Liquidity Risk Management

1.     Liquidity Risk Management - Need & Importance:

A bank is said to be solvent if it's net worth is not negative. To put it differently, a bank is solvent if the total realizable value of its assets is more than its outside liabilities (i.e. other than it's equity/owned funds). As such, at any point in time, a bank could be (i) both solvent and liquid or (ii) liquid but not solvent or (iii) solvent but not liquid or (iv) neither solvent nor liquid. The need to stay both solvent and liquid therefore, makes effective liquidity management crucial for increasing the profitability as also the long-term viability/solvency of a bank.  This also highlights the importance of the need of having the best Liquid Risk Management practices in place in Banks.

We can very well imagine what could happen to a bank if a depositor wanting to withdraw his deposit is told to do so later or the next day in view of non-availability of cash. The consequences could be severe and may even sound the death knell of the bank. Any bank, however, strong  it may be, would not be able to survive if all the depositors queue up demanding their money back.

A Liquidity problem in a bank could be the first symptom of  financial trouble brewing and shall need to be assessed and addressed on an enterprise-wide basis quickly and effectively, as such problems can not only cause significant disruptions on either side of a bank's balance sheet but can also transcend individual banks to cause systemic disruptions. Banks play a significant role as liquidity providers in the financial system and to play it effectively they need to have sound liquidity risk management systems in place. With greater opening up of the world economies and easier cross border flows of funds, the repercussions of liquidity disturbances in one financial system could cause ripples in others. The recent sub-prime crisis in the US and its impact on others, stands ample testimony to this reality. Liquidity Risk Management, thus, is of critical importance not only to bankers but to the regulators as well.

Some Key Considerations in LRM include

(i)             Availability of liquid assets,

(ii)            Extent of volatility of the deposits,

(iii)           Degree of reliance on volatile sources of funding,

(iv)          Level of diversification of funding sources,

(v)           Historical trend of stability of deposits,

(vi)          Quality of maturing assets,

(vii)         Market reputation,

(viii)        Availability of undrawn standbys,

(ix)          Impact of off balance sheet exposures on the balance sheet, and

(x)           Contingency plans.

Some of the issues that need to be kept in view while managing liquidity include

(i)             The extent of operational liquidity, reserve liquidity and contingency liquidity that are required

(ii)            The impact of changes in the market or economic condition on the liquidity needs

(iii)           The availability, accessibility and cost of liquidity

(iv)          The existence of early warning systems to facilitate prompt action prior to surfacing of the problem and

(v)           The efficacy of the processes in place to ensure successful execution of the solutions in times of need.

2.     Potential Liquidity Risk Drivers:

The internal and external factors in banks that may potentially lead to liquidity risk problems in Banks are as under:

Internal Banking Factors	External Banking Factors
High off-balance sheet exposures.	Very sensitive financial markets depositors.
The banks rely heavily on the short-term corporate deposits.	External and internal economic shocks.
A gap in the maturity dates of assets and liabilities.	Low/slow economic performances.
The banks’ rapid asset expansions exceed the available funds on the liability side	Decreasing depositors’ trust on the banking sector.
Concentration of deposits in the short term Tenor	Non-economic factors
Less allocation in the liquid government instruments.	Sudden and massive liquidity withdrawals from depositors.
Fewer placements of funds in long-term deposits.	Unplanned termination of government deposits.

3.     Types of Liquidity Risk:

Banks face the following types of liquidity risk:

(i)     Funding Liquidity Risk – the risk that a bank will not be able to meet efficiently the expected and unexpected current and future cash flows and collateral needs without affecting either its daily operations or its financial condition.

(ii)    Market Liquidity Risk – the risk that a bank cannot easily offset or eliminate a position at the prevailing market price because of inadequate market depth or market disruption.

4.     Principles for Sound Liquidity Risk Management:

After the global financial crisis, in recognition of the need for banks to improve their liquidity risk management, the Basel Committee on Banking Supervision (BCBS) published “Principles for Sound Liquidity Risk Management and Supervision” in September 2008. The broad principles for sound liquidity risk management by banks as envisaged by BCBS are as under:

Fundamental principle for the management and supervision of liquidity risk
Principle 1	A bank is responsible for the sound management of liquidity risk. A bank should establish a robust liquidity risk management framework that ensures it maintains sufficient liquidity, including a cushion of unencumbered, high quality liquid assets, to withstand a range of stress events, including those involving the loss or impairment of both unsecured and secured funding sources. Supervisors should assess the adequacy of both a bank’s liquidity risk management framework and its liquidity position and should take prompt action if a bank is deficient in either area in order to protect depositors and to limit potential damage to the financial system.
Governance of liquidity risk management
Principle 2	A bank should clearly articulate a liquidity risk tolerance that is appropriate for its business strategy and its role in the financial system.
Principle 3	Senior management should develop a strategy, policies and practices to manage liquidity risk in accordance with the risk tolerance and to ensure that the bank maintains sufficient liquidity. Senior management should continuously review information on the bank’s liquidity developments and report to the board of directors on a regular basis. A bank’s board of directors should review and approve the strategy, policies and practices related to the management of liquidity at least annually and ensure that senior management manages liquidity risk effectively.
Principle 4	A bank should incorporate liquidity costs, benefits and risks in the internal pricing, performance measurement and new product approval process for all significant business activities (both on- and off-balance sheet), thereby aligning the risk-taking incentives of individual business lines with the liquidity risk exposures their activities create for the bank as a whole.
Measurement and management of liquidity risk
Principle 5	A bank should have a sound process for identifying, measuring, monitoring and controlling liquidity risk. This process should include a robust framework for comprehensively projecting cash flows arising from assets, liabilities and off-balance sheet items over an appropriate set of time horizons.
Principle 6	A bank should actively monitor and control liquidity risk exposures and funding needs within and across legal entities, business lines and currencies, taking into account legal, regulatory and operational limitations to the transferability of liquidity.
Principle 7	A bank should establish a funding strategy that provides effective diversification in the sources and tenor of funding. It should maintain an ongoing presence in its chosen funding markets and strong relationships with funds providers to promote effective diversification of funding sources. A bank should regularly gauge its capacity to raise funds quickly from each source. It should identify the main factors that affect its ability to raise funds and monitor those factors closely to ensure that estimates of fund raising capacity remain valid.
Principle 8	A bank should actively manage its intraday liquidity positions and risks to meet payment and settlement obligations on a timely basis under both normal and stressed conditions and thus contribute to the smooth functioning of payment and settlement systems.
Principle 9	A bank should actively manage its collateral positions, differentiating between encumbered and unencumbered assets. A bank should monitor the legal entity and physical location where collateral is held and how it may be mobilised in a timely manner.
Principle 10	A bank should conduct stress tests on a regular basis for a variety of short-term and protracted institution-specific and market-wide stress scenarios (individually and in combination) to identify sources of potential liquidity strain and to ensure that current exposures remain in accordance with a bank’s established liquidity risk tolerance. A bank should use stress test outcomes to adjust its liquidity risk management strategies, policies, and positions and to develop effective contingency plans.
Principle 11	A bank should have a formal contingency funding plan (CFP) that clearly sets out the strategies for addressing liquidity shortfalls in emergency situations. A CFP should outline policies to manage a range of stress environments, establish clear lines of responsibility, include clear invocation and escalation procedures and be regularly tested and updated to ensure that it is operationally robust.
Principle 12	A bank should maintain a cushion of unencumbered, high quality liquid assets to be held as insurance against a range of liquidity stress scenarios, including those that involve the loss or impairment of unsecured and typically available secured funding sources. There should be no legal, regulatory or operational impediment to using these assets to obtain funding.
Public disclosure
Principle 13	A bank should publicly disclose information on a regular basis that enables market participants to make an informed judgment about the soundness of its liquidity risk management framework and liquidity position.

Thus, a sound liquidity risk management system would envisage that:

i) A bank should establish a robust liquidity risk management framework.

ii) The Board of Directors (BoD) of a bank should be responsible for sound management of liquidity risk and should clearly articulate a liquidity risk tolerance appropriate for its business strategy and its role in the financial system.

iii) The BoD should develop strategy, policies and practices to manage liquidity risk in accordance with the risk tolerance and ensure that the bank maintains sufficient liquidity. The BoD should review the strategy, policies and practices at least annually.

iv) Top management/ALCO should continuously review information on bank’s liquidity developments and report to the BoD on a regular basis.

v) A bank should have a sound process for identifying, measuring, monitoring and controlling liquidity risk, including a robust framework for comprehensively projecting cash flows arising from assets, liabilities and off-balance sheet items over an appropriate time horizon.

vi) A bank’s liquidity management process should be sufficient to meet its funding needs and cover both expected and unexpected deviations from normal operations.

vii) A bank should incorporate liquidity costs, benefits and risks in internal pricing, performance measurement and new product approval process for all significant business activities.

viii) A bank should actively monitor and manage liquidity risk exposure and funding needs within and across legal entities, business lines and currencies, taking into account legal, regulatory and operational limitations to transferability of liquidity.

ix) A bank should establish a funding strategy that provides effective diversification in the source and tenor of funding, and maintain ongoing presence in its chosen funding markets and counterparties, and address inhibiting factors in this regard.

x) Senior management should ensure that market access is being actively managed, monitored, and tested by the appropriate staff.

xi) A bank should identify alternate sources of funding that strengthen its capacity to withstand a variety of severe bank specific and market-wide liquidity shocks.

xii) A bank should actively manage its intra-day liquidity positions and risks.

xiii) A bank should actively manage its collateral positions.

xiv) A bank should conduct stress tests on a regular basis for short-term and protracted institution-specific and market-wide stress scenarios and use stress test outcomes to adjust its liquidity risk management strategies, policies and position and develop effective contingency plans.

xv) Senior management of banks should monitor for potential liquidity stress events by using early warning indicators and event triggers. Early warning signals may include, but are not limited to, negative publicity concerning an asset class owned by the bank, increased potential for deterioration in the bank’s financial condition, widening debt or credit default swap spreads, and increased concerns over the funding of off- balance sheet items.

xvi) To mitigate the potential for reputation contagion, a bank should have a system of effective communication with counterparties, credit rating agencies, and other stakeholders when liquidity problems arise.

xvii) A bank should have a formal contingency funding plan (CFP) that clearly sets out the strategies for addressing liquidity shortfalls in emergency situations. A CFP should delineate policies to manage a range of stress environments, establish clear lines of responsibility, and articulate clear implementation and escalation procedures.

xviii) A bank should maintain a cushion of unencumbered, high quality liquid assets to be held as insurance against a range of liquidity stress scenarios.

xix) A bank should publicly disclose its liquidity information on a regular basis that enables market participants to make an informed judgment about the soundness of its liquidity risk management framework and liquidity position.

5.     Governance of Liquidity Risk Management:

The Reserve Bank had issued guidelines on Asset Liability Management (ALM) system, covering inter alia liquidity risk management system, in February 1999 and October 2007. Successful implementation of any risk management process has to emanate from the top management in the bank with the demonstration of its strong commitment to integrate basic operations and strategic decision making with risk management. Ideally, the organisational set up for liquidity risk management should be as under:

A.    The Board of Directors (BoD):

The BoD should have the overall responsibility for management of liquidity risk. The Board should decide the strategy, policies and procedures of the bank to manage liquidity risk in accordance with the liquidity risk tolerance/limits as detailed in paragraph 14. The risk tolerance should be clearly understood at all levels of management. The Board should also ensure that it understands the nature of the liquidity risk of the bank including liquidity risk profile of all branches, subsidiaries and associates (both domestic and overseas), periodically reviews information necessary to maintain this understanding, establishes executive-level lines of authority and responsibility for managing the bank’s liquidity risk, enforces management’s duties to identify, measure, monitor, and manage liquidity risk and formulates/reviews the contingent funding plan.

B.    The Risk Management Committee:

The Risk Management Committee, which reports to the Board, consisting of Chief Executive Officer (CEO)/Chairman and Managing Director (CMD) and heads of credit, market and operational risk management committee should be responsible for evaluating the overall risks faced by the bank including liquidity risk. The potential interaction of liquidity risk with other risks should also be included in the risks addressed by the risk management committee.

C.    The Asset-Liability Management Committee (ALCO):

The Asset-Liability Management Committee (ALCO) consisting of the bank’s top management should be responsible for ensuring adherence to the risk tolerance/limits set by the Board as well as implementing the liquidity risk management strategy of the bank in line with bank’s decided risk management objectives and risk tolerance.

D.    The Asset Liability Management (ALM) Support Group:

The ALM Support Group consisting of operating staff should be responsible for analysing, monitoring and reporting the liquidity risk profile to the ALCO. The group should also prepare forecasts (simulations) showing the effect of various possible changes in market conditions on the bank’s liquidity position and recommend action needed to be taken to maintain the liquidity position/adhere to bank’s internal limits.

6.     Liquidity Risk Management Policy, Strategies and Practices:

The first step towards liquidity management is to put in place an effective liquidity risk management policy, which inter alia, should spell out the liquidity risk tolerance, funding strategies, prudential limits, system for measuring, assessing and reporting / reviewing liquidity, framework for stress testing, liquidity planning under alternative scenarios/formal contingent funding plan, nature and frequency of management reporting, periodical review of assumptions used in liquidity projection, etc. The policy should also address liquidity separately for individual currencies, legal entities like subsidiaries, joint ventures and associates, and business lines, when appropriate and material, and should place limits on transfer of liquidity keeping in view the regulatory, legal and operational constraints.

The BoD or its delegated committee of board members should oversee the establishment and approval of policies, strategies and procedures to manage liquidity risk, and review them at least annually.

6.1          Liquidity Risk Tolerance:

 Banks should have an explicit liquidity risk tolerance set by the Board of Directors. The risk tolerance should define the level of liquidity risk that the bank is willing to assume, and should reflect the bank’s financial condition and funding capacity. The tolerance should ensure that the bank manages its liquidity in normal times in such a way that it is able to withstand a prolonged period of, both institution specific and market wide stress events. The risk tolerance articulation by a bank should be explicit, comprehensive and appropriate as per its complexity, business mix, liquidity risk profile and systemic significance. They may also be subject to sensitivity analysis. The risk tolerance could be specified by way of fixing the tolerance levels for various maturities under flow approach depending upon the bank’s liquidity risk profile as also for various ratios under stock approach. Risk tolerance may also be expressed in terms of minimum survival horizons (without Central Bank or Government intervention) under a range of severe but plausible stress scenarios, chosen to reflect the particular vulnerabilities of the bank. The key assumptions may be subject to a periodic review by the Board.

6.2          Strategy for Managing Liquidity Risk:

The strategy for managing liquidity risk should be appropriate for the nature, scale and complexity of a bank’s activities. In formulating the strategy, banks/banking groups should take into consideration its legal structures, key business lines, the breadth and diversity of markets, products, jurisdictions in which they operate and home and host country regulatory requirements, etc. Strategies should identify primary sources of funding for meeting daily operating cash outflows, as well as expected and unexpected cash flow fluctuations.

7.     Management of Liquidity Risk:

A bank should have a sound process for identifying, measuring, monitoring and mitigating liquidity risk as enumerated below:

8.1  Identification:

A bank should define and identify the liquidity risk to which it is exposed for each major on and off-balance sheet position, including the effect of embedded options and other contingent exposures that may affect the bank’s sources and uses of funds and for all currencies in which a bank is active.

8.2          Measurement of Liquidity Risk:

There are two simple ways of measuring liquidity; one is the stock approach and the other, flow approach. The stock approach is the first step in evaluating liquidity. Under this method, certain ratios, like liquid assets to short term total liabilities, purchased funds to total assets, core deposits to total assets, loan to deposit ratio, etc. are calculated and compared to the benchmarks that a bank has set for itself. While the stock approach helps up in looking at liquidity from one angle, it does not reveal the intrinsic liquidity profile of a bank.

The flow approach, on the other hand, forecasts liquidity at different points of time. It looks at the liquidity requirements of today, tomorrow, the day thereafter, in the next seven to 14 days and so on. The maturity ladder, thus, constructed helps in tracking the cash flow mismatches over a series of specified time periods. The liquidity controls, apart from being fixed maturity-bucket wise, should also encompass maximum cumulative mismatches across the various time bands.

8.     Ratios in respect of Liquidity Risk Management:

Certain critical ratios in respect of liquidity risk management and their significance for banks are given below. Banks may monitor these ratios by putting in place an internally defined limit approved by the Board for these ratios. The industry averages for these ratios are given for information of banks. They may fix their own limits, based on their liquidity risk management capabilities, experience and profile. The stock ratios are meant for monitoring the liquidity risk at the solo bank level. Banks may also apply these ratios for monitoring liquidity risk in major currencies, viz. US Dollar, Pound Sterling, Euro and Japanese Yen at the solo bank level.

Sl. No.	Ratio	Significance	Industry Average (in %)
1.	(Volatile liabilities – Temporary Assets) /(Earning Assets – Temporary Assets)	Measures the extent to which volatile money supports bank’s basic earning assets. Since the numerator represents short-term, interest sensitive funds, a high and positive number implies some risk of illiquidity.	40
2.	Core deposits/Total Assets	Measures the extent to which assets are funded through stable deposit base.	50
3.	(Loans + mandatory SLR + mandatory CRR + Fixed Assets)/Total Assets	Loans including mandatory cash reserves and statutory liquidity investments are least liquid and hence a high ratio signifies the degree of ‘illiquidity’ embedded in the balance sheet.	80
4.	(Loans + mandatory SLR + mandatory CRR + Fixed Assets) / Core Deposits	Measure the extent to which illiquid assets are financed out of core deposits.	150
5.	Temporary Assets/Total Assets	Measures the extent of available liquid assets. A higher ratio could impinge on the asset utilisation of banking system in terms of opportunity cost of holding liquidity.	40
6.	Temporary Assets/ Volatile Liabilities	Measures the cover of liquid investments relative to volatile liabilities. A ratio of less than 1 indicates the possibility of a liquidity problem.	60
7.	Volatile Liabilities/Total Assets	Measures the extent to which volatile liabilities fund the balance sheet.	60

Volatile Liabilities: (Deposits + borrowings and bills payable up to 1 year). Letters of credit – full outstanding. Component-wise CCF of other contingent credit and commitments. Swap funds (buy/ sell) up to one year. Current deposits (CA) and Savings deposits (SA) i.e. (CASA) deposits reported by the banks as payable within one year (as reported in structural liquidity statement) are included under volatile liabilities. Borrowings include from RBI, call, other institutions and refinance.

Temporary assets =Cash + Excess CRR balances with RBI + Balances with banks + Bills purchased/discounted up to 1 year + Investments up to one year + Swap funds (sell/ buy) up to one year.

 Earning Assets = Total assets – (Fixed assets + Balances in current accounts with other banks + Other assets excluding leasing + Intangible assets)

 Core deposits = All deposits (including CASA) above 1 year (as reported in structural liquidity statement)+ net worth

The above stock ratios are only illustrative and banks could also use other measures / ratios. For example to identify unstable liabilities and liquid asset coverage ratios banks may include ratios of wholesale funding to total liabilities, potentially volatile retail (e.g. high cost or out of market) deposits to total deposits, and other liability dependency measures, such as short term borrowings

9.     Stress Testing:

Stress testing should form an integral part of the overall governance and liquidity risk management culture in banks. A bank should conduct stress tests on a regular basis for a variety of short term and protracted bank specific and market wide stress scenarios (individually and in combination). In designing liquidity stress scenarios, the nature of the bank’s business, activities and vulnerabilities should be taken into consideration so that the scenarios incorporate the major funding and market liquidity risks to which the bank is exposed. These include risks associated with its business activities, products (including complex financial instruments and off-balance sheet items) and funding sources. The defined scenarios should allow the bank to evaluate the potential adverse impact these factors can have on its liquidity position. While historical events may serve as a guide, a bank’s judgment also plays an important role in the design of stress tests.

 Stress tests outcomes should be used to identify and quantify sources of potential liquidity strain and to analyse possible impacts on the bank’s cash flows, liquidity position, profitability and solvency. The results of stress tests should be discussed thoroughly by ALCO. Remedial or mitigating actions should be identified and taken to limit the bank’s exposures, to build up a liquidity cushion and to adjust the liquidity profile to fit the risk tolerance. The results should also play a key role in shaping the bank’s contingent funding planning and in determining the strategy and tactics to deal with events of liquidity stress.

The stress test results and the action taken should be documented by banks and made available to the Reserve Bank / Inspecting Officers as and when required. If the stress test results indicate any vulnerability, these should be reported to the Board and a plan of action charted out immediately. The Department of Banking Supervision, Central Office, Reserve Bank of India should also be kept informed immediately in such cases.

10.  Contingency Funding Plan:

A bank should formulate a contingency funding plan (CFP) for responding to severe disruptions which might affect the bank’s ability to fund some or all of its activities in a timely manner and at a reasonable cost. CFPs should prepare the bank to manage a range of scenarios of severe liquidity stress that include both bank specific and market-wide stress and should be commensurate with a bank’s complexity, risk profile, scope of operations. Contingency plans should contain details of available / potential contingency funding sources and the amount / estimated amount which can be drawn from these sources, clear escalation / prioritisation procedures detailing when and how each of the actions can and should be activated and the lead time needed to tap additional funds from each of the contingency sources.

Contingency plans must be tested regularly to ensure their effectiveness and operational feasibility and should be reviewed by the Board at least on an annual basis.

11.  Overseas Operations of the Indian Banks’ Branches and Subsidiaries and Branches of Foreign banks in India:

A bank’s liquidity policy and procedures should also provide detailed procedures and guidelines for their overseas branches/subsidiaries to manage their operational liquidity on an ongoing basis. Similarly, foreign banks operating in India should also be self reliant with respect to liquidity maintenance and management.

12.  BROAD NORMS IN RESPECT OF LIQUIDITY MANAGEMENT:

Some of the broad norms in respect of liquidity management are as follows:

      i.        Banks should not normally assume voluntary risk exposures extending beyond a period of ten years.

     ii.        Banks should endeavour to broaden their base of long- term resources and funding capabilities consistent with their long term assets and commitments.

    iii.        The limits on maturity mismatches shall be established within the following tolerance levels: (a) long term resources should not fall below 70% of long term assets; and (b) long and medium term resources together should not fall below 80% of the long and medium term assets. These controls should be undertaken currency-wise, and in respect of all such currencies which individually constitute 10% or more of a bank’s consolidated overseas balance sheet. Netting of inter-currency positions and maturity gaps is not allowed. For the purpose of these limits, short term, medium term and long term are defined as under:

Short-term:	those maturing within 6 months
Medium-term:	those maturing in 6 months and longer but within 3 years
Long-term:	those maturing in 3 years and longer

Quasi credit (Non Fund based):

Quasi credit (Non Fund based):
Quasi Credit signifies financing for trade, and it concerns both domestic and
international trade transactions. A trade transaction requires a seller of goods and
services as well as a buyer. Various intermediaries such as banks and financial
institutions can facilitate these transactions by financing the trade
Non Fund Business
Bank Guarantee: As a part of Banking Business, Bank Guarantee (BG) Limits are
sanctioned and guarantees are issued on behalf of our customers for various
purposes. Broadly, the BGs are classified into two categories:
i) Financial Guarantees are direct credit substitutes wherein a bank irrevocably
undertakes to guarantee the payment of a contractual financial obligation. These
guarantees essentially carry the same credit risk as a direct extension of credit i.e.
the risk of loss is directly linked to the creditworthiness of the counter-party against
whom a potential claim is acquired. Example – Guarantees in lieu of repayment of
financial securities/margin requirements of exchanges, Mobilization advance,
Guarantees towards revenue dues, taxes, duties in favour of tax/customs/port/excise
authorities, liquidity facilities for securitization transactions and deferred payment
guarantees.
ii) Performance Guarantees are essentially transaction-related contingencies that
involve an irrevocable undertaking to pay a third party in the event the counterparty
fails to fulfill or perform a contractual obligation. In such transactions, the risk of loss
depends on the event which need not necessarily be related to the creditworthiness
of the counterparty involved. Example – Bid bonds, performance bonds, export
performance guarantees, Guarantees in lieu of security deposits/EMD for
participating in tenders, Warranties, indemnities and standby letters of credit related
to particular transaction.
Though, BG facility is a Non-fund Facility, it is a firm commitment on the part of the
Bank to meet the obligation in case of invocation of BG. Hence, monitoring of Bank
Guarantee portfolio has attained utmost importance. The purpose of the guarantee is
to be examined and it is to be spelt out clearly if it is Performance Guarantee or
Financial Guarantee. Due diligence of client shall be done, regarding their experience
in that line of activity, their rating/grading by the departments, where they are
registered. In case of Performance Guarantees, banks shall exercise due caution to
satisfy that the customer has the necessary experience, capacity and means to
perform the obligations under the contract and is not likely to commit default. The
position of receivables and delays if any, are to be examined critically, to understand
payments position of that particular activity. The financial position of counter party,
type of Project, value of Project, likely date of completion of Project as per
agreement are also to be examined. The Maturity period, Security Position, Margin
etc. are also to be as per Policy prescriptions and are important to take a view on
charging BG Commissions

Branches shall use Model Form of Bank Guarantee Bond, while issuing Bank
Guarantees in favour of Central Govt. Departments/Public Sector Undertakings. Any
deviation is to be approved by Zonal Office. It is essential to have the information
relating to each contract/project, for which BG has been issued, to know the present
stage of work/project and to assess the risk of invocation and to exercise proper
control on the performance of the Borrower. It is to be ensured that the operating
accounts of borrowers enjoying BG facilities route all operations through our Bank
accounts. To safeguard the interest of the bank, Branches need to follow up with the
Borrowers and obtain information and analyze the same to notice the present stage
of work/project, position of Receivables, Litigations/Problems if any leading to
temporary cessation of work etc.
The Financial Indicators/Ratios as per Banks Loan Policy guidelines are to be
satisfactory. Banks are required to be arrived Gearing Ratio (Total outside
liabilities+proposed non-fund based limits / Tangible Networth - Non Current Assets)
of the client and ideally it should be below 10.
In case where the guarantees issued are not returned by the beneficiary even after
expiry of guarantee period, banks are required to reverse the entries by issuing
notice (if the beneficiary is Govt. Department 3 months and one month for others) to
avert additional provisioning. Banks should stop charging commission on expired
Bank Guarantees with effect from the date of expiry of the validity period even if the
original Bank Guarantee bond duly discharged is not received back.
Letter of Credit: A Letter of Credit is an arrangement by means of which a Bank
(Issuing Bank) acting at the request of a customer (Applicant), undertakes to pay to
a third party (Beneficiary) a predetermined amount by a given date according to
agreed stipulations and against presentation of stipulated documents. The
documentary Credit are akin to Bank Guarantees except that normally Bank
Guarantees are issued on behalf of Bank’s clients to cover situations of their non
performance whereas, documentary credits are issued on behalf of clients to cover
situation of performance. However, there are certain documentary credits like
standby Letter of Credit which are issued to cover the situations of non performance.
All documentary credits have to be issued by Banks subject to rules of Uniform
Customs and Practice for Documentary Credits (UCPDC). It is a set of standard rules
governing LCs and their implications and practical effects on handling credits in
various capacities must be possessed by all bankers. A documentary credit has the
seven parties viz., Applicant (Opener), Issuing Bank (Opening of LC Bank),
Beneficiary, Advising Bank (advises the credit to beneficiary), Confirming Bank –
Bank which adds guarantee to the credit opened by another Bank thereby
undertaking the responsibility of payment/negotiation/acceptance under the credit in
addition to Issuing Bank), Nominated Bank – Bank which is nominated by Issuing
Bank to pay/to accept draft or to negotiate, Reimbursing Bank – Bank which is
authorized by the Issuing Bank to pay to honour the reimbursement claim in
settlement of negotiation/acceptance/payment lodged with it by the paying /
negotiating or accepting Bank. The various types of LCs are as under:
i) Revocable Letter of Credit is a credit which can be revoked or cancelled or
amended by the Bank issuing the credit, without notice to the beneficiary. If a credit
does not indicate specifically it is a revocable credit the credit will be deemed as
irrevocable in terms of provisions of UCPDC terms.
ii) Irrevocable Letter of credit is a firm undertaking on the part of the Issuing
Bank and cannot be cancelled or amended without the consent of the parties to letter
of credit, particularly the beneficiary.
iii) Payment Credit is a sight credit which will be paid at sight basis against
presentation of requisite documents as per LC terms to the designated paying Bank.

iv) Deferred Payment Credit is a usance credit where payment will be made by
designated Bank on respective due dates determined in accordance with stipulations
of the credit without the drawing of drafts.
v) Acceptance Credit is similar to deferred credit except for the fact that in this
credit drawing of a usance draft is a must.
vi) Negotiation Credit can be a sight or a usance credit. A draft is usually drawn in
negotiation credit. Under this, the negotiation can be restricted to a specific Bank or
it may allow free negotiation whereby any Bank who is willing to negotiate can do so.
However, the responsibility of the issuing Bank is to pay and it cannot say that it is
of the negotiating Bank.
vii) Confirmed Letter of Credit is a letter of credit to which another Bank (Bank
other than Issuing Bank) has added its confirmation or guarantee. Under this, the
beneficiary will have the firm undertaking of not only the Bank issuing the LC, but
also of another Bank. Confirmation can be added only to irrevocable and not
revocable Credits.
the amount is revived or reinstated without requiring specific amendment to the
credit. The basic principle of a revolving credit is that after a drawing is made, the
credit reverts to its original amount for re-use by beneficiary. There are two types of
revolving credit viz., credit gets reinstated immediately after a drawing is made and
credit reverts to original amount only after it is confirmed by the Issuing Bank.
ix) Installment Credit calls for full value of goods to be shipped but stipulates that
the shipment be made in specific quantities at stated periods or intervals.
x) Transit Credit – When the issuing Bank has no correspondent relations in
beneficiary country the services of a Bank in third country would be utilized. This
type of LC may also be opened by small countries where credits may not be readily
acceptable in another country.
xi) Reimbursement Credit – Generally credits opened are denominated in the
currency of the applicant or beneficiary. But when a credit is opened in the currency
of a third country, it is referred to as reimbursement credit.
xii) Transferable Credit – Credit which can be transferred by the original
beneficiary in favour of second or several second beneficiaries. The purpose of these
credits is that the first beneficiary who is a middleman can earn his commission and
can hide the name of supplier.
xiii) Back to Back Credit/Countervailing credit – Under this the credit is opened
with security of another credit. Thus, it is basically a credit opened by middlemen in
favour of the actual manufacturer/supplier.
xiv) Red Clause Credit – It contains a clause providing for payment in advance for
purchasing raw materials, etc.
xv) Anticipatory Credit – Under this payment is made to beneficiary at preshipment
stage in anticipation of his actual shipment and submission of bills at a
future date. But if no presentation is made the recovery will be made from the
opening Bank.
xvi) Green Clause Credit is an extended version of Red Clause Credit in the sense
that it not only provides for advance towards purchase, processing and packaging
but also for warehousing & insurance charges. Generally money under this credit is
advanced after the goods are put in bonded warehouses etc., up to the period of
shipment.
Other concepts
i)Bill of Lading: It should be in complete set and be clean and should generally be
to order and blank endorsed. It must also specify that the goods have been shipped
on board and whether the freight is prepaid or is payable at destination. The name of
the opening bank and applicant should be indicated in the B/L.

iv) Deferred Payment Credit is a usance credit where payment will be made by
designated Bank on respective due dates determined in accordance with stipulations
of the credit without the drawing of drafts.
v) Acceptance Credit is similar to deferred credit except for the fact that in this
credit drawing of a usance draft is a must.
vi) Negotiation Credit can be a sight or a usance credit. A draft is usually drawn in
negotiation credit. Under this, the negotiation can be restricted to a specific Bank or
it may allow free negotiation whereby any Bank who is willing to negotiate can do so.
However, the responsibility of the issuing Bank is to pay and it cannot say that it is
of the negotiating Bank.
vii) Confirmed Letter of Credit is a letter of credit to which another Bank (Bank
other than Issuing Bank) has added its confirmation or guarantee. Under this, the
beneficiary will have the firm undertaking of not only the Bank issuing the LC, but
also of another Bank. Confirmation can be added only to irrevocable and not
revocable Credits.
the amount is revived or reinstated without requiring specific amendment to the
credit. The basic principle of a revolving credit is that after a drawing is made, the
credit reverts to its original amount for re-use by beneficiary. There are two types of
revolving credit viz., credit gets reinstated immediately after a drawing is made and
credit reverts to original amount only after it is confirmed by the Issuing Bank.
ix) Installment Credit calls for full value of goods to be shipped but stipulates that
the shipment be made in specific quantities at stated periods or intervals.
x) Transit Credit – When the issuing Bank has no correspondent relations in
beneficiary country the services of a Bank in third country would be utilized. This
type of LC may also be opened by small countries where credits may not be readily
acceptable in another country.
xi) Reimbursement Credit – Generally credits opened are denominated in the
currency of the applicant or beneficiary. But when a credit is opened in the currency
of a third country, it is referred to as reimbursement credit.
xii) Transferable Credit – Credit which can be transferred by the original
beneficiary in favour of second or several second beneficiaries. The purpose of these
credits is that the first beneficiary who is a middleman can earn his commission and
can hide the name of supplier.
xiii) Back to Back Credit/Countervailing credit – Under this the credit is opened
with security of another credit. Thus, it is basically a credit opened by middlemen in
favour of the actual manufacturer/supplier.
xiv) Red Clause Credit – It contains a clause providing for payment in advance for
purchasing raw materials, etc.
xv) Anticipatory Credit – Under this payment is made to beneficiary at preshipment
stage in anticipation of his actual shipment and submission of bills at a
future date. But if no presentation is made the recovery will be made from the
opening Bank.
xvi) Green Clause Credit is an extended version of Red Clause Credit in the sense
that it not only provides for advance towards purchase, processing and packaging
but also for warehousing & insurance charges. Generally money under this credit is
advanced after the goods are put in bonded warehouses etc., up to the period of
shipment.
Other concepts
i)Bill of Lading: It should be in complete set and be clean and should generally be
to order and blank endorsed. It must also specify that the goods have been shipped
on board and whether the freight is prepaid or is payable at destination. The name of
the opening bank and applicant should be indicated in the B/L.

ii) Airway Bill: Airway bills/Air Consignment notes should always be made out to
the order of Issuing Bank duly mentioning the name of the applicant.
iii)Insurance Policy or Certificate: Where the terms of sale are CIF the insurance
is to be arranged by the supplier and they are required to submit insurance policy
along with the documents.
iv) Invoice: Detailed invoices duly signed by the supplier made out in the name of
the applicant should be called for and the invoice should contain full description of
goods, quantity, price, terms of shipment, licence number and LC number and date.
v) Certificate of Origin: Certificate of origin of the goods is to be called for. Method
of payment is determined basing on the country of origin.
vi) Inspection Certificate: Inspection certificate is to be called for from an
independent inspecting agency (name should be stipulated) to ensure quality and
quantity of goods. Inspection certificate from the supplier is not acceptable
Co-acceptance Facilities : RBI Guidelines, Co-acceptance of
Bills covering supply of Goods & Machinery
Bills co-acceptance Co-acceptance is a means of non-fund based import finance
whereby a Bill of Exchange drawn by an exporter on the importer is co-accepted by a
Bank. By co-accepting the Bill of Exchange, the Bank undertakes to make payment to
the exporter even if the importer fails to make payment on due date
RBI guidelines on co-acceptances:
In the light of the above, banks should keep in view the following safeguards:
(i) While sanctioning co-acceptance limits to their customers, the need therefor should
be ascertained, and such limits should be extended only to those customers who enjoy
other limits with the bank.
(ii) Only genuine trade bills should be co-accepted and the banks should ensure that the
goods covered by bills co-accepted are actually received in the stock accounts of the
borrowers.
(iii) The valuation of the goods as mentioned in the accompanying invoice should be
verified to see that there is no over-valuation of stocks.
(iv) The banks should not extend their co-acceptance to house bills/ accommodation
bills drawn by group concerns on one another.
(v) The banks discounting such bills, co-accepted by other banks, should also ensure
that the bills are not accommodation bills and that the co-accepting bank has the
capacity to redeem the obligation in case of need.
(vi) Bank-wise limits should be fixed, taking into consideration the size of each bank for
discounting bills co-accepted by other banks, and the relative powers of the officials of
the other banks should be got registered with the discounting banks.
(vii) Care should be taken to see that the co-acceptance liability of any bank is not
disproportionate to its known resources position.
(viii) A system of obtaining periodical confirmation of the liability of co-accepting banks
in regard to the outstanding bills should be introduced.
(ix) Proper records of the bills co-accepted for each customer should be maintained, so
that the commitments for each customer and the total commitments at a branch can be
readily ascertained, and these should be scrutinised by Internal Inspectors and
commented upon in their reports.
(x) It is also desirable for the discounting bank to advise the Head Office/ Controlling
Office of the bank, which has co-accepted the bills, whenever such transactions appear

to be disproportionate or large.
(xi) Proper periodical returns may be prescribed so that the Branch Managers report
such co-acceptance commitments entered into by them to the Controlling Offices.
(xii) Such returns should also reveal the position of bills that have become overdue, and
which the bank had to meet under the co-acceptance obligation. This will enable the
Controlling Offices to monitor such co-acceptances furnished by the branches and take
suitable action in time, in difficult cases.
(xiii) Co-acceptances in respect of bills for Rs.10,000/- and above should be signed by
two officials jointly, deviation being allowed only in exceptional cases, e.g. nonavailability
of two officials at a branch.
(xiv) Before discounting/ purchasing bills co-accepted by other banks for Rs. 2 lakh and
above from a single party, the bank should obtain written confirmation of the concerned
Controlling (Regional/ Divisional/ Zonal) Office of the accepting bank and a record of the
same should be kept.
(xv) When the value of the total bills discounted/ purchased (which have been coaccepted
by other banks) exceeds Rs. 20 lakh for a single borrower/ group of
borrowers, prior approval of the Head

Application of Altman Z Score / Bankruptcy Score Formula

Application of Altman Z Score / Bankruptcy Score Formula

The formula is used to predict corporate defaults or bankruptcy or in academic language, financial distress position of companies.

The formula is based on discriminant analysis technique in statistical analysis.

The formula uses multiple variables from income statement and balance sheet of companies.

What’s the formula?

Formula =

Altman Z-Score = 1.2*T1 + 1.4*T2 + 3.3*T3 + 0.6*T4 + 1.0*T5

Here are the key definitions from the above formula:

T1 = Working Capital / Total Assets

This ratio measures liquid assets. The companies in trouble will usually experience shrinking liquidity.

T2 = Retained Earnings / Total Assets

This ratio calculates the overall profitability of the company. Dwindling profitability is a warning sign.

T3 = Earnings before Interest and Taxes / Total Assets

This ratio shows how productive a company is in generating earnings, relative to its size.

T4 = Market Capitalization / Total Liabilities

This ratio suggests how far the company’s assets can decline before it becomes technically insolvent (i.e., its liabilities become higher than its assets).

T5 = Sales / Total Assets

This is the asset turnover ratio and is a measure of how effectively the firm uses its assets to generate sales

VERY IMPORTANT FOR CAIIB BFM EXAM CGTMSE

Credit Guarantee Fund Trust For Micro And Small Enterprises (CGTMSE) or Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH)

In case the advance covered by CGTMSE or CRGFTLIH guarantee becomes nonperforming, no provision need be made towards the guaranteed portion. The amount outstanding in excess of the guaranteed portion should be provided for as per the extant guidelines on provisioning for non-performing assets. An illustrative example is given below:

Example

Outstanding Balance	Rs. 10 lakhs
CGTMSE/CRGFTLIH Cover	75% of the amount outstanding or 75% of the unsecured amount or Rs.37.50 lakh, whichever is the least
Period for which the advance has remained doubtful	More than 2 years remained doubtful (say as on March 31, 2014)
Value of security held	Rs. 1.50 lakhs

Provision required to be made

Balance outstanding	Rs.10.00 lakh
Less: Value of security	Rs. 1.50 lakh
Unsecured amount	Rs. 8.50 lakh
Less: CGTMSE/CRGFTLIH cover (75%)	Rs. 6.38 lakh
Net unsecured and uncovered portion:	Rs. 2.12 lakh
Provision for Secured portion @ 40% of Rs.1.50 lakh	Rs.0.60 lakh
Provision for Unsecured & uncovered portion @ 100% of Rs.2.12 lakh	Rs.2.12 lakh
Total provision required	Rs.2.72 lakh

CAIIB BFM STRATEGY

BFM::;;

The strategy for the study of Bank Financial Management which many people finds difficult to clear. If you study properly, it is easy to clear the BFM. This subject also contains 4 modules, they are;

-International Banking

-Risk Management

-Treasury Management

-Balance Sheet Management

Many people do not correlate the syllabus of the subject with day to day banking activity. So they find it difficult to score and understand this subject. But this not true, this subject is very much important which will increase your knowledge regarding top management & middle management functioning of your bank as well as banking as a whole industry.

All the modules are equally important, but you may clear the paper with three modules study also. Module A & B are relatively easy and scoring as well. Let us discuss strategy for each module.

Module A-International Banking

Important topics are Exchange Rates and Forex Business, Basics for Forex Derivatives, Documentary LC, and Facilities for Exporters & Importers

Rapid reading or bullet point reading is quite useful for this module. Practice numerical again and again.

Many numerical/case studies are asked from this module which are quite easy as compared to Module B & Module D case studies. Refer the case studies from McMillan given at the end of the topic. Also N.S.Toor book has many numerical and case studies. Questions are asked on Exchange rates, Shipment Finance etc.

Module B-Risk Management

All chapters are equally important as they are interlinked to each other. Again focus more on case studies/numericals given in Apendix at the end of chapter. Maximum case studies are asked from this module. Though short notes are useful for this module I would suggest McMillan reading for this module because some questions are twisted type for which you require details of the concept which is hard to get from short notes. RBI website contains FAQs which are quite useful for this modules, you should read them at least once.

Module C- Treasury Management

Important topics are Introduction, Types of treasury products, Treasury Risk Management, Treasury and Asset-Liability Management.

Mostly questions asked on this module are theoretical type, so through reading of McMillan is important. If you don’t get time then you can skip this module or read short notes since the weighted of this module for exam point of view is low according to me as compared to Module A&B. But those who wish to make carrier or work in treasury department, this is the best module to learn.

Module-D Balance Sheet Management

Important chapters are Components of ALM in Bank’s Balance Sheet, Capital and banking Regulation,, Capital Adequacy, Asset Classification and Provisioning Norms, Interest rate Risk management.

Though McMillan book contain sufficient material but I would suggest you to refer RBI website for this module. In this module focus more on Case Studies as compared to theoretical questions. Do not skip this module as it is much important for exam as well as knowledge point of view. No need to read McMillan line by line.

Overall you have to keep balance between theoretical reading as well as case studies/numerical since the paper would contain 40-45% case studies. N.S.Toor book contains good case studies and MCQs. Also there are many resources available on the internet from where you will get case studies for this module. After giving this paper you will realized that BFM is easier as compared to ABM and no need to worry for BFM.

CAIIB ABM Strategy

CAIIB ABM Strategy

ABM is one of the compulsory subjects for CAIIB. Most of the people find difficult to clear this paper. Today, I will tell you how to study for ABM subject.

This subject also contains 4 modules

MODULE – A: Economic Analysis

MODULE – B : Business Mathematics

MODULE – C : HRM in banks

MODULE – D : Credit Management

As we are bank employees we get very less time for study, so how to decide which topics to be read, which topics to be skipped?

-As I had told you in my previous blog article that generally paper consists of 60% theoretical & 40% numerical or case studies, so choose the module to be study in deep so as to clear the paper easily depending upon your personal strength and weakness.

If you observed all the modules, you will realize that Module A and Module C are most scoring modules. Do not skip these modules. Module B contains Business Mathematics which many people find difficult to study as the level of mathematics is tough, especially for non-engineering background people. Those who works in Credit/Loan Department will find that Module D easy as well as interesting. Module D is most important not only exam point of view but also for your daily working in Credit Department. So do not skip Module D.

IMPORTANT TOPICS FROM EACH MODULE

Module A- Supply and Demand, Money Supply and Inflation, Business Cycles, GDP Concepts and Union Budget.

No need to read McMillan Book line by line for thise module, short notes will be quite useful for studying this module. Don’t read stats given in these chapters. In GDP Concepts and Union Budget chapters numerical are asked which are quite easy provided you know the components and formula.

Module B-Time Value of Money, Sampling Methods, Simulation, Bond Investment

Don’t go to deep for study this module as mathematical calculations are difficult to understand especially for non engineering background people. Practice the examples given in McMillan. Those who are not good at math can skip this module and focus more on remaining modules.

Module C-Development of Human Resources, Human Implications of Organisations, Performamce Management, HR & IT

You need to read thoroughly all the topics from this module from McMillan. It is quite easy and theoretical only. Repeatedly read MCQs from N.S. Toor book of this module.

Module D-Overview of Credit Management, Analysis of Financial Statement, Working Capital Finance, Credit Control and Monitoring, Rehabilitation and Recovery.

Read this module from McMillan book only. The chapters in this module are not lengthy as compared to other modules. Practice Numerical from Financial statement and balance sheet.

Overall, you have to study at least three modules in detail so as to achieve the 50 score. You can choose the modules to study more depending upon your strength. I would suggest that you can keep module B at last, just read formulas from this module, as this module is quite boring, lengthy and hard to understand.

https://iibfadda.blogspot.com/

CAIIB ABM EXAM 55 QUESTIONS JUNE 2018 RECOLLECTED

CAIIB ABM  EXAM 55 QUESTIONS JUNE 2018 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

CAIIB BFM Recollected questions Exam on (09.12.2018)

CAIIB BFM Recollected  questions Exam  on (09.12.2018)

1.Case studies form TT rates , similar question of EPC case study given in book, Basel and stock ratios.
2.5 numericals from TT Rate
3.5 from CRAR
4.5 from STOCK RATIOS
5 from EPC  Export packing credit
6.1 direct question from Altzman score abt its definition
7.Numerical case study (5 questions) from yield and RWA
8.Pg no 563 for stock ratios, read definition and ratio formula
9.Pg no 123 for EPC- Pre n post shipment finance
10. Stock Approach and ratios
11.Volatile liabilities, total assets, deposits, loans etc given
12.Read the roles of various institutions like ECGC, EXIM Bank etc..In 1st sitting ECGC formation year was given, we had to identify the institution
13.1 case study on NRI a/c as well. Direct questions based on family tree.
14.1. VaR is used to find which type of risk?
15.. Select correct statement for exports to countries other than ACU
A) No export in INR
B) No export in any freely convertible currency
C) Export only in $ and euro
D) export from a 3rd party can be there
16.Like A is an Indian who now settled in UK and married B who is from Kenya but now a British citizen. They have 2  children (C &D) born in London. C is now married to a Pakistani citizen and settled in Karachi. D is working in London.

1. Status of D
A) NRI
B) Foreign National
C) Person of Indian origin
D) Person of Kenya origin

2. A can open which type of a/c?

3. Nominee A can make for her a/c out of her family)?
A) all
B) B
C) B&D
D) anyone

4. Can A add her dead Indian sister as nominee in FCNR a/c?

5. Can C open any account in India

17.case study on LC
18.Roles of various institutions like ECGC,EXIN bank

19. 2 to 3 corresponding bank questions

20.Questions on Treasury bills, NRI,RAROC

21.Question like How many days is NTP? How many days EPC canbe extended? ND all that

22.Total theoretical paper..
Numerical from NII, NIM, GAP, choose option in which to invest given risk weight and yield

23.5questions related to NRE

24.Max questions came from Market risk
25.Estimated level of operational risk,
Ratio in respect of liquidity risk management case study and one liner,
LCR,
T bills periods,
Policies for ALM,
identify risk,
CM period,
Case study on exchange rate,
Ripple effect which risk,
Going concern capital,
Vostro a/ c example,
NRE/NRO/FCNR,
SNRR,
LC case study for 5days, insurance risk cover, partial shipment,
DDA a/c,
Advance against undrwan balances,
Role of EXIM BANK,
SRP principles,
Tier I capital with CCB as on 31 mar 2018,
Stress testing,
Altman Zscore,
Securitization,
Heading meaning,
Operations risk cause based,
Operations risk measurement approach,
100%unpaired tier 1or usd10mn,
Interest rate swap,
RBI policy ratios,
Case study on call/put,
Case study on NII/NIM,
Crop loan NPA status,
Long term crop loan period,
Embedded option risk

Current affair s on 21.05.2019

Today's Headlines from www:

*Economic Times*

📝 AirAsia aims international flights by October

📝 Huawei to continue providing security updates, after sales services post Android license cancellation

📝 Karnataka Bank launches savings bank product for salaried class

📝 Irdai proposes to increase third-party insurance premium for cars, two-wheelers

📝 Warburg Pincus, Runwal Ink JV to Form $1 Billion Retail Mall Platform

📝 McDonald's drops several items from menu in reopened stores

📝 Indian arm is steering the wheel as Verizon deploys 5G in the US

*Business Standard*

📝 Best day in a decade: Markets salute exit polls verdict, hit record highs

📝 Will pay Rs 42,000 crore upfront for Essar Steel: ArcelorMittal to NCLAT

📝 Real estate player Sobha enters furniture business with Metercube brand

📝 Client spend in BFSI, health care to hit IT outsourcing opportunity

📝 Tata Motors Q4 net profit skids 49% to Rs 1,108 crore on JLR woes

📝 Huawei's India journey hits a wall as US tech giants up the ante

📝 Trade growth slowdown likely to worsen amid tariff war, says WTO

📝 Sebi sets rules for start-ups on IGP to migrate to main platform

📝 Power sector's outstanding regulatory assets at Rs 76,963 crore

*Financial Express*

📝 Government to divest 25% in RailTel, invites bids from merchant bankers to manage IPO

📝 Jaypee infratech insolvency: Adani Group bid turned down by CoC

📝 WhatsApp, Skype regulatory framework: Trai decision within a month

📝 IKEA’s parent Ingka Group invests in Livspace

📝 Dr Reddy’s to spend $300 million on R&D in FY 20

📝 Gold imports rise 54 per cent to $3.97 billion in April

📝 FPIs withdraw Rs 6,399 cr in May so far

*Mint*

📝 Government targets higher adoption of FASTag

📝 Slowing direct tax collections may push govt to reset its budget math for FY20

📝 Bank credit to infra sector grows 18.5% in FY19: RBI data

📝 Bitcoin roars back from 'flash crash' to breach $8,000 once more

📝 ICICI Bank to buy stake in BSE subsidiary INX for ₹31 crore

📝 BPCL Q4 net profit rises 16% to ₹3,125 cr; revenue up 10% at ₹83,942 cr

📝 HPCL Q4 profit surges 70% at ₹2,969.92 crore

📝 Adani Green Energy's 8.75 crore shares to be offered for sale on Tuesday.

Caiib Retail banking

Retail Banking - Sukanya Samridhi Yojana

✅Rate of interest 8.5% p.a. calculated on yearly basis (Yearly compounded).

✅Account can be opened up to age of 10 years only from the date of birth.

✅Minimum INR. 250/-and Maximum INR. 1,50,000/- in a financial year.

✅Partial withdrawal, maximum up to 50% of balance standing at the end of the preceding financial year can be taken after Account holder’s attaining age of 18 years.

✅Account can be closed after completion of 21 years.
If account is not closed after maturity, balance will continue to earn interest as specified for the scheme from time to time

✅Prime Minister Narendra Modi has Launched Sukanya Samridhi Yojana (girl child prosperity scheme) with the vision to provide for Girl Child Education and Her Marriage Expense. Sukanya Samriddhi Account Scheme is a small deposit scheme for girl child, as part of ‘Beti Bachao Beti Padhao’ campaign, which would fetch yearly interest rate of 8.5 per cent and provide Income Tax Deduction under section 80C of the Income Tax Act, 1961.

✅Objective: To promote the welfare of Girl Child.

✅Who can open the account: A natural/ legal guardian can open account in the name of the girl child from the birth of the girl child till she attains the age of ten years.

✅Maximum number of accounts: Upto two girl children or three in case of twin girls as second birth or the first birth itself results in three girl children.

✅Minimum and Maximum Amount of Deposit: Min.250 of initial deposit with multiple of one hundred rupees thereafter with annual ceiling of Rs.150000 in a financial year.

✅Tenure of the Deposit: 21 years from the date of opening of the account.

✅Maximum period upto which deposits can be made: 14 years from the date of opening of the account.

✅Interest on Deposit: The interest is paid as per the rate declared by Government of India from time to time. Presently its 8.5%

✅Tax Rebate: As applicable under section 80C of the IT Act, 1961.

✅Premature Closure: Allowed in the event of death of the depositor or in cases of extreme compassionate grounds such as medical support in life threatening diseases to be authorized by an order by the Central Government.

✅Irregular Payment/ Revival of account: By payment of penalty of Rs.50 per year along with the minimum specified amount per year.

✅Mode of Deposit: Cash/Cheque/ Demand Draft

✅Withdrawal : 50% of the balance lying in the account as at the end of previous financial year for the purpose of higher education, marriage after attaining the age of 18 years

Current affair s on 20.05.2019

Today's Headlines from www:

*Economic Times*

📝 India has a Rs 7,500 crore plan to become an AI powerhouse

📝 New vehicle for long-term infra finance on the anvil

📝 Not taxing e-transmissions costs India $500m annually

📝 CPRL reopens 13 McDonald's stores in Delhi NCR, others to follow soon

📝 Department of Telecom to soon settle merger/transfer of licences in M&As

📝 India needs a few mega banks to compete globally: CEA Krishnamurthy V Subramanian

📝 MCA sees Rs 2.8 lakh cr recovery from IBC-led resolution process

*Business Standard*

📝 RBI readies credit line rules for NBFCs, may seek views after poll results

📝 Skillmatics plans to grow brand globally, launch innovative products

📝 Slowdown in auto and white goods is visible: JSW Steel's Seshagiri Rao

📝 Tatas plan expansion, eye all-round play in India's FMCG sector

📝 Essar Steel's Ebitda during insolvency process at Rs 4,000 crore

📝 Biologics to boost Biocon business over the next 3 years, say analysts

📝 Oil India likely to exit US, Russia blocks; to stay in Venezuela

📝 CARE downgrades Reliance Capital bonds' rating from 'A' to 'BBB'

📝 Japan's ORIX Corp offers to match GAIL's bid for IL&FS Wind Energy

📝 British PM Theresa May to present 'new, bold offer' in Brexit Bill

*Financial Express*

📝 RBI's vision 2021 would trigger digital economy, instill confidence among general public, says fintech firms

📝 Big breakthrough by NASA; water found in the farthest world ever explored by humans

📝 Edelweiss Group’s NBFC arm ECL Finance raises Rs 300 crore via non-convertible debentures

📝 Elections, US-China trade war led Rs 6,399 withdrawal by FPIs in May so far

📝 Monsoon in India: Pre-season rainfall deficit drops to 22%

📝 Coal dispatches to power sector rises marginally to 40.7 MT in April

📝 Government turns to artificial intelligence for MCA 21 portal to ease compliance process

📝 IMFA posts loss of Rs 74 cr in January-March qtr

📝 Merger impact: BoB looks to rationalise 800-900 branches

*Mint*

📝 Coatue may lead $120 mn funding in Faasos parent

📝 TCS eyes double-digit growth in FY20, says COO Subramaniam

📝 Siemens’ realigned business focus is revving up order flows and margins

📝 Lenders of VOVL appoint Deloitte to find buyers for its overseas assets

📝 ONGC, GIP, Tripura govt look to buy IL&FS’s 26% stake in OTPC

📝 Life insurance industry to focus on millennials, digital-human interface

📝 NeSL offers IPs its platform to store data.

Mutual funds short notes 2

Chapter 2

• Mutual Fund is established as a trust. Therefore, they are governed by the

Indian Trusts Act, 1882

• The mutual fund trust is created by one or more Sponsors, who are the

main persons behind the mutual fund business.

• Every trust has beneficiaries. The beneficiaries, in the case of a mutual fund

trust, are the investors who invest in various schemes of the mutual fund.

• Day to day management of the schemes is handled by an Asset

Management Company (AMC). The AMC is appointed by the sponsor or the

Trustees.

• Sponsor should be carrying on business in financial services for 5 years.

Sponsor should have positive net worth (share capital plus reserves

minus accumulated losses) for each of those 5 years. Latest net worth

should be more than the amount that the sponsor contributes to the

capital of the AMC. The sponsor should have earned profits, after

providing for depreciation and interest, in three of the previous five

years, including the latest year. The sponsor needs to have a minimum

40% share holding in the capital of the AMC.

• Prior approval of SEBI needs to be taken, before a person is appointed as

Trustee. The sponsor will have to appoint at least 4 trustees. If a trustee

company has been appointed, then that company would need to have at

least 4 directors on the Board. Further, at least two-thirds of the trustees /

directors on the Board of the trustee company, would need to be

independent trustees i.e. not associated with the sponsor in any way.

• Day to day operations of asset management is handled by the AMC.

• The directors of the asset management company need to be persons

having adequate professional experience in finance and financial services

related field. The directors as well as key personnel of the AMC should not

have been found guilty of moral turpitude or convicted of any economic

offence or violation of any securities laws. Key personnel of the AMC

should not have worked for any asset management company or mutual

fund or any intermediary during the period when its registration was

suspended or cancelled at any time by SEBI.

• Prior approval of the trustees is required, before a person is appointed as 

director on the board of the AMC. Further, at least 50% of the directors

should be independent directors i.e. not associate of or associated with the

sponsor or any of its subsidiaries or the trustees.



• The AMC needs to have a minimum net worth of Rs. 10crore. An AMC

cannot invest in its own schemes, unless the intention to invest is disclosed

in the Offer Document. Further, the AMC cannot charge any fees for its

own investment in any of the schemes managed by itself.

• The appointment of an AMC can be terminated by a majority of the

trustees, or by 75% of the Unit-holders. However, any change in the AMC is

subject to prior approval of SEBI and the Unit-holders.

• The custodian has custody of the assets of the fund. As part of this role, the

custodian needs to accept and give delivery of securities for the purchase

and sale transactions of the various schemes of the fund. Thus, the

custodian settles all the transactions on behalf of the mutual fund

schemes.

• All custodians need to register with SEBI. The Custodian is appointed by the

mutual fund. A custodial agreement is entered into between the trustees

and the custodian.

• The SEBI regulations provide that if the sponsor or its associates control

50% or more of the shares of a custodian, or if 50% or more of the directors

of a custodian represent the interest of the sponsor or its associates, then

that custodian cannot be appointed for the mutual fund operation of the

sponsor or its associate or subsidiary company.

• The custodian also tracks corporate actions such as dividends, bonus and

rights in companies where the fund has invested.

• The RTA maintains investor records. The appointment of RTA is done by the

AMC. It is not compulsory to appoint a RTA. The AMC can choose to handle

this activity in-house. All RTAs need to register with SEBI.

• Auditors are responsible for the audit of accounts. Accounts of the schemes

need to be maintained independent of the accounts of the AMC. The

auditor appointed to audit the scheme accounts needs to be different from

the auditor of the AMC. While the scheme auditor is appointed by the

Trustees, the AMC auditor is appointed by the AMC.

• The fund accountant performs the role of calculating the NAV, by collecting

information about the assets and liabilities of each scheme.

Mutual funds NISM short notes 1

Chapter 1
• Mutual fund is a vehicle to mobilize moneys from investors, to invest in
different markets and securities, in line with the investment objectives
agreed upon, between the mutual fund and the investors. In other words,
through investment in a mutual fund, a small investor can avail of
professional fund management services offered by an asset management
company.
• Mutual funds perform different roles for different constituencies.
• The mutual fund structure, through its various schemes, makes it possible
to tap a large corpus of money from diverse investors.
• It is possible for mutual funds to structure a scheme for any kind of
investment objective.
• The money that is raised from investors, ultimately benefits governments,
companies or other entities, directly or indirectly, to raise moneys to invest
in various projects or pay for various expenses.
• As a large investor, the mutual funds can keep a check on the operations of
the investee company, and their corporate governance and ethical
standards.
• The mutual fund industry itself, offers livelihood to a large number of
employees of mutual funds, distributors, registrars and various other
service providers.
• Mutual funds can also act as a market stabilizer, in countering large inflows
or outflows from foreign investors. Mutual funds are therefore viewed as a
key participant in the capital market of any economy.
• Under the law, every unit has a face value of Rs. 10. (However, older
schemes in the market may have a different face value). The face value is
relevant from an accounting perspective. The number of units multiplied by
its face value (Rs. 10) is the capital of the scheme – its Unit Capital.
Investments can be said to have been handled profitably, if the following
profitability metric is positive:
(A) +Interest income
(B) + Dividend income
(C) + Realized capital gains
(D) + Valuation gains
(E) – Realized capital losses
(F) – Valuation losses
(G) – Scheme expenses
• When the investment activity is profitable, the true worth of a unit goes
up; when there are losses, the true worth of a unit goes down. The true
worth of a unit of the scheme is otherwise called Net Asset Value (NAV) of 
the scheme.
• The relative size of mutual fund companies is assessed by their assets
under management (AUM). When a scheme is first launched, assets under
management would be the amount mobilized from investors. Thereafter, if
the scheme has a positive profitability metric, its AUM goes up; a negative
profitability metric will pull it down.
• Advantages of Mutual Funds for Investors are:
a. Professional Management
b. Affordable Portfolio Diversification
c. Economies of Scale
d. Liquidity
e. Tax Deferral
f. Tax benefits
g. Convenient Options
h. Investment Comfort
i. Regulatory Comfort
j. Systematic Approach to Investments
• Limitations of a Mutual Fund
a. Lack of portfolio customization
b. Choice overload
c. No control over costs
• Open-ended funds are open for investors to enter or exit at any time, even
after the NFO.
• The on-going entry and exit of investors implies that the unit capital in an
open-ended fund would keep changing on a regular basis.
• Close-ended funds have a fixed maturity. Investors can buy units of a close-
ended scheme, from the fund, only during its NFO. The fund makes
arrangements for the units to be traded, post-NFO in a stock exchange. This
is done through a listing of the scheme in a stock exchange. Such listing is
compulsory for close-ended schemes.

• Since post-NFO, sale and purchase of close-ended funds units happen to or
from counter-party in the stock exchange – and not to or from the mutual
fund – the unit capital of the scheme remains stable or fixed.
• Depending on the demand-supply situation for the units of the close-ended
scheme on the stock exchange, the transaction price could be higher or
lower than the prevailing NAV.
• Interval funds combine features of both open-ended and close-ended
schemes. They are largely close-ended, but become open-ended at pre-
specified intervals. For instance, an interval scheme might become open-
ended between January 1 to 15, and July 1 to 15, each year. The benefit for
investors is that, unlike in a purely close-ended scheme, they are not
completely dependent on the stock exchange to be able to buy or sell units
of the interval fund. However, between these intervals, the Units have to
be compulsorily listed on stock exchanges to allow investors an exit route.
Minimum duration of an interval period in an interval scheme/plan is 15
days. No redemption/repurchase of units is allowed except during the
specified transaction period (the period during which both subscription and
redemption may be made to and from the scheme). The specified
transaction period will be of minimum 2 working days, as per revised SEBI
Regulations.
• Actively managed funds are funds where the fund manager has the
flexibility to choose the investment portfolio, within the broad parameters
of the investment objective of the scheme. Since this increases the role of
the fund manager, the expenses for running the fund turn out to be higher.
Investors expect actively managed funds to perform better than the
market.
• Passive funds invest on the basis of a specified index, whose performance
it seeks to track. Thus, a passive fund tracking the BSE Sensex would buy
only the shares that are part of the composition of the BSE Sensex. The
proportion of each share in the scheme’s portfolio would also be the same
as the weightage assigned to the share in the computation of the BSE
Sensex. Thus, the performance of these funds tends to mirror the
concerned index. They are not designed to perform better than the market.
Such schemes are also called index schemes. Since the portfolio is
determined by the index itself, the fund manager has no role in deciding on
investments. Therefore, these schemes have low running costs.

• Schemes with an investment objective that limits them to investments in
debt securities like Treasury Bills, Government Securities, Bonds and
Debentures are called debt funds.
• Hybrid funds have an investment charter that provides for investment in
both debt and equity.
• Gilt funds invest in only treasury bills and government securities, which do
not have a credit risk (i.e. the risk that the issuer of the security defaults).
• Diversified debt funds on the other hand, invest in a mix of government
and non-government debt securities such as corporate bonds, debentures
and commercial paper. These schemes are also known as Income Funds.
• Junk bond schemes or high yield bond schemes invest in companies that
are of poor credit quality. Such schemes operate on the premise that the
attractive returns offered by the investee companies makes up for the
losses arising out of a few companies defaulting.
• Fixed maturity plans are a kind of debt fund where the investment
portfolio is closely aligned to the maturity of the scheme. Further, being
close-ended schemes, they do not accept moneys post-NFO.
• Floating rate funds invest largely in floating rate debt securities i.e. debt
securities where the interest rate payable by the issuer changes in line with
the market. For example, a debt security where interest payable is
described as‘5-year Government Security yield plus 1%’, will pay interest
rate of 7%, when the 5-year Government Security yield is 6%; if 5-year
Government Security yield goes down to 3%, then only 4% interest will be
payable on that debt security. The NAVs of such schemes fluctuate lesser
than debt funds that invest more in debt securities offering a fixed rate of
interest.
• Liquid schemes or money market schemes are a variant of debt schemes
that invest only in debt securities where the moneys will be repaid within
60-days.
• Diversified equity fund is a category of funds that invest in a diverse mix of
securities that cut across sectors.
• Sector funds however invest in only a specific sector. For example, a
banking sector fund will invest in only shares of banking companies. Gold
sector fund will invest in only shares of gold-related companies.
• Thematic funds invest in line with an investment theme. For example, an
infrastructure thematic fund might invest in shares of companies that are

into infrastructure construction, infrastructure toll-collection, cement,
steel, telecom, power etc. The investment is thus more broad-based than a
sector fund; but narrower than a diversified equity fund
• Equity Income / Dividend Yield Schemes invest in securities whose shares
fluctuate less, and the dividend represents a larger proportion of the
returns on those shares. The NAV of such equity schemes are expected to
fluctuate lesser than other categories of equity schemes.
• Arbitrage Funds take contrary positions in different markets / securities,
such that the risk is neutralized, but a return is earned.
• Gold Exchange Traded Fund, which is like an index fund that invests in
gold, gold-related securities or gold deposit schemes of banks.
• Gold Sector Fund i.e. the fund will invest in shares of companies engaged in 
gold mining and processing.
• Monthly Income Plan seeks to declare a dividend every month. It therefore
invests largely in debt securities. However, a small percentage is invested in
equity shares to improve the scheme’s yield. Another very popular
category among the hybrid funds is the Balanced Fund category. The
balanced funds can have fixed or flexible allocation between equity and
debt.
• Capital Protected Schemes are close-ended schemes, which are structured
to ensure that investors get their principal back, irrespective of what
happens to the market. This is ideally done by investing in Zero Coupon
Government Securities whose maturity is aligned to the scheme’s maturity.
• International Funds are funds that invest outside the country. For instance,
a mutual fund may offer a scheme to investors in India, with an investment
objective to invest abroad. An alternative route would be to tie up with a
foreign fund (called the host fund). If an Indian mutual fund sees potential
in China, it will tie up with a Chinese fund. In India, it will launch what is
called a feeder fund. Investors in India will invest in the feeder fund. The
moneys collected in the feeder fund would be invested in the Chinese host
fund. Thus, when the Chinese market does well, the Chinese host fund
would do well, and the feeder fund in India will follow suit.
• The feeder fund was an example of a fund that invests in another fund.
Similarly, funds can be structured to invest in various other funds, whether
in India or abroad. Such funds are called fund of funds.

• AUM of the industry, as of July 31, 2013 has touched Rs 760,833 crore from
1172 schemes offered by 44 mutual funds.

Legal recollected questions on 20 may 2019

Legal  recollected questions on 20 may 2019

1. 4-5 questions from mortgage
2. 2-3 questions from SARFAESI ACT 2002
3. Minimum qualifications to be a presiding officer of DRT
4. QUESTION ON FORGED CHEQUE.
5. NI ACT 131
6. MINIMUM AND MAXIMUM DIRECTOR IN A PUBLIC LTD COMPANY
7. WHICH LC ARE ANTICIPATORY LC
8. 2 QUESTIONS FROM BILL
9. REGISTRATION AUTHORITY OF RECONSTRUCTION COMPANY.
FEW MORE QUESTIONS FROM RECONSTRUCTION COMPANY
10. 2-3 QUESTIONS FROM LOK ADALAT

Jaiib legal Recollected questions posted by our members


2 2 marks questions in law of limitations
Indemnity 2 questions
Defn of it act
Consumer protection 2 q
Usufructuary 2 q
Simple mortgage 1 q
Pledge 3 questions
Drt / ombudsman/ consumer appointment

Maximum questions were from Module B and C , d
SARFAESI 5 QUESTIONS
Mortgage 5 Questions
Case laws relating to collection of paying and collecting bank
DRT 3 questions
Letter of credit 3 questions
Bank guarantee 4 questions
Partnership 4 questions
Audit reports 3 questions
Banking ombudsman 2 questions
Appointment of Director/additional director 2 questions
Presiding officer 2 questions

Questions asked today in Legal 11:15 am slot
Mortgage related 5 questions
Primary liability to pay in lc
chairman of nat . cons
Min amount to apply in drt
min qaulification to be presiding officer
Question related stale cheque ..can be paid on request of payee or not..
Alteration authenticated by ac holders wife ..can be paid or not.
Income tax notice to assessee under which sec of it act
Which income not defined under income in it act.pension, salary, capital gain,income from house rent
Who is chairman of natioal consumer comision
Drt applicated to-bank comp SBI rrb or all
Supply bill is related to?
Bill supported by document is called
Bill payable after certain period called
Financial statements must by signed and authorised by whom?
Assstment year for corporate entities
Presiding officer holds office till
Information can be sought by whom under RTI act
Max period of registration of charge with or without fine
Minor can be a member in Pvt Ltd public Ltd company?
One question related endorsement
Penalty under fema act.fine arrest or both
Min and max fine for delay in providing information
Max dura to provide information
Cond for being a drat chairman
Charge on laon against FD receipt.the customer in this case is
Pledge
Mortgage
Bra 1949 mainly deals with
Max period of limitation in case of bill of exchange and bond without due date
Questions on limitation act ..it's importance to banks
Questions on charge
Role of opening bank in lc
Regarding laon of limited company who will sign laon paper
Regarding loans to partnership firm
One resolution for how many directors
Banking use excess from reseres and surplus needs permission within??
Balance sheet should be signed by??
Vice chairman of board on fin supervision is elected by?
Minor to decide whether to be a partner within ???
Consequences of unreg partnership firm
All partner can check book of the firm
Liability in indemnity?
Arbitration is applicable in ??
Decision passed by ombudsman is called
Fraud cash withdrawal -ombd can deal or not?
Mortgage is defined in?
Charge on insurance is defined in?
Actionable claim??
Anyone require 15000 dollar for education purpose this is capital trans , cur trans?? acrd to fema
Relation in deposit of articles
Liability of gaurantor?
Which is considered good as security
-fdr receipt Debentures shares...
Object clause of moa
Art of asso related
Partner become insolvent bank should??
Partnership firm may be dissolved by
Director of bank can do his personal work along with his post ? allowed or not
In case of conversion.. protection will be given to
Sec 131 ni act
Which type of comp cant be raised with ombudsman
Peculinary amount in case of drt.
Equitable mortgage
Rights of seller
Right of indemnity holder when sued

Bus itna hi yaad hai ..
Hope it will be helpful for others..

SMERA

MSME::



SMALL AND MEDIUM ENTERPRISES RATING AGENCY (SMERA)



SME Rating Agency of India Ltd (SMERA) is a third party rating agency exclusively set up

for micro, smal l, and medium enterprises in India for ratings on credit worthiness.

SMERA is promoted by SIDBI and Dun & Bradstreet along with various government,

public and private sector banks. It provides ratings which enable MSME units to raise



bank loans at competitive rates of interest. SMERA's ratings are an independent thirdparty

assessment of the overall status of the MSMEs as performing entities. The ratings

comprise a composite appraisal indicator and a size indicator. Its ratings enhance the

market standing of the MSMEs among their trading partners and customers. In addition,

the agency factors in industry dynamics in its ratings through a system of comparison of

strengths and weaknesses of the MSME with other companies in the same line of

business. It is also risk profiling the clusters through special studies and these would fill

the information gap between the lender and the sector. Banks offer concessions in pricing

(0.25%-0.50%) for credit to MSMEs rated by SMERA.



Other MSME Rating Agencies approved by RBI are ICRA, CARE, India Ratings & Research Pvt.

Ltd. (India Rating) & CRISIL, who are rating the units on various parameters which are

acceptable to the financial institutions/Banks and in the marketability of the products. RBI has

granted accreditation to SMERA as an External Credit Assessment Institution (ECAI) in Sept.

2012 and accordingly banks have been permitted by RBI to use the ratings of SMERA for the

purpose of risk weighting their claims for capital adequacy purposes in addition to the existing

five domestic credit rating agencies, It has paved way for SMERA to rate/grade various

instruments such as: IPO, Bonds, Security Receipts, Bank Loan Instruments etc.

SMEs because of their diversity, spread both in form and content, have an inherent need for

support both from the Government and non-government organizations as well as financing

institutions. This chapter narrates the role and functions of these organizations. Many of the

functions they perform have evolved over a period of time and they are mostly demand-driven

although some government organizations continue to remain supply-driven, MSME DO is the

fountainhead of the service organizations in the government fold. Some of them underwent

structural changes in tune with the emerging needs of the sector like NIMSME, NIESBUD,

NSIC etc. Some like the SFCs that suffered due to inefficient functioning building up huge

NPAs, shifting their span of control from IDBI to SIDBI are also changing

Msme recollected

MSME recollected questions 03.11.2018

*Fiwe headquarters?

*Sarfaesi act in the year?

*Mudra is being regulated by?

*Qns from shishu,kishore,tarun limits?

*WTO in the year?

*One time settlement is under the control of?

*Loss asset?

*Penal measures for wilful defaulters?

*Potentialy viable?

*Symptoms of incipient sickness?

*Qns.from internal and external causes of sickness?

*When an enterprise is considered as sick ?

*Rehabilitation package within 6 months?

*SEEDA as an enterprise hub network party to assist in n/w ing btwn firms?

*ITCOT in ..tamilnadu?

*Number of stages of credit process?

*A problem from clcss subsidy calculation?

*TUF sponsored by ministry of textiles?

*Diffusion effect?

*Credit rating for small industries being provided by?

*Qns from debt equity ratio and debt service coverage ratio?

*Impact of lower break even point... adequate margin of safety?

*Working capital gap?

Important C in 5C's of management appraisal?

*Back to back LC?

*Red clause LC ....extending an unsecured credit to the seller?

*Preshipment advance?

*Qns from bank guarantee types?

*Composite loan limit?

*Mahila vikas nidhi?

*Alternative sources of capital...angel,venture etc?

*Iso 9000 reimbursement?

*Disposal of loan application time limit with amount?

Current affair s on 19.05.2019

Today's Headlines from www:

*Economic Times*

📝 Section of Jet staff seeks details to raise $700 mn

📝 Amazon says OTT players' focus on original content to drive uptake of Fire TV stick; eyes partnerships

📝 IOC taps US equity oil, extra Saudi supplies to fill Iran void

📝 NCERT set for mega review of 2005 curriculum guidelines

📝 Debit card PoS swipes rise 27% as per RBI data

📝 Panel's views on 5G trial under DoT consideration

📝 Lenders approve UVARCL proposal to acquire Aircel

*Business Standard*

📝 Tech giants put India plans on hold, seek clarity on e-commerce policies

📝 Competition pushes DMart to keep prices down; margins to take hit

📝 Health Collective building platforms to address mental health, illness

📝 No desire to take IndiGo's control, says co-promoter Rakesh Gangwal

📝 Google admits to tracking online purchases, says won't use the data to pitch ads

*Financial Express*

📝 Private equity firm ADV Partners buys Tata DLT

📝 Pakistan stocks cap worst week in 17 years after loan

📝 Baring Private Equity Asia acquires 30 pc stake in NIIT Technologies

📝 Boeing loses veteran Jetliner salesmen amid crucial market test

📝 Walmart CEO “continue to be excited” about Flipkart even as latter erodes profits

📝 Food delivery giant DoorDash’s valuation likely to be $13 billion with new $500 million round

📝 Starbucks China competitor Luckin climbs in trading debut after $561 million IPO

*Mint*

📝 China's ban on scrap imports a boon to US recycling plants

📝 Reliance Capital to raise ₹10,000 crore in current fiscal by selling assets

📝 Only 38% Indians concerned about data misuse: Survey

📝 JK Cement Q4 net profit jumps 55% to ₹150 crore

📝 Amazon launches flight booking service in India

📝 Clarity on Jet Airways expected in a week, says SBI chief Rajnish Kumar

📝 Donald Trump lifts steel, aluminum tariffs on Canada, Mexico.

All the best for your last jaiib exam

All the best for your jaiib exam

Luck is a funny thing because sometimes it can be good and sometimes it can be bad. So take matters in your own hand, study hard and stop relying on something so fickle. All the best.

The best way to motivate yourself is to stop stressing about what’ll happen when things go wrong and start thinking about how awesome life will be when they go right. Good luck.

wish you success in your exams messages

If you believe in yourself you do not have to fear any challenge. I wish you all the success for your exam!

You prepared well, You know it all right, Just relax over the night. Morning will come and so will the test Don’t you worry; you just need a little rest. Best of luck for exam!

Caiib BFM numericals

 Provisioning related numericals

Ex. 1

Account with Outstanding of Rs. 10.00 lac became Out of order on 22.1.11 and it became NPA

on 22.4.2011. The Value of Security at later stage is Rs. 7.00 lac. Calculate Provision as on

31.3.12.

Solution

It is a Sub-Standard Asset as on 31.3.2012.

Provision is 1000000*15/100 = 150000/-

Ex. 2

A loan account with outstanding of Rs. 10.00 lac and Value of Security Rs. 6.00 lac was Substandard

as on 30.3.2008. What will be provision as on 31.3.2012?

Solution

The account will be Doubtful (DI) on 30.3.2009, D2 on 30.9.2010, D3 on 30.3.2012. Provision

will as under:

Secured portion = 6.00*100/100 = 6.00 lac

Un-secured portion = 4.00*100/100 = 4.00 lac

Total Provision = 6+4 = 10.00 lac.

Ex. 3

A loan became Doubtful on 12.2.2009. The outstanding is 6.00 lac. What will be provision on

31.3.2012.

Solution

The Account will be categorized as Doubtful (D3) as on 12.2.2012. Provision is 100% of 6.00 lac

= 6.00 lac



lac

97

Ex. 4

D2 category account has outstanding--10.00 lac, DI/SI ----2.00 lac, Value of security ---6.00 lac

Solution

Un- Secured portion = 10-2-6 = 2.00 lac Provision = 2.00 * 100/100 = 2.00 lac

Secured portion = 6.00 * 40/100 = 2.40 lac

Total provision = 2.00 + 2.40 = 4.40 lac

Ex. 5

D2 Category loan is having outstanding 4.00 lac, Value of Security 1.50 lac and ECGC cover

50%. Calculate provision as on 31.3.2012.

Solution

Unsecured portion = 50% of (O/s – VS) = 50% (4.00 – 1.50) = 1.25 lac

Secured portion = 1.50 lac

Provision on Unsecured portion = 1.25*100/100 = 1.25 lac

Provision on Secured portion = 1.50*40/100 = 0.60 lac

Total provision = 1.25 +0.60 = 1.85 lac.

Ex. 6

A D2 category loan is having outstanding Rs. 6.00 lac. The Collateral Security is Rs. 3.00 lac

and Primary Security is Rs. 2.00 lac. There is also Guarantee of Rs. 10.00 lac. Calculate

provision.

Solution

Unsecured portion = O/s – Primary Security – Collateral = 6.00 – 2.00 -3.00 = 1.00 lac

Secured portion = 2.00 + 3.00 = 5.00 lac.

Provision on Unsecured portion = 1.00 *100/100 = 1.00 lac

Provision on Secured portion = 5.00*40/100 = 2.00 lac

Total provision = 1.00 + 2.00 = 3.00 lac.

Ex. 7

Advance portfolio of a bank is as under:

Total advances = 40000 crore, Gross NPAs = 9%, Net NPAs = 2%

Find out 1) Total Provision 2) Provisioning Coverage Ratio

Solution

NPAs = Total Advances *9/100 = 40000*9/100 = 3600 crore

Standard Assets = 40000-3600 = 36400 crore

Provision on Standard Assets = 36400*0.40% = 145.60 crore

Provision on NPAs = 9% - 2% = 7% = 40000*7/100 = 2800 crore

1) Total provision = 145.60 + 2800 = 2945.60 crore

Gross NPAs = 40000*9/100 = 3600 crore

Net NPAs = 40000*2/100 = 800 crore

2) Provision Coverage Ratio = Provision on NPAs / Gross NPAs = 2800/3600 = 77%.

Ex. 7 Account becomes doubtful on 12th Feb 2008. The Balance is Rs. 6 lac. Value of security is

3 lac. What will be the provision on 31.3.2011?

Solution

 It is D3 Type of account.

 Therefore, provision will be 100% i.e. 6 lac = 6.00 lac Ans.



Ex. 8 NPA o/s : Rs. 10 lac including suspended interest/Derecognized interest Rs. 2 lac.

Security value is Rs. 6 lac. It became NPA on 25th Feb 2008. What would be the provision on

31.3.2011.

 It is D2 category account

 4.40 LAC (10-2-6= 2x100%= 2 lac + 40% on 6 lac ie 2.40 lac = 4.40 lac) D2

Ex. 9 A/c became NPA on 2nd January 2008. Balance o/s is 10 lac including Derecognized

interest Rs. 2 lac and ECGC cover of 50%. Value of security is 4 lac. What will be provision on

31.3.2009.

 It is D1 category account.

 10 lac – 2 lac, DI – 4 lac Sec. = 4 lac

 ECGC Cover: 4 lac x 50% = 2 lac

Provision on Unsecured portion

 Unsecured: 4 lac – 2 lac = 2 lac x100% = 2.00 lac

Provision on Secured portion

 Secured: 4 lac x 25% = 1.00 lac

 Total Provision: 2 + 1 = 3.00 lac