Interest Rate Risk Management

There is complete deregulation of Interest rates on Fixed Deposits, Recurring Deposits, and SB
Deposits above Rs. 1.00 lac. Banks are also free to determine Interest rates on NRE Deposit
accounts. This has led to interest rate Volatility resulting into greater Interest Rate Risk.
Adverse movement of Interest rates has direct impact on NII as well as NIM. Market Interest
rate also has impact on Present Value of Bonds and Securities. 1% rise in market rate of return
will cause lesser valuation of securities. Also 1% fall in interest rate will cause higher valuation
of securities resulting into increase in Mark to Market Price.
Types of Interest Rate Risk
Following are various types of Interest Rate Risk:
1. Mismatch or Gap Risk
This is risk of gap between maturities of Assets and Liabilities. Sometimes, Long term
loans are funded by short term deposits. After maturity of deposits, these liabilities are
get repriced and Gap of Interest rates between Assets and Liabilities may become
narrowed thereby leading to reduction of profits.
2. Basis Risk
Change of Interest rates on Assets and Liabilities may change in different magnitudes
thus creating variation in Net Interest Income. It tries to explain what will be the %age
effect on Earnings due to increase or decrease in interest rates by 1bps.
3. Net Interest Position Risk
If the bank has more assets than the liabilities, 1% decrease in interest rate will result
into less earnings and more expenditure on account of interest. This will directly affect
NII and NIM.
4. Embedded Option Risk
Adverse movement of Interest Rate may result into pre-payment of CC/DL and TL. It
may also result into pre-mature withdrawal of TDs/RDs. This will also result into reduced
NII. This is called Embedded Risk.
5. Yield Curve Risk
Yield is Internal Rate of Return on Securities. Higher Interest Rate scenario will reduce
Yield and thereby reduction in the value of assets. Adverse movement of yield will
certainly affect NII (Net Interest Income).
6. Price Risk
In financial market, when assets are sold before maturity in order to meet liquidity
requirements, loss may occur due to lower selling price.
7. Re-investment Risk
It is uncertainty with regard to interest rate at which future cash flows could be reinvested.
Effects of Interest Rate Risk
Effect on Earnings.
Effect on Economic value of share
Embedded Losses

Liquidity Management

Banks are required to honour withdrawals from Deposits. Also the banks are supposed to
disburse loans in time. Liquidity is needed to meet both these requirements. In other words,
liquidity is the ability to accommodate decrease in liability as well as funding of increase in
assets.
Functions of Liquidity Management:
1. It defines market place of bank.
2. It enables banks to meet prior loan commitments.
3. It enables the banks to avoid unprofitable sale of assets.
4. It lowers size of default risk premium.
Liquidity Mismanage may lead to the following:
 It declines earnings.
 It increases NPAs.
 It results in downgrading of rating.
Factors affecting Liquidity
Liquidity is affected by the following:
1. Less profits leads to less liquidity
2. Rise in NPAs means less liquidity
3. Deposit concentration in Term Deposits may lead to less liquidity
4. More taxes means less liquidity.
Types of Liquidity Risks
1. Funding Risk: Decrease in deposits due of bad reputation or loss of confidence.
2. Time Risk:Instalments of loan are not forthcoming in time.
3. Call Risk: Non-fund based credit facilities converted into Fund based. Crystallization of
Contingent liabilities like LC/LG turning into Fund Based Loans.
4. Embedded Risk: Adverse movement of Interest Rate may result into pre-payment of
CC/DL and TL. It may also result into pre-mature withdrawal of TDs/RDs. This will also
result into reduced NII. This is called Embedded Risk.
How to manage Liquidity Risk?
1. Developing an organizational structure.
2. Setting of Tolerance level limits.
 Limit of cash flow mismatches for tomorrow, next week, next month or next year.
 Limit of Loan to Deposit Ratio
 Limit of Loan to Capital ratio.
Mismatch level in 1-14 days bucket and 15-88 days bucket should remain about 80% of cash
flow in the particular period. To manage liquidity and remain solvent by maintaining short term
gap up to 1 year should be around 15% .
Measurement of Liquidity Risks: Liquidity Risk can be measured in any of the two ways:
1. Stock Approach
2. Flow Approach

Provisioning related numericals

 Provisioning related numericals
Ex. 1
Account with Outstanding of Rs. 10.00 lac became Out of order on 22.1.11 and it became NPA
on 22.4.2011. The Value of Security at later stage is Rs. 7.00 lac. Calculate Provision as on
31.3.12.
Solution
It is a Sub-Standard Asset as on 31.3.2012.
Provision is 1000000*15/100 = 150000/-
Ex. 2
A loan account with outstanding of Rs. 10.00 lac and Value of Security Rs. 6.00 lac was Substandard
as on 30.3.2008. What will be provision as on 31.3.2012?
Solution
The account will be Doubtful (DI) on 30.3.2009, D2 on 30.9.2010, D3 on 30.3.2012. Provision
will as under:
Secured portion = 6.00*100/100 = 6.00 lac
Un-secured portion = 4.00*100/100 = 4.00 lac
Total Provision = 6+4 = 10.00 lac.
Ex. 3
A loan became Doubtful on 12.2.2009. The outstanding is 6.00 lac. What will be provision on
31.3.2012.
Solution
The Account will be categorized as Doubtful (D3) as on 12.2.2012. Provision is 100% of 6.00 lac
= 6.00 lac

lac
97
Ex. 4
D2 category account has outstanding--10.00 lac, DI/SI ----2.00 lac, Value of security ---6.00 lac
Solution
Un- Secured portion = 10-2-6 = 2.00 lac Provision = 2.00 * 100/100 = 2.00 lac
Secured portion = 6.00 * 40/100 = 2.40 lac
Total provision = 2.00 + 2.40 = 4.40 lac
Ex. 5
D2 Category loan is having outstanding 4.00 lac, Value of Security 1.50 lac and ECGC cover
50%. Calculate provision as on 31.3.2012.
Solution
Unsecured portion = 50% of (O/s – VS) = 50% (4.00 – 1.50) = 1.25 lac
Secured portion = 1.50 lac
Provision on Unsecured portion = 1.25*100/100 = 1.25 lac
Provision on Secured portion = 1.50*40/100 = 0.60 lac
Total provision = 1.25 +0.60 = 1.85 lac.
Ex. 6
A D2 category loan is having outstanding Rs. 6.00 lac. The Collateral Security is Rs. 3.00 lac
and Primary Security is Rs. 2.00 lac. There is also Guarantee of Rs. 10.00 lac. Calculate
provision.
Solution
Unsecured portion = O/s – Primary Security – Collateral = 6.00 – 2.00 -3.00 = 1.00 lac
Secured portion = 2.00 + 3.00 = 5.00 lac.
Provision on Unsecured portion = 1.00 *100/100 = 1.00 lac
Provision on Secured portion = 5.00*40/100 = 2.00 lac
Total provision = 1.00 + 2.00 = 3.00 lac.
Ex. 7
Advance portfolio of a bank is as under:
Total advances = 40000 crore, Gross NPAs = 9%, Net NPAs = 2%
Find out 1) Total Provision 2) Provisioning Coverage Ratio
Solution
NPAs = Total Advances *9/100 = 40000*9/100 = 3600 crore
Standard Assets = 40000-3600 = 36400 crore
Provision on Standard Assets = 36400*0.40% = 145.60 crore
Provision on NPAs = 9% - 2% = 7% = 40000*7/100 = 2800 crore
1) Total provision = 145.60 + 2800 = 2945.60 crore
Gross NPAs = 40000*9/100 = 3600 crore
Net NPAs = 40000*2/100 = 800 crore
2) Provision Coverage Ratio = Provision on NPAs / Gross NPAs = 2800/3600 = 77%.
Ex. 7 Account becomes doubtful on 12th Feb 2008. The Balance is Rs. 6 lac. Value of security is
3 lac. What will be the provision on 31.3.2011?
Solution
 It is D3 Type of account.
 Therefore, provision will be 100% i.e. 6 lac = 6.00 lac Ans.

Ex. 8 NPA o/s : Rs. 10 lac including suspended interest/Derecognized interest Rs. 2 lac.
Security value is Rs. 6 lac. It became NPA on 25th Feb 2008. What would be the provision on
31.3.2011.
 It is D2 category account
 4.40 LAC (10-2-6= 2x100%= 2 lac + 40% on 6 lac ie 2.40 lac = 4.40 lac) D2
Ex. 9 A/c became NPA on 2nd January 2008. Balance o/s is 10 lac including Derecognized
interest Rs. 2 lac and ECGC cover of 50%. Value of security is 4 lac. What will be provision on
31.3.2009.
 It is D1 category account.
 10 lac – 2 lac, DI – 4 lac Sec. = 4 lac
 ECGC Cover: 4 lac x 50% = 2 lac
Provision on Unsecured portion
 Unsecured: 4 lac – 2 lac = 2 lac x100% = 2.00 lac
Provision on Secured portion
 Secured: 4 lac x 25% = 1.00 lac
 Total Provision: 2 + 1 = 3.00 lac

Today Forex for individual recollected questions

Forex for individual
LRS
CN BUYING NUMERICAL
TT BUY / SELLING DEF
INDO NEPAL REMITTANCE
CDF FORM
MTSS NO IN YR
NRE NOMINATION
NRO PERMIT DEBIT
RFC D ACCOUNT
EMIGRATION AMT LIMIT
LIBIYA 5000 USD
BILL BUYING NUMERIC
FEMA SCHED 3
KYC 4 SIMPLIFIED MEASURE

NOTE CARRYING PERMISSION TO BHUTAN
IMMOVABLE PROERTY CANNOT BE BUY BY WHOM
AGENT PAYMENT TO REAL ESTATE COMMISSION MAXIM
HOW NEPALI CAN INVEST IN INDIAN SHARE
FCRA PURPOSE

FCNR TO NRE NUMERIC
INT PAYMENT IN PREMATURE FCNR WITHDRAWAL
NOMINATION IN NRE
DIPLOMAT RESIDENT IN INDIA SINCE 3 YR WHICH ACCOUNT TO OPEN
EEFC FOR STARTUP
P and I club permission
CULUTURAL GROUP PERMISSION FROM WHICH MIISTRY
FORM A 2 PURPOSE
LOAN CONDITION TO NRI FROM CLOSE RELATIVE
WHO ARE CLOSE RELATIVE
FOREX WHEN TO BUY BEFORE TRAVELLING
SURRENDER TIME OF FOREX
HONARAIUM RCVED CAN BE DEPOSIT IN WHICH AC

Foreign exhange facilities for individuals

1. 7 exchange rate calculation numericals of 2 marks each.. mostly tt selling and buying rate for DD issue, nostro settelment, nre to fcnr b conversion
2. Approx 12 questions on nre, nro and EEFC account.. through knowledge is required.
3. Ad1 and ad2 category dealers
4.resident joint savings account with nri will be treated as ? And mode of operation will be ?

5. Transfer limit of funds in foreign currency for accompanying relative facing medical emergency per fy
6. Capital account and current account transactions
7. How much money can given to a consultant as commission for sale of property in india by an nri and outside india by a resident
8. Can nro/nre funds be used to purchase property in India ?
9.if nri/PIO s close relative dies in India then how much funds can he transfer from proceeds if sale of assets in India

10. When NRI becomes Indian resident what happens to his nro account ?

11. If an employee gets shares under ESOP outside India then after selling shares should he immediately transfer funds to india or not.

12. Is interest given for sat n sunday if renewal of fcnr deposit lies on sat/sun - 3 questions with variations if savings interest will be given or no interest will be given or full interest on maturity amount from date of maturity/renewal to be given.

Treasury and ALM

Treasury and ALM:
ALM refers to risk management to avoid mismanagement between Assets and Liabilities. The
risk of Liquidity and Interest rates, if not controlled may result into negative spread and can
cause loss to bank. Therefore ALM manages two risks : 1. Liquidity Risk & 2. Interest Rate Risk.
Liquidity Risk and Interest Rate Risk
We borrow from Money market and invest in 5 year G-securities. If Bond prices come down, we
are not willing to sell the bond, but loan has to be repaid. This may lead to shortage of funds
which is called Liquidity Risk.
Liquidity Risk is translated into Interest Rate Risk when funds have to be arranged at higher
rate. Mismatch between Assets and Liabilities also lead to Interest Rate Risk.
Role of ALM to mitigate Liquidity Risk
Liquidity Gap arises when there is difference between souses and uses of funds. RBI has
prescribed Time bands to measure Liquidity Gaps. These are
1-14 days.
14-29 days
1M – 3M
ALM measures the gap between Uses and Sources between above said Time bands.
RBI has also prescribed limits of maximum negative mismatch as under:
Next Day -------5%
2-7 Days------10%
8-14 Days—-15%
15-28 Days--20%
ALM takes steps to meet shortfall as a contingent measure at a reasonable rate.
Interest rate Gap leads to erosion of NII (Net Interest Income) due to difference between
earnings and payments.
ALM has the following role to play:
 Treasury establishes a link between Core banking and market operations to manage
risks.
 Treasury earns profits by managing funds out of mismatches.
 Treasury hedges residual risk in Forex market.
 Treasury monitors exchange rates and interest rate movements in the market.
Use of Derivatives in ALM
Derivatives are used to hedge high value individual transactions.
For Example: Medium Term Loan of 3 Years is funded by Deposit of 3M because 3M deposit is
cheaper and NII is increased.
 Bank may swap 3M interest rate into fixed rate into Fixed rate for 3 years.Bank may also
swap Fixed interest rate on loan into floating rate linked to T-bill rate. If 3M deposit rate
is T+1% and 3Year interest rate on loan is T+3%, there will be NII@2%.

 Bank may arbitrage Forex. It can buy USD funds at cheaper rate (say 3%) and invest in
rupee loan at 6.5%. The spread can be 3.5%
Risks of Derivatives: Derivatives are not free from risks. Tworisks involved in Derivatives are:
1. Residual risk i.e. basis risk.
2. Embedded Option Risk :There are embedded options in certain bank products. E.g. FD
is paid premature or TL is pre-paid. It affects the ALM policy if pre-mature payments are
large.
Treasury and Credit Risk
There are chances of failure on the part of counter party to meet its obligations especially when
Treasury deals in:
1. Debt Market products such as CPs, Bonds, Debentures etc.
2. Securitization of Credit Receivables – when credit receivables are converted into Units
or Bonds which are called PTCs ( Pass-through certificate).
3. SPV –Special Purpose Vehicle enables the banks to securitize the Mortgage loans
Credit Derivatives
1. Credit Default Swaps
2. Total Returns Swap
3. Credit Linked Notes
Transfer Pricing
It is important function of ALM. It relates to:
 Fixing cost of recourses and return on Assets.
 ALM notionally buys and sells deposits and loans of the bank.
 Price is paid for buying deposits and price is received for selling loans. This is called
Transfer Pricing.
 The prices vary according to the tenure or maturity of deposits and loans.
 Deposits are bought by Treasury at a rate arrived at by adjusting hedging cost from rate
of deposit. If bank accepts deposits%7% and cost of hedging is 1%, the deposits will be
bought by Treasury @6%.
 Loans are sold to Treasury at transfer cost. For example, 10% loan may be notionally
sold to Treasury @7%. The balance is denoted as Risk premium.
 Treasury Division, after implementing the Transfer Pricing takes care of Liquidity Risk
and Interest rate risk.

Derivative Products Treasury management

Derivative Products Treasury management
Derivative Products
Derivatives don’t have independent value. Their value is derived from the underlying market.
The market may be financial market dealing in forex, bonds and equities as well as commodity
market dealing with underlying commodities like Gold, Silver etc.
Derivatives refer to Future Price based on Spot Market. Two types of Products are as under:
1. OTC Products
These are Over The Counter products which include Forward Contracts and Options.
These are offered by FIs. These derivatives offer contracts with date, amount of terms
fixed as per requirement of the client. Price is quoted by banks/FIs after adding margin.
Settlement is made by physical delivery. Counterparty Risk is always present.
2. Exchange Traded products
These include Futures traded on organized exchanges. Size of the contract is
standardized. Price is transparent. The exchanges collect margin based on Mark to
Market price. Physical delivery is not must. There is no counter party risk.
Types of Derivatives
1. Forward Contracts
2. Futures
3. Options
4. Interest Rate Swaps
5. Currency Swaps
Forward Contracts
It is a deal to buy or sell Shares, Commodity or Foreign Exchange at a contracted rate with
desired maturity. Forward rate is the interest rate differentiation of two currencies. If Interest
rate is high in a country, its currency will be cheaper.
Futures
It is Exchange traded product. The seller agrees to deliver a specified security, currency or
commodity on specified date at a fixed price. Currency Futures are traded in EURO, GBP, JPY,
CHF, AUD& CAD.
Forward Contract Futures
It is OTC (Over the Counter) Product It is Exchange traded product
It can be for any odd amount It is always for Standard amount
It can be for any Odd period It is always for Standard period
Delivery is essential Delivery is not must
Margin is not essential It is based on Margin requirement and
Marked to market

Types of Risks Risk mangement

Types of Risks
1. Liquidity Risk
It is inability to obtain funds at reasonable rates for meeting Cash flow obligations.
Liquidity Risk is of following types:
Funding Risk: It is risk of unanticipated withdrawals and non-renewal of FDs which
are raw material for Fund based facilities.
Time Risk: It is risk of non-receipt of expected inflows from loans in time due to
high rate NPAs which will create liquidity crisis.
Call Risk: It is risk of crystallization of contingent liabilities.
2. Interest Rate Risk
Risk of loss due to adverse movement of interest rates. Interest rate risk is of
following types:
Gap or Mismatch Risk: The risk of Gap between maturities of Assets and
Liabilities. Sometimes, Long term loans are funded by short term deposits. After
maturity of deposits, these liabilities are get repriced and Gap of Interest rates
between Assets and Liabilities may become narrowed thereby reduction of profits.
Basis Risks: Change of Interest rates on Assets and Liabilities may change in
different magnitudes thus creating variation in Net Interest Income.
Yield Curve Risk: Yield is Internal Rate of Return on Securities. Higher Interest
Rate scenario will reduce Yield and thereby reduction in the value of assets.
Adverse movement of yield will certainly affect NII (Net Interest Income).
Embedded Option Risk : Adverse movement of Interest Rate may result into prepayment
of CC/DL and TL. It may also result into pre-mature withdrawal of
TDs/RDs. This will also result into reduced NII. This is called Embedded Risk.
Re-investment Risk: It is uncertainty with regard to interest rate at which future
cash flows could be re-invested.

EXIM BANK

Exim Bank – its
functions
Exim Bank (Export/Import Bank) was established in 1981 with the objective
of financing Import Export Trade especially on Long term basis. The
functions of Exim bank are as under:
 Offering Finance for Exports at competitive rates.
 Developing alternate financial solution
 Data and Information about new export opportunities.
 Respond to export problems and pursue Policy solutions.
The finance activities of Exim bank consist of :
1. Arranging Suppliers‟ credit and Buyers‟ credit
2. Consultancy and Technical services for exporters
3. Pre-shipment credit – over 6 months
4. Setting up of EOU in EPZ (Export Processing Zones)
5. Finance for DTA (Domestic Tariff Area) units exporting minimum
25% of annual sales.
6. Finance for Import of Computer System and Development of
Software. Plant and Machinery and Technical up-gradations etc.
7. Services for Overseas Investments.
8. Line of Credit to exporters on the basis of which they receive export
orders.
EXIM Bank performs following functions for Commercial Banks:
 Export Bills Rediscounting – Usance period should not exceed 180
days.
 SSI Export Bills Rediscounting.
 Refinance of Export credit
 Refinance of TL to EOU, Software Capital goods up to 100%
 Participates with banks in Issuance of Guarantees.
Besides above, the EXIM bank arranges Relending facilities for Overseas
Banks, sanctions direct credit to foreign importers and arranges line of
credit for foreign importers.
DPG (Deferred
Payment
Guarantees
It is normally beyond 6M and meant for SHE (Status Holder Exporters)
only.
Banks can approve proposals up to 25 crore.
Above 25 crore up to 100 crore are referred to EXIM bank.
Above 100 crore proposals will be considered by Inter institutional Working
Group consisting of members from RBI, FEDAI, ECGC and EXIM.
Other services
of EXIM bank
Besides above, the EXIM bank provides assistance for :
1. Project Exports – export of Engineering goods on Deferred Payment
terms
2. Turnkey Projects- supply of equipment along with related services
like design, detailed engineering etc.
3. Construction Projects
4. Funded facilities.
EXIM Bank is nodal agency designated by GOI to manage Export
Marketing Fund (EMF) which consists of loan made available to India by
World bank to promote International Trade.

FOREIGN TRADE RISKS AND ECGC

Risks in
International
Trade
Foreign trade risk may be defined as Uncertainty or Unplanned events with
financial consequences resulting into loss. Types of Risks are as under:
1. Buyers‟ Risk: Non-Acceptance or non-payment
2. Sellers‟ Risk: Non- shipping or Shipping of poor quality goods or
delay.
3. Shipping Risk: Mishandling, Goods siphoned off, Strike by potters or
wrong delivery.
4. Other Risks:
- Credit Risk
- Legal Risk
- Country Risk
- Operational Risk
- Exchange Risk
5. Country Risk
Provision of risk is made if Exposure to one country is 1% or more of total
assets. ECGC has the list of Country Risk Ratings which can be referred to
by the Banks and the banks can make their own country risk policy.
Risk
Classification
of Countries
Export Credit and Guarantee Corporation provides guarantee cover for risks
which can be availed by the banks after making payment of Premium.
ECGC adopts 7 fold classification covering 204 countries. The list is updated
and published on quarterly basis. The latest classification is as under:
1. Insignificant Risks A1
2. Low Risk A2
3. Moderately Low Risk B1
4. Moderate Risk B2
5. Moderately High Risk C1
6. High Risk C2
7. Very High Risk D
Besides above, 20 countries have been placed in “Restricted Cover
Group-1” where revolving limits are approved by ECGC and these are valid
for 1 year.
The other 13 countries are placed in “Restricted Cover Group-2” where
specific approval is given on case to case basis by ECGC.


ECGC _ Export
Credit and
Guarantee
Corporation
ECGC was established in 1964. Export Credit and Guarantee Corporation
provides guarantee cover for risks which can be availed by the banks after
making payment of Premium. Its activities are governed by IRDA.
The functions of ECGC are 3 fold:
1. It rates the different countries.
2. It issues Insurance Policies.
3. It guarantees proceeds of Exports.
Types of Policies:
1. Standard Policies
It provides cover for exporters for short term exports. These cover
Commercial and Political Risks. The different types of Policies are:
- Shipment (Comprehensive Risk) Policy – to cover
commercial and political risks from date of shipment. Default
of 4 months.
- Shipment (Political Risks) Policy.
- Contracts (Comprehensive Risk) Policy for both commercial
and Political risks.
- Contracts (Political Risks) Policy
2. Small Exporters’ policy
A small exporter is defined whose anticipated total export turnover
for the period of 12 M is not more than 50 lac. The policy is issued
to cover shipments 24 M ahead.
The policy provides cover against Commercial risks and Political
risks covering insolvency of the buyer , failure of the borrower to
make payment due within 2 months from due date, borrower‟s failure
to accept the goods due to no fault of exporter.
3. Specific Shipment Policy
Commercial risks – Failure to pay within 4M. It covers short term
credit not exceeding 180 days.
4. Exports Specific Buyer Policy
Commercial risks – Failure to pay within 4M and Political Risks
The other Policies are Exports (specific buyers‟ Policy), Buyers‟ Exposure
Policy, Export Turnover Policy (exporters who pay minimum 10 lac premium
to ECGC are eligible) and Consignment export Policy.
Financial
Guarantees
ECGC issues following types of Guarantees for the benefit of Exporters:
Packing Credit Insurance
ECIB (WT-PC) – Exporters Credit Insurance for Banks (whole Turnover
Packing Credit)
This policy is issued to banks to guarantee export risks:
- For all exporters
- Minimum 25 accounts should be there.
- Minimum assured premium is Rs. 5.00 lac.
- Period of cover is 12M.
- The claim is payable if there is default of 4 Months.
- Premium for fresh covers is 8 paisa per month and for others is 6-9.5
paisa percent per month. It is calculated on average outstanding.
- Percentage of cover ranges from 50-75%
- If due date of export proceeds is extended beyond 360 days,
approval of ECGC is required.
- Claim is to be filed within 6M of report of default to ECGC.

IMPORTS

Imports – Prerequisites
AD1 banks are to ensure that Imports are in accordance with:
 Exim Policy
 RBI Guidelines
 FEMA Rules
 Goods are as per OGL (Open General list).
 Importer is having IEC (Import Export Code) issued by DGFT.
Imports
Formalities &
Time limit for
import payment
The following are essential elements of Imports:
1. An importer before remitting proceeds exceeding USD 5000 must
submit application on Form A-1 to the Authorized Dealer.
2. AD banks can issue LC on the basis of License and Exchange
Control Copy.
Remittance against exports should be completed within 6 months from
date of shipment.
 Any delay beyond 6 months will be treated as Deferred
Payment arrangement and the same will be treated as
Trade Credit up to the period less than 3 years.

Pre-shipment & Post-shipment Finance

Pre-shipment & Post-shipment Finance
Q. 1
Received order of USD 50000(CIF) to Australia on 1.1.11 when USD/INR Bill Buying Rate is
43.50. How much pre-shipment finance will be released considering profit margin of 10% and
Insurance and freight cost@ 12%. Contribution from borrower is 25%.
Solution
FOB Value = CIF – Insurance and Freight – Profit (Calculation at Bill Buying Rate on 1.1.11)
= 50000X43.5 = 2175000 – 261000(12%) – 191400(10% of 1914000) = 1722600
Pre-shipment Finance = FOB value - 25% (Margin) = 1722600-430650=1291950.Ans.
Q. 2
What will be amount of Post-shipment Finance under Foreign Bill Purchased for USD 45000
when Bill Buying rate on 31.3.11 (date of submission of Export documents) is 43.85
Solution
45000X43.85 = 1973250 Ans.
Q. 3
Period for which concessional Rate of Interest is charged on DP bills from date of purchase.
Solution
25 days.Ans.
Q. 4 If the above said bill remains overdue for 2 months, what will be date of crystallization?
Due Date of Bill will be 31.3.11 + 25 days = 25.4.2011
The bill will be crystallized on 24.5.2011 i.e. on 30th day from due date. Ans.
Q. 5
On 8th Sep, an exporter tenders a demand bill for USD 100000 drawn on New York. The
USD/INR quote is as under:
Spot---------USD 1 =34.3000/3500
Spot Sep-------------------6000/7000
Spot Oct--------------------8000/9000
Spot Nov------------------10000/11000
Transit Period is 20 days and Exchange margin 0.15%
Calculate Rupee payable to the customer. Customer wants to retain 15% in Dollars
Interest @13% has to be charged on INR liability of the customer.
Solution
Since, the currency is at premium, the transit period will be rounded off to the lower month
(i.e. NIL). And the rate to the customer will be based on Spot Rate. If interest rate is 13%, how
much interest will be recovered from the Exporter
Spot Buying rate = 34.3000
Less Exchange Margin = 0.0515
34.2485 or 34.25 per dollar.
Amount in Indian Rupee = 85000(85% of 100000) x 34.25 = 2911250/-
Interest will be charged on 2911250/- @ 13% for 20 days = 20738/-.

Q. 6
On 26th Aug, an exporter tenders for purchase a bill payable 60 days from sight and drawn on
New York for USD 25650. The dollar rupee rate is as under:
Spot----------------------1USD = 34.6525/6850
Spot Sep--------------------------------1500/1400
Spot Oct---------------------------------2800/2700
Spot Nov--------------------------------4200/4100
Spot Dec--------------------------------5600/5500
Exchange Margin is 0.15%, Transit Period is 20 days. Rate of Interest is 13%. An amount of Rs.
500/- on account of Out of Pocket expenses has to be charged.
What will be the exchange rate payable to the customer and Rupee amount payable?
Solution
Notional due Date = 20+60 days from 26th Aug i.e. 14th Nov. Since, the currency is at discount,
the period will be rounded off to the same month). Obviously, the discount of Nov will be more
and it will make the Buy Rate Lower.
Dollar/Rupee market spot Buying Rate = 34.6525
Less Discount for August to November = 0.4200
34.2325
Less Exchange Margin @.15% .0513
= 34.1812
Rupee Amount payable to exporter = 25650 X 34.18 = 876717-00
Less Interest for 80 days @ 13% = 24980-00
Less out of pocket expenses = 500-00

EXPORTS

RBI and DGFT
RBI controls Foreign Exchange and DGFT (Directorate General of Foreign
Trade) controls Foreign Trade. Exim Policy as framed in accordance with
FEMA is implemented by DGFT. DGFT functions under direct control of
Ministry of Commerce and Industry. It regulates Imports and Exports
through EXIM Policy.
On the other hand, RBI keeps Forex Reserves, Finances Export trade and
Regulates exchange control. Receipts and Payments of Forex are also
handled by RBI.
IEC - Importer
Exporter Code
One has to apply for IEC to become eligible for Imports and Exports. DGFT
allots IEC to Exporters and Importers in accordance with RBI guidelines
and FEMA regulations. EXIM Policy is also considered before allotting IEC.
Export
Declaration
Form
All exports (physically or otherwise) shall be declared in the following Form.
1. GR form--- meant for exports made otherwise than by post.
2. PP Form---meant for exports by post parcel.
3. Softex form---meant for export of software.
4. SDF (Statutory Declaration Form)----replaced GR form in order to
submit declaration electronically.
SDF is submitted in duplicate with Custom Commissioned who puts its
stamp and hands over the same to exporter marked “Exchange Control
Copy” for submission thereof to AD.
Exemptions
 Up to USD 25000 (value) – Goods or services as declared by the
exporter.
 Trade Samples, Personal effects and Central Govt. goods.
 Gift items having value up to Rs. 5.00 lac.
 Goods with value not exceeding USD 1000 value to Myanmar.
 Goods imported free of cost for re-export.
 Goods sent for testing.
ADs may consider waiver for export of goods free of cost for export
promotion up to 2% of average annual exports of previous 3 years subject
to ceiling of Rs. 5.00 lac. The limit is Rs. 10.00 lac for Status Holder
Exporters.
Prescribed Time
limits
The time norms for export trade are as under:
 Submission of documents with “Exchange Control Copy” to AD
within 21 days from date of shipment.
 Time period for realization of Export proceeds is has been reduced
to 9M for all types of exports including exports to SEZ (Special
economic zones), SHE(Status Holder Exporters) and 100%EOUs.
Previously, the time period was 12Months for SEZs and SHEs.
 For, Exports to Warehouse established outside India, as soon as it
is realized and in any case within fifteen months from the date of
shipment of goods
 After expiry of time limit, extension is sought by Exporter on ETX
Form. The AD can extend the period by 6M.
However, reporting will be made to RBI on XOS Form on half yearly basis

in respect of all overdue bills which remained outstanding for more than
prescribed period or the bills which are overdue
Direct Dispatch
of Shipping
Documents
AD banks may handle direct dispatch of shipping documents provided
export proceeds are up to USD 1 Million and the exporter is regular
customer of at least 6 months.
Advance
Payments
Exporters may receive advance payments from their overseas importers
provided:
 Shipment is made within 1 year from receipt of advance.
 Rate of interest payable should not exceed LIBOR+100 bps.
 Documents are routed through AD from which advance was routed.
Prescribed
Method of
payment and
Reduction in
export proceeds
Exporter will receive payment though any of the following mode:
 Bank Drafts, TC, Currency, FCNR/NRE deposits, International
Credit Card. But the proceeds can be in Indian Rupees from Nepal
and Bhutan.
 Export proceeds from ACU countries can be settled in ACU/EURO
or ACU/Dollar. A separate Dollar/Euro account is maintained which
is denominated as ACU Dollar or ACU EURO.
ACU – Asian Clearing Union was formed in Tehran, Iran in 1974 and it
comprises of following 9 countries as members.
India, Bangladesh, Bhutan, Myanmar, Iran, Pak, Srilanka, Nepal and
Maldives.
Exporters may be allowed to reduce the export proceeds with the following:
 Reduction in Invoice value on account of discount for pre-payment
of Usance bills (maximum 25%)
 Agency commission on exports.
 Claims against exports.
 Write off the unrecoverable export dues up to maximum limit of 10%
of export value.
The proceeds of exports can be got deposited by exporter in any of the
following account:
1. Overseas Foreign Currency account.
2. Diamond Dollar account.
3. EEFC (Exchange Earners Foreign Currency account)
DDA _ diamond

LETTER OF CREDIT

Documentary
Letters of Credit
(LC)
LC is a document:
 Issued by Buyer‟s bank at his request.
 Carrying undertaking to pay to the seller
 Upon presentation of documents evidencing shipping of goods.
 In compliance with terms and conditions.
ILC is Inland Letter of Credit and FLC is Foreign Letter of Credit. The
parties to LC are as under:
Applicant Buyer or Importer
Beneficiary Seller or Exporter
Issuing Bank It is opening Bank which ultimately pays on
behalf of importer in the Importer‟s country.
Advising Bank or
Notifying Bank
Bank in Exporter Country through which LC is
advised. It acts as agent
Negotiating Bank
or Nominated Bank
Bank in Exporter Country which makes payment
to exporter or accepts Bill of Exchange.
Confirming Bank In Exporter‟s country. It may be advising bank
also if it adds confirmation. This bank will be
responsible for default, if any.
Reimbursing Bank The bank which reimburses the negotiating
bank. (Usually, it is the bank having Nostro
account of Opening Bank.

UCP– 600
Uniform Custom
and Practice of
Documentary
Credit

CORRESPONDENT BANKING Caiib

Correspondent Banking
It is a relationship between two banks which have mutual accounts with
each other:
Nostro accounts “ Our account with you “
E.g. SBI Mumbai maintaining USD account with City Bank, New York
Vostro accounts “Your account with us”
E.g.. City Bank New York maintains Rupee account with SBI Ludhiana.
Loro account“His account with them”
E.g. City bank referring to Rupee account of Bank of America with SBI
Mumbai.
Mirror account---- It is replica ofNostro account to reconcile.
What is Swift?
Society for Worldwide Interbank Financial Telecommunications. There are
8300 members of the society. Financial messages are sent through Swift.
The messages are automatically authenticated through BKE (Bilateral Key
Exchange). It is operational 24 hours and 365 days. Swift has now
introduced new system of authentication system wherein banks are
required to have authentication key exchanged between them through a set
format by use of RMA (Relationship Management Application). This is
called BIC or Bank Identifier Code).
CHIPS – New York
Clearing House Inter Bank Payment System.
CHIPS is major payment system in USA with 48 members. The participants
use the system throughout the day for sending and receiving electronic
payment instructions. These are netted at end of the day and net position is
debited or credited to Nostro account of Federal Reserve.
It is used for Foreign Exchange Inter bank settlements and Euro Dollar
Settlements.
FEDWIRE -USA
It is US payment system being operated by Federal Reserve Bank. It
handles majority of domestic payments. All US banks maintain account with
Federal Reserve Bank and are allotted ABA numbers to identify senders
and receivers of payments.
CHAPS – London
Clearing House Automated Payment System
It is UK based Settlement System. It handles receipts and Payments in UK.
It has 16 member banks and 400 Indirect members.
TARGET
The full form of TARGET is Trans-European Automated Real-Time Gross
Settlement Express Transfer System. It is Euro Payment System which
comprises of 15 national RTGS systems working in EUROPE. It process
high value payments from 30000 participating institutions across Europe.
RTGS-plus
RTGS plus has over 60 participants. It is a German Hybrid clearing system
and operating as a European oriented RTGS and Payment system.
RTGS & NEFT in India
Real Time Gross Settlement is a payment system for Interbank transfer

with minimum Rs. 2.00 lac. This system is managed by IDRBT, Hyderabad,
which connects all banks to Central server maintained by RBI. The network
is INFINET (Indian Financial Network)
Timings are:
8:00AM to 8:00PM (Saturday: 8:00 to 3:30 PM)
NEFT (National Electronic Fund Transfer) is mainly used for low amount
transactions. However, there is no minimum and maximum limit. The
timings are: 8:00AM to 7:00PM (Saturday 8:00 to 1:00 PM). There are 12
batches daily except Saturday with 6 batches. The time period is B+2.
Who is Resident
Indian? Who is
Non- Resident
A person who resides in India for more than 182 days during preceding
financial year is Resident Indian. A person who is not resident is Non-
Resident.
Who is NRI? A person who is citizen of India but resides outside India owing to:
 Employment, Business, vocation-------indicating indefinite period of
stay outside.
 Work abroad on assignment with Foreign Govt., UNO, and IMF etc.
 Deputation officially.
 Study abroad.
PIO - Persons of
Indian Origin
PIO is a person who is citizen of any other country, but he at any time:
 Held Indian Passport
 He or his grand-parents or grand grand parents were Indian citizens
by virtue of constitution of India or under Indian Citizenship Act.
 The person is spouse of Indian Citizen.
OCB – Overseas
Corporate
Bodies
OCBs are firms, Cos, Society owned directly or indirectly to the extent of atleast
60% by NRIs.
It also includes overseas trusts where at-least 60% irrevocable beneficial
interest is held by non-residents directly or indirectly.
NRE Deposit
Accounts
Only non-resident Indians can open following NRE accounts with banks:
 Fixed Deposits & Recurring Deposits
 SB and CA Deposits
The other features are:
 Deposits are held in Indian currency.
 The Principal and Interest both can be repatriated.
 Account holder bears the risk of fluctuations in currency rates.
 Account will be opened with proceeds from abroad.
 Funds originating in India cannot be deposited.
 Interest rates Have since been deregulated by RBI..
 No lien is permitted to be marked against SB deposits.
 Joint account with Indians can be opened as Former or
Survivor.
 Cheque book and IBS allowed.
 Nomination in favor of NRI/Resident Indian allowed.
 Interest Income is exempt from Income Tax, Gift Tax or Wealth Tax.
 TOD allowed up to Rs. 50000/- for maximum 2 weeks.
 Account can be operated in India through mandate also.
 Loans against FDR to 3rd parties allowed provided NRI is personally
present for documentation.

Caiib materials

Caiib materials

https://drive.google.com/file/d/1xUWB_vZwOuUslbE8GcqVyGJRaC-hbIf_/view?usp=sharing


https://drive.google.com/file/d/1MWMwiFjzuzEpoV2xDz4iuDmj_B4GzGUF/view?usp=sharing


https://drive.google.com/file/d/1spdCrDQZewRC_Ma67z1s11zocUXyrk1_/view?usp=sharing


https://drive.google.com/file/d/1LNsDr9k4usMSH5g_RoHibp-v3YiSaZXA/view?usp=sharing


https://drive.google.com/file/d/1I6wbwggy140-8wGw9qXV4i6Va0PUi5yU/view?usp=sharing


https://drive.google.com/file/d/1bZ3T-cuSXTWXGVjwo-ap4JtTpyD64hKg/view?usp=sharing


https://drive.google.com/file/d/1BtkVyjuWWUx8JHMDe2Pc56eToadGRE0a/view?usp=sharing

Jaiib materials

JAIIB MATERIALS

https://drive.google.com/file/d/1icNMiWYpFUKnlkL4F4-lyo3TqLwMFHzA/view?usp=sharing

https://drive.google.com/file/d/1ncMSd-llgkrO_yDI4sAA_ZIKJxj-FDUw/view?usp=sharing

https://drive.google.com/file/d/1q8OLY6_zFHXYZrej8RMGWa0BEO3Qqkbq/view?usp=sharing

https://drive.google.com/file/d/15PZjBGMpZYfumhfUYoXjYgGdIDTmO5q6/view?usp=sharing

https://drive.google.com/file/d/13CnjwQf90Um4dgIhvdpvjqWv3PaAL3uh/view?usp=sharing

https://drive.google.com/file/d/1YDpMmAkLlAlkd7HjUrtpdnR9wGNtnNe0/view?usp=sharing

Today Micro finance 70 recollected questions

 Micro finance 70 recollected questions

Q1.C.rungrajan committee on microfinance
Q2. Breath length and depth meaning.
Q3. Difference between poverty lending approach and financial system approach.
Q4. Microfinance focus on poorest of the poor.
Q5. Nabard and it's role.
Q6. Nationalization of banks and it's purpose.
Q7.IRDP programm substitute the SJGSY program.
Q8.what is facilitater and it's role.
Q9.what is GRT group recognition test and it's purpose.
Q10.one question on Money lenders.
Q11.break even analysis and CPV analysis 3 questions.
Q12.what is microcredit.
Q13.what is microfinance.
Q14. What is sustainability.
Q15 what is BRI bank Ryat Indonesia.
Q16 .what is unit diseas.
Q17.chikola group of Kenya is example of which model.
Q18.Difference between SHG and JLG model
Q19 detailed question on grameen bank model.
 Q20. What is SHG bank linkage model...

Q22. Assumptions of grameen bank model of Bangladesh.
 Q23.diffrence between direct cost indirectcost setupcost and cost of fund.
Q24 .capital=assets-liability.
Q25.for NBFC model minimum networth requires rs.5 crore.
Q26.malegam committee and its recommendation.
Q27.qualifying assets and its significance
Q28.what is most accepted and widely usedmodel of microfinance in india.
 Q29.what is ghostborrower or multiple lending.
Q30.details of BC model.
Q31.what is reckless lending.
Q32. Details of SHG2 model part2.
 Q33. What is refinancing.
Q34. National rural livelihood mission.
 Q35 .Swarn jayanti gramin Swarojgar yojna
Q 36.what is mutual fund.
 Q37. What is merchant banking.
Q38.details of Revolving Fund.
 Q39. Financial inclusion definition and scope.
Q40. What is kyc and it's purpose

Q41 .Illiterate person can open which type of exam.
Q42 .Difference between impact accessment and social performance.
Q43.what is social rating
Q44. What is minimalist and integrated approach.
Q45.what is micro Insurance.
 Q46. Role of SEBI.
 Q47.role of IRDA.
 Q48. What is cash flow statement
.Q49. What is flat rate of interest.
 Q50. What is travel expanses.
 Q51.what is operating expense Ratio.
 Q52. What is asset depricitation.
 Q53 what is accounting stanard 2
. Q54. What is average case load.
Q55. What is Target group.
Q56. What is PAR.
Q57. What is market risk.
Q58. What is bank rate.
Q59.what is reprising risk.
 Q60. What is riskmanagement loop

Q61 what is schedule and nonshedule bank.
Q62. What is human risk.
 Q63.what is operational risk.
Q64.what is merchant banker.
 Q65. What is trading in stock exchange.
 Q66.two questions on mutual fund.
Q67.three question on Break Even Analysis.
Q68. What is regulatory risk.
 Q 69.what is Repayment rate.
 Q70.trust and Trust feed and what NBFC banking Model and what is business Correspondent model (BC Model)...... these All are 70 Recollected Questions of microfinance held on 15 july 2018. best of luck to All 

Credit management

Certified credit professionals::

       (Simple and nice read every one)

Credit management is one of the core processes for all banks and therefore, the
ability to manage its process is essential to augment interest income and to enhance
its profitability. The success of a bank crucially depends how it manages its Asset
Portfolio as it is the major source of income and has direct bearing on the bottom-
line of the Bank. This demands an ability to perceive the early warning signals, which
necessitates control of both the quantitative and qualitative aspects of credit
evaluation. Thus, managing credit risk plays an important role and its effectiveness
lies in proper identification of borrower and appraisal besides adopting an efficient
recovery and exit strategy.
1. Know Your Customer (KYC): Proper identification of the borrower attains
utmost importance in the entire credit cycle for which adoption of KYC guidelines is a
must. It is observed that majority NPA accounts pertain to either new customers or

Today MSME recollected questions

Today's asked questions in msme exam:
ITCOT Based in ?
Tile industry cluster Mangalore disappeared due to?
FIWE h/q ?
SSIDC Registered under?
WTO Set up in?
Net rating agency for small industry?
Numerical questions:
1. Working capital turnover ratio 5
Current ratio 2:1
Current assets 30lakh
Profit is 6% of sale find net profit?
2. Net profit 40 lakh, dep 10 lakh, int on term loan 10lakh and DSCR IS 2 FIND INSTALMENT OF TERM LOAN?
3. CURRENT ratio 2.7:1
DEAR 0.6:1 What is interpretations in business?
4. Current ratio 2:1 current assets 60lakh, total liabilities 110 lakh term loan 35 lakh , find net worth?
5.NPA provisioning
6.SARFASEI
7.NIESBUD
8.Reservation items of MSME
9. Kishore,tarun,shishu
10.Small and medium enterprises investment in plant and machinery

MSME:
*maximum shareholders in a private company from according to 2013 Act-200
* SARFAESI act enacted year-2002
*UNIDO implemented a development initiative in the knitwear cluster-Ludhiana
*Red clause LC -buyer is extending an unsecured loan to the seller
*Non fund based facilities- deffered payment guarantee
*Options for financing MSME- equity, venture capital, Angele fund
*Hybrid capital refers to combination of -equity and debt


Some of the recollected questions MSME 15072018
Deadline for Basel 3 implementation in India
Basel 3 aim to promote resilient banking parameters namely ?
CRM is ----- approach
Limits for mudra loan in shishi kishor tarun
One question on OTS scheme
Rehabilitation package for potentially viable units within-- month
Composite loan amt ?
SARAFAESI act enacted in which year
Banning industries which not having scope is the role of ?
2question on internal and external causes of sickness
1 question on symptoms of sickness
Steps in cluster devp project
Example if diffusion effect of tech ...Change
Msme credit process - 5 stages
1 question on fund based non fund based guarantee
Objective of FIWE
ISO 9000 credit reimbursement amt
Forei investment outside the automatic route clearance has to be obtained from - FIPB
2 questions on no of directors and members in private public Ltd co

Today IT security recollected questions

IT Security recollected questions 15-07-18

Non repudiation,access privilege,2FA,CISO,corporate  IT Security,DRM,Threat,vulnerabilities,risk appetite,sec governance,rfid,ips,ids,bar coding,metal detectors,fire extinguishers,testing methodologies 2-3 questions,cloud computing 2-3 questions,cdr,iso 27001,cobit,etsi tc cyber,Sox,sas 70,defense in depth,green server,refurbishment,dumpster driving,social eng,database schema,atm security,jackpotting,escrow arrangement 2 questions,spf,vlans,mpls,ftp,firewalls,siem,s/w models,big data,buffer overflow,stuxnet,botnet,fast flux,rootkit,San,drsite,Indian fin sys,powers of rbi

Most of d questions wr of the type (what is not),(which is wrong)



IT security recollected questions

IT act defines data as

Information is classified based on criticality, confidentiality, availability and purpose

Information security is protection of information assets

Non repudiation definition

Which of the following is not a perimeter security method

IT security is responsibility of All employees in an organisation

CISO will not report to CIO

Access previlage: clerical staff cannot make loan disbursement

What is pretty good privacy

Digital right management involves copy right and antipiracy technology

Difference between threat and vulnerability

Definitions of threat vulnerability impact and risk

Crime is not because of need, opportunity and rationalization. One wrong option

2 questions on metal detectors

Which of the following is not an intrusion detection systems - biometric tools

Social engineering is done by

SQL injection definition

Buffer overflow definition

First digital weapon used in PLC - stuxnet

Which of the following is not true regarding cyber terrorism

Malware that targets industrial and software equipment - stuxnet

Fast flux definition

Rootkit related question

What do you understand by the term hijacker

What is the concern faced by security managers in BYOD technology

Case study type question on single point failure

Features of fault tolerant system-2 questions

One of the following is not a requisite for fault tolerance

One of the following is not true regarding high availability-latency, raid,

Questions on white box testing and black testing

Software fault tolerance methods include recovery blocks, n programming, acceptance tests

Recovery time objective., recovery point objective

Robo backup

DR site location in seismic zone

Hot site, warm site

Secondary site located in same city as primary data centre

Auditing around the computer, auditing through the computer, auditing with computer

COBIT is not a security standard

Latest version of COBIT is COBIT 5

Audit risk definition

RBI, sebi, tria and irda regulates (match the following)

One of the following is not the role of RBI

Call data record includes

One of the following is not included in IT act

Version control

Escrow arrangement

Cloud computing and big data

COBIT VERY important for IT

COBIT (Control Objectives for Information and Related Technologies) is a good-practice framework created by international professional association ISACA for information technology (IT) management and IT governance. COBIT provides an implementable "set of controls over information technology and organizes them around a logical framework of IT-related processes and enablers
ISACA first released COBIT in 1996, originally as a set of control objectivesto help the financial audit community better maneuver in IT-related environments.Seeing value in expanding the framework beyond just the auditing realm, ISACA released a broader version 2 in 1998 and expanded it even further by adding management guidelines in 2000's version 3. The development of both the AS 8015: Australian Standard for Corporate Governance of Information and Communication Technologyin January 2005 and the more international draft standard ISO/IEC DIS 29382 (which soon after became ISO/IEC 38500) in January 2007

MSME information for MUDRA

MUDRA – Micro Units Development & Refinance Agency Ltd
Under the aegis of Pradhan Mantri MUDRA Yojana, MUDRA has already created its initial products / schemes. The interventions have been named 'Shishu', 'Kishor' and 'Tarun' to signify the stage of growth / development and funding needs of the beneficiary micro unit / entrepreneur and also provide a reference point for the next phase of graduation / growth to look forward to :

• Shishu : covering loans upto 50,000/-
• Kishor : covering loans above 50,000/- and upto 5 lakh
• Tarun : covering loans above 5 lakh and upto 10 lakh

FEDAI Imp points

FEDAI

The important rules are:

Export Transactions : Forex liability must be crystallized into Indian rupees on 30th day after expiry of NTP (Notional Transit Period) in case of Sight bills and on 30th day after notional due date in case of Usance bills. The rule has since been relaxed and bank can frame its own rule for nos. of days for crystallization.

Concessional rate of interest is applied up to Notional due date or up to value date of realization of export dues (whichever is earlier)

Import Transactions: For retirement of Import bills whether under LC or otherwise, banks Bill

selling rate on date of retirement or the Forward rate will be applied.

DP Bills (sight) are retired after crystallization on 10th day after receipt.

DA Bills are retired (crystallized) on Due Date.

All Foreign Currency bills under LC, if not retired on receipt, shall be crystallized into Rupee liability on 10th day after date of receipt of documents at TT Selling Rate.

Normal Transit Period is:

- 25 days for export bills,

- 3 days for Rupee bills drawn under LC and payable locally

- 7 days for rupee bills drawn under LC and payable at other centers

- 20 days for Rupee bills not drawn under LC.

- For exports to Iraq, normal transit period is 60 days.

All the best for your exam

If you want to touch your goals, you have to do well in the exam. Exam will give you the opportunity. So, try to give the best effort in exam. Good Luck!

In your life, you can’t get anything easily. You have to earn that. We all have to go through our educational system. Exams are the options which help you to go ahead. So take it carefully. Best of luck!

Failure & success are the two sides of the same coin. So don’t get nervous. I know you can do well in the exam.

Failing in a exam is not so serious issue in life. If you have failed today then try the best for tomorrow. I know tomorrow will show us your talent. Be confident! Good luck!

Exam is waiting for giving you a chance of testing your knowledge. Just believe in yourself! Best of luck!

Exams can prove you how brilliant and intelligent you are than the others. So, you should grab the opportunity. Best wishes for you!

These exams are your opportunity at proving your worth to everyone around you. Grab it and do your best, don’t let it pass through. Good luck.

In life, it is impossible to be 100% sure of whether you will pass or fail. But working hard is a sure shot way to increase your chances of doing well. Good luck.

Exam Advice for Students
Exams don’t test your knowledge as much as they test your state of mind. Be relaxed and calm down, I am sure you will do fine. Best wishes to you.

Good grades are life’s way of saying that there is a bright future in store for you. Good luck.

Before you go and take the exam, just relax, you already know everything, take a walk in the afternoon, watch a film, listen to some music and have a good sleep. Good luck for your exams!

Nothing can stop you from doing your best, nothing can pull you down – as long as you start studying hard and stop fooling around. Good luck.



Hard work always pays in life. You can reach every aim you want. I wish you all the best for this hard work.

Hundreds and thousands of people in the world give exams every day. Surely, something so common and ordinary can’t be too difficult. Good luck.

You worked hard in school all year long, and now you will use this knowledge! Everything you learned will be needed today! Remember everyone wishes you good luck, the teachers, friends and family!

MSME related abbreviations

ABBREVIATIONS::

ACWW: Associated Country Women of the World
AIC: Agro Industries Corporation
ANC: Ancillary Undertakings
APTDC: A. P. Technology Development Centre (CII)
ASBA :Alliance of Small Business Associations in the USA
ASI: Annual Survey of Industries
ASSOCHAM Association of Chambers of Commerce and Industry
AWEK Association of Women Entrepreneurs of Karnataka
BDS Business Development Services
CAR Common Annual Return
CDCC Central Documentation and Clearance Centre
CDR Corporate Debt Restructuring
CGTMSE: Credit Guarantee Fund Trust for Micro and Small Enterprises
CGTSI Credit Guarantee Trust for Small Industries
CII Confederation of Indian Industry
CITD Centre for International Trade in Agriculture and Agro-based Industries, New
Delhi
COSIA Chamber of Small Industry Associations
CRM Customer Relationship Management
CWEI Consortium of Women Entrepreneurs in India
CWEI Consortium of Women Entrepreneurs of India
DIC District Industries Centre
DICGC Deposit Insurance & Credit Guarantee Corporation
DRT Debt Recovery Tribunal
DWCRA Development of Women and Children in Rural Areas
EDIT Entrepreneurship Development Institute of India
EOU Export Oriented Units
EU European Union
EXIM BankExport Import Bank of India
FAPCCI Federation of Andhra Pradesh Chambers of Commerce and Industry
FAPSIA Federation of Andhra Pradesh Small Industries Association
FASII Federation of Associations of Small Industries of India
FDI Foreign Direct Investment
FICCI Federation of Indian Chambers of Commerce and Industry
FISME Federation of Indian Micro & Small and Medium Enterprises
FISME Federation of Indian Small & Medium Enterprises
FIWE Federation of Indian Women Entrepreneurs
FOSMI Federation of Small & Medium Industries
GATT General Agreement on Trade and Tariff
Gol Government of India
HUDCO Housing & Urban Development Corporation
HUF Hindu Undivided Family
ICSI Indian Council of Small Industry
ICWE India Council of Women Entrepreneurs, New Delhi
IDLSS Integrated Development of Leather Sector Scheme
IIA Indian Industries Association
IIC Industrial Infrastructure Corporation
IIE Indian Institute of Entrepreneurship, Guwahati
IRAC Income Recognition and Asset Classification
ISEC Interest Subsidy Eligibility Certification
JHF Joint Hindu Family
KVIC Khadi & Village Industries Commission
LLP Limited Liability Partnership
MFA Multi-Fibre Arrangement
MSE-CDP Micro & Small Enterprises Cluster Development Programme
MSMED Micro Small and Medium Enterprises Development
NABARD National Bank for Agriculture and Rural Development
NAYE National Alliance of Young Entrepreneurs
NGO Non-Governmental Organization
NIC National Industrial Classification
NIESBUD National Institute for Entrepreneurship and Small Business Development,Noida
NIMSME National Institute for Micro, Small and Medium Enterprises
NISBET National Institute of Small Business Extension Training
NMCP National Manufacturing Competitiveness Programme
NPA Non-Performing Asset
NPV Net Present Value
NRY Nehru Rojgar Yojna
NSIC National Small Industries Corporation
OECD Organisation for Economic Co-operation and Development
OGL Open General License
OTS One Time Settlement
PACS Primary Agricultural Cooperative Credit Society
PCB Pollution Control Board
PMEGP Prime Minister's Employment Generation Programme
PPP Public Private Participation
PRF Portfolio Risk Fund
PRODIP Product Development, Design Intervention and Packaging
QRs Quantitative Restrictions
RBI Reserve Bank of India
RGUMY Rajiv Gandhi Udyami Mitra Yojana
SEZ Special Economic Zone
SFC State Financial Corporation
SFURTI Scheme of Fund for Regeneration of Traditional Industries
SHG Self Help Group
SIDBI Small Industries Development Bank of India
SIDC State Industrial Development Corporation

SIDO Small Industries Development Organisation
SIIC State Industries Investment Corporation
SMERA Small & Medium Enterprises Rating Agency of India Ltd.
SMEs Small and Medium Enterprises
SNDP State Net Domestic Product
SPV Special Purpose Vehicle
SSIDC State Small Industries Development Corporation
SSSBE Small Scale Service and Business (industry-related) Enterprises
TANSTIA Tamil Nadu Small and Tiny Industries Association
TCO Technical Consultancy Organisation
TREAD Trade Related Entrepreneurship Assistance and Development
TRIPs Trade-Related Intellectual Property Rights
TRYSEM Training for Rural Youth for Self Employment
TUFS Technical Upgradation Fund Scheme
WE Town and Village Enterprises
UNIDO United Nations Industrial Development Organization
VAT Value Added Tax
WASME World Association for Small and Medium Enterprises
WASME World Association of Small and Medium Enterprises
WAWE World Association of Women Entrepreneurs
WE Women Enterprises
WTO World Trade Organisation

Most important banking terms for every bankers

FIFTY BANKING TERMS FOR BANK INTERVIEWS/EXAMS

( Don't miss ... Read every one and Get knowledge)

1. Repo Rate

1.When RBI provides a loan to the bank for short-term between 1 to 90, RBI takes some interest from the bank which is termed as Repo Rate.

2. Reverse Repo Rate
⏫When bank deposit it's excess money in RBI then RBI provides some interest to that bank. This interest is known as Reverse Repo Rate.

3. SLR –(Statutory Liquidity Ratio)
⏫Every bank has to maintain a certain % of their total deposits in the form of (Gold + Cash + bonds + Securities) with themselves at the end of every business days.

4. Retail banking
⏫Retail banking is a type of banking in which direct dealing with the retail customers is done.
⏫This type of banking is also popularly known as consumer banking or personal banking.
⏫It is the visible face of banking to the general public.

5. Bitcoin
⏫Bitcoin is a virtual currency/ cryptocurrency and a payment system.
⏫It can be defined as decentralized means of tracking and assigning wealth or economy, it is a software protocol.
⏫Bitcoin uses two cryptographic keys, one public (username) and one private (password) are generated.
⏫1Bitcoin= 108 Satoshi.

Types of Banking

Para Banking:
Para banking activities are defined as those banking activities which a bank performs apart from its daily activities like withdrawal or deposit of money.
Under para banking activities banks can undertake activities either departmentally or by setting up subsidiaries.

Narrow Banking:
This is a type of banking in which banks invest money mostly in government bonds and securities.
This is done to avoid risk in the market.
Banks dedicated to such type of banking are also known as Narrow Banks.

Offshore Banking
When a bank accepts currencies of countries abroad, such an activity is known as Offshore banking
Sometimes people require more than their local banks can offer. In such cases, they opt for Offshore banking.
It provides financial and legal benefits like privacy and minimal taxation.

Green Banking
Green banking promotes deployment of clean energy technologies.
It stresses on environmentally friendly practices and aims at reducing the carbon footprint from banking activities.
These activities seek to reduce costs of energy for ratepayers, private sector investments and other economic activities.

Retail Banking
Retail banking is a type of banking in which direct dealing with the retail customers is done. This type of banking is also popularly known as consumer banking or personal banking
Retail banking is the visible face of banking to the general public.

Wholesale Banking
Wholesale banking can be referred to as the services provided by banks to organisations like Mortgage Brokers, corporate clients, medium scale companies, real estate developers and investors, international trade finance businesses, institutional customers (such as pension funds & government agencies) and services offered to other banks or financial institutions.

Universal Banking
The recommendation of the concept of Universal Banking was done by the R H Khan committee.
This is a type of banking in which banks are allowed to undertake all types of financial activities regarding banking or development in accordance with the statutory and other requirements of RBI, Government and related legal Acts.
Universal Banking includes activities like accepting deposits, issuing credit cards, investing in securities, merchant banking, foreign exchange operations, etc.

Islamic Banking
Islamic banking is a kind of banking activity which strictly follows the principles of the Islamic law (Sharia) and its application practically through the development in Islamic economics
A better and more apt term for Islamic banking is Sharia Compliant Finance.

Unit Banking
USA is where such type of banking was first introduced.
In such a type of banking, all the operations are performed from a single branch.
A customer having an account in a specified branch has to undergo all banking activities through that branch.
Examples are Regional Rural Banks and Local Area Banks.

Mixed Banking
Mixed banking is a type of banking in which deposits and investment activities take place simultaneously.
It can also be described as the dual functioning of investment banking and commercial banking.

Chain Banking:
Chain banking is a type of banking which is a group of minimum 3 banks held together by a group of people to carry out effective banking activities.
Instead of having a holding company the bank functions independently.
The revenue is maximised since there is no overlap of activities.

Relationship Banking
In such a type of banking, the the major needs of the customers are understood by the bank and accordingly banking services are provided to the individual.
Banks get to know if the customer is credit worthy since they have to gather information about its customers.

Correspondent Banking
In more than 200 countries, this type of banking is prevalent and is considered the most profitable way of doing business.
In such a type of banking, the bank does not have a physical presence or any limitations in the permission of operations.
It acts as a banking agent for a home bank.

MSME special

ABCD OF MSME :::: Excellent Content plz read everybody..

1.Keynote address delivered by Shri S. S. Mundra, Deputy Governor, Reserve Bank of India at the 2nd CII
National Conference on MSME Funding held in New Delhi on August 23, 2016 ).
Thank you for inviting me to deliver the keynote address at this second edition of the Conference on
MSME Funding. I compliment the CII for having chosen a very relevant theme for the Conference
‘Propelling MSME Growth through Enhanced Financial Access and Support’. The theme lays emphasis on
two crucial pillars that are pertinent for the sector i.e. enhancing financial access and ensuring adequate
support to enable MSMEs to attain faster growth.

RBI Notification

Incorporation of Name of the Purchaser on the Face of the Demand Draft

RBI vide its circular RBI/2018-19/14, DBR.AML.BC.No.210/14.01.001/2018-19 dated 12.07.2018 has made it compulsory to banks to incorporate the name of the purchaser on the face of the Demand Draft while purchasing it at a bank (including RRBs, Co-operative banks).

In terms of the above notification, Section 66 of the Master Direction on KYC dated February 25, 2016, as amended on April 20, 2018, has been amended and following paragraph has been added:

Further, the name of the purchaser shall be incorporated on the face of the demand draft, pay order, banker’s cheques, etc., by the issuing bank. These instructions shall take effect for such instruments issued on or after September 15, 2018.

It is learned that the above step was taken by RBI in order to address the concerns arising out of the anonymity provided by payments through demand drafts and its possible misuse for money laundering.

Imp banking terms

IMPORTANT BANKING TERMS

Repo Rate
Repo rate is the rate at which our banks borrow rupees from RBI. Whenever the banks have any shortage of funds they can borrow it from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive.

Reverse Repo Rate
This is exact opposite of Repo rate. Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. RBI uses this tool when it feels there is too much money floating in the banking system. Banks are always happy to lend money to RBI since their money is in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to these attractive interest rates.

CRR Rate
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 Rate
SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. Approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit.

Most important for bankers

Most important topic forever useful::

Individual Elements of Balance Sheet
and Their Analysis:::

Liabilities
 Current Liabilities
 Term Liabilities
 Debentures
 Public Deposits
 Capital
 Reserves (including
Revaluation reserve)

Assets
 Current Assets
 ICDs/Loans
 Fixed Assets
 Capital Work-in-
Progress
 Investments
 Other Non-Current
Assets
 Fictitious & Intangible
Assets

Current Liabilities
 Current liabilities are the liabilities, including bank
borrowings, which are payable within next 12 months.
Thus, the following items are treated as current
liabilities:
 Sundry creditors for raw material supplies and other
expenses
 Advance payment received
 Dividend payable
 Instalments of term loans/deposits/DPGs/debentures
due within one year
 Any other liability which will fall due in next 12 months

Term Liabilities
 Term liabilities include loans taken from
banks or Financial Institutions for long-term
usage, which are repayable over a longer
time period. While instalment payable in next
12 months is classified as current liabilities,
the remaining instalment amount that is due
for payment after a year is classified as term
liabilities.

Debentures
 The features of debentures are:
 They are essentially in the nature of loans - much like
long-term loans granted by banks / financial
Institutions
 Companies raise them from general public and
institutions, to be repaid within a specific time frame
 Companies pay interest at a specified rate to
debenture holders from whom they raise debentures,
till they repay the principal sum
 They come in the form of certificates issued by a
company under its common seal, which is also an
acknowledgement of the company's indebtedness to
the debenture holder

Public Deposits'
 Care to be Exercised by Lending Banker
Should take care, particularly, in cases where
the company has defaulted in repaying such
public deposits
 May treat all such public deposits which have
become due for repayment, and the portion of
small investments (regardless of the age of
such deposits), as current liability

Capital
 Capital of a business enterprise is an item of
liability by virtue of:
 The entity concept used in the preparation of
financial statements, which treats capital as a
liability.
 The principles of accountancy, according to
which the enterprise owes this sum to the
owner(s) and therefore carries a liability to
pay back the capital fund with or without any
profit earned on it

Reserves
 A Reserve
 Consists of the portion of the earnings and
receipts.
 Does not serve as a provision against a
known liability or any diminution in the value
of fixed assets (i.e. accumulated depreciation)
etc., in contradistinction to Reserves which is
part of net worth of the company

Surplus
 A Surplus
 Represents credit balance in the profit and
loss account, after the dividend and reserves
etc. are provided for, appropriated or
transferred.

Assets - Current Assets
 Current assets are those assets, which: Are expected
to be converted into cash e.g. raw material, stock-in-
process, finished goods etc. in next 12 months, and
Pertain to the company's main activity
 However, in respect of receivables, the treatment is
different. Receivables are treated:
 As current assets only for a period of 6 months
 As non-current assets, if they are more than 6
months old

Fixed Assets
Fixed assets are the assets:A credit analyst
should:
 Held for use in production or providing goods,
services etc. over a long period of time
 Not meant for sale in the normal course of
business
 That are producers of merchandise and not
merchandise themselves

Assets - Investments
 Investments made by a company, appearing in the
balance sheet of a company:
 Is a very important item, appearing in the assets side,
from the point of view of a credit analyst
 Normally indicates deployment of funds in securities
or assets, which may not be directly related to the
main activities of the companyMay refer to the
surplus funds of enterprises, which they decided to
invest in short-term securities for earning profit/short-
term gainsMay also refer to, funds invested in the
shares/securities of another enterprise in which the
investor company is interested on a long-term basis.
E.g.: Investment made in subsidiaries.

Assets - Other Non-Current Assets
 Other non-current assets include:
 Advances to suppliers of capital goods (plant,
machinery etc.)
 Deferred receivables (maturity after 1 year)
 Receivables more than 6 months old
 Non-consumable stores and spares
 Dues from directors et

Assets - Fictitious & Intangible
Assets
 Fictitious Assets
 Companies incur certain expenses, which are
not charged to the profit & loss account either
fully or in part during the same year in which
they are incurred. These expenses figure on
the asset side of a balance sheet, as though
they are real assets. Such assets are known
as fictitious assets.

Assets - Fictitious & Intangible
Assets
 Intangible Assets
 Assets that may not represent any real or
tangible asset are called as intangible
assets.Intangible assets represent monetary
values of different rights enjoyed by the
business enterprise, and are therefore
considered as assets. This category of items
include goodwill, patents, copyrights,
trademark rights etc. that appear on the asset
side of a balance sheet.

Indicators for suspicious transactions::::

Indicators for suspicious transactions::::( Most important exam  and General( Daily) Banking  point of view) ( Every one read this article at least once)

Suspicion of proceeds of crime

Match of customer details with known criminals or persons with suspicious
background
Match with UN list – IS IT BEING DONE IN SCBs/DCCBs/RRBs??
Customer has been the subject of a law enforcement inquiry
Customer who conducts transactions in a pattern consistent with criminal
proceeds
Lottery scam or recruitment scam
Multi-level marketing
Transaction from high risk or sensitive area
Unusual or complex transaction
Transaction is unnecessarily complex
Unusual single or aggregate transfers
Transaction is inconsistent with customer profile
Routing of transfer through multiple locations or accounts or unexplained
transfers between accounts
“U-Turn” Transactions
Structuring - transactions split to evade reporting
Unexplained activity in dormant accounts
Suspicious use of ATM card
Doubtful source of payment for credit card purchases

No economic rationale or bonafide purpose::

Volume or frequency of transactions has no economic rationale
Use of agents or associates to disguise the beneficial owner
Common Unique IDs used by multiple customers
Common address/telephone used by multiple unrelated customers
Multiple cash transactions in a single day
Transactions with countries known for secret banking practices
Transactions inconsistent with customer’s profile
Maintaining multiple accounts without explanation
Unexplained cash deposits in bank account
Frequent cash transactions just under the reporting threshold
Multiple cash transactions in multiple accounts
Cash deposits followed by issue of instruments
Suspicious cash withdrawals from bank account
High value cheque deposits followed by immediate cash withdrawals

Non Financial Indicators::

Usage of Lockers

Behavioral Indicators:::

Customer is hurried, nervous or evasive
Customer has no or little knowledge about transaction
Customer is accompanied by unrelated individuals.
31
Reluctance to meet in person, representing through power of attorney
Customer aborts transaction after being informed that identification
information will be required
Reluctance to provide original ID
Customer makes inquiries or tries to convince staff to avoid reporting
Providing different identifications or details (such as phone or address) on
different occasions in an attempt to avoid linking of transaction.

Knowledge Indicators::

Customer tries to convince staff not to complete the formalities
Customer thoroughly aware of legal position on suspicious transaction
reporting.
Customer seems very conversant with money laundering or terrorist activity
financing issues.
Customer is quick to volunteer that funds are clean or not being laundered.
Identity indicators
Customer doubtful or vague information given.
Customer gives false identification or identification that appears to be
counterfeited, altered or inaccurate.
Instead of his own some other identification is submitted by Customer.
All Identity documents presented are not verifiable i.e. Foreign documents
etc.
All identification documents appear to be recently acquired.
Identity matches with known ‘hot/watch lists’

Transactions indicators::

Frequent cash transactions in large amounts which is not normally done by
the customer.
Small denominations frequently changed for large ones.
Dirty/smelly notes deposited.
Customer consistently makes cash transactions that are just under the
reporting threshold amount in an apparent attempt to avoid the reporting
threshold .
Frequent purchase of travellers cheques, DDs, etc. with cash when this
appears to be outside of normal activity for the client.
32

Accounts Indicators::

A long distance customer opening an account/s.
Account/s opened with names closer to established industrial houses/
groups.
Intra bank transfer of funds - accumulated into one account for foreign
remittance.
Opening of several accounts simultaneously, some of which remain dormant
for long periods.
A third party appears to be using the account of customer.
Customer frequently using different locations other than the place of account
opening to deposit funds.
Activity in account
Account activity inconsistent with nature of business.
Transaction involves NGOs or charitable organization for which there appears
to be no logical economic purpose or where there appears to be no link
between the stated activity of the NGO or charitable organization and the
other parties in the transaction.
Transaction is unnecessarily complex.

COMMITTEES ON ADVANCES & PRIORITY SECTOR

COMMITTEES ON ADVANCES & PRIORITY SECTOR

a. Committee on Wilful Default 2002 S S Kohli

b. Committee on Corporate Debt restructuring 2005 S Gopinath ( Dec. 2005 )

c. Micro, Small & Medium Enterprises 2010 T K A Nair

d. Rehabilitation of Sick SMEs 2008 Dr. K. C. Chakrabarty

e. Flow of Credit to Agriculture 2004 V S Vyas

f. Service Area Approach (rural & urban area) 1988 PD Ojha

g. Financial Inclusion 2006 C Rangarajan

h. Procedure and Processes of Agricultural Loan 2007 C P Swarnkar

i. Rural Credit and Microfinance 2005 H R Khan

j. Flow of Credit to SSI Sector 2004 A S Ganguly

k. Micro finance 2003 Vepa Kamesam

l. Agricultural Credit Delivery (no Dues Certificate) 1998 R V Gupta

m. Lead Bank Scheme 2009 Usha Thorat

n. Micro Finance Institutions 2011 Y H Malegam

o. Institutional Credit to SSIs 1998 S L Kapoor

p. Institutional Credit to SSIs 1974 PR Nayak

q. Committee on to assist Distressed Farmers : S S Johl

r. SHG Credit Linkage Kalia Committee

MUDRA MSME

MUDRA BANK

Introduction: Mudra Bank stands for Micro Units Development Refinance Agency (MUDRA). MUDRA

Bank was announced by the Finance Minister Arun Jaitley in his FY 15-16 Budget speech. Micro Units

Development and Refinance Agency Bank (or MUDRA Bank) is a public sector financial institution.

Mudra Bank is being set up through a statutory enactment and will be responsible for developing and

refinancing through a Pradhan Mantri MUDRA Yojana. Although 20% of the country's population is

dependent on 5.7 crore micro and small entrepreneurs, they do not have access to institutional credit.

Since small entreprenuers are businssess are often cut off from banking system because of limited

branch presence, Mudra Bank will partner with local coordinators and provide finance to "Last Mile

Financiers" of small/micro businesses. The aim is to provide financial assistance to the "unfunded"

small entrepreneurs who provide employment to a large number of people. The Government will

ensure that measures to be taken up by MUDRA are targeted towards mainstreaming young, educated

or skilled workers and entrepreneurs including women entrepreneurs. The MUDRA banks will be set up

under the Pradhan Mantri MUDRA Yojana scheme. It will provide its services to small entrepreneurs

outside the service area of regular banks, by using last mile agents. About 5.77 crore (57.7 million)

small business have identified as target clients using the NSSO survey of 2013. Only 4% of these

businesses get finance from regular banks. The bank will also ensure that its clients do not fall into

indebtness and will lend responsibly. The bank will cater to 5.77 crore small business units that are

spread all across India who currently find it difficult to access credit from the regular banking system.

Objectives: The principal objectives of the MUDRA Bank are:

1. Regulate the lender and the borrower of microfinance and bring stability to the microfinance system

through regulation and inclusive participation.

2. Extend finance and credit support to Microfinance Institutions (MFI) and agencies that lend money

to small businesses, retailers, self-help groups and individuals.

3. Register all MFIs and introduce a system of performance rating and accreditation for the first time.

This will help last-mile borrowers of finance to evaluate and approach the MFI that meets their

requirement best and whose past record is most satisfactory. This will also introduce an element of

competitiveness among the MFIs. The ultimate beneficiary will be the borrower.

4. Provide structured guidelines for the borrowers to follow to avoid failure of business or take

corrective steps in time. MUDRA will help in laying down guidelines or acceptable procedures to be

followed by the lenders to recover money in cases of default.

5. Develop the standardised covenants that will form the backbone of the last-mile business in future.

6. Offer a Credit Guarantee scheme for providing guarantees to loans being offered to micro

businesses.

7. Introduce appropriate technologies to assist in the process of efficient lending, borrowing and

monitoring of distributed capital.

8. Build a suitable framework under the Pradhan Mantri MUDRA Yojana for developing an efficient lastmile

credit delivery system to small and micro businesses.

9. Laying down responsible financing practices to ward off indebtedness and ensure proper client

protection principles and methods of recovery.

Major Product Offerings: MUDRA Bank has classified the borrowers into three segments: the

starters, the mid-stage finance seekers and the next level growth seekers. The Bank will nurture small

businesses through different stages of growth and development of businesses termed as Shishu,

Kishor and Tarun.

Shishu: This will be the first step when the business is just starting up. The loan cover in this stage

will be upto Rs 50,000.

Kishor: In this stage, the entreprenuer will be eligible for a loan ranging from Rs 50,000 to Rs 5 lakh.

Tarun: This last and final category will provide loans for upto Rs 10 lakh.

Types of Credit Facilities

Types of Credit Facilities

1) Fund based lending

2) Non fund based lending

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.

The facilities like Overdrafts,Cash Credit A/c, Bills Finance, Demand Loans, Term Loans etc, wherein immediate flow of

funds available to borrowers, are called funds based facility. The non fund based facilities like issuance of letter of guarantee, letter of credit wherein banks get fee income and there is no immediate outfow of funds from bank.

Overdrafts: Overdraft means allowing the customer to draw cheques over and above credit balance in his account. Overdraft is normally allowed to Current Account

Customers and in exceptional case SB A/c holders are also allowed to overdraw their account. The high rate of interest is charged but only on daily debit balance. An

overdraft is repayable on demand. There are two types of overdraft prevalent in Banks i.e. (i) Temporary overdraft or clean overdraft (ii) Secured overdraft. Temporary

overdrafts are allowed purely on personal credit of the party and it is for party to meet some urgent commitments on rare occasions. Allowing a customer to draw against

his cheques sent in clearing also falls under this category. Secured overdraft is allowed up to a certain limit against some tangible security like bank deposits, LIC policies,

National Saving Certificates, shares and other similar assets. Secured overdraft is most popular with traders as lesser operating cost, simple application and document

formalities are involved in this facility.

Cash Credit Account (CC A/C): Cash credit account is a running account just like a current account where debit balance in the account up to a sanctioned limit or drawing