Retail Banking Pre-paid payment instruments (PPIs) are payment instruments

Retail Banking

Pre-paid payment instruments (PPIs) are payment instruments

to purchase of goods and services & funds transfer, against the value stored on such instruments. The value represents the value paid for by the holders by cash, by debit to a bank account, or by credit card. The PPI can be issued as smart cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts,mobile wallets, paper vouchers and any such instrument which can be used to access the pre-paid amount.

The PPIs that can be issued are classified under 3 categories.

1. Closed System Instruments: These are issued by a person

to facilitate purchase from him and not for cash withdrawal or redemption. These are not classified as payment systems.

2. Semi-Closed System Instruments: These can be used

for purchase, at a group of identified merchant establishments having a specific contract with the issuer to accept the instruments. These do not permit cash withdrawal or redemption.

3. Open System Payment Instruments: These can be used

for purchase, including financial services like funds transfer at any card accepting merchant locations (point of sale terminals) and also permit cash withdrawal at ATMs / BCs.

Eligibility to issue PPI:

Banks that comply with the eligibility criteria can issue all categories of PPIs. NBFCs and other persons can issue only closed and semi-closed system PPIs, including mobile phone based PPIs.

Capital Requirements

Banks and Non-Banking Financial Companies (incorporated in

India) should comply with Capital Adequacy requirements of RBI.

Other persons shall have a minimum paid-up capital of Rs. 500 lakh and min positive net worth of Rs. 100 lakh at all the times.

Categories of Pre-paid Payment Instruments

1. The maximum value of any pre-paid payment instruments shall not exceed Rs 50,000, unless specific limit is prescribed.

2. The following semi closed PPIs can be issued on carrying out Customer Due Diligence:

i. upto Rs.10,000/- by accepting minimum details of the customer

provided outstanding amount or credit in a month does not exceed

Rs. 10,000/- (only in electronic form)

ii. from Rs.10,001/- to Rs.50,000/- by accepting any ‘officially valid document’ as per PML Rules 2005 (only in electronic form and should be non-reloadable)

iii. upto Rs.1,00,000/- with full KYC and can be reloadable in nature.

Open PPI after full KYC, can be issued by banks in addition to semi closed PPIs.

Conditions for issue of Prepaid Gift instrument :

a. The maximum validity shall be 3 years and maximum value shall not exceed Rs. 50,000/-.

b. These shall not be re loadable and cash withdrawal shall not be permitted.

c. Full KYC of the purchasers and beneficiary of such instruments shall be maintained.

Conditions for issue of PPI by banks to Govt. Agencies for onward issuance to beneficiaries of Govt. schemes:

a. Verification of the identity of the beneficiaries shall be by Government Organizations.

b. The maximum value of each such payment instrument shall not exceed Rs. 50,000/-.

Conditions for issue of PPI by banks to other Financial Institutions for credit of onetime/ periodic payments by these organizations to their customers:

a. These instruments shall be loaded / reloaded only by debit to a bank account.

b. The maximum value of such payment instrument shall not exceed Rs. 50,000/-.

Conditions for issue of PPI by banks for credit of cross border inward remittance.

a. Banks can issue PPI to principal agents approved under Money Transfer Service Scheme (MTSS) or directly to the beneficiary.

b. The card shall be loaded only with the remittance proceeds received under the MTSS guidelines.

c. Maximum value of such instrument shall not exceed Rs. 50,000.

d. Splitting of single credits among different modes of payment shall not be permitted. Any amount received in excess of Rs.50,000 under MTSS should be paid by credit to a bank account.

Conditions for issue of PPI by banks to Corporates for

onward issuance to their employees:

a. Prepaid payment instruments can be issued only to corporate entities listed in any of the stock exchanges in India.

b. These prepaid payment instruments shall be loaded / reloaded only by debit to the bank account.

c. The maximum value outstanding on individual prepaid payment instruments at any point of time shall not exceed Rs. 50,000/-.

Conditions for issue of multiple PPIs by banks from fully-KYC compliant bank accounts for dependents / family members:

a. Only one card can be issued to one beneficiary.

b. The transaction and monthly limits as applicable for cash payout arrangements under DMT guidelines (currently Rs 10,000 per transaction with a monthly ceiling of Rs 25,000) will be applicable.

Conditions for Rupee denominated PPIs for visiting

foreign nationals and NRIs :

a. The cards can be issued by overseas branches of banks in India upto a maximum amount of Rs.2 lakhs by loading from a KYC compliant bank account.

b. PPIs should be activated only after traveller arrives in India.

c. Monthly cash withdrawal will be restricted to Rs 50,000.

Conditions for PPI for Mass Transit Systems (PPI-MTS)

1. The PPI-MTS will contain the Automated Fare Collection

application related to the transit service to qualify as PPI-MTS;

2. The minimum validity will be six months from the date of issue;

3. The PPI-MTS may be re loadable in nature and at no point of time the value / balance in PPI can exceed the limit of Rs. 2,000.

Validity

1. All PPIs issued shall have a minimum validity period of six months

from the date of activation/issuance to the holder.

2. PPI issuers shall caution the PPI holder at reasonable intervals, during the 30 days’ period prior to expiry of validity period of PPI, before forfeiting outstanding balances in the PPI, if any.

Transactions Limits

1. There is no separate limit on purchase, using PPIs.

2. In the case of open system PPIs issued by banks in India, cash withdrawal at POS can be up to a limit of Rs.1000 per day subject to the same conditions as applicable to debit cards (for cash withdrawal at POS).

Retail Banking-Case study

Retail Banking-Case study
Ms.A owned a land of area 600 square meter. She went to XYZ bank for loan against this property on which she wanted to construct a building with total built up area of 300 squere meter the bank manager said that she is eligible for loan for 60 of the value of the usable FSL.

01. the rate of land cost is Rs. 5000 per squre meter and if the permissible FSI is 1, then the cost of FS( floor space index) is?
a. 1500000*
b. 3000000
c. 1200000
d. 9000000

Cost of SFI=Built up Area*Rate of land cost
=300*5000
1500000

02. If the desire rate of return is 10% and the rate of construction is Rs. 7000 per square meter.Then the annual desired yield on investment is
a. 360000*
b. 325000
c. 326000
d. 327000

Solution
Cost of construction=Built up Area*Cost of construction
=300*7000=2100000
Cost of SFI=Built up Area*Rate of land cost
=300*5000=1500000
Total Cost=Cost of constructions +Cost of SFI
2100000+1500000=3600000
Desired Yield=Total cost*Rate of Return
=3600000*1/100= 360000

Retail Mutual funds

Retail Banking

MUTUAL FUND - CONCEPT, STRUCTURE AND TYPES

Mutual Fund is an investment plan wherein MF pools investors money to invest in pre-determined goals for capital appreciation.

Benefits of Mutual Funds:

✅· It's safe

✅· No need to stay updated with market movements

✅· Experts manages the investments

✅· Tax saving under section 80(c)

✅· Investors can invest in any investment option.

➡Structure of a Mutual Fund:

i) Sponsor (Promoter)

ii)Trustees

iii) Asset Management Company

iv) Custodian

v) R & T Agent

vi) Distributors

i) Sponsor:

➡Sponsor is the promoter of mutual fund and get MF registered with SEBI. Sponsor forms a trust and appoints board of trustees.

➡Pre-requisites of a sponsor:

✅· Minimum 40% shareholding in AMC (Asset Management Company)

✅· Must have positive net worth in last 5 years

✅· Should be in financial services sector during past years from the date of registration

➡ii) Trust:

Trust is the owner of mutual fund. It protects the investors money. Trust acts as a watchdog and keeps an eye on investors money. There should be at least 4 trustees and 2/3 of the trustees should be independent. Trust signs trust deed with Sponsor

➡iii) Asset Management Company:

ASM pools and invests investor money in pre-stated objective for capital appreciation. In India AMC should be a private limited company. Net worth should be at least 10cr at all times At least 50% directors should be independent.

➡iv) Custodian:

Custodian is appointed by Trust and it has the custody of assets of Mutual Fund. Sponsor and custodian can never be same Custodian should be registered with SEBI.

➡v) Registrar and Transfer agents (RTA):

Maintains investors records and handles investors documents.

It's not compulsory to appoint an RTA.

Broad Categories of Mutual Funds Open Ended Funds

These funds have no fixed corpus and period. Such fund continuously offer units for sale and is ready to buy back the units surrendered.

In other words, investors are free to buy from, or sell to, the trust any number of units at any point of time at prices which are linked to the net asset value (NAV) of the units.

➡Close Ended Funds:

In case of these funds, subscriptions from the investors are collected during a specified time period and have a fixed corpus. Not a cannot redeem their units till the specified maturity date. However, to provide liquidity these are listed on the stock exchange and the investors can purchase and sell through the brokers at the market price without any difficulty. It may be noted that Unit Trust of India was the first mutual fund started in India as early as 1964. Later, LIC, GIC and some nationalised banks also launched their mutual funds with high degree of success. However, during post liberalisation era, many private sector mutual funds have entered the fray. To mention a few. these are: Birla Sun life, HDFC, HSBC, ICICI prudential, DSP Merrill Lynch, DBS chola mutual Fund.

Major Types of Funds:

➡1) Equity Funds:

Equity Funds are considered to be the more risky funds as compared to other fund types, but they also provide higher returns than other funds. It is advisable that an investor looking to invest in an equity fund should invest for long term i.e. for 3 years or more. There are different types of Equity funds each falling into different risk bracket.

➡2) Debt/Income Funds :

Funds that invest in medium to long -term debt instruments issued by private companies, banks , financial institution, government and other entities belonging to various sector ( like infrastructure companies etc.) are known as Debt /Income Funds. Debt funds are low risk profile funds that seek to generate fixed current income (and not capital appreciation) to investors. In order to ensure regular income to investors, Debt (or income) funds distribute large fraction of their surplus to investors. Although debt securities are generally less risky than equates, they are subject to credit risk (risk to default) by the issuer at the time or interest or principal payment. To minimize the risk of default, debt funds usually invest in securities from issuers who are rated by credit rating agencies and are considered to be of "Investment Grade ". Debt funds that target high return are more risky.

➡3) Gilt Funds:

Also known as Government Securities in India, Gilt Funds invest in government papers (named dated securities) having medium to long term maturity period, issued by the Government of India , these investments have little credit risk (risk of default) and provide safety of principal to the investors

. However, like all debt funds, gilt funds too are exposed to interest rate risk. Interest rates and prices of debt securities are inversely related and any change in the interest rates results in a change in the NAV of debt/ gilt funds in an opposite direction.

➡4) Money Market/Liquid Funds:

Money market /liquid funds invest in short -term (maturing within one year) interest bearing debt instrument. These securities are highly liquid and provide safety of investment, thus making investment option when compared with other mutual /liquid funds are exposed to the interest rate risk. The typical investment option for liquid funds include Treasury Bills (issued by government), commercial papers (issued by companies) and certificates of deposit (issued by banks).

➡5) Hybrid Funds:

As the name suggests, hybrid funds are those funds whose portfolio includes a blend of equities, debts and money market securities. Hybrid funds have an equal proportion of debt and equity in their portfolio.

➡6) Commodity Funds:

Those funds that focus on investing in different commodities (like metals, food grains. crude oil etc.) or commodity companies or commodity futures commodity are termed as commodity funds. A commodity fund that invests in a single commodity or a group of commodities is a specialized commodity fund and a commodity fund that invests in all available commodities is a diversified commodity fund and bears less risk than a specialized commodity fund. “Precious Metals Fund” and Gold Funds (that invest in gold, gold futures or shares of gold mines) are common example of commodity funds.

➡7) Real Estate Funds:

Funds that invest directly in real estate or lend to real estate developers or invest in shares /securitized assets of housing finance companies, are known as specialized Real Estate funds. The objective of these funds may be generate regular income or investors or capital appreciation.

➡8) Exchange Traded Funds (ETF):

Exchange traded funds provided investors with combined benefits of a closed -end and an open -end mutual fund. Exchange traded funds follow stock market indices and are traded on stock exchange like a single stock at index linked prices. The biggest advantage offered by these funds is that they offer diversification, flexibility of holding a single share (tradable at index linked prices) at the same time. Recently introduced in India, these funds are quite popular abroad.

➡9) Fund of funds:

Mutual funds that do not invest in financial or physical, but do invest in other mutual fund schemes offered by different AMCs, are known as fund of funds. Fund of Funds maintain a portfolio comprising of units of other mutual fund scheme, just like conventional mutual funds maintain a portfolio comprising of equity /debt money market instrument or non-financial assets. Fund of Funds provide investor with an added advantage of diversifying into different mutual fund schemes with even a small amount of investment, which further helps in diversifying of risks. However, the expenses of fund of funds are quite high on account of compounding expenses of investments into different mutual fund schemes

GKD*

Retail Banking- Bharat Bill Payment System (BBPS)

Bharat Bill Payment System (BBPS) is an integrated bill payment system in India offering inter operable and accessible bill payment service to customers through a network of agents, enabling multiple payment modes, and providing instant confirmation of payment.

Features of Bharath Bill Payment System:

✅Accessibility : BBPS will provide seamless facility of bill payments through multiple channels which includes Agent assisted model at any Agent/Bank Branch/BC Outlet/Online Channels.

✅Brand Connect :

BBPS will have single and trusted brand connect and BBPS’ assurance.

✅Clearing & Settlement :

Will facilitate multiple clearing and guaranteed settlements between multiple parties with standardized turnaround time.

✅Complaint Management :

BBPS will have standardized complaints management system for the resolution of customer grievances for both ON-US and OFF-US transactions. (‘On Us‘ Transactions, means that the bank that issue your card is the same as the one which owns the ATM or POS terminals on which you made the transaction.)

✅Dispute Management :

It will allow BBPOUs to raise and resolve disputes related to the transactions that have passed through the BBPS.

✅Integration :

BBPOUs will be required to connect only to BBPCU to access all the billers. Billers will be required to connect to only one BBPOU for enabling the customers to pay bills.

✅Interoperability :

BBPS will have an integrated platform connecting Non-banking and Banking entities with billers, retail bill outlets and payment service providers for facilitating bill payment services to the customers.

✅Uniform Standard :

The participants in the BBPS will have to maintain a uniform set of standard and procedures to enable smooth operations for BBPS.

Bharat Bill Payment System (BBPS) Benefits:

✅It will offer the facility of “Anytime Anywhere” bill payment to the customers through a network of agents.

✅It will provide an accessible bill payment system to the large segments of un-banked and under-banked population.

✅With the feature of interoperability, customers will be able to pay bills of multiple billers at a single point and make payments through multiple modes i.e. Debit card, Cash, Credit card, via electronic payment options such as NEFT, Net Banking, IMPS etc, and prepaid payment instruments that

includes wallets.

✅Service points are expected to become omnipresent providing easy access to the customers for bill payments irrespective of their geographical location.

✅It will enable the customers to pay bills of the billers who enrolled in the BBPS at any BBPS outlet. BBPS outlet will include Business correspondents, bank branches, customer service points, ATMs, retail agents of aggregators, Kiosks, etc.

✅It will facilitate instant confirmation of payment through a payment receipt or a confirmation message. The receipt will be in the form of email/SMS/print out as desired by the customer.

✅It will assure trust and confidence among the customers in terms of reliability, certainty and safety of the transaction.

CAIIB RETAIL IMP

Retail Banking- Deduction of Interest on Housing Loan – Sec 24b

Applicable for financial year 2015-16 and 2016-17

Section 24 of the income tax act provides deduction in respect of home loan interest.

Important points

1) Interest on housing loan is allowable as deduction on accrual basis not on paid basis (even if account books are kept on cash basis) if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property. Deduction can be claimed for two or more housing loans.

2)Interest includes service fees, brokerage, commission, prepayment charges etc.

3)Interest/penalty on unpaid interest shall not be allowed as deduction.

4)Deduction shall be allowed irrespective of the nature of loan whether it is housing loan or personal loan from any person/institution.

5) If a person instead of raising a loan from a third party pays sale price to the seller in instalments along with interest than such interest is also allowable.

6) Interest on borrowed money which is payable outside India shall not be allowed as deduction under section 24(b), unless the tax on the same has been paid or deducted at source and in respect of which there is no person in India, who may be treated as an agent of the recipient for such purpose.

7) For claiming deduction under this section, assessee must be the owner or deemed owner of the house property and loan shall be in the assessee name.

Maximum Limit of deduction under section 24b

These limits of deduction is applicable assessee wise and not property wise. Therefore if an assessee owns two or more house property then the total deduction for that assessee remain same.

1) In Let Out Property/Deemed to be Let Out – No maximum limit

2) Self Occupied House (SOP) – Rs. 2,00,000. (1,50,000 for A.y 2014-15 and before)

In the following cases the above limit of Rs 2,00,000 for SOP shall be reduced to Rs. 30,000

– Loan borrowed before 01-04-1999 for any purpose related to house property.

– Loan borrowed after 01-04-1999 for any purpose other than construction or acquisition.

– If construction/acquisition is not completed within 5 years from the end of the financial year (3 years till financial year 2015-16) in which capital was borrowed. For example, a loan is obtained for construction/acquisition on 28 Oct 2011 then the deduction limit should reduced to Rs 30,000 if the construction / acquisition completes after 31 March 2017.

Interest for pre construction/acquisition period Interest for pre construction/acquisition period is allowable in 5 equal instalment beginning from the year of completion of house property. This deduction is not allowable if the loan is utilized for repairs, renewal or reconstruction.

Pre Construction/Acquisition period starts from the date of borrowing and ends on the last day of preceding Financial Year in which the construction is completed. For example, if house property is completed on 21st March 2012 then the deduction is allowed from Financial Year 2011-2012 to 2015-16.

Example

Loan Taken on 01-05-2006 of Rs. 5,00,000

Construction End on 07-09-2012.

Pre Construction/Acquisition Period = 01-05-2006 to 31-03-2012

Pre Construction/Acquisition Interest = Rs 3,55,000 ( Rs 5,00,000*71 Months*1%)

Pre Construction/Acquisition Interest Deduction for Financial Year 2012-13 to 2016-17 assuming let out property or deemed to be let out = Rs 71,000 per year ( 3,55,000/5 )

Pre Construction/Acquisition Interest Deduction for Financial Year 2012-13 to 2016-17 assuming SOP = Rs 71,000 per year ( 355000/5 ) (as the construction is completed within 5 years from the end of the financial year in which capital was borrowed)

Interest from 01-04-2012 to 31-03-2013 shall be allowed as deduction in 2012-13 as current year’s interest. Interest from 01-04-2012 to 07-09-2012 shall not be considered as Pre Acquisition/Construction Period.

Note: – If a property is partly SOP and partly let out then also the limit of Rs 2,00,000/30,000 shall be available for SOP portion and there is no limit of deduction for let out portion even if the construction is completed after 3 years.