LOANS & ADVANCES

CHARGESONSECURITIES

PLEDGE
Pledge is defined in section 172 of Indian Contract Act
Pledge is the bailment of goods as a security for payment of a debt or performance of a promise.
Bailment is defined in Indian Contract Act.
Bailment means delivery of goods with some purpose and with the condition that when the purpose
is accomplished the goods will be delivered back to the.bailor.
Pledge can be only in respect of movable goods like stocks. On Railway receipt also charge is
created by pledge.
In the case of pledge, ownership remains with the borrower; only possession is transferred to the banker.
The bank as a pledgee must take care of the goods pledged as a person of ordinary prudence would
take of his own goods of the same value.
Bank can sell the goods without intervention of the court in case the pledgor fails to repay the bank
loan. But the sale can be done only after giving reasonable notice to the pledgor.
Bank as a pledgee has priority in right over the goods and Bank's right of sale under pledge cannot
be extinguished even by lawful seizure of goods pledged to it.
HYPOTHECATION
Hypothecation is defined in Section 2 of Sarfaesi Act.
Hypothecation is also done onmoveable property like stocks.
In case of hypothecation both ownership as well as possession remains with the borrower i.e. neither
ownership nor possession is transferred to the bank.
The charge created in Hypothecation is equitable charge.
When stocks are hypothecated to the bank, the charge is floating charge.
Basic difference between pledge and hypothecation is on account of possession.
ASSIGNMENT
Provisions relating to Assignment in section 130 of Transfer of Property Act.
Assignment is transfer of right or interest to recover the debt.
The transferor of claimis called as the assignor and the transferee is called the assignee.
Assignment is done on Book Debts, Supply Bills, L1C policy, fixed deposit etc.
Assignment is possible through writing only.
Acknowledgment required to be acknowledged by original debtor uis 131.
Assignor cannot give better title to the assignee than what assignor has.
In case of default, the assignee can recover the actionable claimamount fromthe original debtor without reference to
assignor.
MORTGAGE
Mortgage is defined in Section 58 of the Transfer of Property Act.
Mortgage is the transfer of interest in a specific immovable property, for the purpose of securing an
existing or future debt
The person creating the mortgage is called as the mortgagor and the person in whose favour mortgage
is created (bank) is called as the mortgagee.
Mortgage is created on immovable property like land and building.
Types ofMortgage: There are six types ofmortgages namely (i) SimpleMortgage (ii)Mortgage by Conditional Sale
(iii) UsufructuaryMortgage (iv) EnglishMortgage (v)Mortgage by Deposit of title Deeds (EquitableMortgage) and
(vi) AnamalousMortgage.Of these, allmortgages except EquitableMortgage require registration with the Registrar
of Assurances.
RegisteredMortgage: In the case of registeredmortgage (also called legalmortgage) first amortgage deed is written
which is stamped as per Stamp Act of the concerned state. The deed is then executed in the presence of two
witnesses. Thereafter, in terms of the Indian Registration Act 1908, it is to be registered with the Registrar of
Assurances (Sub Registrar) within 4months of the execution.
EquitableMortgage:
 EquitableMortgage is created bymere deposit of title deeds of property with intention to borrow.
 Title deedsmay be deposited by themortgagor himself or his agent.
 Title deeds should be deposited with the bank at Mumbai, Kolkatta and Chennai or any other town
notified by the State Government in this regard.
 Property may be situated anywhere in India. For property located in Lucknow, title deeds can be
deposited at Chennai.
 It is not necessary that the title deeds should be deposited with the branch or at the place where the loan is being
raised. These can be deposited anywhere in India at a notified place.
 The bank should not part with the title deeds even for a short duration at the request of themortgagor because if
some other creditor is induced to finance on the basis of title deeds, the bankmay lose priority over the
mortgaged property.
 EquitableMortgage does not require registration with Registrar of Assurances. But in case of a limited
company charge in respect of equitablemortgage under Section 125 of the Companies Act. 1956must be
registered with Registrar of Companies.
 All mortgages in favour of bank require registration with CERSAI (established under SARFAES1
Act) within 30 days.
Right of Foreclosure Available for Mortgage by Conditional Sale only
Personal liability of mortgager Not available for Mortgage by conditional sale
and usufructuary mortgage
Right to sale without court intervention English Mortgage.
Registration of mortgage with
Registrar of
Assurances not required in
Equitable Mortgage.a
There is absolute transfer of property English Mortgage
Loan is repaid out of income from the
mortgaged property
Usufructory mortgage
possession of property is with mortgagee Usufructory mortgage
VARIOUS KINDS OF CHARGES OVER SECURITIES Charge
immovable Property like land and building Mortgage
Actionable claims like Book debts, FDR. NSC, Life Policies Assignment
Movable property/_goods like Plant &machinery, stocks, vehicle, RIR Pledge or hypothecation
Paper securities like Shares, debentures, MF units, bonds Lien

Accounts numerical

1.
Find total assets if DER = 2:1, CL = 8 lac, equity = 4 lac.

Since total assets = debt + equity + liability
=> total assets = debt + 4 + 8
=> debt = TA - 12

Since DER = debt / equity
=>2:1 = (TA - 12) / 4
so, TA = 20 lacs Ans

2.
Find equity, given assets = 200 lac, DER = 2:1, CL = 56 lac.

Since DER = debt / equity
=> 2:1 = debt / equity
so, debt = 2 × equity

Since total assets = debt + equity + liability
=> 200 = 2 × equity+ equity + 56
So, equity = 48 lacs Ans

3.
Find NWC, given CR = 2.5:1 & CA = 30 lac.

Since CR = CA / CL & NWC = CA - CL
=> 2.5:1 = 30 / CL
=> CL = 12
and NWC = 30 - 12 = 18 lac Ans

4.
Suppose CR is 4:1, NWC is Rs 30000/-, what is CA?

Since CR = CA / CL & NWC = CA - CL => CL = CA - NWC
=> 4:1 = CA / (CA - 30000)
so, CA = Rs 40000 Ans

5.
An account became NPA on 05042009. The outstanding in the account is 10 lacs. Realisable value of security is 7 lacs. The balance including Rs 50000 as recorded and suspended interest. How much provision is required to be made on 31032010?


6.
Total current assets of a company is Rs 32 crore and the NWC is Rs 8 crore. The ratio is ___.
(Note:
Current asset = stock, debtors, loans etc
Total asset = current assets + non current assets
Non Current Assets = goodwill, preliminary exp)

Sol:
NWC = CA - CL
so, CA = 32 - 8 = 24
Current Ratio = Current Assets ÷ Current Liability 
= 32÷24 =1.33:1 Ans

_______________________
Acronyms used:
NWC = Net Working Capital
TA = Total Assets
CL = Current Liability
CA = Current Assets
CR = Current Ratio

Risk Weights for Important Assets

Risk Weights for Important Assets
Cash, balance with RBI, 0%
Balances with other banks with CRAR of 9% & above

20%
Secured loans to Staff Members 20%
Other loans to staff members 75%
Housing Loan if LTV.ratio more than 75% 100%
Housing loan if LTV Ratio is up to 75%
Loan up to Rs.30 lac to individual secured by Mortgage 50%
Loan more than Rs.30 lac to individual secured by Mortgage 75%
All Housing Loan of Rs 75 lakh and above 125%
Forex and gold open position 100%
Exposure to Central/State Govt 0%
Central Govt guaranteed advance 0%
State Govt guaranteed advances 20%
Loans to PStis (not guaranteed by Govt) 100%
Claims on unrated corporates 100%
Exposure to DICGC/CGFT. 0%Exposure to ECGC 20%
Loans against FOR, LIC policy, NSCs with margin 0%
Education loan (under Basel I —100%) But under Basel-II 75%
Loans against gold/silver jewellery up to Rs.1 lac 50%
Consumer credit / credit cards/Personal Loan 125%
Exposure to capital market 125%
Commercial real estate . 100%
Commercial Real Estate — Residential Housing (CRE-RH) 75%
Venture Capital invstmt as part of Capital market exposure 150%
Loans to non-deposit taking NBFCs for on-lending 100%
Retail Loan & Loan to SME (Retail Loan means limits up to Rs 5 crore and sale 75%
FY less than Rs 50 crore)
NPA if specific provision is less than 20% 150 %
If specific provision is 20% and above but less than 50% 100%
If specific provision is 50% and above• 150%
Bills purchased under LC issued by another bank 20%

Certified accounts and audit recollected July 2018

Pay more attention on audit part, specially those relating to RBIA.. and module 3 and 4 of audit...
In last attempt, around 20-30 questions were case study based, each comprising of 5 questions, in accounts, questions based on ratio analysis came in case study..

By
Shashank atreya

Cyber fraud management exam recollected on 20.10.2018

20.10.2018 cyber crime question
1.cyber crime definition
2.3 factor pressure,opportunity,rationalisation
3.cybernetics,kybernetes,steersman,governor,cyberpunk----given 4 option
4.honey pot
5.1st worm
6.denial of service
7.buffer overflow
8.shoulder surfing
9.access control
10.script kiddles
11.john doe order
12.nigrria419
13cyber wefare
14 email spoofing
15 cyber stalking
16domain name .in represent
17.Satyam infoway ltd vs siffynet supreme court
18cyber warfare
19phishing
20zeus
21.non repudiation
22 tailgating

23.trapdoor
24.captcha.

25 .blue hat hacker
26phreaking
27. Ethical hacking
28.anonymous
29bar code matrix code
30.RFID
31.data manipulation and data definition language
32.symmetic encryption
33. Encryption and decryption
34.locard exchange principle
35.c-Dac
36.payment getway
37.payment and settlements system 2007
38 acquiring bank
39 brute force attack
40.man in the middle attack
41session hijacking
42.digital wallet
43OLTP
44 Ucpdc
45.EMV card
46.netra drdo
47CBI Specialized structure
48.electonic signature
49.DSCI set ip NASSCOM
50.US Initiative -cyber security information sharing act
51.it act andit amendment act.
52.Pki
53 .authenticity
54.maximum value that can be stored in a prepaid card 50000
55. SWIFT


By pritee Hardiha

Certified credit counselors after MSME exam

Certified credit councelor (CCC) certificate.
How get it after clearing MSME for bankers:::

So many conditions you have to fulfill it.

Only individuals are entitled to be enrolled as CCCs. Graduate with finance/economics, engineering-cum-finance, commerce qualifications or retired bankers with 5 years or more experience in credit to MSMEs in India.
Have qualified the prescribed course for credit counselors i.e. certificate course on MSME conducted by IIBF.
Conversant with Information Technology skills along with communication proficiency and team building skills.
Age of individuals should generally not exceed 65 years at the time of selection. Continuation as CCC, shall be subject to performance review, till the age of 75 years.
Should not be a defaulter to any Banks / FIs or criminal case pending against him/ her or black listed/debarred by any agency. (self declaration to be furnished)
Should have necessary infrastructural facilities to extend services efficiently.
Will have to be enrolled on portal. Merely qualifying the certificate exam shall not allow a person to practice as CCC. He/she has to pass through the filter mechanism prescribed.

Satisfy the eligibility criteria prescribed (as given in Hand Book on CCC) for enrolment.
Qualify the prescribed certification course i.e. Certificate course on MSME conducted by IIBF (http://www.iibf.org.in/certificate_exam_schedule.asp)
Qualified candidates may apply through udyamimitra portal (https://udyamimitra.in/Home/CCC) for enrolment.
Eligible candidates would be empanelled as CCCs on portal after due diligence process

Components of credit management

Loan Policy of the Bank



Influenced by market conditions, policies of other banks, own SWOT analysis, RBI guidelines

Exposure limits-single borrower/group

Exposure limits for sectors

Discretionary powers



Credit Appraisal :



Five Cs - Character, Capacity, Capital, Conditions and Collaterals

Credit delivery-documentation, creation of charges

Control and Monitoring

Rehabilitation and Recovery

Risk management-identification,

Measurement & Evaluation

Delivery

Control and Monitoring

Rehabilitation and Recovery

Credit Risk Management

Refinance



RBI Guidelines



End use of funds

Priority sector 40%(agr 18%),weaker sector 10% foreign banks 32%, small enterprises 10%, export credit 12% of ANBC/off balance sheet expo, whichever is higher. Agr, MSE, housing(20 lacs), Education(10 lacs/20 lacs abroad), Export credit, SHG, KVI, Retail

Weaker sec. –small/marginal farmers, artisans, SGSY, SC/ST, DRI, SJSRY, SLRS, SHG

Micro, small and medium enterprises

Mfg sec: Micro upto 25 lacs, Small 25 lacs to 5 crs, Medium 5 crs to 10 crs

Service : Rs 10 lacs, 10-2 crs, 2-5 crs

Credit Exposure Norms –



For individuals/groups : 15/40 of capital funds- addl 5/10 for infra.

NBFC/NBFC-AFC 10/15%- 15/20% on lent infra

Base Rate System



Wef 1/7/2010 replaced BPLR

Banks may determine actual roi

Transparent, applicable to all except DRI, bank’s own employees, against deposits, qtrly review of BR

Existing loans with BPLR to continue, switch over option to be given

Credit Restrictions



Adv against bank’s own shares

Relatives of directors/sr officers

Industries consuming ozone depleting substances

Sensitive commodities

FDRs of other banks/CD

Buy back of shares

Credit Assessment/Delivery



MPBF method

For SME upto 5 crs limits turnover method

Working capital above 10 crs , loan component 80%

For seasonal/cyclical industrial bank may exempt with approval of board.



Fair practices code



Pertains to



Loan application, processing

Appraisal, terms and conditions

Disbursement

Post sanction supervision

Discrimination, harassment in recovery, takeover of accounts

Large exposure frame work

LARGE EXPOSURES FRAMEWORK (LEF)

The following write up on Large Exposures Framework (LEF) is based on RBI Notification No. RBI/2016-17/167 DBR.No.BP.BC.43/21.01.003/2016-17 dated December 1, 2016. Candidates are

advised to refer to the Notification for additional details.

In order to align the exposure norms for Indian banks with the BCBS standards, RBI has laid down the

guidelines on Large Exposures Framework on December 1, 2016. The guidelines are aimed at

significant tightening of norms pertaining to concentration risks of banks, especially in relation to large

borrowers. The guidelines come into effect from April 1, 2019. A large exposure is defined as any exposure to a counter-party or group of counter-parties which is

equal to 10 per cent of the bank’s eligible capital base (defined as tier-I capital). LARGE EXPOSURE LIMITS

Single Counterparty: The sum of all the exposure values of a bank to a single counterparty must not

be higher than 20 percent of the bank’s available eligible capital base at all times. In exceptional cases, Board of banks may allow an additional 5 percent exposure of the bank’s available eligible capital base. Banks shall lay down a Board approved policy in this regard. Groups of Connected Counterparties: The sum of all the exposure values of a bank to a group of

connected counterparties, as defined below, must not be higher than 25 percent of the bank’s available

eligible capital base at all times. Any breach of the above LE limits shall be under exceptional conditions only and shall be reported to

RBI immediately and rectified at the earliest but not later than a period of 30 days from the date of the

breach. Definition of connected counterparties

Bank may have exposures to a group of counterparties with specific relationships or dependencies

such that, where one of the counterparties fail, all of the counterparties are likely to fail. A group of this

sort is referred to, in this framework, as a group of connected counterparties and must be treated as a

single counterparty. In this case, the sum of the bank’s exposures to all the individual entities included

within a group of connected counterparties is subject to the large exposure limit and to the regulatory

reporting requirements. Counterparties exempted from LEF

The exposures that will be exempted from the LEF are listed below:

a. Exposures to the Government of India and State Governments which are eligible for zero percent

Risk Weight under the Basel III – Capital Regulation framework of the Reserve Bank of India;

b. Exposures to Reserve Bank of India;

c. Exposures where the principal and interest are fully guaranteed by the Government of India; d. Exposures secured by financial instruments issued by the Government of India, e. Intra-day interbank exposures;

f. Intra-group exposures;

g. Borrowers, to whom limits are authorised by the Reserve Bank for food credit;

h. Banks’ clearing activities related exposures to Qualifying Central Counterparties (QCCPs)

i. Rural Infrastructure Development Fund (RIDF) deposits placed with NABARD. However, a bank’s exposure to an exempted entity which is hedged by a credit derivative shall be

treated as an exposure to the counterparty providing the credit protection notwithstanding the fact that

the original exposure is exempted.

Bcsbi recollected questions on 20.10.2018

Recollected questions of BCSBI on 20-Oct

1. No PF for MSME units limit
2. Waiver of collateral up to what limit
3. Consumer forum are....
4. Award max. limit by BO
5. Appeal against award time limit for consumer
6. Customer delight
7 Cases relating to F/S and E/S (nomination)
8. Powers of CEO of BCSBI
9. Holder in due course means
10. Question on Marketing of services
11. Recover agents questions
12. NI Act questions
13. Sick units MSME questions

By Arshad mirza
14. OVD question
15. BCSBI objective
16. Working capital assessment for MSME by Projected Turnover method
17. Skill development initiatives questions
18. Moratorium period for skill development
19. Shifting/closing of branch notice period

BFM Treasury Management

Points BFM / Treasury Management ★☆★
1. Swap generally used for interest arbitrage when one currency is not fully convertible.
2.TOD & TOM rates are generally quoted at discount to the rate of spot rate.
3. CBLO is a money market instrument launched by CCIL. It is generally a repo instrument.
4. The money in circulation is calculated by Broad money or M3.
5. C → 1 days
     N→ <= 14 days
     T → >14 days but < 1 yr
Here C is call money, N is Notice money & T is Term money
6. LAF is used measure to day to day liquidity in the market.
7. Treasury is proned with market risk.
8. CBLO→ Collatrised Borrowing Lending obligation
9. VaR measure can be used to assess the currency risk , interest risk and price risk.
10. Yield and price of bond move inversely.
11. The option is said to be ITM if strike price is less than the forward rate in case of a call option or if strike price is greater in a ut option.
12. Money market is measured by VaR and duration.
13. IRS( Interest rate swap ) is OTC instrument issued by banks.
14. OTC ( over the counter ) refers to the derivative products sold by banks to meet specific requirements of clients.
15. RBI has permitted banks to borrow and invest through their overseas correspondent in forigen currency subject to a ceiling of 50% of Tier I capital or USD 10 millions.
16. Spot and forward transaction are the primary product of forex market.
17. Treasury is also responsible for balance sheet management.
18. NDS(Negotiated dealing system is an electronic platform for faciliating dealing in gov. Sec.
19. LAF refers to RBI lending funds to banking thtough repo rate.
20. VaR is used to measure potential loss or wrost case scenario while holding a trading position.
21. VaR is a statistical measure indicating worst possible movement of market rate over a given period of time under normal market condition at defined confidence level.
22. Options refers to contracts where the buyer of an option has a right but no obligation to exercise the contract.
23. Options are either call option or put option.
24. Derivatives are basically of three kinds→ forward contracts, optional & swap.
25. Options are primarily used as hedge against price fluctuations , it is similar to insurance against adverse movement of price.
26. Transfer pricing refers to fixing the cost of resources and return an assets of the bank in a rational manner.
27. Transfer pricing is an integral function of ALM.
28. Futures are forward contracts traded in future exchange.
29. FRA(Forward Rate agreement) closely linked with IRS, where the interest payable for future period is commited under the agreement.
30. The difference between sources and uses of funds in specific time band is known as liquidity gap.
31. Derivaties can be used to hedge high value transactions or aggregrate risks as reflected in asset-liability mismatches.
32. For the purpose of ALM ,all assets and liabilities are placed in time buckets is measured as a gap b/w rate sensitive assets and rate sensitive liabilities.
33. CD ( Credit Derivatives) help the issuer diversify the credit risk and use the capital more efficiently.
34. Roles of Treasury → Liquidity management, propritery positions , Risk management.
35. Forwad refers to purchase or sale of currency on a future date. The exchange rate for forward sale or purchase are quoted today, hence such transaction are referred to as forward contracts b/w buyer & seller.

Current Affairs on 20.10.2018

Today's Headlines from www:

*Economic Times*

📝 Debt refinancing deals slow down in real estate sector

📝 UIDAI tells banks to continue Aadhaar-enabled payments

📝 SC denies income tax exemption to local authority

📝 NBFCs liquidity crunch to hit home loan sales: report

📝 Govt to allow data service initially under in-flight connectivity

📝 PTC India to ink PPAs with 7 firms, 5 states for 1,900MW by Oct end

📝 Reliance Jio 4G revolution may render the 2G featurephone extinct

📝 China trade pact stalls as Trump tariffs feed India backlash

*Business Standard*

📝 Mphasis Q2 net profit up 37% at Rs 2.7 bn on good show in key verticals

📝 Foreign exchange reserves see highest fall of $ 5.1 billion in 7 years

📝 Vanguard Group sees opportunity for EM currencies as dollar extends rise

📝 GST Council allowing dual jurisdiction over assesses worrying traders: CAIT

📝 Fintech firms capturing market share from banks; $250-bn revenue at stake

📝 RBI issues dissent note to govt over regulation of payments system

📝 Fairfax starts infusion in Catholic Syrian Bank, forks out Rs 4.40 bn

📝 China posts slowest growth in nine years; GDP expands by 6.5% in Q3

*Financial Express*

📝 Maharashtra Cooperative Bank seeks RBI permission to takeover urban cooperative banks

📝 Gold imports widen India's trade gap; rise 4% to $17.63 billion in April-September

📝 Reliance Industries raises Rs 3,500 crore on BSE BOND platform

📝 DoT asks MTNL to outline long-term roadmap as part of revival talks

📝 Facebook hires former UK deputy prime minister Nick Clegg as head of global affairs

📝 NASSCOM inks MoU to expand Indian SMEs in MENA region

📝 Government decides to increase the tenure of FSAs between CIL, steel industry

*Mint*

📝 Lenders accept ArcelorMittal resolution plan for Essar Steel

📝 IFC launches $1 billion masala bond programme to aid India investments

📝 RBI opens banking tap to ease liquidity crunch at NBFCs

📝 ICICI Securities reports 3.22% rise in Q2 profit at ₹134.22 crore

📝 Tata Sons said to be in talks to buy stake in Jet Airways

📝 Invesco to buy OppenheimerFunds, adding $246 billion in assets

📝 UltraTech Cement standalone profit at Rs 391 crore

📝 RIL to replicate Reliance Jio model for Jio broadband.

MSME-CDP

MSE-CDP

Micro & Small Enterprises - Cluster Development Programme (MSE-CDP)

The Ministry of Micro, Small and Medium Enterprises (MSME), Government of India (GoI) has adopted the Cluster Development approach as a key strategy for enhancing the productivity and competitiveness as well as capacity building of Micro and Small Enterprises (MSEs) and their collectives in the country. A cluster is a group of enterprises located within an identifiable and as far as practicable, contiguous area and producing same / similar products / services. The essential characteristics of enterprises in a cluster are (a) Similarity or complementarity in the methods of production, quality control and testing, energy consumption, pollution control, etc (b) Similar level of technology and marketing strategies / practices (c) Similar channels for communication among the members of the cluster (d) Common challenges and opportunities.

Objectives of the Scheme:

(i) To support the sustainability and growth of MSEs by addressing common issues such as improvement of technology, skills and quality, market access, access to capital, etc.

ii) To build capacity of MSEs for common supportive action through formation of self help groups, consortia, upgradation of associations, etc.

(iii) To create/upgrade infrastructural facilities in the new/existing industrial areas/ clusters of MSEs, including setting up of Flatted Factory Complexes.

(iv) To set up common facility centres (for testing, training centre, raw material depot, effluent treatment, complementing production processes, etc.)

Components:

(i) Setting up of CFCs: Creation of tangible “assets” as Common Facility Centers (CFCs) like Common Production/Processing Centre (for balancing/correcting/improving production line that cannot be undertaken by individual units), Design Centres, Testing Facilities, Training Centre, R&D Centres, Effluent Treatment Plant, Marketing Display/Selling Centre, Common Logistics Centre, Common Raw Material Bank/Sales Depot, etc. The GoI grant will be restricted to 70% of the cost of project of maximum Rs 15.00 crore. GoI grant will be 90% for CFCs in NE & Hill States, Clusters with more than 50% (a) micro/ village (b) women owned (c) SC/ST units.

(ii) Infrastructure Development: Consist of projects for infrastructural facilities like power distribution network, water, telecommunication, drainage and pollution control facilities, roads, banks, raw materials storage and marketing outlets, common service facilities and technological backup services for MSEs in the new/ existing industrial estates/areas. The GoI grant will be restricted to 60% of the cost of project of Rs 10.00 crore. GoI grant will be 80% for projects in NE & Hill States, industrial areas/ estates with more than 50% (a) micro (b) women owned (c) SC/ST units.

Current Affairs on 19.10.2018

Today's Headlines from www:

*Economic Times*

📝 Railways gets Rs 2600 crore for revamp of 19 stations

📝 Steel plant equipment makers, global tech providers set to sign $5 billion deals

📝 Reliance Industries inducts Arundhanti Bhattacharya on board

📝 Icertis doubles down on APAC business driven by India; to scale revenues to 20% in 3-5 years

📝 E-car sales plunge 40% in FY18, but e-bikes volume soars 138%

📝 NTPC to raise $150 mn in foreign currency loan

📝 ONGC says finances are sound; no issues with salary payments

📝 Oil refiners’ profit will fall on high crude prices: RIL

*Business Standard*

📝 Slowing spends cast shadow on India's IT services industry, says Gartner

📝 Uber Technologies sells $2 billion of bonds as private placement

📝 Novartis to acquire US-based cancer drugmaker Endocyte for $2.1 billion

📝 India's nation brand value grew 5% in 2018 to $2,159 billion: Report

📝 91% of India's adult population has wealth below Rs 730,000: Credit Suisse

📝 Unilever posts strong sales growth in Q3, thanks to Indian market

📝 Banks can continue with Aadhaar-enabled payment system, says UIDAI

📝 MFs pump Rs 110 bn in equities in a fortnight, FPIs stance remains bearish

*Financial Express*

📝 Huawei to enter Indian wearable devices market early next year

📝 OYO checks into Southeast Asia; enters Indonesia with over 30 EXCLUSIVE hotels, adds 1,000 rooms

📝 Samsung says plans to double business in flagship tablet category by December

📝 Big relief: Petrol, diesel prices cut for the first time in two months on softer crude

📝 File DFR for Rs 2,500-crore greenfield Sabari airport, Kerala tells infrastructure firm Louis Berger

📝 Major blow to Indian IT firms in US: Donald Trump’s planned H-1B visa rule changes to hurt Indians

📝 Airlines to fly 23,117 domestic flights every week during winter schedule

*Mint*

📝 TCS displaces Accenture as largest IT firm servicing banks

📝 AI may raise ₹500 cr from banks next week

📝 Treebo and FabHotels have initiated merger talks

📝 Dutch firm Koninklijke DSM to buy assets in India

📝 Patients with J&J’s faulty hip implants to get up to ₹1.2 crore compensation

📝 India could be removed from US currency monitoring list

📝 Netflix considers cheaper prices in India

📝 Shriram Properties plans to file IPO papers by December.

Current Affairs on 18.10.2018

Today's Headlines from www:

*Economic Times*

📝 NTPC may bid for 8-9 stressed private power companies

📝 Apple gives users tool to see data it has collected

📝 TA Associates to sell its 15% stake in Tega Industries

📝 Canada’s OMERS Infrastructure joins race for IL&FS road assets

📝 VMware plans $2 billion direct investment in India over next 5 years

📝 ACC Q3 profit rises 15% YoY to Rs 209 crore, cement volumes up 10%

📝 Reliance Industries halts Iranian oil imports

📝 Govt should raise stake in ITC to prevent hostile takeover by BAT: SJM

*Business Standard*

📝 Stock market falls as NBFC liquidity fears weigh on investor sentiment

📝 Myntra private label hits Walmart Canada stores; to target Indian diaspora

📝 Mindtree posts healthy Q2 numbers on back of sound growth; outlook positive

📝 NITI Aayog's draft concession agreement gives e-buses a sense of direction

📝 I-T tribunal sends back Microsoft transfer pricing case to tax officer

📝 Hero MotoCorp Q2 net dips 3% to Rs 9 bn on higher expenses; shares fall 3%

📝 Havells India Q2 net up 4.44% to Rs 1.78 bn; revenue rises to Rs 21.90 bn

*Financial Express*

📝 Infra sector gets technology boost, project costs expected to be reduced by 20%

📝 India launches phase II of strategic crude oil storage programme

📝 McAfee rolls out new device-to-Cloud security solutions

📝 Mukesh Ambani’s RIL reports 17% higher net profit at Rs 9,516 crore

📝 Welspun Group Chairman Balkrishan Goenka is new Assocham president

📝 Boeing signs maintenance deals with El Al Airlines, Lufthansa

📝 Flexible working may add $376 billion annually to Indian economy by 2030, says study

📝 Housing prices up 5.3% during April-June quarter in 10 major cities: RBI

*Mint*

📝 Reliance Jio reports ₹681 crore profit in Q2; RIL to buy Hathway, Den Networks

📝 ArcelorMittal to clear $1 billion dues to bid for Essar Steel

📝 Sebi directs Singh brothers, others to repay over ₹403 crore to Fortis Healthcare

📝 Tata Motors eyes tie-ups with Ola, Uber with new shared mobility platform

📝 Sundaram Finance to hike interest rates on deposits from October 19

📝 CVC report suggests tough measures to curb banking frauds

📝 Adani to join hands with Total for fuel retail, LNG terminals.

Registration of charge

Registration of charges:

(Section 77 to Section 87 and the Companies (Registration of Charges) Rules, 2014)

-“charge” means an interest or lien created on the assets of the company or any of its undertakings or both as security and includes a mortgage.

- This is newly incorporated definition. Earlier Act did not define what is charge but

listed different types of charges which required registration.

-The issue whether Bankers' lien under Section 171 of the Indian Contract Act or Negative lien created by the loan agreements is required to be registered is still a grey area and is being debated. In our view both need not be registered. However, if any power of attorney is given the same should be registered.

- Under Section 77 particulars of all charges created on its property or assets or any of

its undertakings, within or outside India, have to be registered with Registrar of Companies (ROC) within thirty days from the date of creation of charges. It is necessary that all charges created in favour of the Bank are registered with ROC within thirty days else there is a possibility that the Bank may lose priority of the Charge.

- The ROC on the application of the company, on being satisfied that the company had sufficient cause for not filing particulars of charge within 30 days may allow registration after 30 days but within a period of 300 days from the date of creation of charge.

- If the particulars of charge or for modification or satisfaction of charge are not filed within 300 days the company or any person interested in registration of charge can file an application to the Central Govt. for condonation of delay and extension of time for filing particulars of charges. Central Govt. can impose conditions for extension of time

Sincere thanks to all who gave input/material and the training colleagues/organizations who took pains to prepare/disseminate knowledge.Compiled

from various sources. Please share this with colleagues within BANK only. Pl think twice before printing this and anything. Errors if any noticed



- Pledge is not expressly excluded by Section 77 but excluded in the Form CHG.1.It is advisable to register charge of pledge also under the head “others” in the Form1. Even if omitted to be registered the Bank can take umbrage under exclusion provided in the Form1.

- I f the company fails to register the charge within a period of 30 days from the date of creation of charge, the person (the BANK) can apply for registration of charge along with copy of the instrument by which charge was created, and the ROC with in a period of 14 days from such application, after giving notice to the company allow registration of charge subject to payment of fees.

. By virtue of Section 79 of the Act, provisions of Section 77 relating to registration of charge also apply to

(a) A company acquiring property subject to a charge;

(b) Any modification or extent or operation of the registered charge. In other words modification of charges is also to be registered.

- Under Section 82 the company has to report satisfaction of charges.

IMPORTANT- It is important to note that it is imperative that charges created in favour of the Bank are registered within a period of 30 days from the date of creation of charge. Otherwise it is possible that Bank may lose priority of charge created in favour of the Bank.

Current Affairs on 17.10.2018

Today's Headlines from www:-

*Economic Times*

📝 Uber valued at up to $120 billion in IPO proposals

📝 Diageo to sell office space in UB Tower to DivyaSree Group

📝 Investor wealth soars by Rs 5.30 lakh crore in three days

📝 IIFL Home Fin raises Rs 1,400 crore from NHB and SBI

📝 Lenovo to raise mobile production capacity in India by up to 10 fold in 2019

📝 OPEC, allies yet to hike output by one million barrels per day: Oil Minister

📝 Amazon in talks to buy stake in Future Retail

📝 RBI releases norms for facilitating money transfer among e-wallets

*Business Standard*

📝 Rolls Royce CEO lays out the brand's future path, rules out hybrid cars

📝 Lenders of insolvent Bhushan Power pick Rs 197-billion bid of JSW Steel

📝 L&T only Indian firm among 25 companies in Forbes' best employer list

📝 FPIs dump banks, mutual funds lap up metals in September quarter

📝 At Rs 7.37 trn, RIL beats TCS to become India's most valued firm by m-cap

📝 Investment in India via P-notes hits 9 year low of Rs 795.48 bn in Sept

📝 Total SA eyes stake in Indian LNG terminals, city gas distribution: CEO

*Financial Express*

📝 US-China trade war brings $8.7 billion bonanza for Indian exports to America

📝 Share of investments in GDP to rise 33% by FY23: RBI working paper

📝 Edelweiss-backed firm eyes stakes in Rs 6,000 crore Essel Infra assets

📝 IndusInd Bank Q2 result: Profit rises 4.6% to Rs 920 crore, gross NPAs up as well

📝 Infosys Q2 result above analysts’ estimates, net profit up 13%

📝 Tractor manufacturer TAFE to expand production capacity in two plants

📝 Nokia, BSNL announce partnership to introduce 5G in India

📝 India attracted USD 22 billion of FDI flows in first half of 2018, says UN report

*Mint*

📝 Walmart trims 2018-19 earnings forecast on Flipkart deal

📝 Hero Motocorp reports subdued Q2 results, profit rises 3.38%

📝 Ola’s Foodpanda buys Holachef, looks to enter cloud kitchens

📝 GPF interest rate hiked to 8% for October-December quarter

📝 Piramal Enterprises may sell contract pharma business in $1 billion deal

📝 Spot power prices hot, Indian Energy Exchange’s shares cold

📝 Builders scale down, exit projects amid cash crunch

📝 ArcelorMittal offers to settle KSS Petron, Uttam Galva dues.

Current Affairs on 16.10.2018

Today's Headlines from www:

*Economic Times*

📝 Telco writes to UIDAI, seeks more time to submit Aadhaar eKYC 'exit plan'

📝 India's oil imports surge to $10.91 bn in September

📝 South Indian Bank Q2 profit surges 16-fold to Rs 70 crore

📝 RBI lays down norms for CCPs

📝 Fundraising via debt placement slumps 38% to Rs 2 lakh crore in Apr-Sep

📝 IIFL buys controlling stake in KadaiEshwar Housing Finance for Rs 100 crore

📝 Reliance Defence to get 3% of Rs 30,000 crore offset

📝 L&T arm bags orders worth Rs 1,000 cr in Q2

*Business Standard*

📝 Festive season sale: Indian e-tailers generate Rs 150 bn in 5 days

📝 India's wholesale inflation rises to 5.13% in September from 4.53%

📝 Centre may undershoot disinvestment target by 20%, says Macquarie

📝 US retail giant Sears files for bankruptcy, to close nearly 150 stores

📝 MIT plans college for artificial intelligence, backed by $1 billion

📝 Global FDI falls 41% in first half of 2018 after Trump tax reforms: UN

📝 IndusInd Bank Q2 profit rises 4.6% to Rs 9.2 bn on higher interest income

📝 Robust festive season buying propels gold to five-year high of Rs 31,900

*Financial Express*

📝 PFRDA seeks easing of FDI norms for pension funds, expects boost for fledgling segment

📝 MCA data: 63% of 17.95 lakh registered companies in India active in august

📝 As data localisation deadline approaches, payments firms get ready for a showdown with RBI

📝 Pharma giant Dr Reddy’s sells Hyderabad API unit to Therapiva

📝 Government stake in Allahabad Bank goes up by 7.6 per cent

📝 Exports enter negative zone, decline 2.15 per cent in September

📝 China imposes anti-dumping import tariffs on US, Japan

📝 Outbound activity drives Merger and Acquisition’s robust growth in Q3 of 2018

*Mint*

📝 Motilal Oswal PE to invest ₹200 crore in Happy Forgings

📝 India sees steepest FII outflow in 2 years in October

📝 Taiwan’s Kymco to invest $65 million in Twenty Two Motors

📝 Private equity funds raised $121 billion globally in Q3 2018

📝 Prime Venture leads ₹65 crore funding round in myGate

📝 PNB plans to sell non-core assets of over ₹8,000 crore this fiscal

📝 India pitches for review of oil payment terms to stem rupee fall.

4-Tips for setting powerful goals

4-TIPS FOR SETTING POWERFUL GOALS.

The most important benefit of Setting Goals isn’t achieving your Goal. it’s what you do & the person you become in order to achieve your Goal that’s the real benefit.
Goal Setting is powerful because it provides focus. It shapes our dreams. It gives us the ability to hone in on the exact actions we need to perform to achieve everything we desire in life. Goals are great because they cause us to stretch & grow in ways that we never have before. In order to reach Our Goals, we must become better.
Life is designed in such a way that we look long-term & live short-term. We dream for the future & live in the present. Unfortunately, the present can produce many difficult obstacles. But Setting Goals provides long-term vision in Our Lives. We'll need powerful Long-Range Goals to help us get past those Short-Term Obstacles. Fortunately the more powerful Our Goals are the more we’ll be able to act on & guarantee that they will actually come to pass.

What are the key aspects to learn and remember when studying and writing Our Goals? Here’s a closer look at Goal Setting & How you can make it Forceful & Practical:
1.EVALUATE & REFLECT: The only way we can reasonably decide what we want in the future & how we’ll get there is to know where we are right now & what our current level of satisfaction is. So 1st take some time to think through & write down your current situation; then ask this question on each key point: Is that OK?
The Purpose of Evaluation is 2 Fold:
1. It gives you an objective way to look at your accomplishments & your pursuit of the vision you have for life.
2. It shows you where you are so you can determine where you need to go. Evaluation gives you a baseline to work from.
Take a couple of hours this week to Evaluate & Reflect. See where you are & write it down so that as the months progress & you continue a regular time of Evaluation & Reflection, You'll see just how much ground you’re gaining & that will be exciting.

2. DEFINE YOUR DREAMS & GOALS: One of the amazing things We've been given as humans is the unquenchable desire to have dreams of a Better Life & the ability to Establish & Set Goals to live out those dreams. We can look deep within Our Hearts & Dream of a better situation for Ourselves & Our fMFamilies. We can dream of Better Financial, Emotional, Spiritual/Physical Lives. We've also been given the ability to not only dream, but pursue those dreams & not just pursue them, but the cognitive ability to lay out a plan and strategies to achieve those dreams. Powerful.
What are your Dreams & Goals? This isn’t what you already have/what you've done, but what you want. Have you ever really sat down and thought through your life values and decided what you really want? Have you ever taken the time to truly reflect, to listen quietly to your heart, to see what dreams live within you? Your dreams are there. Everyone has them. They may live right on the surface or they may be buried deep from years of others telling you they were foolish, but they are there.
Take time to be quiet. This is something that we don’t do enough of in this busy world of ours. We Rush & We’re constantly listening to noise all around us. The human heart was meant for times of quiet-to peer deep within. It is when we do this that our hearts are set free to Soar & Take Flight on the wings of our own dreams. Schedule some quiet 'Dream Time' this week. No Other People. No Cellphone. No Computer. Just you, a Pad, a Pen & Your Thoughts.
Don’t think of any as too Outlandish/Foolish-remember-you’re dreaming. Let the thoughts fly & take careful record.
Think about what really thrills you. When you are quiet, think about those things that really get your blood moving. What would you love to do, either for fun or for a living? What would you love to accomplish? What would you try if you were guaranteed to succeed? What big thoughts move your heart into a state of excitement and joy? When you answer these questions you will feel great & you will be in the 'Dream Zone'. It is only when we get to this point that we experience what our dreams are.
Write down all of your dreams as you have them. Don’t think of any as too Outlandish/Foolish-remember-you’re dreaming. Let the thoughts fly & take careful record.
Now, prioritize those dreams. Which are most important? Which are most feasible? Which would you love to do the most? Put them in the order in which you will actually try to attain them. Remember, We're always moving toward action-not just dreaming.

3.MAKE YOUR GOALS SMART: The acronym S.M.A.R.T. means Specific, Measurable, Attainable, Realistic & Time-Sensitive.
- SPECIFIC: Goals are no place to waffle. They are no place to be vague. Ambiguous Goals produce ambiguous results. Incomplete Goals produce incomplete futures.
- MEASURABLE: Always set Goals that are measurable. I would say 'Specifically Measurable' to take into account Our Principle of being specific.
- ATTAINABLE: One of the detrimental things that Many People do-with good intentions-is setting Goals that are so high that they are unattainable.
- REALISTIC: The root word of realistic is 'Real'. A Goal has to be something that we can reasonably make 'Real/Reality' in Our Lives. There are Some Goals that are simply not realistic. You have to be able to say, even if it is a tremendously stretching Goal, that yes indeed. it is entirely realistic-that you could make it. You may even have to say that it will take X, Y, Z to do it, but if those happen, then it can be done. This is in no way to say it shouldn’t be a Big Goal, but it must be Realistic.
- TIME: Every Goal should have a timeframe attached to it. One of the powerful aspects of a Great Goal is that it has an end-a time in which you are shooting to accomplish it. As time goes by, you work on it because you don’t want to get Behind & You work diligently because you want to meet the deadline. You may even have to break down a Big Goal into different parts of Measurement & Timeframes-that is Ok. set Smaller Goals & Work them out in their own time. A S.M.A.R.T. Goal has a timeline.

4.HAVE ACCOUNTABILITY: When someone knows what your Goals are, they hold you accountable by asking you to 'Give An Account' of where you're in the process of achieving that Goal. Accountability puts some teeth into the process. If a Goal is set & only one person knows it, does it really have any power? Many times, No. A Goal isn’t as powerful if you don’t have One or More People who can hold you accountable to it..
- (HAPPY MORNING).

Current Affairs on 15.10.2018

Today's Headlines from www:-

*Economic Times*

📝 PSU banks want government to set up oversight panel

📝 Notices to 10,000 depositors post demonetisation

📝 Residential property sales rise 15% in second quarter

📝 Fund raising via QIP drops 78% to Rs 7,000 crore in Apr-Aug FY19

📝 Grant Thornton under CBI lens for 'inflated' valuation of Kingfisher Airlines

📝 Government invites bids for international Udan flights

📝 74 Indian companies generated €11 billion revenue in Germany: Survey

📝 Staffing sector seeks input tax credit on insurance cost

*Business Standard*

📝 Cybersecurity start-up Sequretek plans to launch North America operations

📝 Orient fights to keep the brand relevant, targets millennial buyers

📝 Adani, Bharti, Bajaj lose most in percentage terms in latest market rout

📝 GDP growth to fall from 8.2% in Q1FY19 to 6.9% in Q4FY19

📝 Japanese experts to help Indian architects develop 12 bullet train stations

📝 SIDBI keen to expand exposure in MFI industry as it posts 25% annual growth

📝 Data monetisation is the next big challenge: Tech Mahindra's K Natarajan

*Financial Express*

📝 India venture capital market saw investments of over $2 billion in Q3: KPMG

📝 India urges IMF to introduce quota reforms

📝 Google testing 'Explore' interface on Chrome

📝 Government to give priority to state power producers for coal supply; private plants in lurch

📝 Despite 2% salary hike per year, 54% expats confident about building personal wealth in India

📝 Debit card PoS transactions of Airtel, Paytm, Fino Payments banks beat those of mid-sized PSBs

📝 We’ve an EV solution that’ll work for India, says Allen Ko, Chairman, Kymco

*Mint*

📝 KKR weighing investment in IL&FS road projects

📝 Tata Steel plans capacity expansion at Bhushan Steel plant

📝 Srinivasa Farms to invest in startups, enter allied business

📝 Cloudtail India posts 27% rise in sales in 2017-18

📝 Online sales of large appliances to hit $1 billion this year: RedSeer

📝 Ex Ostro Energy CEO, COO to start renewable energy firm

📝 FPIs remain in sell-off mode, pull out ₹26,600 crore in 2 weeks

📝 DoT limits subscriber enrolment during network test to 5%.

Nayak Committee working capital revised method

Revised

New projected Turnover method limits:: Revised

WCR=31.25(For digital txns37. 50)

Bank finance =25% (For digital txns=30%)

Margin=6.25% (For digital txns=7.50%)

Contingent liabilities

Contingent Liabilities:::

Another feature of Balance Sheet to be closely analysed by the credit analyst is the
contingent liabilities. It often happens that at the time the Balance Sheet is drawn up, the
accountant is not fully aware of some obligations of the enterprise : they may or may not
accrue as a liability, because of dispute regarding their tenability as a claim against the
enterprise or if they do arise, he is not certain about their quantum. For instance, quality
disputes, tax appeals, etc. are obligations of this nature. These obligations are termed
contingent liabilities and must be detailed as a footnote. A few examples of these

contingent liabilities are :
i) Pending law-suits.
ii) Claims against the company not acknowledged as debts.
iii) Guarantees issued by the company
iv) Unexpired portion of Letters of Credit established by the Bank on behalf of the
unit.
v) Taxes and duties under dispute with authorities.
vi) Bills/Cheques discounted with bankers.
The relevance of these to the credit analyst lies in the likelihood of their occurrence. He
will have to examine each of these and judge for himself to what extent chances exist for
their materialising into real liabilities. If, in his judgment they are more likely to materialize,
he must make a suitable provision in his own analysis, by setting it off against the net
worth, even though the enterprise itself had not done so.

Off balance sheet items

Off-balance sheet items

Off-balance sheet items have been bifurcated as follows:

(iii) Non-market related off-balance sheet items

(iv) Market related off-balance sheet items

There is two-step process for the purpose of calculating risk weighted assets in respect of

off-balance sheet items:

BI. The notional amount of the transaction is converted into a credit equivalent factor by

multiplying the amount by the specified Credit Conversion Factor (CCF)

The resulting credit equivalent amount is then multiplied by the risk weight

applicable to the counter party or to the purpose for which the bank has extended

finance or the type of asset whichever is higher. Where the off-balance sheet item is secured by eligible collateral or guarantee, the credit

risk mitigation guidelines will be applied. Non-market related off-balance sheet items:

Off balance sheet items like direct credit substitutes, trade and performance related

contingent items and commitments with certain draw downs are classified under Non- market related off-balance sheet items. The credit equivalent amount is determined by

multiplying the contracted amount of that particular transaction by the relevant CCF. Non-market related off-balance sheet items also include undrawn or partially

undrawn fund based and non-fund based facilities, which are not unconditionally

cancellable. The amount of undrawn commitment is to be included in calculating the off balance sheet items. Non-market related exposure is the maximum unused portion of the

commitment that could be drawn during the remaining period of maturity. In case of term

loan with respect to large project to be drawn in stages, undrawn portion shall be calculated

with respect of the running stage only. RBI guidelines on CCF (Credit Conversion Factor)

Direct Credit Substitutes CCF

General Guarantees (including Standby LCs), 100%

Acceptances

Transaction related contingent items (Performance 50%

bonds, Bid bonds, Warranties, Indemnities, Standby

LC relating to particular transaction

Short Term LC (Documentary) for Issuing bank as well 20%

as confirming bank

https://iibfadda.blogspot.com. /?m=0

Caiib BFM balance sheet case studies

CAIIB BFM:

Balance sheet of a bank provides the following information:
Fixed Assets - 1000cr
Investment in central Govt Securities - Rs 10000cr
In standard loan accounts
Housing Loans - RS 6000c r (Secured, below Rs 10 lac)
the Retail loan - Rs 4000cr
Other loans - Rs 8000cr
sub-standard secured loans - Rs 1000cr
sub-standard unsecured loans - Rs 500c r
Doubtful loans (D-1, secured) - Rs 800cr
Doubtful loans (D-1, unsecured) - Rs 600c r
Doubtful loans (D-2, secured) - Rs 500cr
Doubtful loans (D-2, unsecured) - Rs 1000 cr
Doubtful loans (D-3, secured) - Rs 1000cr
Doubtful loans (D-3, unsecured) - Rs 600cr
Loss Assets - 50cr and
other assets - Rs 500cr .
Answer the following questions, based on this information, by using standard Approach for credit risk.
1. What is the amount of RWAs for investment in govt securities?
a. Rs 5000cr
b. Rs 3500cr
c. Rs 2500cr
d. Nil
2. What is the amount of RWAs for sub-standard unsecured accounts?
a. Rs 500cr
b. Rs 7500cr
c. Rs 1000cr
d. Rs 1500cr
3. What is the amount of RWAs for doubtful (D-1, unSecured) accounts?
a. Rs 300cr
b. Rs 500cr
c. Rs 800cr
d. Rs 900cr
4. What is the amount of RWAs for doubtful (D-2, unSecured) accounts?
a. Rs 300cr
b. Rs 500cr
c. Rs 800cr
d. Rs 900cr
5. What is the amount of RWAs for doubtful (D-3, unSecured) accounts?
a. Rs 300cr
b. Rs 500cr
c. Rs 800cr
d. Rs 900cr
6. What is the amount of RWAs for retail loans?
a. 3000cr
b. 4000cr
c. 5000cr
d. 6000cr
7. What is the amount of RWAs for housing loans?
a. 3000cr
b. 4000cr
c. 5000cr
d. 6000cr
Solution :
1. d
RW against Govt Securities = 0 %
So, RWA
= 10000 x 0%
= 0 Cr
2. a
If th e provision is less than 20 %, then RW is 150%
If the provision is 20-49 %, then RW is 100%
If the provision is 50% or more, then RW is 50 %
Provision in Sub-Standard Un-Secured - 25 %, and so, RW = 100 %
So, RWA
= 500 x 1 00 %
= 500 Cr
3. a
If th e provision is less than 20 %, then RW is 150%
If the provision is 20-49 %, then RW is 100%
If the provision is 50% or more, then RW is 50 %
Provision in doubtful (D-1, unsecured) - 100 %, and so, RW = 50 %
So, RWA
= 600 x 5 0 %
= 300 Cr
4. b
If th e provision is less than 20 %, then RW is 150%
If the provision is 20-49 %, then RW is 100%
If the provision is 50% or more, then RW is 50 %
Provision in doubtful (D-2, unsecured) - 100 %, and so, RW = 50 %
So, RWA
= 1000 x 50 %
= 500 Cr
5. a
If th e provision is less than 20 %, then RW is 150%
If the provision is 20-49 %, then RW is 100%
If the provision is 50% or more, then RW is 50 %
Provision in doubtful (D-3, unsecured) - 100 %, and so, RW = 50 %
So, RWA
= 600 x 5 0 %
= 300 Cr
6. a
RW on retail loans = 75 %
So, RWA
= 4000 x 75%
= 3000 Cr
7. a
RW on housing loans = 50 %
So, RWA
= 6000 x 50%
= 3000 Cr

Balance sheet

Balance Sheet
Liabilities defined very broadly represent what the business entity owes others. The Companies Act
classifies them as follows:
1. Share capital
2. Reserve and surplus
3. Secured loans
4. Unsecured loans
5. Current liabilities and provisions.
Share Capital: This is divided into two types: equity capital and preference capital. The first represents the contribution
of equity shareholders who are theoretically the owners to the firm. Equity capital, being risk capital, carries no fixed
rate of dividend. Preference capital represents the contribution of preference shareholders and the dividend rate
payable onmay be fixed and cumulative. Reserves and surplus : Reserves and surplus are profits which have been
retained in the firm. There are two types of reserves: revenue reserves and capital reserves. Revenue reserves
represent accumulated retained earnings from the profits of normal business operations. These are held in various
forms: general reserve, investment allowance reserve, capital redemption reserve, dividend equalisation reserve,
etc. Capital reserves arise out of gains which are; not related to normal business operations. Examples of such
gains are the premium on issue of shares or gain on revaluation of assets. Surplus is the balance in the profit and
loss account which has not been appropriated to any particular reserve account. Note that reserves and surplus
along with equity with equity capital represent owners' equity.
Secured Loans: These denote borrowings of the firm against which specific securities have been provided.
The important components of secured loans are: debentures, loans from financial institutions, and loans
from commercial banks.
Unsecured Loans: These are the borrowings of the firm against which no specific security has been provided. The
major components of unsecured loans are: fixed deposits, loans and advances from promoters, inter-corporate
borrowings, and unsecured loans from banks.
Current Liabilities and Provisions: Current liabilities and provisions, as per the classification under the
Companies Act, consist of the following: amounts due to the suppliers of goods and services bought on credit;
advance payments received; accrued expenses; unclaimed dividend; provisions for taxes, dividends, gratuity,
pensions, etc. Current liabilities for managerial purposes (as distinct from their definition in the Companies Act) are
obligations which are expected tomature in the next twelve months. So defined, they include the following:
(i) loans which are payable within one year fromthe date of balance sheet,
(ii) accounts payable (creditors) on account of goods and services purchased on credit for which
payment has to be made within one year,
(iii) Provision for taxation for taxation,
(iv) accruals for wages, salaries, rentals, interest, and other expenses (these are expenses for services that

have been received by the company but for which the payment has not fallen due), and
(v) advance payment received for goods or services to be supplied in the future.
Assets
Broadly speaking, assets represent resources which are of some value to the firm. They have been acquired at a
specific monetary cost by the firm for the conduct of its operations. Assets are classified as follows under the
Companies Act:
1. Fixedassets
2. Investments
3. Current assets, loans and advances
4. Miscellaneous expenditures and losses
Fixed Assets: These assets have two characteristics: they are acquired for use over relatively long periods for
carrying on the operations of the firmand they are ordinarily notmeant for resale. Examples of fixed assets are land,
buildings, plant,machinery, patents, and copyrights.
Investments: These are financial securities owned by the firm. Some investments represent long-term commitment
of funds. (Usually these are the equity shares of other firms held for income and control purposes). Other; investments
are short-term in nature and may rightly be classified under current assets for managerial purposes. (Under
requirements of the Companies Act, however, short-term holding of financial securities also has to be shown under
investments, and not under current assets).
Current assets, loans, and advances: This category consists of cash and other resources which get converted into
cash during the operating cycle of the firm. Current assets are held for a short period of time as against fixed assets
which are held for relatively longer periods. The major components of current assets are: cash, debtors, inventories,
loans and advances, and pre-paid expenses. Cash denotes funds readily disbursable by the firm. The bulk of it is
usually in the form of bank balance; the rest comprises of currency held by the firm. Debtors (also called accounts
receivable) represent the amounts owned to the firm by its customers who have bought goods, services on credit.
Debtors are shown in the balance sheet at the amount owed, less an allowance for the bad debts. Inventories (also
called stocks) consist of raw materials, work-in-process, finished goods, and stores and spares. They are usually
reported at the lower of the cost or market value.
Loans and advances: are the amounts loaned to employees, advances given to suppliers and contractors, and
deposits made with governmental and other agencies. They are shown at the actual amount. Pre-paid expenses
are expenditure incurred for services to be rendered in the future. These are shown at the cost of unexpired
service.
Miscellaneous expenditures and losses: This category consists of two items: (i) miscellaneous expenditures
and (ii) losses. Miscellaneous expenditure's represent certain outlays such as preliminary expenses and preoperative
expenses which have not been written off. From the accounting point of view, a loss represents a
decrease in owners equity. Hence, when a loss occurs, the owners' equity should be reduced by that amount.
However as per company law requirements, the share capital (representing owners' equity) cannot be reduced
when a loss occurs. So the share capital is kept intact on the left hand side (the liabilities side) of the balance sheet
and the loss is shown on the right hand side (the assets side) of the balance sheet Profit And Loss Account
It is a statement of income and expenditure for a accounting period. The items of P& L account are:
 Gross and Net sales
 Cost of goods sold
 Gross profit
 Operating expenses
 Operating profit
 Non-operating surplus/deficit
 Profit before interest and tax
 Interest
 Profit before tax
 Tax
 Profit after tax (Net Profit)
Gross and Net Sales:Total price of goods sold is called Gross sales. Net sales are Salesminus excise duty. Cost of
goods sold is the sumof costs incurred formanufacturing the goods sold during the accounting period. It consists of
directmaterial cost, direct labour cost, direct labour cost, and factory overheads. It should be distinguished form the
cost of production. The latter represents the cost of goods produced in the accounting year, not the cost of goods
sold during the same period.
Gross profit is the difference between net sales and cost of goods sold. Most companies show this amount
as a separate item (as in the table here). Some
Operating expenses consist of general administrative expenses, selling and distribution expenses, and
depreciation. (Many accountants include depreciation under cost of goods sold as a manufacturing
overhead rather than under operating expenses. This treatment is also quite reasonable).
Operating profit is the difference between gross profit and operating expenses. As a measure of profit it reflects
operating performance and is not affected by non-operating gains/losses, financial leverage, and tax factor. Nonoperating
surplus represents gains arising from sources other than normal operations of the business. Its major
components are income from investments and gains from disposal of assets. Likewise, non-operating deficit
represents losses from activities unrelated to the normal operations of the firm.
Profit before interest and taxes is the sum of operating profit and non-operating surpiusideficit. Referred to also as
earnings before interest and taxes (EBIT), this represents a measure of profit which is not influenced by financial
leverage and the tax factor.
Interest is the expenses incurred for borrowed funds, such as term loans, debentures, public deposits, and
working capital advances.
Profit before tax is obtained by deducting interest fromprofits before interest and taxes.
Tax represents the income tax payable on the taxable profit of the year.
Profit after tax is the difference between the profit before tax and tax for the year.
Dividends represent the amount earmarked for distribution to shareholders.
Retained earnings are the difference between profit after tax and dividends.

Basel capital adequacy pillers

The Basel capital adequacy framework rests on the following three mutually- reinforcing pillars:

Pillar 1: Minimum Capital Requirements - which prescribes a risk-sensitive calculation of capital requirements that, for the first time, explicitly includes operational risk in addition to market and credit risk.

Pillar 2: Supervisory Review Process (SRP) - which envisages the establishment of suitable risk management systems in banks and their review by the supervisory authority.

Pillar 3: Market Discipline - which seeks to achieve increased transparency through expanded disclosure requirements for banks.

The Basel Committee also lays down the following four key principles in regard to the SRP envisaged under Pillar 2:

Principle 1: Banks should have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels.

Principle 2: Supervisors should review and evaluate banks’ internal capital adequacy assessments and strategies, as well as their ability to monitor and ensure their compliance with the regulatory capital ratios. Supervisors should

take appropriate supervisory action if they are not satisfied with the result of this process.

Principle 3: Supervisors should expect banks to operate above the minimum regulatory capital ratios and should have the ability to require banks to hold capital in excess of the minimum.

Principle 4: Supervisors should seek to intervene at an early stage to prevent capital from falling below the minimum levels required to support the risk characteristics of a particular bank and should require rapid remedial action if capital is not maintained or restored.

 It would be seen that the principles 1 and 3 relate to the supervisory expectations from banks while the principles 2 and 4 deal with the role of the supervisors under Pillar 2. Pillar 2 (Supervisory Review Process - SRP) requires banks to implement an internal process, called the Internal Capital Adequacy Assessment Process (ICAAP), for assessing their capital adequacy in relation to their risk profiles as well as a strategy for maintaining their capital levels. Pillar 2 also requires the supervisory authorities to subject all banks to an evaluation process, hereafter called Supervisory Review and Evaluation Process (SREP), and to initiate such supervisory measures on that basis, as might be considered necessary. An analysis of the foregoing principles indicates that the following broad responsibilities have been cast on banks and the supervisors:

Banks’ responsibilities:

(a)Banks should have in place a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels (Principle 1)

(b)Banks should operate above the minimum regulatory capital ratios (Principle 3)

Supervisors’ responsibilities

(a) Supervisors should review and evaluate a bank’s ICAAP. (Principle 2)

(b) Supervisors should take appropriate action if they are not satisfied with the results of this process. (Principle 2)

(c) Supervisors should review and evaluate a bank’s compliance with the regulatory capital ratios. (Principle 2)

(d) Supervisors should have the ability to require banks to hold capital in excess of the minimum. (Principle 3)

(e) Supervisors should seek to intervene at an early stage to prevent capital from falling below the minimum levels. (Principle 4)

(f) Supervisors should require rapid remedial action if capital is not maintained or restored. (Principle 4)

Thus, the ICAAP and SREP are the two important components of Pillar 2

and could be broadly defined as follows:

The ICAAP comprises a bank’s procedures and measures designed to ensure the following:

(a) An appropriate identification and measurement of risks;

(b) An appropriate level of internal capital in relation to the bank’s risk profile; and

(c) Application and further development of suitable risk management systems in the bank.

The SREP consists of a review and evaluation process adopted by the supervisor, which covers all the processes and measures defined in the principles listed above. Essentially, these include the review and evaluation of the bank’s ICAAP, conducting an independent assessment of the bank’s risk profile, and if necessary, taking appropriate prudential measures and other supervisory actions.

These guidelines seek to provide broad guidance to banks by outlining the manner in which the SREP would be carried out by the RBI, the expected scope and design of their ICAAP, and the expectations of the RBI from banks in regard to implementation of the ICAAP.

Treasury management special

Treasury Management

1. Fund management has been the primary activity of treasury, but treasury is also responsible for Risk Management & plays an active part in ALM.
2. D-mat accounts are maintained by depository participants to hold securities in electronic form.
3. In present scenario treasury function is liquidity management and it is considered as a service center.
4. From an organizational point of view treasury was considered as a service center but due to economic reforms & deregulation of markets treasury has evolved as a profit center.
5. Treasury connects core activity of the bank with the financial markets.
6. Investment in securities & Foreign Exchange business are part of integrated treasury.
7. Integrated treasury refers to integration of money market, Securities market and Foreign Exchange operations.
8. Banks have been allowed large limits in proportion of their net worth for overseas borrowings and investment.
9. Banks can also source funds in global markets and Swap the funds into domestic currency or vice versa.
10. The treasury’s transactions with customers is known as merchant business.
11. The treasury encompasses funds management, Investment and Trading in a multy currency environment.
12. Globalization refers to integration between domestic and global markets.
13. RBI has been progressively relaxing the Exchange Controls.
14. The Exchange Control Department of RBI has been renamed as Foreign Exchange Department with effect from January 2004.
15. Though treasury trades with narrow spreads, the profits are generated due to high volume of business.
16. Foreign currency position at the end of the day is known as open position.
17. Open position is also called Proprietary position or Trading position.
18. Treasury sells Foreign Exchange services, various risk management products & structured loans to corporates.
19. Forward Rate Agreement (FRA) is entered to fix interest rates in future.
20. SWAP is offered to convert one currency into another currency.
21. Allocation of costs to various departments or branches of the bank on a rational basis is called transfer pricing.
22. The treasury functions with a degree of autonomy and headed by senior management person.
23. The treasury may be divided into three main divisions 1) Dealing room 2) Back office and 3) Middle office.
24. Securities market is divided into two parts, primary & secondary markets.
25. The security dealers deals only with secondary market.
26. The back office is responsible for verification & settlement of the deals concluded by the dealers.
27. Middle office monitors exposure limits and stop loss limits of treasury and reports to the management on key parameters of performance.
28. Minimum marketable investment is Rs. 5.00 Crores.

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1. The driving force of integrated treasury are:

A) Integrated cash flow management B) Interest arbitrage C) Investment opportunities D) Risk Management..
2. The functions of Integrated Treasury are:
A) Meeting Reserve requirements
B) Efficient Merchant services
C) Global cash management
D) Optimizing profit by exploiting market opportunities in Forex market, Money market and Securities market
E) Risk management
F) Assisting bank management in ALM.
3) The immediate impact of globalization is three fold
A) Interest rate
B) New institutional structure
C) Derivatives were allowed.
4) RBI is allowing banks to borrow and invest through their overseas correspondents, in foreign currency upto 25% of their Tier – I capital or USD 10Million which amounts higher.
5) Treasury products have become more attractive for two reasons
1) Treasury operations are almost free of credit risk and require very little capital allocation and
2) Operation coats are low as compared to branching banking.
6. Treasury generates profits from under noted businesses.
Conventional A) Foreign exchange business and B) Money market deals.
Investment activities e.g. SLR, non – SLR & investment in Subsidiaries.
Interest Arbitrage.
Trading is a speculative activity, where profits arise out of favorable price movements during the interval between buying and selling.

7. ARBITRAGE: is the benefit accruing to traders, who play in different markets simultaneously.
8. DERIVATIVES are financial contracts to buy or sell or to exchange a cash flow in any manner at a future date, the price of which is based on market price of an underlying assets which may be financial or a real asset with or with out an obligation to exercise the contract.
9. EMERGING MARKET COUNTRIES are countries with a fast developing economy, which are largely market driven.
10. D-MAT ACCOUNTS are maintained by depository participants to hold securities in electronic form, so that transfer of securities can be affected by debit or credit to the respective account holders without any physical document.

Risk management important terms

Risk management very Important Terms

Capital Funds

Equity contribution of owners. The basic approach of capital adequacy framework is that a bank should have sufficient capital to provide a stable resource to absorb any losses arising from the risks in its business. Capital is divided into different tiers according to the characteristics / qualities of each qualifying instrument. For supervisory purposes capital is split into two categories: Tier I and Tier II.

Tier I Capital

A term used to refer to one of the components of regulatory capital. It consists mainly of share capital and disclosed reserves (minus goodwill, if any). Tier I items are deemed to be of the highest quality because they are fully available to cover losses Hence it is also termed as core capital.

Tier II Capital

Refers to one of the components of regulatory capital. Also known as supplementary capital, it consists of certain reserves and certain types of subordinated debt. Tier II items qualify as regulatory capital to the extent that they can be used to absorb losses arising from a bank's activities. Tier II's capital loss absorption capacity is lower than that of Tier I capital.

Revaluation reserves

Revaluation reserves are a part of Tier-II capital. These reserves arise from revaluation of assets that are undervalued on the bank's books, typically bank premises and marketable securities. The extent to which the revaluation reserves can be relied upon as a cushion for unexpected losses depends mainly upon the level of certainty that can be placed on estimates of the market values of the relevant assets and the subsequent deterioration in values under difficult market conditions or in a forced sale.

Leverage

Ratio of assets to capital.

Capital reserves

That portion of a company's profits not paid out as dividends to shareholders. They are also known as undistributable reserves and are ploughed back into the business.

Deferred Tax Assets

Unabsorbed depreciation and carry forward of losses which can be set-off against future taxable income which is considered as timing differences result in deferred tax assets. The deferred Tax Assets are accounted as per the Accounting Standard 22.

Deferred Tax Liabilities

Deferred tax liabilities have an effect of increasing future year's income tax payments, which indicates that they are accrued income taxes and meet definition of liabilities.

Subordinated debt

Refers to the status of the debt. In the event of the bankruptcy or liquidation of the debtor, subordinated debt only has a secondary claim on repayments, after other debt has been repaid.

Hybrid debt capital instruments

In this category, fall a number of capital instruments, which combine certain characteristics of equity and certain characteristics of debt. Each has a particular feature, which can be considered to affect its quality as capital. Where these instruments have close similarities to equity, in particular when they are able to support losses on an ongoing basis without triggering liquidation, they may be included in Tier II capital.

BASEL Committee on Banking Supervision

The BASEL Committee is a committee of bank supervisors consisting of members from each of the G10 countries. The Committee is a forum for discussion on the handling of specific supervisory problems. It coordinates the sharing of supervisory responsibilities among national authorities in respect of banks' foreign establishments with the aim of ensuring effective supervision of banks' activities worldwide.

BASEL Capital accord

The BASEL Capital Accord is an Agreement concluded among country representatives in 1988 to develop standardised risk-based capital requirements for banks across countries. The Accord was replaced with a new capital adequacy framework (BASEL II), published in June 2004. BASEL II is based on three mutually reinforcing pillars hat allow banks and supervisors to evaluate properly the various risks that banks face. These three pillars are:

Minimum capital requirements, which seek to refine the present measurement framework

supervisory review of an institution's capital adequacy and internal assessment process;

market discipline through effective disclosure to encourage safe and sound banking practices

Risk Weighted Asset

The notional amount of the asset is multiplied by the risk weight assigned to the asset to arrive at the risk weighted asset number. Risk weight for different assets vary e.g. 0% on a Government Dated Security and 20% on a AAA rated foreign bank etc.

CRAR(Capital to Risk Weighted Assets Ratio)

Capital to risk weighted assets ratio is arrived at by dividing the capital of the bank with aggregated risk weighted assets for credit risk, market risk and operational risk. The higher the CRAR of a bank the better capitalized it is.

Credit Risk

The risk that a party to a contractual agreement or transaction will be unable to meet its obligations or will default on commitments. Credit risk can be associated with almost any financial transaction. BASEL-II provides two options for measurement of capital charge for credit risk

1.standardised approach (SA) - Under the SA, the banks use a risk-weighting schedule for measuring the credit risk of its assets by assigning risk weights based on the rating assigned by the external credit rating agencies.

2. Internal rating based approach (IRB) - The IRB approach, on the other hand, allows banks to use their own internal ratings of counterparties and exposures, which permit a finer differentiation of risk for various exposures and hence delivers capital requirements that are better aligned to the degree of risks. The IRB approaches are of two types:

a) Foundation IRB (FIRB):The bank estimates the Probability of Default (PD) associated with each borrower, and the supervisor supplies other inputs such as Loss Given Default (LGD) and Exposure At Default (EAD).

b) Advanced IRB (AIRB):In addition to Probability of Default (PD), the bank estimates other inputs such as EAD and LGD. The requirements for this approach are more exacting. The adoption of advanced approaches would require the banks to meet minimum requirements relating to internal ratings at the outset and on an ongoing basis such as those relating to the design of the rating system, operations, controls, corporate governance, and estimation and validation of credit risk components, viz., PD for both FIRB and AIRB and LGD and EAD for AIRB. The banks should have, at the minimum, PD data for five years and LGD and EAD data for seven years. In India, banks have been advised to compute capital requirements for credit risk adopting the SA.

Market risk

Market risk is defined as the risk of loss arising from movements in market prices or rates away from the rates or prices set out in a transaction or agreement. The capital charge for market risk was introduced by the BASEL Committee on Banking Supervision through the Market Risk Amendment of January 1996 to the capital accord of 1988 (BASEL I Framework). There are two methodologies available to estimate the capital requirement to cover market risks:

1) The Standardised Measurement Method: This method, currently implemented by the Reserve Bank, adopts a 'building block' approach for interest-rate related and equity instruments which differentiate capital requirements for 'specific risk' from those of 'general market risk'. The 'specific risk charge' is designed to protect against an adverse movement in the price of an individual security due to factors related to the individual issuer. The 'general market risk charge' is designed to protect against the interest rate risk in the portfolio.

2) The Internal Models Approach (IMA): This method enables banks to use their proprietary in-house method which must meet the qualitative and quantitative criteria set out by the BCBS and is subject to the explicit approval of the supervisory authority.

Operational Risk

The revised BASEL II framework offers the following three approaches for estimating capital charges for operational risk:

1) The Basic Indicator Approach (BIA): This approach sets a charge for operational risk as a fixed percentage ("alpha factor") of a single indicator, which serves as a proxy for the bank's risk exposure.

2) The Standardised Approach (SA): This approach requires that the institution separate its operations into eight standard business lines, and the capital charge for each business line is calculated by multiplying gross income of that business line by a factor (denoted beta) assigned to that business line.

3) Advanced Measurement Approach (AMA): Under this approach, the regulatory capital requirement will equal the risk measure generated by the banks' internal operational risk measurement system. In India, the banks have been advised to adopt the BIA to estimate the capital charge for operational risk and 15% of average gross income of last three years is taken for calculating capital charge for operational risk.

Internal Capital Adequacy Assessment Process (ICAAP)

In terms of the guidelines on BASEL II, the banks are required to have a board-approved policy on internal capital adequacy assessment process (ICAAP) to assess the capital requirement as per ICAAP at the solo as well as consolidated level. The ICAAP is required to form an integral part of the management and decision-making culture of a bank. ICAAP document is required to clearly demarcate the quantifiable and qualitatively assessed risks. The ICAAP is also required to include stress tests and scenario analyses, to be conducted periodically, particularly in respect of the bank's material risk exposures, in order to evaluate the potential vulnerability of the bank to some unlikely but plausible events or movements in the market conditions that could have an adverse impact on the bank's capital.

Supervisory Review Process (SRP)

Supervisory review process envisages the establishment of suitable risk management systems in banks and their review by the supervisory authority. The objective of the SRP is to ensure that the banks have adequate capital to support all the risks in their business as also to encourage them to develop and use better risk management techniques for monitoring and managing their risks.

Market Discipline

Market Discipline seeks to achieve increased transparency through expanded disclosure requirements for banks.

Credit risk mitigation

Techniques used to mitigate the credit risks through exposure being collateralised in whole or in part with cash or securities or guaranteed by a third party.

Mortgage Back Security

A bond-type security in which the collateral is provided by a pool of mortgages. Income from the underlying mortgages is used to meet interest and principal repayments.

Derivative

A derivative instrument derives its value from an underlying product. There are basically three derivatives

a) Forward Contract- A forward contract is an agreement between two parties to buy or sell an agreed amount of a commodity or financial instrument at an agreed price, for delivery on an agreed future date. Future Contract- Is a standardized exchange tradable forward contract executed at an exchange. In contrast to a futures contract, a forward contract is not transferable or exchange tradable, its terms are not standardized and no margin is exchanged. The buyer of the forward contract is said to be long on the contract and the seller is said to be short on the contract.

b) Options- An option is a contract which grants the buyer the right, but not the obligation, to buy (call option) or sell (put option) an asset, commodity, currency or financial instrument at an agreed rate (exercise price) on or before an agreed date (expiry or settlement date). The buyer pays the seller an amount called the premium in exchange for this right. This premium is the price of the option.

c) Swaps- Is an agreement to exchange future cash flow at pre-specified Intervals. Typically one cash flow is based on a variable price and other on affixed one.

Duration

Duration (Macaulay duration) measures the price volatility of fixed income securities. It is often used in the comparison of interest rate risk between securities with different coupons and different maturities. It is defined as the weighted average time to cash flows of a bond where the weights are nothing but the present value of the cash flows themselves. It is expressed in years. The duration of a fixed income security is always shorter than its term to maturity, except in the case of zero coupon securities where they are the same.

Modified Duration

Modified Duration = Macaulay Duration/ (1+y/m), where 'y' is the yield (%), 'm' is the number of times compounding occurs in a year. For example if interest is paid twice a year m=2. Modified Duration is a measure of the percentage change in price of a bond for a 1% change in yield.

Non Performing Assets (NPA)

An asset, including a leased asset, becomes non performing when it ceases to generate income for the bank.

Net NPA

Gross NPA - (Balance in Interest Suspense account + DICGC/ECGC claims received and held pending adjustment + Part payment received and kept in suspense account + Total provisions held).

Coverage Ratio

Equity minus net NPA divided by total assets minus intangible assets.

Slippage Ratio

(Fresh accretion of NPAs during the year/Total standard assets at the beginning of the year)*100

Restructuring

A restructured account is one where the bank, grants to the borrower concessions that the bank would not otherwise consider. Restructuring would normally involve modification of terms of the advances/securities, which would generally include, among others, alteration of repayment period/ repayable amount/ the amount of installments and rate of interest. It is a mechanism to nurture an otherwise viable unit, which has been adversely impacted, back to health.

Substandard Assets

A substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. Such an asset will have well defined credit weaknesses that jeopardize the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.

Doubtful Asset

An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, - on the basis of currently known facts, conditions and values - highly questionable and improbable.

Loss Asset

A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

Off Balance Sheet Exposure

Off-Balance Sheet exposures refer to the business activities of a bank that generally do not involve booking assets (loans) and taking deposits. Off-balance sheet activities normally generate fees, but produce liabilities or assets that are deferred or contingent and thus, do not appear on the institution's balance sheet until and unless they become actual assets or liabilities.

Current Exposure Method

The credit equivalent amount of a market related off-balance sheet transaction is calculated using the current exposure method by adding the current credit exposure to the potential future credit exposure of these contracts. Current credit exposure is defined as the sum of the positive mark to market value of a contract. The Current Exposure Method requires periodical calculation of the current credit exposure by marking the contracts to market, thus capturing the current credit exposure. Potential future credit exposure is determined by multiplying the notional principal amount of each of these contracts irrespective of whether the contract has a zero, positive or negative mark-to-market value by the relevant add-on factor prescribed by RBI, according to the nature and residual maturity of the instrument.