrower.
Let’s consider a simple example to understand the differences between MCLR and RLLR. For a fair
comparison, the effective home loan interest is being taken at 8.5 per cent under both the scenarios –
RLLR and MCLR home loan. This will remain the same through the term of the loans. In practice, being
flexible loans, the rates will vary and typically MCLR loans will come at a higher rate of interest.
Assuming one has to take a loan of Rs 50 lakh for 15 years, let us look at the difference in EMIs and
interest burden.
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Interest saved under RLLR loan: The borrower has to Rs 35,417 in the first month and by the 180th
month, the interest portion comes down to around Rs 200. As per the RLLR amortization schedule, the
total monthly payment for RLLR home loan is actually more than the MCLR home loan for the initial few
years. This then tapers off in the subsequent years. For a 15 year loan, after a period of 6 years, the
monthly payments witness a drastic fall as compared to the EMI in MCLR loan. For other scenarios, the
calculations could work out differently.
But most importantly, the comparison tells us that the total interest burden is lesser in RLLR loans than
MCLR loans. The above example helps understand how EMIs and interest burden differ, and by what
extent is the interest cost expected to be lower in the case of RLLR loans. In this example, almost Rs 6.5
lakh lesser interest is paid in RLLR loan, primarily because the repayments are higher in initial years.
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Contracts of Indemnity
A Contract of Indemnity is a contract by which one party promises to save the other from loss likely to
be caused to him. This loss can be, either by the conduct of the promisor himself or by the conduct of
any other person. The indemnity holder (i.e. the promisee or the person who is indemnified) has the
following rights when sued (i.e. when a legal action is taken against the person who has indemnified).
The promisee is entitled to recover from the promisor, in respect of the matter to which the promise to
indemnify applies:
All damages which he may be compelled to pay in any suit.
All costs which he may be compelled to pay in any suit.
All sums paid in compromise, not contrary to indemnity.
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Contracts of Guarantee
A 'Contract of Guarantee' is a contract to perform the promise, or discharge the liability, of a third
person in case of latter's default. A guarantee may be either oral or written. The question whether a
particular contract is a contract of indemnity or guarantee has to be decided by examining the language
of the documents entered into between the parties and the nature of transaction.
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Contracts of Bailment
A 'bailment' is the delivery of goods by one person to another for some purpose. When the purpose is
accomplished, the goods are to be returned or otherwise disposed of according to the direction of the
person delivering them.
The bailor is bound to disclose to the bailee faults in the goods bailed
and if he does not make such disclosure, he is responsible for damage arising to the bailee directly from
such faults. If the goods are bailed for hire, the bailor is responsible for any damage whether he was
aware of the existence of such faults in the goods bailed or not.
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Pledge
The bailment of goods as security for payment of a debt or performance of a promise is called 'pledge'.
Pledge is used when the lender (pledgee) takes actual possession of assets (i.e. certificates, goods ).
Such securities or goods are movable securities. In this case the pledgee retains the possession of the
goods until the pledgor (i.e. borrower) repays the entire debt amount.
In case there is default by the borrower, the pledgee has a right to sell the goods in his possession and
adjust its proceeds towards the amount due (i.e. principal and interest amount). Some examples of
pledge are Gold /Jewellery Loans, Advance against goods,/stock, Advances against National Saving
Certificates etc. The bailor is in this case called 'pawnor'. The bailee is called 'pawnee'.
Nature of Pledge
If the pawnor makes default in payment of the debt in respect of which the goods were pledged,
the pawnee may bring a suit against the pawnor and retain the goods pledged as a security (or)
he may sell the goods pledged, after giving notice of the sale to the pawnor.
If the proceeds of such sale are less than the amount due, in respect of the debt, the pawnor is
still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the
pawnee shall pay over the surplus to the pawnor.
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Hypothecation
Hypothecation is used for creating charge against the security of movable assets, but here the
possession of the security remains with the borrower itself. Thus, in case of default by the borrower,
the lender (i.e. to whom the goods / security has been hypothecated) will have to first take possession
of the security and then sell the same.
The best example of this type of arrangement are Car Loans. In this case Car / Vehicle remains with the
borrower but the same is hypothecated to the bank / financer. In case the borrower, defaults, banks
take possession of the vehicle after giving notice and then sell the same and credit the proceeds to the
loan account. Other examples of these hypothecation are loans against stock and debtors. [Sometimes,
borrowers cheat the banker by partly selling goods hypothecated to bank and not keeping the desired
amount of stock of goods.
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Assignment
An assignment constitutes an action taken with a contract. Assignment occurs when the owner of a
contract, known as the assignor, gives a contract to another party, known as the assignee.
The assignee assumes all responsibilities and benefits of the contract. When it comes to loans,
assignment can relate to life insurance policies and mortgage contract from one party to another.
Mortgages and other contracts sometimes contain provisions limiting or stipulating conditions for
assignment.
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Mortgage of Security
As per Section 58 a of Transfer of Property Act 1882 “ A mortgage is the transfer of an interest in
specific immovable property for the purpose of securing the payment of money advanced or to be
advanced by way of loan, an existing or future debt, or the performance of an engagement which
amy give rise to a pecuniary liability.
In the transaction of mortgage, the person who is transferring the property (transferor/borrower or
the person providing the security on behalf of the borrower) is called mortgagor and the person or
entity in whose favour the mortgage is created is the mortgagee ( the lender or the bank)
The principal and the interest involved in the transaction is called mortgage money and the
instrument by which the transaction is taking place is called mortgage deed.
Types of mortgage
Simple Mortgage
Simple mortgage is also called registered mortgage. In Simple Mortgage, without delivering the
possession of the mortgaged property the mortgagor binds himself personally to pay the mortgage
money. In case if the mortgagor fails to make payment as per the agreed terms and conditions, the
mortgagee will have a right to get the property sold and to adjust for the mortgaged money.
The simple mortgage is to be created before the sub-registrar after duly stamping the same and
registering under Indian Registration Act 1908.
This method of mortgaging is very much necessary if the mortgagor has the ownership of the
property and could not produce all the relevant documents.
In a mortgage by conditional sale, the mortgagor ostensively sells the mortgaged property, on a
condition that, the sale will become absolute on a certain agreed date if the mortgagor fails to repay the
mortgage money. And the sale will become void if the money is repaid as per the terms and conditions.
Sometimes, the condition would such that in case of payment of mortgaged money as per the
agreement, the buyer (Lender) will resale the property to the seller (Borrower).
Usufructuary Mortgage
In this type of mortgage the creditor (Mortgagee) is placed in possession of the property and he is
entitled to enjoy the income generated by the property (e.g., rent) and appropriate the same towards
the interest and principal of the mortgage money. In this mortgage the physical possession is given to
the mortgagee and the mortgagee can retail the possession until the payment of mortgage money.
English Mortgage
English Mortgage is a registered mortgage by which the entire property gets transferred in the name of
the mortgagee and upon repayment of the debt on certain date appointed date, the property will be re-
conveyed to the Mortgagor.
Most popular method in India is ‘Mortgage by Deposit of Titles’ which is commonly known as
Equitable Mortgage.
As per Transfer of Property Act ‘Equitable Mortgage’ is a mortgage by Deposit of Title Deeds of
Immovable Property with the mortgagee or his agents with an intention to create a security
thereon. There is no necessity to register the Equitable Mortgage. But, as the housing loan frauds
are mounting, many states have made it compulsory to register the mortgage.
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The three basic requirements for creating Equitable Mortgage are as follows:
The place of deposit of Document of Title to the Property with the creditor or his agent must be one
among the notified areas under Section 58 (f ) of Transfer of Property Act. (Notified area)
The deposit of title is necessarily made to secure a debt
Deposits of Title Deeds must be made with an intention to create a security on the property
intended to be mortgaged.
Notified Area
Kolkatta, Chennai, Mumbai and any other town which the State Government concerned may by
notification in the Official Gazatte, under the provisions of Sec 58 f of Transfer of Property Act.
Anomalous Mortgage
An Anomalous Mortgage is the one which is not falling under any of the categories discussed above. This
type of mortgage is almost non-existent.
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A secured advance is not really secured, unless the security deposited satisfies certain requirements.
There must be critical appraisal of security. Let’s discuss about attributes of good security.
There are two angles to appraisal of the security. One is the legal angle regarding the validity and
enforce ability of the security. The second angle is the economic one, involving consideration of
marketability, valuation and other economic considerations.
1. Legal Aspects
Ascertainment of title: It should be possible for the banker to know that the borrower’s title to the
security is clear and undisputed. It has, therefore, to be verified if there are any other interests in the
security such as poor charges or encumbrances thereon. The solicitors have to verify the title of the
borrower to the property.
Validity of title: The banker cannot enforce the security unless he obtains a valid title form the borrower.
If there is any defect in the title of the borrower, the banker can obtain only a defective title. The rule is
that no one can convey a better title than what he has.
So, the banker will not be in a position to sell the security if he himself about the title of the borrower.
The legal interest must be properly conveyed to the banker by executing the appropriate instrument.
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2. Economic aspects
Marketability: The security taken must be readily sale-able with the minimum of expenses and without
this essential attribute of ready reliability, the security is worthless.
Easy ascertainment of value: The security must be capable of being valued with ease.
Stability of price: The value of security must be fairly stable. Banker must also make sure that value of
the security does not fluctuate violently over short periods. Where such heavy variation in prices of
security is apprehended, banker may accept such security only with a higher margin.
Easy storability: Where goods are pledged, the banker must keep them under his custody when it is
possible for him to supervise.
Durability
A security should be reasonably durable. Perishable commodities like vegetable, fruits, fish as securities.
Some of the commodities like chilies, woolen garments etc. require special care in storage; otherwise
they depreciate in quality and value.
Transportability: A security should be of such a nature that it can be moved from one place to another
without much difficulty.
Cost consideration
Certain securities are very costly to keep. For example, if an advance is given by obtaining a pledge of
the goods, the banker has to maintain godowns, appoint store keepers, insure the goods etc. Instead of
advancing against goods, it may be preferable to advance against reliable warehouse-keeper
transferable receipt as security.
Yield
A security which provides a steady income is most welcome to the banker, since such income enhances
the value of the security and also facilitates the repayment of capital and interest; for example securities
like gilt-edged securities and highly marketable shares on which substantial dividend is regularly
received.
In practice, hardly any security possesses all the desirable attributes mentioned above and such defects
as exist in the security are sometimes covered by taking a higher margin.
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Margin
As a rule, the banker should not lend full value of the security. The borrower must have substantial stake
and only then he will take proper interest in the business to make it a more success than may be in the
case when he is dealing entirely with borrowed funds.
In banking terminology, margin means the difference between the market value of security and
the amount of advance granted against it.
Banker must keep a cushion against possible fluctuation in prices, shortage and depreciation in
storing, for increase due to application of interest.
There has always to be some margin to cover cost of realizing the dues by sale of the assets in
the value of the securities and the amount up to which the borrower can draw is known as
margin.
The percentage of margin to be kept differs from one security to another because of several
factors such as price fluctuation, marketability, deterioration in storage, possible loss from such
hazards as fire, burglary etc.
Finally it is the business integrity of the borrower. i.e., his overall character which ranks above
everything else for a banker to determine the margin to be kept.
Documentation
In granting secured advances, a task of practical importance is the execution of legal documents.
Although there are no hard and fat rules about the documents to be taken and each bank has its own
set of forms, there is agreement on fundamentals.
Apart from the promissory note given under the signature/seal of the borrower, the usual document
associated with secured advances is:
Types of Collateral
There are normally five main types of collateral :
Consumer goods are products purchased by the mainstream consumer, such as an automobile.
Equipment includes items predominantly used in business or government operations.
Farm products include livestock and crops.
Inventory consists of raw materials or work in progress.
Property on paper includes stocks, bonds, and even funds held in a savings or checking account.
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Contracts of Agency
An agent, is a person employed to do any act for another person or to represent another person in
dealings with some third person. The person for whom such act is done (or who is represented) is called
the principal.
The contract between the principal and his agent is a contract in itself and that is also governed by the
normal rules of contract. Any person who is a major according to the law of which he is subject, and who
is of sound mind, may employ an agent.
Any person can become an agent, if he is a major and of sound mind. No consideration is necessary to
create an agency. The authority of an agent may be expressed or implied. An authority is said to be
expressed, when it is given by words spoken or written. An authority is said to be implied when it is to
be inferred from the circumstances of the case.
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Restructured loan
New loan that replaces the outstanding balance on an older loan, and is paid over a longer period,
usually with a lower installment amount. Loans are commonly rescheduled to accommodate a borrower
in financial difficulty and, thus, to avoid a default.
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Corporate Debt Restructuring (“CDR”) mechanism is a voluntary non statutory mechanism under which
financial institutions and banks come together to restructure the debt of companies facing financial
difficulties due to internal or external factors, in order to provide timely support to such companies.
The CDR Mechanism covers only multiple banking accounts, syndication/consortium accounts, where all
banks and institutions together have an outstanding aggregate exposure of Rs.100 million and above. It
covers all categories of assets in the books of member-creditors classified in terms of RBI's prudential
asset classification standards. Even cases filed in Debt Recovery Tribunals/Bureau of Industrial and
Financial Reconstruction/and other suit-filed cases are eligible for restructuring under CDR.
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It purchases the bad loans or non performing assets (NPA) issued by commercial and other banks.
Example: Suppose a bank has issued a loan worth 100 crore to a company which has turned out to be
bad, an asset reconstruction company purchases that loan from bank for less than 100 crore.
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Credit Appraisal
Banks use the credit appraisal services for themselves before providing loan to a borrower. The Credit
Appraisal process is based on careful analysis of various facts and data provided by the borrower to the
bank. After the proper credit appraisal process, banks takes a decision to either fund the project or
reject the proposal. This in-depth study is called the pre-sanction credit appraisal which helps the
approver to sanction the loan to the borrower.
Borrower’s ability to complete the project and its intention to re-pay the loan after
commissioning of the project
All the technical details related to the project like project requirement, end product,
maintenance, project specifications, quality etc.
All the financial details related to the project like Cash Inflow, Cash Outflow, NPV, Break Even
period, growth opportunity etc.
Financial appraisal to determine whether the company will be able to repay the loan from
incremental cash flows or not.
Market Appraisal to determine whether the project is viable or not and what are chances of
being successful
Advantages
Requirements:
Financial data of past and projected working results
Detailed credit report is compiled on the borrower/surety
Market reports, Financial/ audited accounts
Income tax and other tax returns/assessments
Confidential reports from banks and other FIs
Appraisal should reveal whether the proposal is a fair banking risk.
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Requirements:
Documentation of the facility and after care follow up
Supervision thro monitoring of transactions in loan account
Scrutiny of periodical statements submitted by borrower
Physical inspection of securities and books of accounts of the borrower
Periodical reviews and renewals
Lending decisions are based on sound appraisal and assessment of credit worthiness
Past record of satisfactory performance and integrity are no guarantee for future though they
serve as a useful guide to project the trend in performance,
Credit assessment is made based on promises and projections
A loan granted on the basis of sound appraisal may go bad because the borrower did not carry
out his promises regarding performance.
Conveying sanction of advances to the borrower detailing the terms and conditions and
acceptance thereof.
Completion of appropriate documentation before disbursement of loans/ advances
Keeping the documents in effective custody and maintaining validity by periodic revival of
documents during the currency of loans
Creation of charge over security and completion of relevant formalities
Creation of charge
Registration with ROC
Periodic search of charge with the authority should be done to protect the bank’s interest
Ensuring compliance by borrower of all pre-disbursal activities and requirements and continued
compliance with the terms till the loan is liquidated
Conducting periodic inspections/visits at stipulated intervals
Obtaining from the borrowers and scrutiny /analysis of the following financial statements and
non financial statements
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Stock statements
Annual and mid term financial statements
Ongoing scrutiny of transactions in various accounts by perusal of ledgers, registers, vouchers,
to watch proper conduct of loan accounts, healthy turnover therein and end use of funds
Maintaining ongoing contact with the borrower and co-lenders
Timely recognition of unsatisfactory features in the conduct of advance such as:
Delays in project implementation
Unusual developments / changes in the business environs
Shortfall in achievement of production/sales as compared to projections
Non-fulfilment of financial obligations to the bank, co-lenders, and creditors and non payment
of statutory dues.
Any other deficiency noted during the periodic visit
Advising the borrowers to initiate the corrective action and submitting reports to the controlling
authority on further developments in the matter
Follow up of and rectification of irregularities pointed out in various inspection / audit reports
including
RBI Inspection report
Central office inspection report
Concurrent audit report
Statutory audit report
Recovery of applicable charges/fees/penalties
Preparation of review of IRAC identification of deteriorating assets/potential NPAs and initiation
of corrective action
Documentation - Needed
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Supervision
Ensure proper follow up of advances and observance of systems laid down by the bank at the
operating level.
Periodic and random examination of registers, accounts and books at the branch
Ensuring that the security documents are kept current and that officials observe all related
documentation facilities
Ensuring that (i) proper arrangements are in place for recovery of applicable charges /fees/
penalties and income leakage is checked
Ensure timely reviews / renewals of credit facilities
Monitoring
Ensuring that effective supervision is maintained on loans/ advances by the lower level
functionaries. Scrutiny of returns / reports received from these line functionaries, interaction
with them feed back from customers , observations in audit / inspection reports will assist this
process.
Monitoring of high value advances through specific focus on these in returns / reports received
Ensuring non recurrence of commonly noticed lapses /irregularities pointed out in various
reports
Examination of NPAs with a view to recognizing problem assets, drawing up recovery/
upgradation path for these and monitoring recovery process
……………………………………………………………………………………………………………………………………............................
Net present value (NPV) is the difference between the present value of cash inflows and the present
value of cash outflows. NPV compares the value of a dollar today to the value of that same dollar in the
future, taking inflation and returns into account. NPV analysis is sensitive to the reliability of future cash
inflows that an investment or project will yield and is used in capital budgeting to assess the profitability
of an investment or project.
If the NPV of a prospective project is positive, the project should be accepted. However, if NPV is
negative, the project should probably be rejected because cash flows will also be negative.
Internal rate of return (IRR) is the discount rate often used in capital budgeting that makes the net
present value of all cash flows from a particular project equal to zero. Generally speaking, the higher a
project's internal rate of return, the more desirable it is to undertake the project. As such, IRR can be
used to rank several prospective projects a firm is considering. Assuming all other factors are equal
among the various projects, the project with the highest IRR would probably be considered the best and
undertaken first.
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Fund based lending, where the lending bank commits the physical outflow of funds. The various forms in
which fund based lending may be made by banks:
1) Loan
2) Overdraft
3) Cash Credit
4) Bills Purchased/Discounted
5) Working Capital Term Loans
6) Packing Credit
Non fund based lending, where the lending bank does not commit any physical outflow of funds. The
funds position of the lending bank remains intact. The non-funding based lending can be maid in two
forms:
Bank Guarantees
Letter of Credit
Bank Guarantee
Bank Guarantee is a non fund based lending given by the bank to ensure that the liabilities of a debtor
will be met. This facility enables the customer to acquire goods, buy equipment and thereby expand
business activity
Letter of Credit
Letter of Credit is a non fund based lending which is very regularly found in international trade. This
facility is given when the exporter and importer are unknown to each other. In this case, the importer
applies to his bank (Issuing Bank) in his country to open a letter of credit in favour of exporter whereby
the importers’ bank undertakes to pay the exporter on fulfilling the terms and conditions specified in
the letter of credit.
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Working Capital
A company can be endowed with assets and profitability but may fall short of liquidity if its assets
cannot be readily converted into cash. Positive working capital is required to ensure that a firm is able to
continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and
upcoming operational expenses. The management of working capital involves managing inventories,
accounts receivable and payable, and cash. Working capital is calculated as:
The working capital ratio (Current Assets/Current Liabilities) indicates whether a company has enough
short term assets to cover its short term debt. Anything below 1 indicates negative W/C (working
capital). While anything over 2 means that the company is not investing excess assets.
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In terms of Equation,
Working Capital Requirement = Total Current Assets Required to be held
(in Bank’s term it is named as Gross Working Capital)
So, Working Capital Requirement = Total Current Assets
Total Current Assets = Inventory+ Receivable+ Other Current Assets
Means,
WCR = TCA =Stock of (RM+WIP+FG+ Stores) + (Sundry Debtors+ Bills Receivables including bills
purchased and discounted) + (Cash and Cash equivalent + FDR + Govt. bonds + advance for RM etc.)
Other Current Assets : The amount of cash or cash equivalent i.e. balance in the Current Accounts with
banks, Fixed deposit with banks, Govt. bonds, liquid Investment in shares(required for the business), and
prepaid expenses, advance given for supply of raw material taken together are called Other current
Assets
Other current liabilities : It represents internal source of fund for acquiring Current Assets. Ofcourse
Other Current Liabilities are the cheapest source for financing current assets
BANK BORROWING:
The BB is equal to the extent of TCA which could not be financed by way of OCL and NWC.
Therefore,
Bank Borrowing = TCA-OCL-NWC
Working Capital Gap = Total Current Assets- Other Current Liabilities
It is the gap or the extent to which Total Current Assets remains unfinanced by Other Current Liabilities.
This gap is to be bridged by way of NWC and BB.
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Therefore,
Working Capital Gap = Net Working Capital +Bank Borrowing
Bank Borrowing required = Working Capital Gap- Net Working Capital
NWC = TCA - TCL
The Bank borrowing thus arrived is also called Maximum Permissible Bank Finance (MPBF).
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Example:
Projected annual turnover is Rs.2,00,000.
Applicable for industries like sugar, tea, construction, film production, order-based supply activities
etc. & Loan limit of above Rs.50 crores
In such type of industries higher working capital is required to procure and hold raw material at the
time of harvest season.
Asset based method (MPBF) or the Projected Turnover method is not suitable for such type of
industries as the requirement of working capital varies from period to period to a great extent.
In cash budget method borrower is required to submit the cash budget to the bank along with
actuals along with projections.
The budget in the prescribed format is to be prepared for a period of one year and then split into
forecasts for shorter periods say monthly or quarterly.
The peak level of bank finance required during the course of the year(based on deficits)
The current level of bank finance required as forecasted by the split budget (on monthly/quarterly)
basis.
Calculation:
The bank fix the limit based on the peak deficit arrived as per cash flow statement. Bank will compute
the eligibility by netting of balance between Receipts and Payments of the following,
Net of Cash flow from operations
Cash from non-business operations
Cash flow from capital accounts
Cash flow from sundry items
Bankers to compare the projected cash flow with the actual (historical) cash flow statements.
Bankers to probe the reasons for significant variations in projected & actual cash flows
Banker has to finance the gap between operational outflows & inflows after considering long term
sources.
The drawing are to be permitted based on monthly deficit disclosed in the cash flow statement as well
as the drawing power arrived as per the latest stock statement whichever is the lower.
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Term loan are sanctioned by the bank to procure capital asset for a fixed term period to repay the same.
The purpose could be,
1. Purchase-specific equipment.
2. Replacing old machinery
3. Additional machinery/plant
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Term loans can be classified based on the repayment period will be,
While assessing a term loan proposal the following may be taken into account:
1. Technical Feasibility
2. Commercial Viability
3. Managerial Competence
4. Economic Feasibility
5. Financial Feasibility
6. Cost of Project and Means of Finance
7. Break-even Analysis
8. Debt-service Coverage Ratio
9. Pay-back period
10. Internal Rate of Return
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TEV study is necessary to find out the strength and weakness in a long term investment by the
borrower.
The income flow from the investment having a long term life will face many odds technically,
economically, commercially and financially. This is a must in every term loan proposal.
How far these aspects has been viewed and addressed by the borrower has to be measured by the Bank
before considering the Term loan as per Bank’s loan policy,
Proposals over Rs.5.00 crore TEV report from Bank’s empaneled TEV Consultant shall be insisted.
For proposals up to Rs.5.00 crore it is not mandatory, but sanctioning authority should ensure
viability of the proposal.
The IRR approach is being introduced for assessment of Term Loans of Rs.10.00 crore and above with
repayment period of 5 years or more. This assessment will be in addition to satisfying norms under DSCR
……………………………………………………………………………………………………………………………………............................
The RBI has specified the following regulatory trigger points to commercial banks, as a part of prompt
corrective action (PCA) Framework.
CRAR less than 9%, but equal or more than 6% - Banks are required to submit capital restoration plan
to RBI. Further, there will be restrictions on RWA expansion, entering into new lines of business,
accessing / renewing costly deposits, and making dividend payments, borrowing from inter-bank
market, reduction of stake in subsidiaries, reducing its exposure to sensitive sectors like capital market,
real estate or investment in non-SLR securities, etc. In case where CRAR less than 6%, but equal or more
than 3%, RBI could take steps to bring in new Management/Board, appoint consultants for
business/organizational restructuring, take steps to change ownership. In case CRAR less than 3%,
impose moratorium on the bank and also initiate steps to merge / amalgamate / liquidate the bank.
Net NPAs over 10% but less than 15% - Special drive to reduce NPAs and contain generation of fresh
NPAs; review loan policy and take steps to strengthen credit appraisal skills, follow-up of advances and
suit-filed/decreed debts, put in place proper credit-risk management policies; reduce loan
concentration; restrictions in entering new lines of business, making dividend payments and increasing
its stake in subsidiaries. Where Net NPAs 15% & above, Bank’s Board is called for discussion on
corrective plan of action.
ROA less than 0.25% - Restrictions on accessing costly deposits, entering into new lines of business,
bank’s borrowings from inter-bank market, making dividend payments and expanding its staff; steps to
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increase fee-based income; contain administrative expenses; special drive to reduce NPAs and contain
generation of fresh NPAs; and restrictions on incurring any capital expenditure other than for
technological up-gradation and for some emergency situations.
Capital, asset quality and profitability continue to be the key areas for monitoring in the revised
framework.
Indicators to be tracked for Capital, asset quality and profitability would be CRAR/ Common Equity
Tier I ratio1, Net NPA ratio2 and Return on Assets3 respectively.
Leverage would be monitored additionally as part of the PCA framework.
Breach of any risk threshold (as mentioned in RBI circular -
https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=10921) would result in invocation of
PCA.
The PCA framework would apply without exception to all banks operating in India including small
banks and foreign banks operating through branches or subsidiaries based on breach of risk
thresholds of identified indicators.
A bank will be placed under PCA framework based on the audited Annual Financial Results and the
Supervisory Assessment made by RBI. However, RBI may impose PCA on any bank during the course
of a year (including migration from one threshold to another) in case the circumstances so warrant.
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RBI to recommend to owners (Government/ promoters/ parent of foreign bank branch) to bring in
new management/ Board
RBI to remove managerial persons under Section 36AA of the BR Act 1949 as applicable
RBI to supersede the Board under Section 36ACA of the BR Act 1949/ recommend supersession of
the Board as applicable
RBI to require bank to invoke claw back and malus clauses and other actions as available in
regulatory guidelines, and impose other restrictions or conditions permissible under the BR Act,
1949
Impose restrictions on directors’ or management compensation, as applicable.
7. HR related actions
Restriction on staff expansion
Review of specialized training needs of existing staff
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Any other specific action that RBI may deem fit considering specific circumstances of a bank.
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Ratio Analysis
Financial ratios are mathematical comparisons of financial statement accounts or categories. These
relationships between the financial statement accounts help investors, creditors, and internal company
management understand how well a business is performing and areas of needing improvement.
Financial ratios are the most common and widespread tools used to analyze a business' financial
standing. Ratios are easy to understand and simple to compute. They can also be used to compare
different companies in different industries.
Ratios allow us to compare companies across industries, big and small, to identify their strengths and
weaknesses. Financial ratios are often divided up into seven main categories:
Liquidity Ratios
Solvency Ratios
Efficiency Ratios
Profitability Ratios
Market Prospect Ratios
Financial Leverage Ratios
Coverage Ratios
Liquidity Ratios
Liquidity ratios analyze the ability of a company to pay off both its current liabilities as they become due
as well as their long-term liabilities as they become current. In other words, these ratios show the cash
levels of a company and the ability to turn other assets into cash to pay off liabilities and other current
obligations.
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Short-term investments or marketable securities include trading securities and available for sale
securities that can easily be converted into cash within the next 90 days. Marketable securities are
traded on an open market with a known price and readily available buyers.
Formula
Quick Ratio or Acid Test Ratio = (Cash + Cash Equivalents + Short Term Investments + Marketable
Securities + Accounts Receivable) / Current Liabilities
or
Quick Ratio = (Current assets – Inventory - Advances - Prepayments Current Liabilities) / Current
Liabilities
Example :
M/s Raj&co's balance sheet included the following accounts:
Cash: 10,000
Accounts Receivable: 5,000
Inventory: 5,000
Stock Investments: 1,000
Prepaid taxes: 500
Current Liabilities: 15,000
Quick Ratio = Cash + Cash Equivalents + Short Term Investments + Marketable Securities + Accounts
Receivable) / Current Liabilities
= (10000+5000+1000) / 15000
= 16000 / 15000
= 1.07
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The current ratio is a liquidity and efficiency ratio that measures a firm's ability to pay off its short-term
liabilities with its current assets. The current ratio is an important measure of liquidity because short-
term liabilities are due within the next year.
The current ratio helps investors and creditors understand the liquidity of a company and how easily
that company will be able to pay off its current liabilities. This ratio expresses a firm's current debt in
terms of current assets. So a current ratio of 4 would mean that the company has 4 times more current
assets than current liabilities. A higher current ratio is always more favorable than a lower current ratio
because it shows the company can more easily make current debt payments.
Formula
Current Ratio or Working Capital Ratio = Current Assets / Current Liabilities
Example :
XYZ shoes sells shoes. It is applying for loans to help fund to increase the inventory. The bank asks for its
balance sheet so they can analysis the current debt levels. According to XYZ shoes's balance sheet it
reported 10,00,000 of current liabilities and only 2,50,000 of current assets. Will the loan get approved?
Solvency Ratios
Solvency ratios, also called leverage ratios, measure a company's ability to sustain operations
indefinitely by comparing debt levels with equity, assets, and earnings. In other words, solvency ratios
identify going concern issues and a firm's ability to pay its bills in the long term. Many people confuse
solvency ratios with liquidity ratios.
Solvency ratios show a company's ability to make payments and pay off its long-term obligations to
creditors, bondholders, and banks. Better solvency ratios indicate a more creditworthy and financially
sound company in the long-term.
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Formula
Debt to Equity Ratio = Total Liabilities / Total Equity
Example :
A company has 1,00,000 of bank lines of credit and a 5,00,000 mortgage on its property. The
shareholders of the company have invested 12,00,000. Calculate the debt to equity ratio.
Equity Ratio
The equity ratio is an investment leverage or solvency ratio that measures the amount of assets that are
financed by owners' investments by comparing the total equity in the company to the total assets.
Formula
Equity Ratio = Total Equity / Total Assets
Example :
A company has total assets at 1,50,000 and its total liabilities are 50,000. Based on the accounting
equation, we can assume the total equity is 1,00,000. Find the Equity Ratio.
ER = Total Equity / TA
= 100000 / 150000
= 0.67
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Debt Ratio
Debt ratio is a solvency ratio that measures a firm's total liabilities as a percentage of its total assets. In a
sense, the debt ratio shows a company's ability to pay off its liabilities with its assets. In other words,
this shows how many assets the company must sell in order to pay off all of its liabilities.
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This ratio measures the financial leverage of a company. Companies with higher levels of liabilities
compared with assets are considered highly leveraged and more risky for lenders.
This helps investors and creditors analysis the overall debt burden on the company as well as the firm's
ability to pay off the debt in future, uncertain economic times.
Formula
Debt Ratio = Total Liabilities / Total Assets
Example:
A company has total assets at 1,50,000 and its total liabilities are 50,000. Based on the accounting
equation, we can assume the total equity is 1,00,000. Find the Debt Ratio.
DR = TL / TA
= 50000 / 150000
= 0.33
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Efficiency Ratios
Efficiency ratios also called activity ratios measure how well companies utilize their assets to generate
income. Efficiency ratios often look at the time it takes companies to collect cash from customer or the
time it takes companies to convert inventory into cash—in other words, make sales.
Efficiency ratios go hand in hand with profitability ratios. Most often when companies are efficient with
their resources, they become profitable.
Formula
Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable
The reason net credit sales are used instead of net sales is that cash sales don't create receivables. Only
credit sales establish a receivable, so the cash sales are left out of the calculation. Average receivables is
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calculated by adding the beginning and ending receivables for the year and dividing by two. In a sense,
this is a rough calculation of the average receivables for the year.
Example
Babu's Ski Shop is a retail store that sells outdoor skiing equipment. Babu offers accounts to all of his
main customers. At the end of the year, Babu's balance sheet shows 20,000 in accounts receivable,
75,000 of gross credit sales, and 25,000 of returns. Last year's balance sheet showed 10,000 of accounts
receivable. Find the Accounts Receivable Turnover Ratio.
The first thing we need to do in order to calculate Babu's turnover is to calculate net credit sales and
average accounts receivable. Net credit sales equals gross credit sales minus returns (75,000 – 25,000 =
50,000). Average accounts receivable can be calculated by averaging beginning and ending accounts
receivable balances ((10,000 + 20,000) / 2 = 15,000).
Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable
= 50000 / 15000
= 3.33
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The total asset turnover ratio calculates net sales as a percentage of assets to show how many sales are
generated from each dollar of company assets. For instance, a ratio of .5 means that each dollar of
assets generates 50 cents of sales.
Formula
Asset Turnover Ratio or Total Asset Turnover Ratio = Net Sales / Average Total Assets
Example
Seela's Tech Company is a tech start up company that manufactures a new tablet computer. Seela is
currently looking for new investors and has a meeting with an angel investor. The investor wants to
know how well Seela uses her assets to produce sales, so he asks for her financial statements.
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Asset Turnover Ratio or Total Asset Turnover Ratio = Net Sales / Average Total Assets
= 25000 / ((50000+100000)/2)
= 25000 / (150000/2)
= 25000 / 75000
= 0.33
As you can see, Seela's ratio is only 0.33. This means that for every Rupee in assets, Sally only generates
33 Paisa. In other words, Seela's start up is not very efficient with its use of assets.
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This ratio is important because total turnover depends on two main components of performance. The
first component is stock purchasing. If larger amounts of inventory are purchased during the year, the
company will have to sell greater amounts of inventory to improve its turnover. If the company can't sell
these greater amounts of inventory, it will incur storage costs and other holding costs.
The second component is sales. Sales have to match inventory purchases otherwise the inventory will
not turn effectively. That's why the purchasing and sales departments must be in tune with each other.
The inventory turnover ratio is calculated by dividing the cost of goods sold for a period by the average
inventory for that period.
Formula
Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
Example
Govind's Furniture Company sells industrial furniture for office buildings. During the current year,
Govind reported cost of goods sold on its income statement of 10,00,000. Govind's beginning inventory
was 30,00,000 and its ending inventory was 40,00,000. Govind's turnover is ......
Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
= 1000000 / ((3000000+4000000)/2)
= 1000000 / (7000000/2)
= 1000000 / 3500000
= 0.29 Times
This means that Govind only sold roughly a third of its inventory during the year. It also implies that it
would take Govind approximately 3 years to sell his entire inventory or complete one turn. In other
words, Govind does not have very good inventory control.
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Profitability Ratios
Profitability ratios compare income statement accounts and categories to show a company's ability to
generate profits from its operations. Profitability ratios focus on a company's return on investment in
inventory and other assets. These ratios basically show how well companies can achieve profits from
their operations.
Investors and creditors can use profitability ratios to judge a company's return on investment based on
its relative level of resources and assets. In other words, profitability ratios can be used to judge
whether companies are making enough operational profit from their assets. In this sense, profitability
ratios relate to efficiency ratios because they show how well companies are using thier assets to
generate profits. Profitability is also important to the concept of solvency and going concern.
Here are some of the key ratios that investors and creditors consider when judging how profitable a
company should be:
Market Prospect ratios are used to compare publicly traded companies' stock prices with other financial
measures like earnings and dividend rates. Investors use market prospect ratios to analyze stock price
trends and help figure out a stock's current and future market value.
In other words, market prospect ratios show investors what they should expect to receive from their
investment. They might receive future dividends, earnings, or just an appreciated stock value. These
ratios are helpful for investors to predict how much stock prices will be in the future based on current
earnings and dividend measurements. For instance, a downward trend in earnings per share and
dividend yield point to profitability problems and could even raise going concern issues. All of these
issues point to a lower stock evaluation.
Here are some of the basic market prospect ratios that investors tend to analyze.
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Coverage Ratios
Coverage ratios are comparisons designed to measure a company's ability to pay its liabilities. On the
surface, coverage ratios might sound a lot like liquidity and solvency ratios, but there is a distinct
difference. Coverage ratios analyze a company's ability to service its debt and other obligations.
In other words, these ratios measure how well companies can afford to make the interest payments
associated with their debt. Some ratios also include obligations that are not typical liabilities like regular
dividend payments to stockholders. Here are the main coverage ratios used to analyze companies.
Profitability
Activity Ratios
PV Ratio(Profit volume)-Contribution/Sales.
Preliminary expenses / Preoperative expenses / goodwill / patents / copyrights are examples of
intangible assets.
Break even sales=Fixed cost+ variable cost.
Margin of safety-Sales –Break even sales.
Working capital gap= CA-(CL-BANK FINANCE).
Shows turnover of inventory during a period
Debtors Velocity= Average Receivables/ Credit Sales x12 or 52 or 365
Shows debt collection period from debtors
Creditors Velocity= Average Creditors / Credit Purchases x12 or 52 or 365
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Committee under the Chairmanship of Sri. M V Nair was set up by The Reserve Bank of India in
August 2011 to re-examine the existing classification and suggest revised guidelines with regard to
Priority Sector lending and related issues
RBI has issued revised Priority Sector Classification guidelines on 20.07.2012 vide their circular
RBI/2012-13/138.RPCD.CO.plan.BC 13/04.09.01/2012-13 operational with immediate effect.
The priority sector loans sanctioned under the guidelines issued prior to the date of the above RBI
circular dated 20.07.2012, will continue to be classified under priority sector till the maturity /
renewal of the said loan.
Agriculture
Micro, Small and Medium Enterprises
Export Credit
Education
Housing
Social Infrastructure
Renewable Energy
Others
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40% of ANBC or Credit equivalent to OFF Balance sheet exposure whichever is more.
Numbers are in Percentage on Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance
Sheet Exposure, whichever is higher.
ANBC = Net Bank credit + Investment in non SLR Bonds under HTM (held to maturity) Category + Any
other investment which can be classified as Priority sector +outstanding deposits under RIDF+
Outstanding PSLCs - Eligible advances for exemptions on long term bond for infrastructure& affordable
housing - Eligible finance extended in India against the incremental FCNR/NRE deposits qualifying for
CRR/SLR requirements.
Net bank credit = Bank credit - Bill discounted with RBI and other financial institutions
Bank Credit in India means, No.VI of Form ‘A’ under Section 42 (2) of the RBI Act, 1934+ (Excluding inter-
bank advances)
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Foreign banks with less than 20 branches should achieve the target of 40% by 2020 in a phased manner
as below,
2015-16 : 32%
2016-17 : 34%
2017-18 : 36%
2018-19 : 38%
2019-20 : 40%
Agriculture
The present distinction between direct and indirect agriculture is dispensed with. Instead, the lending to
agriculture sector has been re-defined to include,
Farm Credit
Agriculture Infrastructure and
Ancillary Activities
Farm Credit
Crop loans to farmers, which will include traditional/ non-traditional plantations and horticulture, and,
loans for allied activities.
Medium and long-term loans to farmers for agriculture and allied activities (e.g. purchase of
agricultural implements and machinery, loans for irrigation and other developmental activities
undertaken in the farm, and developmental loans for allied activities.)
Loans to farmers for pre and post-harvest activities,
Loans to farmers up to Rs.50 lakh against pledge/ hypothecation of agricultural produce
(including warehouse receipts) for a period not exceeding 12 months.
Loans to distressed farmers indebted to non-institutional lenders.
Loans to farmers under the Kisan Credit Card Scheme.
Loans to small and marginal farmers for purchase of land for agricultural purposes.
Loan to corporate farmers, farmer producing companies, Partnership companies, cooperatives
of farmers directly engaged in agriculture & allied activities like diary etc. limit up to Rs. 2 crores
Agriculture Infrastructure
Loans for construction of storage facilities (irrespective of their location).
Soil conservation and watershed development.
Plant tissue culture and Agri-biotechnology, seed production, production of bio-pesticides, bio-
fertilizer, and vermi composting.
For the above loans, an aggregate sanctioned limit of Rs.100 crore per borrower from the
banking system, will apply.
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Ancillary Activities
Loans up to Rs.5 crore to co-operative societies of farmers for disposing of the produce of members.
Loans for setting up of Agri clinics and Agribusiness Centres.
Loans for Food and Agro-processing up to an aggregate sanctioned limit of Rs.100 crore per
borrower from the banking system.
Loans to Custom Service Units managed by individuals, institutions or organizations who
maintain a fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and
undertake farm work for farmers on contract basis.
Bank loans to Primary Agricultural Credit Societies (PACS), Farmers‟ Service Societies (FSS) and
Large- sized Adivasi Multi-Purpose Societies (LAMPS) for on-lending to agriculture.
Loans sanctioned by banks to MFIs for on-lending to agriculture sector
Loans sanctioned to registered NBFCs on certain conditions
Outstanding deposits under RIDF and other eligible funds with NABARD on account of priority
sector shortfall.
MSME
For classification under priority sector, no limits are prescribed for bank loans sanctioned to
Micro, Small and Medium Enterprises engaged in the manufacture or production of goods
under any industry specified in the first schedule to the Industries (Development and
Regulation) Act, 1951 and engaged in providing or rendering of services as notified by the
Government from time to time. The manufacturing enterprises defined in terms of investment
in plant and machinery under MSMED Act 2006, irrespective of loan limits, are eligible for
classification under priority sector, w.e.f. March 1, 2018.
All loans to units in the KVI sector will be eligible for classification under the sub-target of 7.5%
prescribed for Micro Enterprises under P.S.
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Now, Loans for Food & Agro Processing up to an aggregate sanction limit of Rs.100 crore per
borrower from the banking system will be classified under Agriculture (Ancillary activity).
Factoring transactions taking place under TReDS shall also eligible.
OD limit of up to Rs.10000 sanctioned under PMJDY for beneficiaries age limit of 18-65 shall be
classified under PS. Such conditions are not applicable for limit up to Rs.2000.
Education
Loans to individuals for educational purposes including vocational courses up to Rs. 10 lakh
irrespective of the sanctioned amount will be considered as eligible for priority sector.
Housing
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Social Infrastructure
Bank loans up to a limit of Rs. 5 crore per borrower for building social infrastructure for
activities namely schools, health care facilities, drinking water facilities and sanitation facilities
including construction/ refurbishment of household toilets and household level water
improvements in Tier II to Tier VI centres.
Bank credit to Micro Finance Institutions (MFIs) extended for on-lending to individuals and also
to members of SHGs/JLGs for water and sanitation facilities will be eligible for categorization as
priority sector under ‘Social Infrastructure’, subject to the criteria laid down in paragraph 19 of
these Master Directions.
Export Credit
Incremental export credit over corresponding date of the preceding year, up to 2 percent of ANBC or
Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher subject to a sanctioned
limit of Rs.40 crore per borrower.
Weaker section:
Renewable Energy
Bank loans up to a limit of Rs. 15 crore to borrowers for purposes like solar based power
generators, biomass based power generators, wind mills, micro-hydel plants and for non-
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conventional energy based public utilities viz. street lighting systems, and remote village
electrification. For individual households, the loan limit will be Rs. 10 lakh per borrower.
Others
Shortfall in lending to priority sector shall be allocated amounts for contribution to the Rural
Infrastructure Development Fund (RIDF) established with NABARD and other Funds with
NABARD/NHB/SIDBI/ MUDRA Ltd.
The interest rates on banks’ contribution to RIDF or any other Funds, tenure of deposits, etc.
shall be fixed by Reserve Bank of India from time to time B/SIDBI/ MUDRA Ltd.
Non-achievement of priority sector targets and sub-targets will be taken into account while granting
regulatory clearances/approvals for various purposes.
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Pradhan Mantri Fasal Bhima Yojana (PMFBY) & Weather Based Crop Insurance Scheme (WBCIS)
GOI introduced a new crop damage insurance scheme titled “PMFBY/WBCIS” during the current year
2016-17 starting from Khariff-2016. The scheme aims at supporting sustainable production in agriculture
sector by way of:
Support farmers suffering crop loss/damage arising out of unforeseen events.
Stabilizing the income of farmers to ensure their continuance in farming.
Encouraging farmers to adopt innovative & modern agricultural practices and
Ensuring flow of credit to the agriculture sector and protecting farmers from production risks.
average of yield of last seven years excluding yield upto two notified calamity years multiplied by
Indemnity level.
In case of smaller States, the whole State shall be assigned to one IA (2-3 for comparatively big
States). Selection of IA may be made for at least 3 years.
The designated / empanelled companies participating in bidding have to bid the premium rates for
all the crops notified / to be notified by the State Govt. and non-compliance will lead to rejection of
company’s bid
Crop Cutting Experiments (CCE) shall be undertaken per unit area /per crop, on a sliding scale, as
prescribed under the scheme outline and operational guidelines. Improved Technology like Remote
sensing. Drone etc will be utilised for estimation of yield losses.
State governments should use Smart phone apps for video/image capturing CCEs process and
transmission thereof with CCE data on a real time basis for timely, reliable and transparent
estimation of yield data
The cost of using technology etc. for conduct of CCEs etc will be shared between Central
Government and State/U.T. Governments on 50:50 basis.
There will be a provision of on account claims in case of adverse seasonal conditions during crop
season viz. floods, prolonged dry spells, severe drought, and unseasonal rains.
On account payment upto 25% of likely claims will be provided, if the expected yield during the
season is likely to be less than 50% of normal yield.
The claim amount will be credited electronically to the individual Insured Bank Account.
Adequate publicity needs to be given in all the villages of the notified districts/areas
On 2nd November 2018, Prime Minister announced this scheme for the MSMEs (Micro, Small and
Medium Enterprises) in India, a quick business loan portal for the individuals who wish to expand
their existing business.
It is the Platform which has set a new benchmark in loan processing by reducing turnaround time for
In-principle approval from days to less than 59 minutes with the support of SIDBI.
Portal address is www.psbloansin59minutes.com.
Post receiving In-principle approval letter, the loan is expected to be sanctioned/ disbursed in
around 7-8 working days.
The Platform is currently being used by more than 25 Public & Private Sector Banks and NBFCs.
The Platform provides,
Business Loan (Term Loan and Working Capital Loan) In-principle approvals for value from INR 1
Lac to INR 5 Crore.
Personal Loan In-principle approvals are currently provided for value up to INR 15 Lacs,
Home Loan In-principle approvals are currently provided for value up to INR 10 Crores
Auto Loan In-principle approvals are currently provided for value up to INR 1 Crore.
Documents required:
For MSME loans Housing loan / Personal loan
GST Details ITR 1,2 and 4 - PDF format
Income Tax Details ITR 3 - XML format
Bank Statement Borrower personal details
Details of Directors/ Partners/ Proprietor Co-Applicant Documents (If entered)
Details related to Loan Required i.e. ITR and Bank statement
Details about the loan required
With CGTMSE integration, the MSME borrower might get a collateral free loan
No registration fee
For receiving In-Principle approval from the lender, a nominal payment of Rs. 1,000 + GST is
required to make.
Registration will be done by using Name, Mobile Number and Email Id
The platform caters to financial requirements of GST registered as well as not-registered businesses.
The borrowers who are not registered with GST can manually provide basic details of business and
month on month sales for past 12 months
Loan eligibility is determined by the applicant’s Income/ Revenue, Repayment Capacity, Existing
Credit Facilities and Any other Factors as set by Lenders
ITRs of past 3 years are mandatory for Term Loan, and minimum 1 year is required for Working
Capital Loan
The ITR/ Bank Statements details uploaded by the borrower are analysed in real time to provide
required data to simplify decision making process for a lender.
The borrower can reapply for business loan in-principle approval after 60 days, if it is rejected.
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Foreign Exchange
Irrevocable LC-Cancelled only with the consent of beneficiary, applicant Bank, confirming bank.
Nothing mentioned means it is an irrevocable LC.
Red clause LC-PRESHIPMENT FINANCE for packing
Green clause LC- Advance for storage of goods in warehouse.
Standby LC- Performance/Bid Guarantee.
Documentary LC-Bill drawn under Document of title to goods.
Revolving LC-Reinstatment of credit.
Examination of documents by issuing bank-5 banking days
Documents to be presented not later than 21 calendar days after shipment.
FEMA (Foreign exchange management act)-2/12/1999.
Forex released by Ads-Business-USD 25000, Medical, Education, employment – USD-100000,
Remittance under liberalised remittance scheme-USD 200000
Balance of trade=Exports-imports
Direct quotation –Buy low sell high, Foreign currency is fixed, variable unit of home currency
Value date-date of credit to nostro
TOM-Settled on next working day, spot-within 48 hours.
Forwards-Predetermined future date
Gold card scheme for exporters-for worthy exporters without any default, additional stand by limit
of minimum 20% will be given apart from regular limit with auto renewal for 3 years.
Deemed exports-trade and supplies made within India. Ex sale to foreign tourists.
R RETURN-ONCE IN 15 DAYS,
XOS -6 MONTHS
BEF-IMPORTS-6 MONTHS TO BE SUBMITTEDTO RBI.
Bills discount-Bill buying rate to be applied
Encashment of TC-TT Buying rate to be applied.
Retirement of bill-Bill selling rate to be applied.
Direct quotation- 1 $= Say Rs 61.93
Indirect Quotation- Rs 61.93= 1$
Rules for purchase/sales.- Direct Rate- Buy low sell high Indirect rate-Buy high sell low
NRI-No need to obtain permission from RBI for opening account for Bangladesh Nationality
FCNR –Any permitted currency(Pound Sterling, US Dollar, Japanese yen, Euro, Canadian Dollar and
Australian Dollar),Only term deposit permitted, period 1 to 5 years-Amount repatriable, Joint
account permitted with NRIs or close relative in India
NRE-Can be opened in SB/CD/TD, INR, Repatriable (For TD period will be 1 to 10 Years)
NRO –Can be opened by any person resident outside India in Indian Rupee. Amount is not
repatriable-Can be opened in the form of SB/CD/TD. Foreign nationals visiting India can also open
NRO accounts for a maximum period of 6 months, loans permitted.
Incoterms-International commercial terms.(FOB-Free on board, C&f- Cost and freight, CIF- Cost,
Insurance, Freight)
Period of credit for packing credit- 360 days Post shipment- 365 days.
Transit period- 25 days.
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Types of Accounts
NOSTRO ACCOUNTS :` OUR ACCOUNT WITH YOU` It is a foreign currency account maintained by a
bank in domestic country with a bank in foreign country.
VOSTRO ACCOUNTS : `YOUR ACCOUNT WITH US` Rupees account of a foreign bank in India.
LORO ACCOUNT : `THEIR ACCOUNT WITH YOU` Account of a third bank abroad.
FEMA was implemented in India w.e.f 1/6/2000 : FEMA defines certain terms such as :
Capital account transactions: One that alter the assets or liabilities outside India of a person resident
in India or assets or liabilities in India, of a person resident outside India.
Current account transactions : Other than capital account transactions and includes payments due in
connection with foreign trade, other current business services and short term banking and credit
facilities in ordinary course of business.
Resident as per FEMA : Any person resident in India for more than 182 days during the course of
preceding financial year will be taken as resident in India.
Direct Method: A given number of units of local currency per unit of foreign currency example: US
dollar 1=Rs.49 - 49.20
Indirect Method: A given number of units of foreign currency per given units of local in India, w e f
02/08/1993 direct quotations are being used.
Ready/Cash The transaction on the same date. Also known as ‘value today’
The delivery of foreign exchange/currency to be made on the day next to the
TOM date of transaction.
SPOT Exchange of currencies take place two days after the date of contract- Spot Rate.
When the delivery has to take place at a date farther than the spot date, then it
FORWARD is a forward transaction - Forward Rate
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The only inputs required for a customer to do a transaction under this scenario are:-
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The core objective was to consolidate and integrate the multiple systems with varying service levels into
nation-wide uniform and standard business process for all retail payment systems. The other objective
was to facilitate an affordable payment mechanism to benefit the common man across the country and
help financial inclusion. NPCI has ten promoter banks namely, State Bank of India, Punjab National Bank,
Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank and
HSBC.
National Payment Corporation (NPCI) had been identified to act as Bharat Bill Payment Central Unit
(BBPCU) which will be a single authorized entity for operating the BBPS. The biggest advantage is that
the bill can be paid anywhere and anytime. The system will provide multiple payment modes and
instant confirmation of payment. Payments may be made through the BBPS using cash, transfer
cheques, and electronic modes. The BBPS outlets would include banks, ATMs, business correspondents,
kiosks etc.
mobile number, bank account number and IFSC code. It allows the user to pay directly to different
merchants without the hassle of typing card details or net banking password. It also provides an option
for scheduling push and pull transactions for various purposes like sharing bills among peers. One can
use UPI app instead of paying cash on delivery on receipt of product from online shopping websites and
can perform miscellaneous expenses like paying utility bills, over the counter payments, barcode (scan
& pay) based payments, donations, school fees and other such unique and innovative use cases. The
interface is the advanced version of NPCI's Immediate Payment Service (IMPS) which is a 24*7*365
funds transfer service. In order to make use the UPI services both the bank customer and the
beneficiary is required to register with the bank and get the virtual ID.
Mobile Wallet
It is another payment channel independent of bank account. Recently, RBI has permitted the telecom
service providers to enter into this space through collaboration. These entities can undertake host of
services - Deposit, transfer of funds, utility payments and cash withdrawal. Under this the funds can be
transferred from mobile to mobile and mobile to bank account. Companies that have launched mobile
wallet in India are Paytm, Chillr, Buddy, mPay, Airtel money, Zip cash, Mobi cash etc.
99# service
This service has been launched to take the banking services to every common man across the country.
Banking customers can avail this service by dialing 99#, a "Common number across all Telecom Service
Providers (TSPs)" on their mobile phone and transact through an interactive menu displayed on the
mobile screen. Key services offered under 99# service include, interbank account to account fund
transfer, balance enquiry, mini statement besides host of other services. 99# service is currently offered
by most of the leading banks & all GSM service providers and can be accessed in 12 different languages
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including Hindi & English. 99# service is a unique interoperable direct to consumer service that brings
together the diverse ecosystem partners such as Banks & TSPs (Telecom Service Providers).
Debit Cards
Debit cards are different from credit cards. Credit card is a way to “Pay Later” whereas debit card is a
way to “Pay Now.” In case of debit card, bank account of the customer will be debited immediately on
completion of transaction. Debit cards are accepted at many locations, including retail stores, petrol
pumps, and restaurants. The liberalized norms coupled with ease of usage have led to increase debit
card base over the years. Of late, banks are consciously driving the customers to alternate delivery
channels by issuing debit cards on the day of opening of the account itself to reduce the work load and
to enable them to pay focused attention on core banking activities. In order to make Credit/Debit Card
transactions more secure, RBI mandated the card holders to enter PIN while transacting at POS
terminals. As per recent RBI guidelines, all banks are mandated to issue only Chip enabled Cards
w.e.f.01.10.16.
Credit Cards
The concept of credit card was used in 1950 with the launch of charge cards in USA by Diners Club and
American Express. Credit card became more popular with use of magnetic strip in 1970. The first Credit
Card was issued in 1981 and Gold Card in 1986 by VISA. Credit cardholder need not carry cash and
purchase goods and services at any approved Merchant Establishments/Point of sale Terminals by
tendering the card duly signing the charge slip. Further, cardholders can make online purchases through
internet using the card and PIN. Added to this, cardholder can withdraw cash at any ATM across the
globe. However, cash advance attracts charge i.e. transaction fee as well as service fee/interest charge.
Charge Card
Charge Card is like any Credit or Debit Card. These cards neither offer revolving credit like the Credit
Card nor debit the account instantaneously like Debit Card. However, the cardholder is required to
settle the bill in full by the due date each month. Charge cards make a good option to develop financial
discipline which likely to enable the cardholders to improve their credit history. Further, charge card
offers a dynamic limit, while rewarding good payment record.
Prepaid Card
Prepaid Card looks like a credit card and works like a debit card. These cards resemble credit and debit
cards in appearance and allow users to load any amount up to ?100000/- and can be used at any
ATM/Point of Sale Terminal. On use of card, funds are directly debited from the card. Cardholders
preload the cards with funds via a cash deposit or wire transfer. There are no finance fees or interest
payments as charges are deducted from the prepaid balance. It is an opportunity for people who have
had little or no access to the mainstream financial system by loading funds onto a prepaid card. It is a
secure and convenient alternative to cash. The issuers of prepaid cards should ensure KYC compliance
while issuing cards to the customers/public. Various types of Prepaid Cards are – Re-loadable Cards
(value is replenished once it is used), Disposable Cards (discarded once the value is used), Closed Cards
can be used for a specific purpose (Phone Cards) and Open Cards (multi-purpose). Re-loadable cards are
most popular among “under-banked” individuals, or those who tend not to possess conventional bank
accounts.
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Gift Card
Gift Card is one of the paperless payment systems and is highly popular in card industry. It is a card with
predetermined limit and value is loaded through cash or transfer from the account. Maximum value of
each prepaid gift instrument shall not exceed Rs.10000/-.However, these instruments shall not be
reloadable.
Forex Card
It is similar to a normal prepaid card with a special feature meant for the students going to abroad for
higher studies. It can be used at POS terminals, ATMs and for online transactions. Parents can
load/reload the card using the login credentials issued while buying the card. The banks are levying
reasonable charges for cash withdrawal and some banks waiving the charges too. Another advantage of
the card is that it can be used to pay fees instead of paying through wire transfer from India. The
withdrawals or payments are allowed in five currencies viz., USD,GBP, EUR, CAD and AUD. The card
validity ranges up to five years and the maximum permissible limit by RBI under Liberalized Remittance
Scheme is $2.50 lakh. At present, ICICI and HDFC banks are issuing forex cards and other banks may
follow.
MTSS can be used for inward personal remittances into India, such as, remittances towards family
maintenance and remittances favouring foreign tourists visiting India and not for outward
remittance from India.
The system envisages a tie-up between reputed money transfer companies abroad known as
Overseas Principals and agents in India known as Indian Agents who would disburse funds to
beneficiaries in India at ongoing exchange rates. The Indian Agents can in turn also appoint sub-
agents to expand their network. The Indian Agent is not allowed to remit any amount to the
Overseas Principal. Under MTSS, the remitters and the beneficiaries are individuals only.
The Reserve Bank of India may accord necessary permission (authorisation) to any person to act as
an Indian Agent under the Money Transfer Service Scheme. No person can handle the business of
cross-border money transfer to India in any capacity unless specifically permitted to do so by the
RBI.
To become MTSS agent, min net owned funds Rs.50 lac. MTSS cap USD 2500 for individual
remittance. Max remittances 30 received by an individual in India in a calendar year. Min NW of
overseas principal USD 01 million, as per latest balance sheet.
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Brown Label ATM - We always think that the bank branded ATM machines operated by the bank
concerned, but this is not the case. Banks only handle part of the process that is cash handling and
back-end server connectivity. The ATM machine is owned by the third party service provider along
with the physical infrastructure. This type ATM is called as "Brown Label ATM" and acts as
intermediate between Banks owned ATM and White Label ATM.
Speed Clearing
Speed Clearing refers to collection of outstation cheques through the local clearing. It facilitates
collection of cheques drawn on outstation core-banking-enabled branches of banks, if they have a
net-worked branch locally.
When will the beneficiary get funds under Speed Clearing?: The local cheques are processed on T+1
working day basis and customers get the benefit of withdrawal of funds on a T+1 or 2 basis. 'T
denotes transaction day viz. date of presentation of cheque at the Clearing House. So, the
outstation, cheques under Speed Clearing will also be paid on T+1 or 2 basis.
Availability and charges: Speed Clearing is currently available in 41 MICR centres. Collecting banks
will not charge any charges for collection of cheques up to Rs 1 lac in saving bank accounts. For
cheques of more than Rs 1 lac, bank discretion. For collection in current accounts, bank discretion
irrespective of amount of chque. The charges are inclusive of all charges other than Service Tax.
MONEY GRAM
Account holder should be from GULF
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Maximum remittance permitted-USD 2500, 8 Digit numerical number is necessary for the receiver.
Done through ThomasCook agent of Money Gram International Inc..
Maximum transaction by receiver is 30 per calendar year. Purpose-Family, Personal maintenance.
Capital requirements : Banks and Non-Banking Financial Companies which comply with the Capital
Adequacy requirements prescribed by Reserve Bank of India from time-to-time, shall be permitted to
issue pre-paid payment instruments. All other persons shall have a minimum paid-up capital of Rs 100
lakh and positive net owned funds.
Deployment of Money collected: Non-bank persons issuing payment instruments are required to
maintain their outstanding balance in an escrow account with any scheduled commercial bank subject
to the following conditions:-
1. The amount so maintained shall be used only for making payments to the participating merchant
establishments.
2. No interest is payable by the bank on such balances.
Validity: All pre-paid payment instruments issued in the country shall have a minimum validity period of
six months from the date of activation/issuance to the holder. The outstanding balance against any
payment instrument shall not be forfeited unless the holder is cautioned at least 15 days in advance as
regards the expiry of the validity of the payment instrument.
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1 Pro Poor Pradhan mantri Jan Dhan Yojana (World’s largest Financial Inclusion
programme)
Pandit Deen Dayal Upadhyaya Shramev Jayate Karyakram
Deen Dayal Upadhyaya Antyodaya Yojana
Mission Housing for all
Micro Units Development and Refinance Agency Bank (MUDRA Bank)
Pradhan mantri Ujjawala yojana
2 Pro Youth My Gov Online Platform
Digital India
Make In India
Deen Dayal Upadhyaya Grameen Kaushal Yojana
National Policy for Skill Development and Entrepreneurship
National Sports Talent Search Scheme
Swachh Vidyalaya Abhiyan
Padhe Bharat Badhe Bharat
Pandit Madan Mohan Malviya National Mission on Teachers and
Teacher Training
Rashtriya Avishkar Abhiyan
3 Pro Farmer Enhanced Compensation for distressed Farmers due to crop damage
Deen Dayal Upadhyaya Gram Jyoti Yojana
Soil Health Card Scheme
Pradhan Mantri Krishi Sinchai Yojana
Jan Suraksha Schemes (PMJJBY, PMBSY, APY)
Rashtriya Gokul Mission
4 Pro Women Beti Bachao, Beti Padhao Abhiyaan
Sukanya Samriddhi Account
Himmat App
PAHAL-Direct Benefits Transfer for LPG (DBTL) Consumers Scheme
Swachh Bharat Mission
Gold Monetisation Scheme
5 Pro Senior Citizen Pradhan Mantri Suraksha Bima Yojana
Pradhan Mantri Jeevan Jyoti Bima Yojana
Atal Pension Yojana
Pragati Platform
Mission Housing for all
Pradhan Mantri Ujjawala yojana
These include:
The creation of digital infrastructure
Delivering services digitally
Digital literacy
3 Skill India Launched on 15th July 2015)
To create jobs for youth of the Country
Skill Development in Youth
Making Skill available to All Youth of India
4 Smart Cities Launched on 29th April 2015
In first Government of india Will Develop 100 Smart cities in India
Under this Scheme Cities from all States Are Selected
5 Unearthen Black Bill Passed on 14th May 2015
Money Disclosing Black Money
Punishment for The Black Money holders
6 Namami Gange Namami Gange Project or Namami Ganga Yojana is an ambitious Union
Government Project which integrates the efforts to clean and protect the
Ganga river in a comprehensive manner.
It its maiden budget, the government announced Rs. 2037 Crore towards
this mission.
The project is officially known as Integrated Ganga Conservation Mission
project or ‘Namami Ganga Yojana’.
This project aims at Ganga Rejuvenation by combining the existing
ongoing efforts and planning under it to create a concrete action plan for
future.
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The six main themes chosen for the Bal Swachhta Mission are,
Clean school and anganwadis
Clean surroundings like playgrounds
Clean self (personal hygiene/ child health)
Clean food
Clean drinking water
Clean toilets.
11 Pradhan Mantri Jan Launched on 28th August 2014
Dhan Yojana AIM: Financial inclusion
National Mission for Financial Inclusion to ensure access to financial
services, namely, Banking Savings & Deposit Accounts, Remittance,
Credit, Insurance, Pension in an affordable manner
Under the scheme Account holders will be provided zero-balance bank
account with RuPay debit card, in addition to accidental insurance cover
of Rs 1 lakh.
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Those who open accounts by January 26, 2015 over and above the Rs1
lakh accident, they will be given life insurance cover of Rs 30,000.
After Six months of opening of the bank account, holders can avail Rs
5,000 loan from the bank.
With the introduction of new technology introduced by National
Payments Corporation of India (NPCI), a person can transfer funds, check
balance through a normal phone which was earlier limited only to smart
phones so far.
Mobile banking for the poor would be available through National Unified
USSD Platform (NUUP) for which all banks and mobile companies have
come together
Documents required for opening account
By 28 January 2015, 12.58 crore accounts were opened, with around
Rs.10590 crore
12 Pradhan Mantri Launched on 9th May 2015
Suraksha Bima Eligibility: Available to people in age group 18 to 70 years with bank
Yojana account.
Premium: Rs.12 per annum.
Payment Mode: The premium will be directly auto-debited by the bank
from the subscribers account. This is the only mode available.
Risk Coverage: For accidental death and full disability – Rs.2 Lakh and for
partial disability – Rs.1 Lakh.
13 Pradhan Mantri It was Launched on 9th May 2015
Jeevan Jyoti Bima Life insurance scheme by Government
Yojana Eligibility: Available to people in the age group of 18 to 50 and having a
bank account. People who join the scheme before completing 50 years
can, however, continue to have the risk of life cover up to the age of 55
years subject to payment of premium.
Premium: Rs.330 per annum. It will be auto-debited in one instalment.
Payment Mode: The payment of premium will be directly auto-debited
by the bank from the subscribers account.
Risk Coverage: Rs.2 Lakh in case of death for any reason.
Terms of Risk Coverage: A person has to opt for the scheme every year.
He can also prefer to give a long-term option of continuing, in which case
his account will be auto-debited every year by the bank.
Who will implement this Scheme?: The scheme will be offered by Life
Insurance Corporation and all other life insurers who are willing to join
the scheme and tie-up with banks for this purpose.
14 Atal Pension Atal Pension yojana was Launched on 9th May 2015
Scheme It was Launched for unorganised sector ‘s workers
15 Beti Bachao Beti It was Launched on 22nd January 2015
Padhao Yojana Main aim -To generate awareness of welfare service meants for girl child
and women
16 HRIDAY (National HRIDAY was Launched on 21st January 2015
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Under the scheme, Rs 8000 crore has been earmarked for providing five
crore LPG connections to BPL households.
The Scheme provides a financial support of Rs 1600 for each LPG
connection to the BPL households.
The identification of eligible BPL families will be made in consultation
with the State Governments and the Union Territories.
35 SEEMA DARSHAN SEEMA DARSHAN an initiative to provide an opportunity for the children
to experience the border environment and to encourage patriotism and
nationalism among the students.
It aims to provide the students the experience of the current security
environment in the border areas.
This Initiative Will Help in Developing Patriotic Feeling In Children.
36 Start up India, Stand To create a strong ecosystem for enhancing innovation and startups in
up India India, Department of Industrial Policy and Promotion (DIPP) has
organised Startup India, Standup India initiative along with other key
Indian startup ecosystem players. Here are some key features:
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Banking Terms
RBI – The Reserve Bank of India is the apex bank of the country, which was constituted under the RBI
Act, 1934 to regulate the other banks, issue of bank notes and maintenance of reserves with a view to
securing the monetary stability in India.
Demand Deposit – A Demand deposit is the one which can be withdrawn at any time, without any
notice or penalty; e.g. money deposited in a checking account or savings account in a bank.
Time Deposit – Time deposit is a money deposit at a banking institution that cannot be withdrawn for a
certain "term" or period of time. When the term is over it can be withdrawn or it can be held for
another term.
Fixed Deposits – FDs are the deposits that are repayable on fixed maturity date along with the principal
and agreed interest rate for the period. Banks pay higher interest rates on FDs than the savings bank
account.
Recurring Deposits – These are also called cumulative deposits and in recurring deposit accounts, a
certain amounts of savings are required to be compulsorily deposited at specific intervals for a specified
period.
Savings Account – Savings account is an account generally maintained by retail customers that deposit
money (i.e. their savings) and can withdraw them whenever they need. Funds in these accounts are
subjected to low rates of interest.
Current Accounts – These accounts are maintained by the corporate clients that may be operated any
number of times in a day. There is a maintenance charge for the current accounts for which the holders
enjoy facilities of easy handling, overdraft facility etc.
FCNR Accounts – Foreign Currency Non-Resident accounts are the ones that are maintained by the NRIs
in foreign currencies like USD, DM, and GBP etc. The account is a term deposit with interest rates linked
to the international rates of interest of the respective currencies.
NRE Accounts – Non-Resident External accounts are the ones in which NRIs remit money in any
permitted foreign currency and the remittance is converted to Indian rupees for credit to NRE accounts.
The accounts can be in the form of current, saving, FDs, recurring deposits. The interest rates and other
terms of these accounts are as per the RBI directives.
Hot Money - Money held in one currency that is liable to switch to another currency, in a flash, in
response to better returns or in apprehension of adverse circumstances. Such a flight of money might
cause the currency’s exchange rate to plunge.
Reserve Money (M0) - Currency in circulation + Bankers’ deposits with the RBI + ‘Other’ deposits with
the RBI = Net RBI credit to the Government + RBI credit to the commercial sector + RBI’s claims on banks
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+ RBI’s net foreign assets + Government’s currency liabilities to the public – RBI’s net non-monetary
liabilities. M1 – Currency with the public + Demand deposits with the banking system + ‘Other’ deposits
with the RBI. M2 – M1 + Savings deposits with Post offices. M3 – M1+ Time deposits with the banking
system = Net bank credit to the Government + Bank credit to the commercial sector + Net foreign
exchange assets of the banking sector + Government’s currency liabilities to the public – Net non-
monetary liabilities of the banking sector. M4 – M3 + Deposits with post office (excluding NSCs).
Inflation - It is termed as the continual rise in the general level of prices. It is commonly expressed as an
annual percentage rate of change on an index number.
Hyper Inflation - An express growth in the rate of inflation whereby, money loses its value to the extent
where other mediums of exchange like barter or foreign currency come into vogue.
Cheque Book - A small, bound booklet of cheques. A cheque is a piece of paper produced by your bank
with your account number, sort-code and cheque number printed on it. The account number
distinguishes your account from other accounts; the sort-code is your bank's special code which
distinguishes it from any other bank.
Cheque Clearing - This is the process of getting the money from the cheque-writer's account into the
cheque receiver's account.
Clearing Bank - This is a bank that can clear funds between banks. For general purposes, this is any
institution which we know of as a bank or as a provider of banking services.
Bounced Cheque - when the bank has not enough funds in the relevant account or the account
holder requests that the cheque is bounced (under exceptional circumstances) then the bank will return
the cheque to the account holder.
Consumer Price Index (CPI) - CPI is an inflationary indicator that measures the change in the cost of a
fixed basket of products and services, including housing, electricity, food, and transportation. The CPI is
published monthly and it is also called cost-of-living index.
Stagflation - A condition in the economy that is characterized by the twin economic problems viz., slow
economic growth and rising prices.
Deflation - A sustained fall in the general price level of goods and services, usually accompanied by fall
in output and jobs.
Stagnation - It is a period during which economy does not grow or grows very slowly. As a result,
unemployment increases and consumer spending slows down.
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Devaluation - A fall in the fixed official rate at which one currency is exchanged for another in a fixed
exchange rate system. While it is mostly by a deliberate act of government policy, in recent years,
financial speculation has also been identified as a responsible factor.
Credit Rating - This is the rating which an individual (or company) gets from the credit industry. This is
obtained by the individual's credit history, the details of which are available from specialist organisations
like CRISIL in India.
Credit-Worthiness - This is the judgement of an organization which is assessing whether or not to take a
particular individual on as a customer. An individual might be considered credit-worthy by one
organisation but not by another. Much depends on whether an organization is involved with high risk
customers or not.
Interest - The amount paid or charged on money over time. If you borrow money interest will be
charged on the loan. If you invest money, interest will be paid (where appropriate to the investment).
Overdraft - This is when a person has a minus figure in their account. It can be authorized (agreed to in
advance or retrospect) or unauthorized (where the bank has not agreed to the overdraft either because
the account holder represents too great a risk to lend to in this way or because the account holder has
not asked for an overdraft facility).
Payee - The person who receives a payment. This often applies to cheques. If you receive a cheque you
are the payee and the person or company who wrote the cheque is the payer.
Payer - The person who makes a payment. This often applies to cheques. If you write a cheque you are
the payer and the recipient of the cheque is the payee.
Internet Banking - Online banking (or Internet banking) allows customers to conduct financial
transactions on a secure website operated by the bank.
Credit Card - A credit card is one of the systems of payments named after the small plastic card issued to
users of the system. It is a card entitling its holder to buy goods and services based on the holder's
promise to pay for these goods and services.
Debit Card – Debit card allows for direct withdrawal of funds from customers bank accounts. The
spending limit is determined by the available balance in the account.
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Loan - A loan is a type of debt. In a loan, the borrower initially receives or borrows an amount of
money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of
money to the lender at a later time. There are different kinds of loan such as the house loan, auto loan
etc.
Bank Rate - This is the rate at which central bank (RBI) lends money to other banks or financial
institutions. If the bank rate goes up, long-term interest rates also tend to move up, and vice-versa.
CRR - Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI
decides to increase the percent of this, the available amount with the banks comes down. RBI is using
this method (increase of CRR rate), to drain out the excessive money from the banks.
SLR - SLR stands for Statutory Liquidity Ratio. This term is used by bankers and indicates the minimum
percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities.
Thus, we can say that it is ratio of cash and some other approved to liabilities (deposits). It regulates the
credit growth in India.
Repo Rate - Under repo transaction the borrower places with the lender certain acceptable securities
against funds received and agree to reverse this transaction on a predetermined future date at agreed
interest cost. Repo rate is also called (repurchase agreement or repurchase option).
Reverse Repo Rate - is the interest rate earned by the bank for lending money to the RBI in exchange of
govt. securities or "lender buys securities with agreement to sell them back at a predetermined rate".
Over Draft - It is the loan facility on customer current account at a bank permitting him to overdraw up
to a certain agreed limit for a agreed period ,interest is payable only on the amount of loan taken up.
Shadow Banking
The shadow banking system is a network of financial institutions consisting of non-depository banks
like investment banks, non-bank financial institutions and money market funds.
In other words, Shadow banking is a system of Non-Financial Institution, which borrow funds in
short term and invest the money in long term assets. Shadow banking entities generally serve as
mediators between investors and borrowers, providing credit and capital for investors, institutional
investors, and corporations, and profiting from fees and/or from the arbitrage in interest rates.
Because shadow banking institutions don’t receive traditional deposits like a depository bank, they
are escaping from most regulatory limits and laws enforced on the traditional banking system.
The shadow banking is said to be the major reason for 2008 US Sub-prime Crisis.
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Few Trends in Banking and Financial Services in India That Are Changing the Entire Scenario
1. Digitization:
With the rapid growth of digital technology, it became imperative for banking and financial services in
India to keep up with the changes and innovate digital solutions for the tech-savvy customers. Besides
the financial institutions, insurance, healthcare, retail, trade, and commerce are some of the major
industries that are experiencing the enormous digital shift. To stay competitive, it is necessary for the
banking and financial industry to take the leap on the digital bandwagon.
In India, it all began not earlier than the 1980s when the banking sector introduced the use of
information technology to perform basic functions likes customer service, book-keeping, and auditing.
Soon, Core Banking Solutions were adopted to enhance customer experience. However, the
transformation began in the 1990s during the time of liberalization, when the Indian economy exposed
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itself to the global market. The banking sector opened itself for private and international banks which is
the prime reason for technological changes in the banking sector. Today, banks and financial institutions
have benefitted in many ways by adopting newer technologies. The shift from conventional to
convenience banking is incredible.
Modern trends in banking system make it easier, simpler, paperless, signatureless and branchless with
various features like IMPS (Immediate Payment Service), RTGS (Real Time Gross Settlement), NEFT
(National Electronic Funds Transfer), Online Banking, and Telebanking. Digitization has created the
comfort of “anywhere and anytime banking.” It has resulted in the reduced cost of various banking
procedures, improved revenue generation, and reduced human error. Along with increased customer
satisfaction, it has enabled the customers creating personalized solutions for their investment plans and
improve the overall banking experience.
Mobile banking is one of the most dominant current trends in banking systems. As per the definition, it
is the use of a smartphone to perform various banking procedures like checking account balance, fund
transfer, and bill payments, without the need of visiting the branch. This trend has taken over the
traditional banking systems. In the coming years, mobile banking is expected to become even more
efficient and effortless to keep up with the customer demands. Mobile banking future trends hint at the
acquisition of IoT and Voice-Enabled Payment Services to become the reality of tomorrow. These voice-
enabled services can be found in smart televisions, smart cars, smart homes, and smart everything. Top
industry leaders are collaborating to adopt IoT-connected networks to create mobile banking
technologies that require users’ voice to operate.
UPI or Unified Payments Interface has changed the way payments are made. It is a real-time payment
system that enables instant inter-bank transactions with the use of a mobile platform. In India, this
payment system is considered the future of retail banking. It is one of the fastest and most secure
payment gateways that is developed by National Payments Corporation of India and regulated by the
Reserve Bank of India. The year 2016 saw the launch of this revolutionary transactions system. This
system makes funds transfer available 24 hours, 365 days unlike other internet banking systems. There
are approximately 39 apps and more than 50 banks supporting the transaction system. In the post-
demonetization India, this system played a significant role. In the future, with the help of UPI, banking is
expected to become more “open.”
4. Block Chain:
Blockchain is the new kid on the block and the latest buzzword. The technology that works on the
principles of computer science, data structures and cryptography and is the core component of
cryptocurrency, is said to be the future of banking and financial services globally. Blockchain uses
technology to create blocks to process, verify and record transactions, without the ability to modify it.
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NITI Aayog is creating IndiaChain, India’s largest blockchain network, which is expected to revolutionize
several industries, reduce the chances of fraud, enhance transparency, speed up the transaction
process, lower human intervention and create an unhackable database. Several aspects of banking and
financial services like payments, clearance and settlement systems, stock exchanges and share markets,
trade finance, and lending are predicted to be impacted. With its strenuous design, blockchain
technology is a force to be reckoned with.
Several private and nationalized banks in India have started to adopt chatbots or Artificial intelligence
robots for assistance in customer support services. For now, the use of this technology is at a nascent
stage and evolution of these chatbots is not too far away. Usage of chatbots is among the many
emerging trends in the Indian banking sector that is expected to grow.
More chatbots with the higher level of intelligence are forecasted to be adopted by the banks and
financial institutions for improved customer interaction personalized solutions. The technology will
alleviate the chances of human error and create accurate solutions for the customers. Also, it can
recognize fraudulent behavior, collate surveys and feedback and assist in financial decisions.
Previously, banks considered Fintech companies a disrupting force. However, with the changing trends
in the financial services sector in India, fintech companies have become an important part of the sector.
The industry has emerged as a significant part of the ecosystem. With the use of financial technology,
these companies aim to surpass the traditional methods of finance. In the past few decades, massive
investment has been made in these companies and it has emerged into a multi-billion-dollar industry
globally.
Fintech companies and fintech apps have changed the way financial solutions are provided to the
customers. Besides easy access to financial services, fintech companies have led to a massive
improvement in services, customer experience, and reduced the price paid. In India, the dynamic
transformation has been brought upon by several important elements like fintech startups, established
financial institutions, initiatives like “Start-Up India” by Government of India, incubators, investors, and
accelerators. According to a report by National Association of Software and Services Companies
(NASSCOM), the fintech services market is expected to grow by 1.7 times into an $8 billion market by
2020.
7. Digital-Only Banks:
It is a recent trend in the Indian financial system and cannot be ignored. With the entire banking and
financial services industry jumping to digital channels, digital-only banks have emerged to create
paperless and branchless banking systems. This is a new breed of banking institutions that are
overtaking the traditional models rapidly. These banks provide banking facilities only through various IT
platforms that can be accessed on mobile, computers, and tablets. It provides most of the basic services
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in the most simplified manner and gives access to real-time data. The growing popularity of these banks
is said to be a real threat to traditional banks.
ICICI Pockets is India’s first digital-only bank. These banks are attractive to the customers because of
their cost-effective operating models. At the same time, though virtually, they provide high-speed
banking services at very low transaction fees. In today’s fast lane life, these banks suit the customer
needs because they alleviate the need of visiting the bank and standing in a queue.
8. Cloud Banking:
Cloud technology has taken the world by storm. It seems the technology will soon find its way in the
banking and financial services sector in India. Cloud computing will improve and organize banking and
financial activities. Use of cloud-based technology means improved flexibility and scalability, increased
efficiency, easier integration of newer technologies and applications, faster services and solutions, and
improved data security. In addition, the banks will not have to invest in expensive hardware and
software as updating the information is easier on cloud-based models.
9. Biometrics:
Essentially for security reasons, a Biometric Authentication system is changing the national identity
policies and the impact is expected to be widespread. Banking and financial services are just one of the
many other industries that will be experiencing the impact. With a combination of encryption
technology and OTPs, biometric authentication is forecasted to create a highly-secure database
protecting it from leaks and hackers attempts. Financial services in India are exploring the potential of
this powerful technology to ensure sophisticated security to customers’ account and capital.
10. Wearables:
With smartwatch technology, the banking and financial services technology is aiming to create
wearables for retail banking customers and provide more control and easy access to the data.
Wearables have changed the way we perform daily activities. Therefore, this technology is anticipated
to be the future retail banking trend by providing major banking services with just a click on a user-
friendly interface on their wearable device.
These are some of the recent trends in the banking and financial sector of India and all these new
technologies are predicted to reshape the industry of business and money. The future is going to bring
upon a revolution of sorts with historical changes in traditional models. The massive shift in the
landscape has few challenges. Nonetheless, the customers are open to banking innovations and the
government is showing great support with schemes like “Jan Dhan Yojana,” which aims at proving a
bank account to every citizen. Meanwhile, the competition from the foreign and private sector banks
have strained the government regulators, nationalized banks and financial institutions to adopt new
technology in order to stay relevant in the race.
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Distance between base branch and Retail outlet of Business correspondents should not be more
than 30 kms in rural, urban and semi-urban. For metros it should not be more than 5 kms.
Any person resident in India or outside India shall take or bring in currency notes issued by Gov of
India, RBI to the extent of Rs 25000.
A credit card account will be treated as non-performing asset if the minimum amount due, as
mentioned in the statement, is not paid fully within 90 days from the next statement date.
Official language implementation committee meets once in 3 months.
Fraud cases involving more than Rs 300 lacs and above if primafacie staff involvement is there-To be
Reported to CBI ANTI CORRUPTION WING.
Fraud cases involving more than RS 300 lacs and above if primafacie staff involvement is not there-
To be reported to CBI ECONOMIC OFFENCES WING.
Fraud cases of more than Rs 1.00 lac but less than Rs 300 lacs shall be reported to State CID/
Economic offence wing of state police.
Fraud cases of more than Rs 10000 but less than Rs 1.00 lac can be referred to local police.
Time limit for filing FIR to police/CBI- 15 days from the detection of fraud.
All fraud cases should be reported to RBI in FMR-1 within 3 weeks from the date of detection of
fraud.
FMR-2 and FMR- 3- Quarterly Reporting to RBI regarding Frauds outstanding and progress report in
fraud related cases.
Lock in period for Margin/Subsidy under PMEGP is 3 years.
Green shoe option: Where the underwriter sells the shares more than the original determined by
the issuer. In simple terms it refers to Over allotment option. It provides additional price stability
Limitation period for Term deposits which has already got matured- 3 years from the date of
demand.
If the maturity date of Certificate of Deposit happens to be holiday, it should be paid on immediate
preceding working day.
Presentment of forged DD- Paying banker has to lodge complaint.
Syndication of loan- J V SHETTY Committee.
Only lawfully appointed guardian can give nomination for a Minor Account
Hypothecation-Sarfaesi act-Sec 2(n) Charge on movable property
Under CTS, only alteration in date of a cheque is permitted.
Validity of cheque will be computed monthwise. For example date of cheque is 10/03/2014. It will
expire on 09/06/2014.
TDS certificate will be downloaded from Traces portal.
3 pillar concept is applicable to Basel 2 & Basel 3.
Interest rate on FCNR should not exceed –LIBOR/SWAP 200 basis points( Maturity 1 to 3 years) and
300 basis points(3 to 5 years)
Excess money supply leads to –Inflation.
Digits in IFSC- 11
Deposits received invested in Govt securities- Narrow banking
Mixed farming: Cultivation and allied activities.
Organic farming: Crop rotation, Green Manure, Compst and Biological Pest control
Blue revolution-Acuaculture.
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Resident returning from India need not surrender any currency on arrival-Only CDF to be given
(Currency-$5000,TC-$ 10000).
Export bill O/S reversed by debiting account- Crystallisation
Period for loan to farmers against ware house receipts- 12 months.
XOS statement- June to Dec.
Difference between DPG and TL- Outlay of funds.
Borrower died-Role of Guarantor- To pay amount.
Preservation of records- 10 years.
ATM card can be issued to- Illiterates, Minor, Joint account holders
Rabi season- OCT to MARCH, Kharif season- JULY to OCTOBER.
Housing loan under DRI- 20000.
Scale of Finance decided by- SLBC.
Training cost for PEMGP borne by Ministry of MSE.
Cheque discounted by bank-Bank becomes holder for value.
Loan to women beneficiaries to be classified as weaker section under priority-Rs 50000.
Studies in India under Education loan more than 10 lacs- Non priority.
Rearing of honey bee- Apiculture.
Gold/Gems dealer- High risk accounts.
Bank loans to Govt agencies for constructing dwelling units under priority sector-Rs 10.00 lacs.
FATF- Financial action task force.
Long term assets procured from short term liability- Liquidity risk.
Non functioning of computers- Operational risk.
Medium term loan- 36 to 84 months.
Rule in claytons case- Bankers right- Right of set off.
Hindi meeting report to RBI-Quarterly.
Members in Asian clearing union- 9
Periodicity of customer meet- Monthly.
Loan to dealers of poultry feed, cattle feed under Indirect agri- Upto Rs 5.00 crores
PAN not given-TDS will be- 20%.
Selling rate of foreign currency is higher than TC- Holding cost of currency is high.
Sale of NPA- The accounts will remain as a PA in the books of purchasing bank for 90 days.
Which one is not a material alteration- Converting bearer into order.
Cheque dishonour- Payee should give notice within 30 days.
Validity of cheque-As per RBI guidelines.
Working capital cycle as per nayak committee- 3 months.
NRLM loan without security-Rs 10.00 lacs
Cheque to a customer will be stopped if cheques returned in his account for 4 times.
No of digits in Aadhar- 12
Maximum withdrawal per month in BSBDA- Rs 10000(4 withdrawal)
Unspent foreign currencies to be returned within 180 days.
Parri passu charge: Security will be shared in the ratio of outstanding amount in banks.
ALCO-ASSET LIABILITY COMMITTEE-Decides pricing of both deposits and advances.
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www.jaiibcaiibmocktest.com, www.bankpromotionexams.com, www.onlyforbankers.in
murugan0501@gmail.com, admin@jaiibcaiibmocktest.com, 09994452442
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Facebook Groups -
JAIIB CAIIB STUDY MATERIALS / CAIIB DISCUSSION
BANK PROMOTION EXAMS / ONLY FOR BANKERS
murugan0501@gmail.com, admin@jaiibcaiibmocktest.com, 09994452442
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Deposit Products
Retail Schemes / MSME Schemes
Agriculture & Rural Development/ Corporate Credit
Various Policies : Retail Lending Policy/Customer Grievances Redressal Policy/MSME Policy/
Loan Policy/Monitoring Policy/Valuation Policy/Recovery Policy
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…………………………………………………………………………………………………………………………………………………………………
www.jaiibcaiibmocktest.com, www.bankpromotionexams.com, www.onlyforbankers.in
murugan0501@gmail.com, admin@jaiibcaiibmocktest.com, 09994452442
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JAIIB CAIIB STUDY MATERIALS / CAIIB DISCUSSION
BANK PROMOTION EXAMS / ONLY FOR BANKERS
murugan0501@gmail.com, admin@jaiibcaiibmocktest.com, 09994452442
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Though we had taken enough care to go through the notes provided here, we shall not be
responsible for any loss or damage, resulting from any action taken on the basis of the contents.
We request everyone to go through the RBI / individual bank’s website and other internal
circulars and update yourself with the latest information through RBI website and other
authenticated sources. In case you find any incorrect/doubtful information, kindly update us
also (along with the source link/reference for the correct information).