Banker’s BankRights

Banker’s BankRights:hasthree rights namely (i) Right of Lien (ii) Right of Set Off (iii) Right of Appropriation

Right of Lien:Lien is the right of creditor to retain possession of goods and securities belonging to the debtor till the debts due to
him (creditor) are paid. This right is available only on goods and securities and not on balances in the accounts. Lien entitles
retention of possession of goads but the creditor cannot sell the goods. Lien can be Particular lien (Sec 170 of the Indian Contract
Act) or General Lien. Right of General Lien, is available only to bankers, factors, wharfingers, attorneys (Section 171 of the Indian
Contract Act). Banker's Lien is also a general lien but it is an implied pledge because the banker has right to retain as well as sell
goods of the borrower after giving him reasonable notice.
For exercising right of lien, (a) the goods or securities and debt should be in the same right and same capacity (b) Loan should be
due or overdue and lawful (c) Reasonable notice is given. Further, Right of Lien is available on the goods and securities received in
the ordinary course of business. It is not available when the goods or securities have been deposited for a specific purpose; goods
received for safe custody or lying in safe deposit vault or goods left by the debtor negligently.
However, in the case of loans against pledge of jewellery, bank can exercise right of general lien on the ornaments left in the
possession of the bank after adjustment of the jewellery loan in case some other advance is outstanding.


Negative lien is a declaration from the borrower to the effect that securities/goods offered as security are not encumbered and
that the borrower will not create any charge over them without bank's permission. This undertaking does not create any charge in
favour of the bank and therefore advance against negative lien are treated as dean advance.


Right of Set off: Set off is the right to combine two or more accounts having debit and credit balance. It is not defined in any Act.
This right arises when two parties are debtor as well as creditor to each other i.e. one account should be in debit and another
account should be in credit. In the case of banks, this right arises when wants to combine its loan due from a borrower with his
deposit accounts. For exercising right of set off following conditions should be satisfied (i) Both accounts should be in same right
and same capacity (ii) The debt should be due and not accruing due. Reasonable notice should be sent to the depositor before
exercising set off. Right of set off can be exercised even in case of loans which are time barred. It can be applied on fixed deposit
when it matures and not on FD which is not due as yet. Similarly it can’t be applied for adjusting term loan or CC or overdraft
which are regular and not overdue. If a loan is in the name of an individual, set off can be exercised on credit balance in his
individual account and sole proprietorship account. Set off can not be exercised on deposit accounts which are held jointly with
other individuals, or partnership in which the borrower is partner, or client account maintained by a solicitor or account of minor
under guardianship where borrower is the guardian or on the credit balance of a trust in which borrower is trustee. If loan is in
joint names, set off can be exercised on credit balance in joint account as well as credit balance in individual accounts of joint
borrowers. If loan is in the name of a partnership firm then set off can be exercised on credit balance in the name of firm, partners
and any other partnership firm which has just same partners as are in the borrowing firm. For exercising right of set off, all
branches of a bank are considered as one.

POSITION OF AVAILABILITY OF RIGHT OF SET-OFF TO BANK

Single person.. Jointly with others (Available)
Partner in a firm ...Partnership Firm ...Available
Single name ....Same name ...Available
Proprietor ...Proprietorship firm ...Available
Joint Account ...One of joint holder ...Not available
Partnership Firm ...One of partners... Not available
Trust ...Trustee ...Not available
Trustee.... Trust Not available
Dividend a/c of Co. ..................Loan a/c of co. Not available
Minor (u/g,ship a/c) ....Guardian Not available
Single person.... Single person but different
capacity say trustee..Not available

Role concept and analysis

Role concept and analysis
Role refers to a set of expected behaviour patterns attributed to someone occupying a given position in an
organization. Role and position are different concepts. Role is a position a person occupies in an
organization and it is an obligational concept . Position is a relational and power related concept.
The concept of role widens the meaning of work and relationship of the employee with other significant
persons in the system. There are few important aspect of role such as role stagnation, inter-role distance,
role set conflict (which has various forms such as role ambiguity, role expectation conflict, role overload, role
erosion, role inadequacy, personal inadequacy etc.)
Important aspect of Role
Role stagnation When a person is promoted, he assumes a new role but if he fails in the new role, he
experiences role stagnation, even though he occupies a new role. In turn this causes
role stress. A senior clerk, when promoted as officer, may find himself in such a
situation, at times.
Inter-role distance If an individual occupies more than one role, there could be conflicts between the
roles. A branch manager also performs the role of husband and father at home.
When he is not able to give time to family, this creates stress.
Role set conflicts Different people have different expectation from one role. There is possibility of
incompatibility amongst expectation of others. It may then result into role ambiguity, role
expectation conflict, role overload etc.
Role ambiguity
When the individual is not clear about the expectations from him about the role this
is called role ambiguity. It may be in relation to activities, responsibilities, priorities or
general expectations.
Role expectation
conflict
When there are conflicting expectations or demand from a role, the role occupant
experiences conflict and stress. These expectations may come from boss, customer,seers
or subordinates.
Role overload When a role occupants finds that there are toomany expectations from the role. it may
occur when the role occupant lacks power or where there are large variations in the
expected output.
Role erosion
.
Where the role occupants finds that certain functions that he is perform are being
performed by someone else, having a different rol. It is individual's subjective feeling. In a
small bank an additional post of general manager has been created. earlier there was one
GMonly. The existing GM may start feeling that there is role erosion.
Resource inadequacy When the resources required for performance of a role are not adequacy, the role
occupant may experience the resource inadequacy.
When the role occupant finds that he does not have adequate skills, knowledge or
experience to perform the role effectively.
Personal inadequacy
Role isolation When role occupant finds that certain roles are closer to him and other at a distance,
the main criteria being the frequency and ease with which he could perform the role.

Theories of motivation very important for CAIIB ABM exam

Theories of motivation very important for CAIIB ABM exam

There are various theories of motivation such as:

Scientific management or Rational EconomicView

FW Taylor contributed much to this theory. Theory states that:
-Physical work could be scientifically studied to determine the optimal method of
performing a job.
-Workers can be made efficient by giving prescription.
-Workers would be willing to accept these prescriptions, if paid on a differential piece
work basis.


Human Relations Model


As per Elton Mayo, social contracts at workplace are important in addition to money.
Workers can be motivated by acknowledging their social needs and making them feel
useful and important.

Abraham
Maslow's
Need
Hierarchy Theory
He identified five levels of needs:
1:Physiological needs: Food, rest, exercise, shelter etc.
2:Safety needs: Protection against danger, threat, deprivation.
3:Social needs: Need for belonging, for association, for acceptance, for giving
and receiving friendship and love.
4:Ego/esteem needs: Need For self confidence, for dependence, for achievement,
for knowledge and need for status, recognition, appreciation.
5:Self-fulfillment or self-actualisation needs: To realise one's own potentialities, to
experience continued self-development, to be creative.

Frederick Herzberg's
Two Factor Theory
It states that there are two sets of motivating factors i.e. hygiene or maintenance
factors relating to job environment and other the motivators relating to contents of the
job.
Motivational factors include recognition, advancement, responsibility, achievement,
possibility of growth & work itself.
Maintenance factors include company policy and administration, technical
supervision, salary, job security, personal life, working conditions, status, interpersonal
relations with peers and supervisors.
It is based on existence, relatedness and growth (ERG). People have needs in a
hierarchy and these-needs determine the human behaviour. ERG theory has three
levels of needs compared to 5 in case of Maslow. As per ERG theory, more than oneneed
may be operative at one point of time rather than only one need as per Maslow
theory.


Clayton Alderfer's
ERG Theory

It is based on existence, relatedness and growth (ERG). People have needs in a
hierarchy and these-needs determine the human behaviour. ERG theory has three
levels of needs compared to 5 in case of Maslow. As per ERG theory, more than oneneed
may be operative at one point of time rather than only one need as per Maslow
theory.

Achievement
Motivation Theory

According to DC McCelland, there are three needs i.e. for achievement, for power and
for affiliation.

Victor H Vroom's
Expectancy Model

This theory is known by other names also such as instrumentality theory, path-goal
theory, valence-instrumentality-expectancy theory. As per theory, motivation is
determined by the nature of reward people expect to get as a result of their job. Man
being rational tries to maximize his perceived value of such rewards. There are three
elements in the model i.e. expectancy, instrumentality and valence (value a person
assigns to the desired reward).

James Stacy Adams'
Equity Theory

Theory proposes that motivation to act, develops after the person compares the
inputs / outcomes with the identical ratio in comparison to the other person. Upon
feeling inequity, the person is motivated to reduce it.


Lyman W Porter and
Edward E Lawler—
Performance
satisfaction Model
It states that the motivation does not equal satisfaction and performance. These are
all separate variables. Effort does not lead to performance directly. The reward that
follows will determine the satisfaction.


Reinforcement Theory. The consequences of an individual's behaviour in one situation influences that
individual's behaviour in a similar situation.

Personality Theories

Personality Theories


There are certain common patterns and variable that determine the personality of the people. Experts have
developed certain personality theories.

Psychoanalytical
Theory
Based on Freudian concept of unconscious nature of personality. Human behaviour
and motivation is outcome of psychoanalytic elements i.e. id, the ego and the super
ego.
Id is the foundation of unconscious.
Ego is conscious in nature and relates the conscious urges to the outside world.
Id demands immediate pleasure and Ego controls it. Super ego supports the Ego.
Trait Theory
There are many traits common to all but there are few traits that are unique to few.
On the basis of traits, people are described as aggressive, loyal, pleasant, flexible,
humorous, sentimental, impulsive etc.
Self-concept theoryPersonality and behaviour is determined by the individual himself. We have our own
image and our actions are consistent with such image (Carl Rogers). An employee
with a self concept of high intelligence, independence and confidence may not look
for such reinforcement techniques as monetary rewards.
Social learning
theory
Personality development is more a result of social variables than biological factors.
Much of human behaviour is learnt or modified by learning. Personality is the sum
total of all that a person has learned.

Emotional intelligence

Emotional intelligence
As per Daniel Goleman link between IQ test scores and the achievements in life is dwarfed (dusted) by the
totality of other characteristics that one brings to life. These characteristics are called emotional intelligence
(i.e. abilities such as being able to -motivate oneself and persist in the face of frustration, to control the impulse
and dealy gratification, to regulate one's moods and keep away distress from swamping the ability to think.
There are five components of emotional intelligence:
Self awareness: ability to recognize, understand, emotions and their effect on others.
Self regulation:ability to control disruptive impulse, to think before acting.
Motivation:Passion to work for reasons that go beyond money or status.
Empathy: Ability to understand emotions of others and treat people according to their
emotional reactions.
Social skills:Proficiency in managing relationships and building networks and ability to fund
common ground and build rapport.

ECONOMICS TERMS

ECONOMICS TERMS
1. Closed Economy - An economy having no economic relations with the rest of the world i.e. it
doesn't have trade, financial or investment relations with other countries.
2. Open Economy : An economy having economic relations with the rest of the world, i.e. it has
trade, financial and investment relations with other countries.
3. National Income : It refers-to the money value of all goods and services produced within the
domestic territory of a country plus net factor Income from abroad in a year.
4. Per capita income : It refers to the average income of a resident of a country and is calculated by
dividing the national income by the population of the country.
5. Gross Domestic Product (GDP) : It is the money value of all final goods and services produced
in the domestic territory of country in a year.
6. Net Domestic Product : obtained by reducing consumption of fixed capital (depreciation) from the
GDP.
7. Gross National Product (GNP) : It is calculated by adding net factor income from abroad (NFIA) to
GDP.
8. Law of Demand: It states that other things being equal, more of a commodity is demanded at a
lower price and less of it at a higher price.
9. Elasticity of Demand : It is the responsiveness of a demand to a change in a any factor of demand.
10. F
actors affecting elasticity of Demand : (a) Nature of Commodity (b) Availability of substitute goods
(c) Share in the total expenditure (d) Diverse uses of the commodity (e) Consumer's behaviour etc.
11. Supply curve: A graph of the relationship between the price of a good and the amount supplied at
different prices
12. Consumer surplus: The difference between what a consumer would be willing to pay for a good
or service and what that consumer actually has to pay.
13. Sunk costs: When what is done cannot be undone. Sunk costs are costs that have been incurred
and cannot be reversed.
14. Marginal Cost : It is the addition to the total cost as a result of unit increase in production.
15. Propensity to Consume: The relationship between change in income and the resultant change in
consumption.
16. Fiscal Measures : Measures to correct excess /deficient demand thorugh budget proposals of
government are called fiscal measures. These include tax changes, increase /reduction in government
expenditure etc.
17. Fiscal Policy: Fiscal policy is that part of government economic policy which deals with taxation,
expenditure, borrowing, and the management of public debt in the economy.
18. Fiscal deficit is the gap between the government's total spending and the sum of its revenue
receipts and non-debt capital receipts. It represents the total amount of borrowed funds required by the
government to completely meet its expenditure
19. Budget Deficit: Budget may take a shape of deficit when the public revenue falls short to public
expenditure. Budget deficit is the difference between the estimated public expenditure and public revenue.
The government meets this deficit by way of printing net currency or by borrowing.
20. Primary Deficit: Fiscal Deficit minus Borrowings.
21. Inflation: A situation of a steady and sustained rise in general prices is usually known as inflation.
Inflation is a state in which the value of money is falling i.e. prices are rising.
22. Cost-push Inflation: It arises due to an increase in production cost. Such type of inflation is
caused by three factors: (i) an increase in wages, (ii) an increase in the profit margin and (iii) imposition of
heavy taxation.
23. Deflation: Deflation is the reverse case of inflation. Deflation is that state of falling prices which
occurs at that time when the output of goods and services increases more rapidly than the volume of
money in the economy. In the deflation the general price level falls and the value of money rises.
24. Recession: A period of slow or negative economic growth, usually accompanied by rising
unemployment.
25. Stagnation: A prolonged recession, but not as severe as a depression.
26. Disinflation: A fall in the rate of inflation. This means a slower increase in prices but not a fall in
prices.
27. Depression: A prolonged recession in economic activity. The textbook definition of a recession is
two consecutive quarters of declining outpur. A depression is an even deeper and more prolonged slump.
28. Duopoly: A market structure in which two producers of a commodity compete with each other.
29. Monopoly A market situation in which a product that does not have close substitutes is being
produced and sold by a single seller.
30. Perfect competition A market situation characterized by the existence of very many buyers and
sellers of homogeneous goods or services with perfect knowledge and free entry so that no single buyer
or seller can influence the price of the good or service.
31. Buyer's market: A market in which supply seems plentiful and prices seem low; the opposite of a
seller's market.
32. Tax haven: A country or designated zone that has low or no taxes,
33. Tax avoidance: A legal action designed to reduce or eliminate the taxes that one owes.
34. Tax evasion: An illegal strategy to decrease tax burden by underreporting income, overstating
deductions, or using illegal tax shelters.
35. Monetary policy: The regulation of the money supply and interest rates by a central bank in order to
control inflation and stabilize currency.
36. HDI: HDI (Human Development Index) is a composite index measuring average achievement in three
basic dimensions of human life-a long and healthy life, knowledge and a decent standard of living.
37. Engel's Law: This law was formulated by Ernst Engel. This law states that, with given taste and
preference, the portion of income spend on food diminishes as income increases. According to this law,

smaller a person's income, the greater the proportion of it that he will spend on food and vice versa.
38. Giffin Goods: Giffin goods have the positive relationship between price and quantity demanded and
as a result demand curve of Giffin goods slopes upward from left to right.
39. Gresham's Law: Bad money (if not limited in quantity) drives good money out circulation
40. Laffer Curve: It represents relationship between total tax revenue and corresponding tax rates.
41, Lorenz Curve: The Lorenz curve is a graphical representation of the cumulative distribution function of
a probability distribution. This curve shows the degree of inequalities of a frequency distribution in a
graphical manner.
42. Pareto efficiency: A situation in which nobody can be made better off without making somebody
else worse off.
43. Pigou effect: A fall in the price level increases the real value of people's savings making them feel
wealthier and thus causing them to spend more. This increase in demand can lead to higher employment
44. Okun's Law: A relationship between an economy's GDP gap and the actual unemployment rate. The
relationship is represented by a ratio of 1 to 2.5. Okun found that an annual 2.5% increase in the rate of
real growth above the trend growth results in a 1% decrease in the rate of unemployment.
45. Philips Curve: Inflation and unemployment have a stable and inverse relationship. The theory states
that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.
46. Say's Law: Supply creates its own demand.
47. Real exchange rate: An exchange rate that has been adjusted to take account of any difference in
the rate of inflation in the two countries whose currency is being exchanged.
48. Real interest rate: The interest rate less the rate of inflation.
49. Tobin tax: A proposal to reduce speculative cross-border flows of capital by levying a small tax on
foreign exchange transactions.
50. Predatory pricing: Charging low prices now so you can charge much higher prices later.
51. PPP: Purchase Power Parity is the exchange rate that equates the price of a basket of identical traded
goods and services in two countries.
52. Crowding out: When the state does something it may discourage, or crowd out, private-sector
attempts to do the same thing. At times, excessive Government borrowing has been blamed for low privatesector
borrowing.
53. Currency board: A means by which some countries try to defend their currency from speculative
attack. A country that introduces a currency board commits itself to converting its domestic currency on
demand at a fixed exchange rate.
54. Currency peg: When a Government announces that the exchange rate of its currency is fixed against
another currency or currencies.
55. Dumping: Selling something for less than the cost of producing it.
56. Fiscal drag: is the tendency.of revenue from taxation to rise as a share of GDP in a growing
economy.
57. Fiscal neutrality: When the net effect of taxation and public spending is neutral, neither stimulating
nor dampening demand
58. Hard currency: A hard currency is expected to retain its value, or even benefit from appreciation,
against softer currencies.GLOSSARY OF ECONOMIC TERMS
59. Aggregate demand is the sum of all demand in an economy. This can be computed by adding the
expenditure on consumer goods and services, investment, and not exports (total exports minus total
imports):
60. Aggregate supply is the total value of the goods and services produced in a country, plus the value of
imported goods less the value of exports.
61. Base year: In the construction of an index, the year from which the weights assigned to the different
components of the index is drawn. It is conventional to set the value of an index in its base year equal to
100.
62. Boom: A state of economic prosperity
63. Broad sectors of an Economy : In India Primary Sector-Agriculture, Secondary Sector - Industry,
Tertiary Sector-Service.
64. Capitalism : Economic system featuring private property in means of production, commodity
production and profit as the guiding motivation force of production.
65. Competition : A market phenomenon indicating rivalry amongst buyers and sellers of goods or
resources classified as perfect (or pure) competition and where market power is widely diffused and free
mobility in and out of the industry exists.
66. Cost-Push Inflation : A situation of general rise in prices in which costs (payment made to factors
owners) increase
than productivity or efficiency. Familiar examples, wage-push and profit-push
inflation.

67. Centrally planned economy: An economic system in which the production, pricing, and
distribution of goods and services are determined by the government rather than market forces. Also
referred to as a "non market economy." Former Soviet Union, China, and most other communist nations
are examples of centrally planed economy
68. Demand-Pull Inflation : A state of rising prices brought about by increase in aggregate demand in
the face of short supply.
69. Depression : A phase of the business cycle in which economic activity is at a low ebb and there is
unemployment/under employment of resources; prices, profits, consumption and rate of capital investment
are also at a low level.
70. Economic development: The process of improving the quality of human life through increasing
per capita income, reducing poverty, and enhancing individual economic opportunities.
71. Economic Growth : Rate of increase of an economy's real incomes over a period, expressed in
terms of GNP or NNP as total or per capita.
72. Economic policy: A statement of objectives and the methods of achieving these objectives (policy
instruments) by government, political party, business concern, etc. Some examples of government
economic objectives are maintaining full employment, achieving a high rate of economic growth, reducing
income inequalities and regional development inequalities, and maintaining price stability.
73. Equilibrium Price : Price of a commodity in the market at which supply equals demand; the point
of intersection of supply and demand curve; price at which a firm's profits are maximized (or losses
minimized if the firm has to produce at a loss).
74. Equilibrium Quantity : Quantity of a commodity at which demand equals supply; quantity of a
commodity at which a firm's profits are maximized.
75. Hyper Inflation : A situation in which general prices are rising sharply with no or little increases in
output, also called 'runway' or 'galloping inflation'.
76. Inflation : Rise in the general or average price level of goods and services; consequently, a decline
in the value of money-doubling of the general price level means halving the value of money.
77. Indirect tax: A tax you do not pay directly, but which is passed on to you by an increase in your
expenses. For instance, a company might have to pay a fuel tax. The company pays the tax but can
increase the cost of its products so consumers are actually paying the tax indirectly by paying more for the
merchandise.
78. Macroeconomics The branch of economics that considers the relationships among broad
economic aggregates such as national income, total volumes of saving, investment, consumption
expenditure, employment, and money supply. It is also concerned with determinants of the magnitudes of
these aggregates and their rates of change over time.
79. Market mechanism: The system whereby prices of commodities or services freely rise or fall when
the buyer's demand for them rises or falls or the seller's supply of them decreases or increases.
80. Microeconomics: The branch of economics concerned with individual decision units--firms and
households--and the way in which their decisions interact to determine relative prices of goods and factors
of production and how much of these will be bought and sold. The market is the central concept in
microeconomics.
81. Money supply: the total stock of money in the economy; currency held by the public plus money in
accounts in banks. There are various measures of money supply, including M1, M2, M3 and L; these are
referred to as monetary aggregates.
82. Market Economy : Economy system in which the central problems of an economy-what, how and
for whom are decided by the operation of free market forces of supply and demand.
83. Mixed Economy : An economy in which both the state and the private sector co-exit; decisions on
what how and for whom are made partially by the market and particularly by the state or any other public
authority; many consider it essentially a transitory form.
84. Money : Anything which is acceptable in a economy as medium of exchange, measure of value, a
standard for deferred payments, and a store of value; different things used as money at different times.
85. Open economy An economy that encourages foreign trade and has extensive financial and
nonfinancial contacts with the rest of the world in areas such as education, culture, and technology.
86. Planned Economy : Economic system in which basic decisions in an economy are made according
to a plan.
87. Price : Value of a commodity in terms of money.
88. Real Income : Purchasing power of money income; quantity of real goods and services that money
income can buy; contrasted with money income.
89. Recession : Down swing of business activity in a trade cycle. Income prices, profits and
employment are falling during this phase of the trade cycle.

90. Closed economy: An economy in which there are no foreign trade transactions or any other form
of economic contacts with the rest of the world.
91. Direct Tax : Tax that cannot be shifted; the burden of direct tax is borne by the person on whom it
is initially fixed. Examples: personal income tax, social security tax paid by employees, death tax, etc.

GDP concepts

Gross Domestic Product (GDP): It is the total market value of all the final goods and services produced
within the territorial boundary of a country, using domestic resources, during a given period of time,
usually one year. Gross National Income (GNU) at Market Prices = GDP at market prices + taxes less
subsidies on production and imports (Net receivable from abroad) + Compensation of Employees (Net
receivable from abroad) +property income (Net receivable from abroad)
Gross National Product (GNP) is equal to GDP (+) total capital gains from overseas investment (-)
income earned by foreign national domestically
GNP = GDP + NR (Net income from assets abroad (Net Income Receipts)
GDP Computation
. According to the National Income Accounting, there are three ways to compute GDP:
1. Expenditure wise: Calculating the total expenditure of all the entities.
2. Income Wise : Calculating the total incomes received by factors of production — land, labour, capital
and entrepreneur.
3. Product Wise : Calculating the total production.
Expenditure Method: As per this method, GDP = consumption + Gross investment + Government
spending + - (Exports-Imports). GDP = C+I+G+ (X-M).
Consumption: This includes personal expenditures pertaining to food, households, medical expenses,
rent, etc. Gross Investment: Business investment as capital which includes construction of a new mine,
purchase of machinery and equipment for a factory, purchase of software, expenditure on new houses,
buying goods and services but investments on financial products is not included as it falls under savings.
Government spending : It is sum of government expenditure on final goods and services. It includes
salaries of public servants, purchase of weapons for the military, and any investment expenditure by a
government. It does not include any transfer payments, such as social security or unemployment
benefits.
Exports: This includes all goods and services produced for overseas consumption.
Imports: This includes any goods or services imported for consumption and it should be deducted to
prevent from calculating foreign supply as domestic supply.
Income Approach: As per this method, GDP is the sum of the following major components: (i)
Compensation of employees (ii) Property income (iii) Production taxes and depreciation on capital.
Compensation of Employees : It represents wages, salaries, and other employee supplements.
Property Income: It constitutes corporate profits, proprietor's incomes, interests, and rents.
Product Approach: As per this method, GDP is the value of final goods produced in the economy.
Real GDP or GDP at constant price: It is the value of today's output at some base year. Real GDP is
calculated by tracking the volume or quantity of production after removing the influence of changing
prices or inflation. It reflects the real growth.
Nominal GDP or GDP at current prices: represents the total money value of final goods and services
produced in a given year, where the values are expressed in terms of the market prices of eduh year.
Simply it is the value of today's output at today's price.
GDP at market prices measures the value of output at market prices after adjusting for the effect of
indirect taxes and subsidies on the prices. Market price is the economic price for which a good or service is
offered in the market place.
GDP at Factor Cost measures the value of output in terms of the price of factors used in its production.
Factors of production are land, labour, capital and entrepreneur they get remunerations in the form of
rent, wages, salaries, interest and profits are respectively.
GDP at factor cost = GDP at market prices — (indirect taxes — subsidies).
UTILITY OF GDP CONCEPTS
1. GDP is an 'aggregate' measure. it does not indicate any thing about how the GDP is distributed
among the population of the country. Per capita income, another derivative of GDP, also does not
indicate the pattern of income distribution. Thus, a country may have high GDP but much skewed
distribution of income. Such inequality in income distribution often leads to social tensions.
2. Like the inequality of income distribution among population, there could be regional disparity in GDP
with a few developed states contributing the most to the country's GDP and a majority of less
developed state economies contributing a meager.
3. Higher GDP does not necessarily imply higher welfare. Welfare is a wider concept which
encompasses development in all aspects of the society, e.g., health, education, sanitation, etc. India
has over time grown from a low GDP nation to high GDP nation, yet its social development indicators
are not commensurately favourable. Therefore, interpretation of GDP should always be
supplemented by_ some kind of Human Development Index (HDI) as developed by the.World Bank.
4. GDP does not reflect the total income of a country if the country is an export-oriented
=
economy like one of those South-East Asian economies. Gross National Product (GNP) is a more
accurate measure in this context, as it factors in earnings from the external sector.
5. Concept like GDP does not throw light on how much of the population is financially excluded or
included. Lower level of financial inclusion is today a global malady and therefore GDP measures
should be evaluated accordingly.
6. One of the newest concepts in GDP today is the 'green' GDP. A country may be achieving high GDP
but at the cost of its environmental degradation. Environmental issues in growth are quite pertinent
and sensitive matters today. Statisticians all over the world are busy with developing models which
can measure 'green' GDP.

MODERN THEORY: HICKS — HANSEN SYNTHESIS: IS-LM CURVE MODEL

MODERN THEORY: HICKS — HANSEN SYNTHESIS: IS-LM CURVE MODEL
1. Modern theory was propounded by Hicks and Hensen.
2. According to the theory, the interest depends upon saving, investment, liquidity preference and income.
3. The rate of interest according to the theory is determined by monetary equilibrium and income
equilibrium.
4. This theory is a synthesis between the Classical and Keynes' theories of interest.
5. It has propounded an adequate and determinate theory of interest through the intersection of what are
called IS and LM curves.
6. According to Hicks and Hansen, the classical and loanable funds theories amount to the same thing. The
difference between these two theories, i.e. classical and loanable funds, lies only in the meaning of savings.
7. IS curve is derived from various saving curves at various income levels together with the given
investment demand curve. This IS curve tells us what will be the various rates of interest at different levels of
income, given the investment demand curve and a family of saving curves at different levels of income.
8. LM curve is obtained from Keynes' formulation. The LM curve is obtained from a family of liquidity
preference curves corresponding to various income levels together with the given stock of money supply.
This is because as the level of income increases, people would like to hold more money under the
transactions motive. That is, the higher the level of income, the higher would be the liquidity preference
curve. With the given supply of money, the different levels of liquidity preference curves corresponding to
various levels of income would determine different rates of interest. This yields LM curve, which depicts the
various combinations of interest and income level, at which money market is in equilibrium.
9. Hicks and Hansen show that with the intersection of IS and LM curves, both the interest and income
are simultaneously determined. Thus the classical and Keynes' theories taken together help us in obtaining
as adequate and determinate theory of interest.
DERIVATION OF THE IS CURVE:
1 As the income rises, the savings curve shifts to the right and the rate of interest, which equalizes savings
and investment, falls.
2. Since, as income increases, rate of interest falls, the IS curve slopes downward.
3. IS curve relates the rates of interest with the levels of income at which intended savings and investment
are equal. In other words, the IS curve depicts the various combinations of levels of interest and income at
which, intended savings equal investment; goods-market is in equilibrium.
4. Since with the increase in income the savings curve shifts to the right, its intersection with the
investment demand curve will lower the rate of interest.
5. The level of income and rate of interest are inversely related. That is, the IS curve slopes downward.
6. Further, the steepness of the IS curve depends upon the elasticity or sensitiveness of investment
demand to the changes in rate of interest. A given change in interest will produce a large change in
investment and thereby cause a large change in the level of income.
7. Thus when investment demand is greatly elastic or highly sensitive to the rate of interest, the IS curve
will be flat (i.e. less steep). On the other hand, when investment demand is not very sensitive to the changes
in rate of interest, the IS curve will be relatively steep.
8. The *position of IS curve and changes in its level are determined by the level of autonomous
expenditure
such as government expenditure, transfer payments, autonomous investment. If the government
expenditure or any other type of autonomous expenditure increases, it will increase the equilibrium level of
income at the given rate of interest. This will cause the IS curve to shift to the right. A reduction in
government expenditure or transfer payments will shift the IS curve to the left.
DERIVATION OF THE LM CURVE FROM KEYNES' LIQUIDITY PREFERENCE THEORY
1. The LM curve can be derived from the Keynesian liquidity preference theory of interest.
2. Liquidity preference or demand for money to hold depends upon transaction motive and speculative
motive.
3. It is the money held for transactions motive which is a function of income. The greater the level of

income, the greater the amount of money held for transactions motive and, therefore, the higher the level of
liquidity preference curve.
4. A family of liquidity preference curves can be drawn at various levels of income. The intersection of
these various liquidity preference curves, corresponding to different income levels with the supply curve of
money fixed by the monetary authority, would give the LM curve that relates the rate of interest with the level
of income as determined by money-market equilibrium corresponding to different levels of liquidity
preference curve.
5. The LM curve tells us what the various rates of interest will be (given the quantity of money and the
family of liquidity preference curves) at different levels of income. But the liquidity preference curves alone
cannot tell us what exactly the rate of interest will be.
6. As income increases, liquidity preference curve shifts outward and therefore the rate of interest, which
equates supply of money with demand for money, rises.
THE SLOPE AND POSITION OF THE LM CURVE
1. The LM curve slopes upward to the right. This is because with higher levels of income, demand for
money (that is, the liquidity preference curve) is higher and consequently the money-market equilibrium, that
is, the equality of the given money supply with liquidity preference curve occurs at a higher rate of interest.
This implies that rate of interest varies directly with income
2. Factors that determine the slope of the LM curve include (i) Responsiveness of demand for money (i.e.
Liquidity Preference) to the changes in income and (ii) Elasticity or responsiveness of demand for money
(i.e., liquidity preference for speculative motive) to the changes in rate of interest.
3. As the income increases, demand for money would increase for being for transactions motive. This
extra demand for money would disturb the money-market equilibrium, and in order to restore the equilibrium
the rate of interest will rise to the level where the given money supply curve intersects the new liquidity
preference curve corresponding to the higher income level.
4. In the new equilibrium position, with the given stock of money supply, money held under the
transactions motive will increase whereas the money held for speculative motive will decline. The greater the
extent to which demand for money for transaction motive increases with the increase in income, the greater
the decline in the supply of money available for speculative motive.
5. Given the liquidity preference schedule for speculative motive, the higher the rise in the rate of interest,
the steeper the LM curve consequently.
6. According to Keynes' liquidity preference theory, r = f (M2,L2) where M2 is the stock of money available
for speculative motive and L2 is the money demand or liquidity preference function for speculative motive.
7. The second factor which determines the slope of the LM curve is the elasticity or responsiveness of
demand for money (i.e., liquidity preference for speculative motive) to the changes in rate of interest. The
lower the elasticity of liquidity preference with respect to the changes in interest rate, the steeper will be LM
curve.
8. On the other hand, if the elasticity of liquidity preference (money-demand function) to the changes in
the rate of interest is high, the LM curve will be relatively flat or less steep.
What brings about shifts in the LM curve?:
1. An LM curve is drawn with a given stock of money supply. Therefore, when the money supply
increases, given the liquidity preference function, it will lower the rate of interest at the given level of income.
This will cause the LM curve to shift down and to the right. On the other hand, if money supply is reduced,
given the liquidity preference (money; demand) function, it will raise the rate of interest at the given level of
income and therefore cause the LM curve to shift above and to the left.
2. The other factor that causes a shift in the LM curve is the change in liquidity preference (money
demand function) for a given level of income. If the liquidity preference function for a given level of income
shifts upward, this, given the stock of money, will lead to the rise in the rate of interest. This will bring about
a shift in the LM curve above and to the left. On the contrary, if the liquidity preference function for a given
level of income declines, it will lower the rate of interest and will shift the LM curve down and to the right.
Intersection of the IS and LM curves: Simultaneous determination of interest rate and income
1. The IS curve and the LM curve relate the two variables: (a) income, and (b) the rate of interest.
2. Income and the rate of Interest determined together at the equilibrium rate of interest are, at the point
of intersection of IS and LM curve.
3. At this point, income and the rate interest stand in relation to each other such that (1) investment and
saving are in equilibrium, and (2) the demand for money is in equilibrium with the supply of money (Le., the
desired amount of money is equal to the actual supply of money).
4. Thus, a determinate theory of interest is based on: (1) the investment-demand function, (2) the saving
function (or, conversely, the consumption function), (3) the liquidity preference function, and (4) the quantity
of moneyor, conversely, the consumption function),
5. According to Hicks and Hansen, both monetary and real factors, namely, productivity, thrift, and the
monetary factors, that is, the demand for money (liquidity preference) and supply of money play a part in
determining of the rate of interest. Any change in these factors will cause shift in IS or LM curve and will
therefore change the equilibrium level of the rate of interest and income.

INFLATION & RELATED TERMS

INFLATION & RELATED TERMS

1. Inflation: A situation of a steady and sustained rise in general prices is usually known as inflation.

Inflation is a state in which the value of money is falling i.e. prices are rising.

2. Cost-push Inflation: It arises due to an increase in production cost. Such type of inflation is caused by

three factors: (i) an increase in wages, (ii) an increase in the profit margin and (iii) imposition of heavy

taxation.

3. Demand- push Inflation: It arises as a result of strong consumer demand. When many individuals are

trying to purchase the same good, the price will inevitably increase. When this happens across the

entire economy for all goods, it is known as demand-pull inflation

4. Deflation: Deflation is the reverse case of inflation. Deflation is that state of falling prices which occurs

at that time when the output of goods and services increases more rapidly than the volume of money in

the economy. In the deflation the general price level falls and the value of money rises.

5. Disinflation: A fall in the rate of inflation. This means a slower increase in prices but not a fall in prices

6. Recession: A period of slow or negative economic growth, usually accompanied by rising

unemployment.

7. Stagnation: A prolonged recession, but not as severe as a depression.

8. Disinflation: A fall in the rate of inflation. This means a slower increase in prices but not a fall in prices.

9. Depression: A prolonged recession in economic activity. The textbook definition of a recession is two

consecutive quarters of declining outpur. A depression is an even deeper and more prolonged slump.

CAIIB ABM TODAY EXAM 55 QUESTIONS RECOLLECTED by Srinivas Kante

CAIIB ABM TODAY EXAM 55 QUESTIONS RECOLLECTED 

1.Hicks -Hansen synthesis
2.Basic difference between IS and LM curve
3.Increase in money supply Lowe interest rate and raising inflation
4.NDP @factor cost
5.Demand –pull inflation means
6.Erosion as per the role
7.Climate Survey
8.Case study one related to Budget
9.Central limit theorem
10.sampling methods .
11. job erosion
12 curreneaccountdefficit
13 Gross deficit etc.
case
14..standard deviations mean related
15  .Case 3 Xyz jewellery shop
Related
But the level oh complexity is very high..n ..
16  fiscal policy ,monetary policy
17.demand supply curve etc...
18.Correlation and regression numerical
19.NNP @ factor cost
20working capital
21. bank guarantee
22.Performance Appraisal
23. Halo effect Tendency..
24.NNP at market price
25.In correct characteristics in Business cycle
26 Notional income also known as..
27.Least squre method used in..
28.Fctoring of services the factor
29.Lender to sensitising test and scenerion analysis..Type of loans
30. Debt to equity of enter prises raatio is.05 its...
31.Bank Gaurantee to commoidity brokarage (margin %)..
32.find P(x bar >/85)  ?
33Std error of the mean is????
34 Estimate of the population proportion is..
35 Commericial paper issued multiples of..
36.Commericial paper issued maximum period
37.Find P(88|
39.HRM
40.monetary policy
41.Annuity due prblems
42. Future Value problem
43.Estimation
44.Bond price
45.Revenue dediciat problem
46.Job evealution Job specfication case study
47. Turn over methodeapplied on leass than 5 cr
48. Factor of Supply schedule
49.Lional econmic statement.
50. GDP calculation
51. GNP at amrket price calculation
52. Sampling Methodes
53.Hallo effect
54 Cov(X,Y)=150 mean X=20 mean Y=10 standard deviation x=25 then equation of regression line is
55. 3 questions from HRM 5 marks each



Thank you all,

Srinivas Kante  https://iibfadda.blogspot.com/2018/06/caiib-abm-recollected-june-2018-today.html

Current Affairs on 26.11.2018

Today's Headlines from www:

*Economic Times*

📝 Prices of TV, home appliances may go up 7-8 per cent from next month

📝 Khadi sales jump 4-fold in FY18; KVIC to run 'Khadi Express' train to boost sales

📝 Welspun India aims 50% revenue from innovation-based products by 2022

📝 RBI may hold the rates baton till March: report

📝 Jio tops chart in terms of AGR in September quarter: TRAI data

📝 216 railway projects report cost overrun of Rs 2.46 lakh crore

📝 JNPT SEZ eyes Rs 900-1,000 crore from land auction

📝 Andhra Bank puts up Rs 1,553-cr NPAs for sale, prefers cash bids

*Business Standard*

📝 Social commerce platform Meesho targets 20 million resellers by 2020

📝 IndiGo and SpiceJet make web check-in paid service, flyers tweet protest

📝 I-T department sells Cairn Energy's shares in Vedanta to recover tax

📝 Lots Wholesale Solutions plans to invest Rs 10 bn in India over next 5 yrs

📝 UAE to offer long-term visa schemes to rich and educated foreigners

📝 MFs add 7.7 mn accounts in Apr-Oct, take total to all-time high of 80 mn

📝 Working overtime to meet BS-VI norm ahead of April 2020 deadline: Maruti

*Financial Express*

📝 Qbera: Startup aims to provide quick, hassle-free personal loans

📝 Wind energy: Capacity addition likely to rebound after a lean FY18

📝 CAIT raises various demands in letter to PM Narendra Modi

📝 Freecharge co-founder to roll out Cred by December-end, raises $25 million from Sequoia, others

📝 JSW Steel revamps operations, product mix to align with climate change goals

📝 Six firms bid for advising FinMin on two M&A deals

*Mint*

📝 EU leaders seal Brexit deal, urge Britons to back PM May

📝 Bitcoin falls further below $4,000; crypto continues plunge

📝 Oil PSUs to allot 65,000 petrol pumps ahead of general elections

📝 Finance ministry expects 3-4 banks to be out of PCA this fiscal: Report

📝 FPIs infuse Rs 6,310 crore in November so far

📝 Bankrupt firms in India to get a new and quick rescue option

📝 Standard Chartered Bank moves NCLT against CoC selecting Arcelor for Essar Steel

📝 CDC Group plans Ayana stake sale to raise $100 million.

General banking for promotion exams 2

1 Hypothecation is defined in
Ans. Indian Contract Act
2 This is not considered as Document of Title to Goods?
Ans. Lorry Receipt
3.Wrongful dishonor of cheque is covered under
Ans. Sec-31 of NI Act
4 The Banks have to transfer a minimum --- % of their profits to Reserve Fund as per
RBI
directives?
Ans. 25 %
5 An undertaking given by a company not to create charge on its assets is known as
Ans. Negative Lien
6 Bank cannot exercise general lien on
Ans. Articles in Safe Deposit and Contents in Safety Locker
7 Which Act prohibits issuance of Bearer Demand Drafts?
Ans. RBI Act
8 TDS recovered from contractors to be deposited with Tax Authorities within----from
the date of deduction
Ans. One week
9 Guarantors right to step into the shoes of creditor after discharging the dues of
principal
debtor is called the ’Right of
Ans. Subordination
10 Wrongful dishonor of cheque is covered under
Ans. Sec-31 of NI Act
11 What is the limitation period of Equitable Mortgage, from the date of Mortgage?
Ans. 12 Years
12 ITO has sealed the locker. Rent will be recovered from
Ans. Locker hirer
13 What is the Pillar-III under Basel-II?
Ans. Market Discipline
14 What are the risks provided in Basel-II?
Ans. Credit Risk, Operational Risk and Market Risk
15 ‘Gilt Edged Securities’ Mean
Ans. Govt Securities
16 Garnishi Order is served on
Ans. Bank of the judgment debtor having deposit a/c

17 Banker is liable for wrongful dishonor of cheques to
Ans. Drawer only
18 Which of the following is not a negotiable instrument?
Ans. TDR
19 Letter in Hindi to be replied in
Ans. Hindi only
20 Mortgage is defined in
Ans. Transfer of Property Act
21 For creation of Equitable Mortgage, the property should be in
Ans. Any place
22 Collection charges to be shared between two collecting banks in the ratio of
Ans. 50:50
23 Bank’s name is written on the face of the cheque without two traverse lines. It is
called
Ans. Special Crossing
24 A person is said to be intestate, if he dies
Ans. Without Will
25 For joint accounts, who are not related to each other, they have to independently
prove their
Ans. Address Identity
26 Inchoate Instrument is a/an---Instrument
Ans. Incomplete
27 Indian Bank Branches Located in Special Economic Zone ( SEZ) which deals with
Foreign currencies is called as
Ans. Off-shore Banking
28 AEBA.. Aadhar enabled bank acc
29 A probate is
Ans. Copy of the Will certified by Court under its seal
30 An ‘Executor’ is
Ans. A person appointed by court to settle the assets of a deceased person

General banking for promotion exams

1. The Negotiable Instruments Act extends to
Ans. Whole of India
2. A Promissory Note payable to bearer
Ans. Cannot be drawn
3. Bill of Exchange is defined in Section _______ of NI Act
Ans. 5
4. What is the time allowed to the drawee for accepting the bill?
Ans. 48 hrs exclusive of public holidays
5. A cheque is defined in Section___________ of NI Act
Ans. 6
6. The Truncation of a cheque is
Ans. Electronic image of a cheque
7. Crossing Applies to
Ans. Cheques
8. When a Cheque is wrongfully dishonoured by the bank, it is liable to
Ans. Drawer
9. According to the present RBI guidelines, minimum Tier-I capital adequacy ratio
required to be maintained by Commercial Banks in India is _________.
Ans. 3%
10. The drawer of a cheque can be made liable under Sec 138 of N.I Act provided
Ans. The cheque is issued in discharge of a debt or liability
11. When a cheque is dishonoured for insufficient funds, it is treated as
Ans. Criminal offence
12. To become a holder of a Negotiable Instrument, consideration is
Ans. Not Essential
13. In the case of a Holder in due course, the consideration is
Ans. Essential
14. When a order cheque is made into bearer, it requires the drawer’s full signature
as it amounts to
Ans. Material alteration
15. Noting and Protesting relates to
Ans. Promissory Notes or Bill of Exchange
16. _________________Mortgage has to be registered electronically in CENTRAL
Electronic
Registry set up by Govt of India
Ans. Equitable Mortgage

17. Minor is defined in
Ans. Indian Majority Act
18. When a Guardian is appointed by the Court, the minor attains majority on
completion of
Ans. 18 years
19. A Minor was admitted as a full fledged partner in a firm as per partnership
deeAns. Whether the partnership deed is valid?
Ans. The Deed is invalid
20. Who is the Guardian of a Hindu Minor Married girl?
Ans. Her Husband if he is a major or Her father if her husband is a minor or Her
mother if her husband is a minor and father is not alive
21. Insolvency is a
Ans. Ans. Civil Death
22. A Power of Attorney can be attested by
Ans. Notary Public or Magistrate of a Court
23. Whether a Mandate Letter is stamped and witnesseAns.
Ans. The Mandate Letter do not attract stamp duty and not witnessed
24. Executor is a person whose name is mentioned in
Ans. The Will
25. Adminstrator is a person who is
Ans. Appointed by a Court when a person dies without a will or Appointed by a
Court when the Executor refuses to execute the Will
26. When a sole executor dies, the legal heirs have to
Ans. Obtain fresh probate from the Court
27. Who is the Karta of the JHF
Ans. Eldest co-parcener of the family
28. JHF are governed by
Ans. Hindu succession Act
29. A club can be registered with
Ans. Registrar of Societies
30. The important document obtained while opening the account in the name of Club
is
Ans. Bye-Laws
31. A Public Charitable Trust is governed by
Ans. Public Trust Act
32. In a Trust, the number of trustees are restricted to
Ans. No Limit

33. A Public Charitable Trust are registered with the
Ans. Charity commissioner
34. A cheque drawn by a sole trustee is presented for payment after his death.
Whether the
cheque can be paid?
Ans. Should not be paid
35. The minimum paid-up capital of Public Ltd Company should be
Ans. Rs. Nil no limit
36. The minimum number of directors in a Private Limited Company should be
Ans. 2
37.Government Company is one where the minimum share capital of _____% is held
by the
Central / State Government
Ans. 51
38.What is the name of the person appointed by the Court when there is a
compulsory winding up of the company?
Ans. Liquidator
39 .When an order is issued by a court advising the bank to stop operations on the
account, it is called as
Ans. Order Nisi

Certified Treasury professionals Recollected questions on November 24th 2018

Some of the recollected questions of certified treasury professional exam held on 24/11/2018 3 pm
TT buy/ TT sell bill /buy Bill sell/ TC buy TC /sell Forex card rates of dollar and pound given.
Various forex transaction based questions (5 marks)

 ∆Y= change in the yield of a bond in decimal
V+ = the estimated value of the bond if yield is increased by ∆Y
V- = the estimated value of the bond if yield is decreased by ∆Y
Vo = Initial price of the bond
All these values given
Questions asked: percentage change in price per basis point Change for an increase in yield of delta y etc.

Average percentage price change per basis point change in yield
(5 marks)

 cash inflow and outflow of the repo borrower in a repo transaction
Accured interest for first leg second leg etc (5 marks)

Present value of all coupons 10 years bond coupons payed semi annually.

Apart from black scholes model another famous option pricing model name.
 How options Greek measures the sensitivity of an options price

A decrease in interest rates raises bond prices by more than a corresponding increase in rates lowers price

Money market refers to the market for short term maturities upto 1 year.

Yield and price of 364 and 91 days treasury bill.


Given CTP Exam today (24/11/18) 10.00 Slot. Next heading toward FRM & Certified Bank trainer. In today CTP exam, Case Study Questions (5Q ) were from Repo Transaction, T Bills, TT Buying & Bills Buying rates, option price calculations, Bond yield & price calculations, option greeks & duration. Then individual questions (1 - 2Q) from CP, SI,CI, option pricing models, forex valuation, dealers code of conduct, etc.

Risk management important article

Risk Management ::( Very important content read everyone)



The growing sophistication in banking operations, online electronic banking,

improvements in information technology etc, have led to increased diversity and

complexity of risks being encountered by banks. These risks can be broadly grouped

into Credit Risk, Market Risk and Operational Risk. These risks are

interdependent and events that affect one area of risk can have ramifications for a

range of other risk categories.

Basel-I Accord: It was introduced in the year 2002-03, which covered capital

requirements for Credit Risk. The Accord prescribed CRAR of 8%, however, RBI

stipulated 9% CRAR. Subsequently, Banks were advised to maintain capital charge

for Market Risk also.

Basel-II New Capital Accord: Under this, banks have to maintain capital for Credit

Risk, Market Risk and Operational Risk w.e.f 31.03.2007. The New Capital Accord

rests on three pillars viz., Minimum Capital Requirements, Supervisory Review

Process & Market Discipline. The implementation of the capital charge for various risk

categories are Credit Risk, Market Risk and Operational Risk. Analysis of the bank’s

CRAR under should be reported to the Board at quarterly intervals.

Internal Ratings Based (IRB) Approach: Under this approach, banks must

categorise the exposures into broad classes of assets as Corporate, Sovereign, Bank,

Retail and Equity. The risk components include the measures of the Probability of

Default (PD), Loss Given Default (LGD), Exposure at Default (EAD) and Effective

Maturity (M). There are two variants i.e Foundation IRB (FIRB) and Advanced IRB.

Under FIRB, banks have to provide their own estimates of PD and to rely on

supervisory estimates for other risk components (like LGD, EAD) while under

Advanced IRB; banks have to provide their own estimates of all the risk components.

It is based on the measures of Expected Losses (EL) and Unexpected Losses (UL).

Expected Losses are to be taken care of by way of pricing and provisioning while the

risk weight function produces the capital requirements for Unexpected Losses.

Market Risk: It is a risk pertaining to the interest rate related instruments and

equities in the Trading Book i.e AFS (Available For Sale) and HFT (Held for Trading)

positions and Foreign Exchange Risk throughout the bank (both banking & trading

books). There are two approaches for measuring market risk viz., Standardized

Duration Approach & Internal Models Approach.

Operational Risk: Banks have to maintain capital charge for operational risk under

the new framework and the approaches suggested for calculation of the same are –

Basic Indicator Approach and The Standardized Approach. Under the first approach,

banks must hold capital equal to 15% of the previous three years average positive

gross annual income as a point of entry for capital calculation. The second approach

suggests dividing the bank’s business into eight lines and separate weights are

assigned to each segment. The total capital charge is calculated as the three year

average of the simple summation of the regulatory capital charges across each of the

business lines in each year.

Advanced Measurement Approach (AMA): Under this, the regulatory capital

requirement will equal the risk measure generated by the bank’s internal operational

risk measurement system using certain quantitative and qualitative criteria. Tracking

of internal loss event data is essential for adopting this approach. When a bank first

moves to AMA, a three-year historical loss data window is acceptable.

Pillar 2 – Internal Capital Adequacy Assessment Process (ICAAP): Under this,

the regulator is cast with the responsibility of ensuring that banks maintain sufficient

capital to meet all the risks and operate above the minimum regulatory capital

ratios. RBI also has to ensure that the banks maintain adequate capital to withstandthe risks such as Interest Rate Risk in Banking Book, Business Cycles Risk, and

Credit Concentration Risk etc. For Interest Rate Risk in Banking Book, the regulator

may ensure that the banks are holding sufficient capital to withstand a standardized

Interest Rate shock of 2%. Banks whose capital funds would decline by 20% when

the shock is applied are treated as ‘Outlier Banks’. The assessment is reviewed at

quarterly intervals.

Pillar 3 – Disclosure Requirements: It is aimed to encourage market discipline by

developing a set of disclosure requirements which will allow market participants to

assess the key pieces of information on the capital, risk exposures, risk assessment

processes and hence the capital adequacy of the institution. Banks may make their

annual disclosures both in their Annual Reports as well as their respective websites.

Banks with capital funds of `500 crore or more, and their significant bank

subsidiaries, must disclose their Tier-I Capital, Total Capital, total required capital

and Tier-I ratio and total capital adequacy ratio, on a quarterly basis on their

respective websites. The disclosures are broadly classified into Quantitative and

Qualitative disclosures and classified into the following areas:

Area Coverage

Capital Capital structure & Capital adequacy

Risk Exposures &

Assessments

Qualitative disclosures for Credit, Market, Operational,

Banking Book interest rate risk, equity risk etc.

Credit Risk General disclosures for all banks.

Disclosures for Standardised & IRB approaches.

Credit Risk Mitigation Disclosures for Standardised and IRB approaches.

Securitisation Disclosures for Standardised and IRB approaches.

Market Risk Disclosures for the Standardised & Internal Models

Approaches.

Operational Risk The approach followed for capital assessment.

Equities Disclosures for banking book positions

Interest Rate Risk in

the Banking Book

(IRRBB)

Nature of IRRBB with key assumptions. The increase /

decrease in earnings / economic value for upward /

downward rate shocks.

The Basel-II norms are much better than Basel-I since it covers operational risk.

However, risks such as Reputation Risk, Systemic Risk and Strategic Risk (the risk of

losses or reduced earnings due to failures in implementing strategy) are not covered

and exposing the banks to financial shocks. As per Basel all corporate loans attracts

8 percent capital allocation where as it is in the range of 1 to 30 percent in case of

individuals depending on the estimated risk. Further, group loans attract very low

internal capital charge and the bank has a strong incentive to undertake regulatory

capital arbitrage to structure the risk position to lower regulatory risk category.

Regulatory capital arbitrage acts as a safety valve for attenuating the adverse effects

of those regulatory capital requirements that activity’s underlying economic risk.

Absence of such arbitrage, a regulatory capital requirement that is inappropriately

high for the economic risk of a particular activity could cause a bank to exit that

relatively low-risk business by preventing the bank from earning an acceptable rate

of return on its capital.

Nominally high regulatory capital ratios can be used to mask the true level of

insolvency probability. For example – Bank maintains 12% capital as per the norms

risk analysis calls for 15% capital. In a regulatory sense the bank is well capitalized

but it is to be treated as undercapitalized from risk perspective.

Basel-III is a comprehensive set of reform measures developed to strengthen the

regulation, supervision and risk management of the banking sector. The new

standards will considerably strengthen the reserve requirements, both by increasing

the reserve ratios and by tightening the definition of what constitutes capital. The



new norms will be made effective in a phased manner from 1st July 2013 and

implemented fully by 31st March 2019 and banks should maintain minimum 5.5% in

common equity (as against 3.6% now) by 31st March 2015 and create a Capital

Conservation Buffer (CCB) of 2.5% by 31st March 2019. Further, banks should

maintain a minimum overall capital adequacy of 11.5% by 31st March 2019 and

supplement risk based capital ratios by maintaining a leverage ratio of 4.5%. These

measures will ensure well capitalization of banks to manage all kinds of risks besides

to bring in more clarity by clearly defining different kinds of capital.

Counter Cyclical Capital Buffer (CCCB): The objective of CCCB is twofold viz., it

requires banks to build up a buffer of capital in good times which may be used to

maintain flow of credit to the real sector in difficult times and also to achieve the

broader macro-prudential goal of restricting the banking sector from indiscriminate

lending in the periods of excess credit growth that have often been associated with

the building up of system-wide risk. It may be maintained in the form of Common

Equity Tier-1 capital or other fully loss absorbing capital only and the amount of the

CCCB may vary from 0 to 2.5% of total risk weighted assets of the banks. RBI

intends banks to have a sustainable funding structure. This would reduce the

possibility of banks’ liquidity position eroding due to disruptions in their regular

sources of funding thus increasing the risk of failure leading to broader systemic

stress. The Basel committee on banking supervision framed two ratios viz., Liquidity

Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) as part of global

regulatory standards on liquidity to be implemented from 1st January 2018.

i) Liquidity Coverage Ratio (LCR): In order to promote short-term resilience of

the liquidity risk profile of banks, RBI has introduced LCR in a phased manner,

starting with a minimum requirement of 60% from 1st January 2015, and reaching a

maximum of 100% by 1st January 2019. The LCR will ensure that banks have an

adequate stock of unencumbered high-quality liquid assets that can be converted

easily and immediately in private markets into cash to meet their liquidity needs for

a 30-calendar day liquidity stress scenario.

 ii) Net Stable Funding Ratio (NSFR): The ratio seeks to ensure that banks

maintain stable source of funding with respect to the profile of their assets (loans

and investments) and off-balance sheet activities such as extending asset

management and brokerage services to the clients. The NSFR should be 100% on an

ongoing basis. It limits over reliance on short-term wholesale funding, encourages

better assessment of funding risks across all assets and off-balance sheet items and

promotes funding stability.

Tier – I capital consists of Paid up Equity Capital + Free Reserves + Balance in

Share Premium Account + Capital Reserves (surplus) arising out of sale proceeds of

assets but not created by revaluation of assets MINUS Accumulated loss + Book

value of Intangible Assets + Equity Investment in Subsidiaries+ Innovative Perpetual

Debt instruments.

Tier – II consists of Cumulative perpetual preferential shares & other Hybrid debt

capital instruments + Revaluation reserves + General Provisions + Loss Reserves

(up to maximum 1.25% of weighted risk assets) + Undisclosed Reserves +

Subordinated Debt + Upper Tier-II instruments. Subordinated Debts are unsecured

and subordinated to the claims of all the creditors. To be eligible for Tier-II capital

the instruments should be fully paid, free from restrictive clauses and should not be

redeemable at the instance of holder or without the consent of the Bank supervisory

authorities. Subordinated debt usually carries a fixed maturity and they will have to

be limited to 50% of Tier-I capital.

However, due to the stress on account of rollover of demonetization and GST, the

implementation of Basel-III norms may slightly be delayed and the regulator likely to

inform the timeframe shortly.



Economic Capital (EC) is a measure of risk expressed in terms of capital. A bank

may, for instance, wonder what level of capital is needed in order to remain solvent

at a certain level of confidence and time horizon. In other words, EC may be

considered as the amount of risk capital from the banks’ perspective; therefore,

it differs from Regulatory Capital (RC) requirement measures. It primarily aims to

support business decisions, while RC aims to set minimum capital requirements

against all risks in a bank under a range of regulatory rules and guidance. So far, EC

is rather a bank-specific or internal measure of available capital and there is no

common domestic or global definition of EC. The estimates of EC can be covered by

elements of Tier-1, 2 & 3, or definitions used by rating agencies and/or other types

of capital, such as planned earning, unrealized profit or implicit government

guarantee. EC is highly relevant because it can provide key answers to specific

business decisions or for evaluating the different business units of a bank.

Dynamic Provisioning: At present, banks generally make two types of provisions

viz., general provisions on standard assets and specific provisions on non-performing

assets (NPAs). The present provisioning framework does not have countercyclical or

cycle smoothening elements. Though the RBI has been following a policy of

countercyclical variation of standard asset provisioning rates, the methodology has

been largely based on current available data and judgment, rather than on an

analysis of credit cycles and loss history. Since the level of NPAs varies through the

economic cycle, the resultant level of specific provisions also behaves cyclically.

Consequently, lower provisioning during upturns, and higher provisioning during

downturns have pro-cyclical effect on the real economy. However, few banks have

started making floating provisions without any predetermined rules; many banks are

away from the concept which has become difficult for inter-bank comparison. In the

above backdrop, RBI introduced dynamic provisioning framework for Indian banks to

address pro-cyclicality of capital and provisioning to meet the international

standards. Recently, RBI has allowed banks to recognize some of their assets like

real estate, foreign currency and deferred tax, reducing the extra capital needs of

state-owned banks by 15 per cent. The move is aimed to align the regulatory capital

of banks with the Basel-III standards.

Leverage Ratio: It is the tier-1 capital divided by the sum of on-balance sheet

exposures, derivative exposures, securities financing transaction exposures and off-

balance sheet items. This ratio is calibrated to act as a credible supplementary

measure to the risk based capital requirements with the objective to constrain the

build-up of leverage in the banking sector to avert destabilizing deleveraging

processes for the sound financial economy and to reinforce the risk based

requirements with a simple, non-risk based “backstop” measure. The desirable

exposure should be within 25 times of tier-1 capital.

Banks in India need substantial capital funds in the ensuing years mainly to fund the

credit growth which is likely to grow at around 15% to 20% p.a. and banks are

required to set aside a portion of capital for the said purpose. Banks also need

additional capital to write off bad loans as well as to meet the operational risks on

account of weaker implementation of systems and procedures. More importantly, the

implementation of Basel-III norms warrants pumping of substantial capital funds.

Raising these funds, though, will require several steps, apart from legislative

changes as Public Sector Banks can not dilute its equity below 51%. Attracting

private capital warrants minimum governance and structural reforms. It is also

proposed to create an independent Bank Holding Company to invite private capital

without diluting the equity to address the issue.

MSME 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

Current Affairs on 25.11.2018

Today's Headlines from www:

*Economic Times*

📝 Insolvency law help address Rs 3 lakh cr stressed assets in 2 yrs: Official

📝 American Monster Trucks Association to bring the experience to India

📝 After Samsung, LG hints at foldable smartphone

📝 eNACH suspension may pinch digital lenders

📝 Rajiv Bajaj is ready to shake up the auto sector with his 'anti-car'

📝 Made-in-India drugs to be based on weed soon

*Business Standard*

📝 Net worth of top realty barons continues to rise despite sectoral slowdown

📝 Stock broker count halves in three years on high costs, falling margins

📝 In 3 years, Alcobrew Distilleries eyes Rs 10-billion sales revenue, IPO

📝 1361 infrastructure projects face 20% cost escalation on delays

📝 Growing US economy adds to surge in India's gold jewellery exports from SEZ

📝 Central Bank plans to buy Rs 30 billion of retail loans in next 4 months

📝 J&K Bank made a public sector unit, brought under purview of RTI, CVC

*Financial Express*

📝 IIFL Holdings arm to raise Rs 5,000 cr

📝 Political uncertainty to exert pressure on rupee, say Analysts

📝 Climate change will shrink US economy, claims report

📝 SAIL chairman stresses on meeting 2-third ferro alloy requirement in-house

📝 Reliance Jio achieves highest Q2 revenue market share in Odisha

📝 Facebook to train 5 million people with digital skills by 2021

📝 Microsoft surpasses Apple to become most valuable US company

📝 South Africa to invest $1 billion in South Sudan oil sector

📝 Gold prices fall below Rs 32,000 on weak global cues, demand from jewellers

*Mint*

📝 IL&FS crisis: 10 group firms to be up for sale

📝 Omidyar leads $11 million funding in live tutoring platform Vedantu

📝 NCLT admits petition against KSK Power Group unit Sai Wardha

📝 Jet Airways withdraws lounge access for economy-class fliers

📝 Govt does not need RBI funds for next six months, says Jaitley

📝 Samsung Electronics apologises for factory cancer cases

📝 Gibraltar deal clears way for Sunday Brexit summit.