Forex operations recollected questions on 23.02.2020

Forex operations  recollected questions on 23.02.2020
how many incoterms...
CIP meaning ...
Export registration valid for how many years...
Pre requisite for exporter importer (pan / IEC/ Registration with export promotion council)...
Duty rate in EPCG scheme?...
Back office front office middle office differentiation...
Normal transit period means ?
NTP for foreign bill...
Corporate donation can be done for which of the following purposes...
Gift from resident to non resident can be credited to which account ...
Hedging of ecb ...
Refinance of ecb ....
Ecb eligibility for startups ...
Short medium long term loans def...
Uniform rules for collection code number....
BPO three questions...
Docdex rules timeline for disposal of disputes
Ex works.....
counsel invoice...
Lc rules defined under which articles...
Rejection code in swift...
45a of swift form defines wat...
Ecgc whole turnover pc...
Forfeiting definition...
Definition of credit...
Meis sies schemes in FTP 2020...
GSTP which country not in list...
Duty drawback refund exemptions....
Date of export in multimodal transport...
Current account definition...
Prohibited capital investments...
Stale document in lc...
Bill of ladding on board definition....
Shipping insurance is not fully indemnified ...
High sea sales happens before ?..
High sea sales happens at ...
Export value will be taken at fob or cif under export schemes...
Direct transfer of documents between seller and buyer in case of preferential trade agreement countries...
How much maximum advance repayment in normal imports ....
How much maximum advance repayment in services imports...
Software export happens through which package....
Overdue bills liquidation at wat rate...
Overdue bills rate of interest after 360 days...
Lc is opened against ? Confirmed order / po confirmed by seller ...
Avalising meaning ...
Counselor invoice meaning

Recollected questions on IT security 19.01.2020

Recollected questions on IT security
19.01.2020


1. Major change in It act 2008 and IT act 2000
2. which act is ammened after CTS ? choices r Rbi a t BR act  Indian evudence act
3.It security s resoonsible fir all employes and driver is CiSO
4.Ciso will report to Hirm
5. Threat vulnerability case study
6. Threat vector
7.crime s not bcos of oppurtnty need ratiaisation answer s inteligence
8.Which metal dector is used in inland indepth
9. which metal detector cannot diferentiate metals
10. which does not comes under indepth Security
11.SQL injection
12. case study qn on Rootkit
1e.RTP
14.ROP
15.unit twating /whitebox/ blackbox testing
16. warm site/ cold site
17. COBIT developed by which agency of USA
18.which ia bench mark of Indian security stds COBIT OR IASA
19. what has to be hand over to conpany in case of Escrow arrangement- Source code
20. When it has to handover and who should demand the codes under escrow agreemnt
30.salomi technique
31. Acess control case study
32. Acess control policy is for Physical acess or al type access
33. For software protection no physical security s needed or physic security is fully needed or partly if it s a single pC.
34.Maker checker checjer has role power more than maker.
35which is cheaper RFID or Barcode reader
36. wether both bar code reader and RFID can be scanned with same scanner?
37.when a sytem ahould be Tagged with RFId as soon as it is bought or wen it is brought yo the company erc.
38. Arranging the sequence of Physical.movembt of   Hardwares like listing sequencing tagging etc.
39. life cycle of aoftware devepmnetn lik planning devolping testing implementing and the mam twist is wether maintannce comes under life cycle of developing or the life cycl ends with inplementing only.?
40.which fire extinguisher to b used in setver room Co2
41.CAPtCha is case sensitive
42.stenography/ cryptography.
43 Malware/ spyware/ Addware/ Botner
44. wether Botnet iz a malwRe,?
45. Wanna cry is a ransomware
46. Some question was abt layers in Osi model
47.Ddos
48.dual core process
49. Trapdoor
50.Bit glass
51. Digital india aims at - bringing internet  and e governancce to all parts of society
t2. Cobit is computer governance or IT governamce
53. which ia important in bank customer data prootection along with adata centre or Only dafa centres hvng other data?
54. Atm jackpotti g
55. Green dispensor
56.Load balancing
57. wether security policy of a company is confidential or it can be known to all
58.PGP
59.Dumbster Drving
50. which technique if used for mallicious intention bcomes crime - Sniffing
60. Iso 27700 /27001/27002 _ 2 questions
61. open source application - MS word
62. PCI dss used for??
63. Iaas Paas
76. In buffef overflow attacker targets_ stack
77. secuirty to be ensured untill last mile
78. -Network attac hed storage
79. why disk duplex is better than disk miroring
80.Zeus is a malware attacking banks
81. Zombies
82.spiral model/ iterative model/ waterfall model case study
83.jitter technology
84. pDC (plan do chek)
85. which std is used for life çycle Iso/iec 5288:2008

Questions are modearaate. Taxman book is more than enough to pass. If V COMPLete Cyber crime and fraud managemnt exam before completing IT security it will be easier since 30% questions can be related.

In Taxman book at the end of Each topic few topics were given under the title "KEY WORDS". Most questions are from that.

KYV AML mcqs

AML-KYC
1. In the process of customer identification, the customer identification data should be updated __________ in 5 years in case of low risk category, and __________ in case of medium and high risk category customers.
1. Twice; 1 year
2. Once; 1 years
3. Twice; 2 years
4. Once; 2 years*
2. ____________ is the process of keeping the amount lower than that fixed for reporting and building similar transactions till the amount planned to be laundered is reached fully.
1. Entrailing
2. Lading
3. Slushing
4. Smurfing*
3.What information about the correspondent bank must be available
1. Major business activities
2. The bank's management
3. Level of AML/KYC compliance
4. All of the above*
4. Which of the following acts defines the offence of Money Laundering as under – “Engaging directly or indirectly in a transaction that involves property, that is proceeds of crime (or) derived from proceeds of crime (or) knowingly receiving, possessing, concealing, disguising, transpiring, converting, disposing off within the territories of India, removing form or bringing into the territory of India the property that is proceeds of crime”
1. Anti-Money Laundering Act, 2005
2. Active Money Laundering Act (AMLA), 2003
3. Prevention of Money Laundering Act (PMLA), 2002*
4. Impediment of Money Laundering Act (PMLA), 2002
5. Which of the following is a high risk activity?
1. A customer purchasing a car from a local garage
2. Printing a statement for a customer
3. A loan for home improvement
4. Money transfer to unknown third parties*
6. Please read the KYC practice given below. Identify the KYC element which best relates to the stated practice. Well-developed and applied customer assessments enable identification and classification of potentially high-risk customers. This is known as _____________.
1. customer acceptance*
2. customer identification
3. accounts and transaction monitoring
4. risk management
7. Which of the crime is not included under PMLA, 2002 for proceeds of crime
1. Drug trafficking
2. Kidnapping
3. Murder
4. None of the above*
8. Who file a report onward to the FIU-IND, if the Bank concludes that a transaction is suspicious
1. PO*
2. senior management
3. Internal Audit and Control team
4. None of the above
9. Laundering might attempt a series of small currency transaction over time because _____________.
1. a provision of the bank secrecy act requires the filing of CTR for a transaction exceeding Rs. 10 Lakhs*
2. Larger amount are too risky to carry around
3. that's the way in which launderers take in the funds
4. None of the above
10. The three stages of money laundering are ____________.
1. Layering, Placement, Refining
2. Placement, Refining, Integration
3. Refining. Integration, Layering
4. Integration, Layering, Placement*
11. What should awareness and training of staff on AML/KYC, should cover
1. need to know the true identity of the customer
2. need to know enough about the nature of business activities expected
3. to know what might constitute suspicious activity
4. All of the above*
12. Money laundering involves three independent steps that often occurs simultaneously. Which of the following best explains the layering in the process of money laundering?
1. Physically placing bulk cash proceeds
2. Separating the proceeds of criminal activity from their origin, through complex level of financial transactions*
3. Providing a legitimate explanation for the illicit proceeds
4. None of the above
13. What is not audited by Internal Audit and Control teams of the banks
1. adequacy of policies
2. adequacy of procedures
3. system support to detect suspicious and potential money laundering transaction
4. None of the above*
14. What should you consider when managing AML/CTF in your business?
1. Knowing your customer
2. Destination of funds
3. Methods of delivery such as cash, telephone and internet banking
4. All of the above*
15. When is induction training provided to employees
1. start of their employment*
2. end of their employment
3. Depends upon trainer availability
4. Depends upon training schedule
16. What services are offered by correspondent banks
1. International wire transfers
2. Cheque clearing
3. Cash/fund transfers
4. All of the above*
17. ____________ is a bank which is incorporated in a country where is no physical presence and is not affiliated to any regulated financial group.
1. Correspondent Bank
2. Shell Bank*
3. Respondent Bank
4. Compendium Bank
18. Which element of an effective transaction monitoring process, involves scrutiny of the transactions carried out by the customer over a longer period of time
1. Analysis of transactions*
2. Identification of Exceptional transactions
3. Enhanced Due Diligence
4. None of the above
19. Which of the following should be treated as a ‘customer’ for prudent KYC analysis?
1. any person or company which can conduct a transaction in relation to an account offered by a ban
2. any person who is a signatory to an account offered by a building society
3. any person or company which holds an account issued by a credit union
4. All of the above*
20. Customer verification is vital to any KYC procedure. What is acceptable in verifying an individual customer? Select the incorrect response from the alternatives below. In verifying an individual customer, you can rely on ____________.
1. a certified copy of a birth certificate in conjunction with the customer's drivers licence and Medicare card
2. sighting original identification such as birth certificate and drivers licence
3. a reference from a good friend*
4. None of the above
21. ________________ services are used to buy or sell foreign currencies, to consolidate small denomination bank notes into larger ones, or to exchange financial instruments. Criminals are attracted to this method of laundering as they are not as heavily regulated as traditional financial institutions.
1. Remittance
2. Bureaux De Change*
3. Back-to-Back Loans
4. Collection Accounts
22. ________________ are fake companies that appear on paper, but may not physically exist.
1. Shell Companies*
2. Front Companies
3. Offshore Banking
4. Hawala Systems
23. During customer acceptance and identification activities, on which of the following customers should enhanced due diligence be conducted?
1. trustees, nominees, and fiduciaries
2. non-face-to-face customers
3. correspondent accounts
4. All of the above*
24. Which one of the following is a Valid document available to the bank for customer identification?
1. Election ID card*
2. Ration Card
3. Bank statement of account
4. Photograph
25. Which of the following terms is used to describe the process of sending money through multiple financial institutions to make it difficult to track?
1. Integration
2. Camouflage
3. Placement
4. Layering*
26. What should be recorded regarding records of employee training on AML/KYC
1. date of training
2. nature of the training received
3. attendance
4. All of the above*
27. Money derived from criminal activity is known as _______________.
1. Proceeds Possession
2. Proceeds of Crime*
3. Dirty Money
4. Crime Laundering
28. Money laundering is the result of crime and the persons behind the crimes appear to be using banking channels for the purpose of _______________. (I) fund transmission (II) creating a legal front of money raised through illegal and humanity demeaning methods.
1. Only (I) above
2. Only (II) above
3. Both (I) and (II) above*
4. None of the above
29. What should employees be aware about the handling of transactions which may involve money laundering
1. potential effect on the bank
2. potential effect on bank's employees
3. potential effect on bank's customers
4. All of the above*
30. Which of the following are required documents to establish both the identity and the correct address while opening accounts of companies? (I) Certificate of incorporation and Memorandum of Articles of Association (II) Resolution of Board of Directors to open an account, and identification of those who have the authority to operate the account (III) Power of Attorney granted to a partner or an employee of the firm to transact business on its behalf (IV) Copy of PAN allotment letter (V) Copy of telephone bill
1. (I), (II), (III) and (IV) above
2. (I), (II), (IV) and (V) above
3. (II), (III), (IV) and (V) above
4. (I), (II), (III), (IV) and (V) above*
31. _______________ is the provision of banking services by one bank to another bank.
1. Respondent Banking
2. Crude Banking
3. Correspondent Banking*
4. None of the above
32. While monitoring of customer transaction it should be ensured that there is no _________ i.e., manipulation of the size of transaction so that if seen individually they fall below the threshold that needs to be reported to the monitoring authority.
1. Entrailing
2. Structuring*
3. Lading
4. Slushing
33. AML/KYC guidelines are issued under ____________.
1. BR Act,1949
2. PMLA,2002
3. RBI Act
4. Both A and B above*
34. _____________ is a matrix of different components (such as source of funds, level of income, volume and frequency of transaction etc) that helps arrive at a benchmark transaction for individual customer transactions, against which a comparison can be made.
1. KYC Profile
2. Customer Risk Profile
3. Transaction Profile*
4. Interim Profile
35. Please read the KYC practice given below. Identify the KYC element which best relates to the stated practice. High-risk customer activity is regularly reviewed and substantial high-risk customers are personally known to management. This is known as _____________.
1. customer acceptance
2. customer identification
3. accounts and transaction monitoring*
4. risk management
36. Money Laundering refers to ____________.
1. Conversion of cash in to gold
2. Conversation of assets into cash
3. Conversion of assets into cash
4. Conversion of money which is illegally obtained*
37. How does KYC checks be communicated to customers of bank
1. Incorporating the requirements in the account opening forms
2. Publishing relevant information on the websites of the bank
3. Providing a ready reckoner on frequently asked questions related to KYC
4. All of the above*
38. As a manager/Compliance officer, it is a part of your job to ____________.
1. Maintain your companies AML Program
2. Ensure that proper reports are filed and records are maintained
3. Ensure that all employees report suspicious activities
4. All of the above*
39. What factors and characteristics come into play for the process of customer profiling
1. buying patterns
2. creditworthiness
3. purchase history
4. All of the above*
40. CTR stands for ____________.
1. Custom Trafficking Report
2. Current Transaction Receipt
3. Currency Transaction Report*
4. Criminal Trading Raid
41. ______________ are engaged in selling goods and providing services, with large volume of business and often engaged in cash dealings.
1. Shell Companies
2. Front Companies*
3. Offshore Banking
4. Hawala Systems
42. Which of the following document/s can be accepted by banks as a proof of Customer Identification?
1. Electricity Bill
2. Salary Slip
3. Income/Wealth Tax Assessment Order
4. Election I card*
43. What should relevant employees be aware of
1. Policies and procedures put in place to prevent money laundering
2. Procedures put in place to prevent money laundering
3. KYC/AML guidelines issued by the RBI
4. All of the above*
44. What objective parameters can be used for enhanced due diligence
1. Customer location
2. Financial status
3. Nature of business
4. All of the above*
45. PAN (Permanent Account Number) is compulsory for Fixed Deposits, Remittances like DDs/TTS/RTCs etc _________.
1. if the amount exceeds Rs.10,000
2. if the amount exceeds Rs.25,000
3. if the amount exceeds Rs.50,000*
4. no such limit is fixed by the Income Tax Authorities
46. What are not the responsibility of the senior management
1. Appointment of PO
2. Managing the risk of money laundering
3. Internal Reporting Procedures
4. None of the above*
47. Which of the following is an example of smurfing?
1. Wiring money to a foreign country
2. A broker buying dollars with rupees
3. A drug dealer asking a stranger to buy money order with drug money*
4. All of the above
48. A lawyer who banks with you is a sole practitioner. He wants to open a trust account for a client. He provides you with the trust documents and the name and address of the trust beneficiary but is unable to provide additional details due to a client confidentiality obligation. You notice that the address is from an overseas jurisdiction. What level of due diligence would be required?
1. This situation does not require enhanced due diligence. You know the lawyer well and you have been provided with the trust documents and identity of the beneficiary.
2. This situation requires enhanced due diligence because an offshore jurisdiction is involved*
3. This situation requires enhanced due diligence because the lawyer is clearly hiding something when he says he is under a client confidentiality obligation
4. None of the above
49. Please read the KYC practice given below. Identify the KYC element which best relates to the stated practice. Effective information-gathering strategies enable building of a solid information base about each customer. This is known as ______________.
1. customer acceptance
2. customer identification*
3. accounts and transaction monitoring
4. risk management
50. What suspicion does frequent cash deposits in the account followed by ATM withdrawals at different locations with no valid explanation, can lead to
1. Doubtful source of cash deposited in bank account
2. Doubtful use of safe deposit locker
3. Suspicious use of ATM card*
4. None of the above
===============================

Caiib ABM recollcted

Re-collected questions posted by our members

--------------------------------------------

1. Case Study on Demand Supply curves with graph

2. Match the following about Horn effect, leniency error, central tendency error etc

a. The halo effect — a tendency to allow one trait or characteristic of an employee to influence the assessment. The halo is to rate an employee consistently high or low.

b. The leniency or strictness tendency of the superior interferes with the appraisal and accordingly the assessment gets influenced. The superior is unable to come out of these tendencies.

c. The central tendency problem refers to assigning average ratings to all the employees without properly evaluating each aspect of appraisal carefully and fearlessly.

d. Similar error is the tendency of comparing the employee with oneself on various traits and parameters. Those who show the similar characteristics are normally rated high.

3. Simple Question on Y = a +bx

4. Halo effect means positive attitude rating

5. Inflation change calculation

6. Leniency error

7. Type of inflation

8. Bond problem

9. Ratio analysis

10. Linear program 5 marks

11. Probability 5 marks - Z values given

12. Sampling related 5 marks

13. Money Supply/ Demand curve related 5 marks

14. Narrow Money, Broad Money related case study

15. Credit Monitoring questions

16. Debtors turnover ration

17. STOCK TURNOVER RATIO

18. CURRENT RATIO

19. QUICK RATIO

20. FV formula

21. Calculating LC 5 mark case study

22. LEI - The Legal Entity Identifier (LEI) code is conceived as a key measure to improve the quality and accuracy of financial data systems for better risk management post the Global Financial Crisis. LEI is a 20-digit unique code to identify parties to financial transactions worldwide.

23. HRIS

24. Role erosion and role ambiguity

25. Net fiscal deficit

26. Green GDP

27. Real gross income

28. Standard estimate error

29. Regression/Coefficient

30. Interpretation of confidence interval

31. Simplex method

32. What is called broad money

33. In which phase price of commodity is lowest? Boom/Recession/Depression/Recovery

34. Question on cluster sampling

35. GDP deflator

36. Who said what definition of economics

37. Working capital

38. Business cycle

39. Linear programming, HR theories, sampling

40. What is 3Vs

41. Sample proportion calculate

42. Marshall definition

43. Credit delivery

44. Case study on money measurements

45. Motivation theories with their founders

46. Covariance was given and SD was given....we had to find correlation

47. Johari window 1qs

48. SMA1

49. Zero coupon bond

50. Mixed economy

51. Performance appraisal systems

52. NPV

53. Microeconomics

54. Compensation

55. National domestic product

56. Left brain

57. B Type personality

58. COGS = Opening Stock + Purchases during the period − Closing Stock

59. Around 10 questions on Standard Deviation

60. Bell curve

61. Interpretation of confidence interval

Match the following was atleast 5

Numerical are easy

Many case study or questions from HR module

Risk management recollected questions

Caiib Risk management recollected


Chief risk officer duty,reporting,appointmemt
Leverage ratio numerical
Operational risk
Pcr
Firb credit risk
Rsca operstional risk
Pilar 3 disclosure norms period
Rwas calculation

Numerical from BVP was also there,
Ques Obejective from PD ,EAD ,LGD
Market credit and operational risk theory based,


Which method we use for calculation of capital for credit operational and market risk
Case beta factor for agency services,
Icaap come under which piller,
CRO function
Reputation risk systematic risk come under

Recollected questions Jaiib legal on 24.11.2019

Recollected questions Jaiib legal on 24.11.2019
1. District forum headed by....
2. DRT is headed by.....
3. RBI pays interest on CRR.....
4. Limitation for suit case ..
5. Defferd payment guarantee ...
6. Banks can invest in other co shares up what percentage.
7. Mininmun number of directors in public and private co...
8. Back to back LC....
9. Indemnity comes in which act....
10. Case study for cheque payment
11. Choose correct answer among option where bank gets protection ...
12. Documents of title goods ...
13. After Lok adalat where one can file suit ... None
14. National commission: age for presiding  ofdicer and his tenure .
15. Acts of negotiable instrument
16. Characterstics of FEMA
17. Pay as u earn realtes to which tax.
18. Equitable mortgage
19. LIC policy again loan called assingment.
20. Case study to determine which type of charge is created.
21. Relationship with bank and costmer in case of safe deposit locker.
22. No of parties involved in LC, Gurantee
23. Loan against FD of other deposit is given or not.
24. Loan against shares and debnuture, charge created called.....
25. FEMA is regulated by...

AFB jaiib November 2019 recollected

AFB - Recollected questions posted by our members
1.who can open a current account
2.concept of conservatism
3.straight line method book value problem
4.kyc low risk medium and high risk
5.Gold loan ltv ratio
6.npv problems
7.a indian bank branch in foreign country quotes fe in 1US$=1rupee.
Whether it is a direct quote or indirect quote.
8.collection period denominator
9.collection period problem
10.matching concept
11.calculate capital.assets and liabilities given
12.adjustment entry
13.purchases account
14.coupon rate
15.bank reconciliation statement is prepared by whom a.auditor b.bank etc..
16.revenue receipt
17.promissory note is prepared by whom
18.publication of balance sheet
19.which is not a accounting ratio
Solvency,profitability, activity,etc
20.stock turnover ratio
21.types of company on ownership
22.journal
23.double entry system
24.functions of back office
25.operational manual is available in which of the following
Social media,banks website,internal portal
26.banking is defined as per which act
BRA,Rbi act..
27.small accounts.aggregate credits in a year
28.example of a debit voucher
29.example of credit voucher
30.inoperative account

5 TIPS TO CRACK JAIIB-CAIIB IN 1st ATTEMPT.

5 TIPS TO CRACK JAIIB-CAIIB IN 1st ATTEMPT.

If you've just joined the Banking Industry, you must have applied for JAIIB/CAIIB or If not, you'll be applying room & 1 thing everyone wants to know is how to pass JAIIB/CAIIB is get an extra increment. So sooner you pass the Exam, earlier you get an extra increment. If you've as Officer JMGS-I (PO), your initial basic salary would be ₹.23700. If You Clear JAIIB/CAIIB, you get 2 increments & your basic salary increase by ₹.1940. So if you miss it 1st time, your Increment gets delayed by 6months. That means loss of ₹.11640+DA. So it becomes important to clear JAIIB/CAIIB Exam in 1st attempt itself.
Around JAIIB 1.50lacs & CAIIB 1lac candidates appear for the Exam. Only 22-25% candidates are able to clear the exam each time. So does it mean that JAIIB/CAIIB is difficult to crack? What should be the Strategy to clear the Exam in 1st Attempt? How 1 should prepare for Exam?
Passing marks for JAIIB are 50% aggregate & 45% in each Subject. If aggregate marks less than 50% or Marks in a particular paper less than 45%, but you score 50%/more in any other 2 sub. You don't qualify the exam but need not give that particular paper in 2nd,3rd,4th attempt, in which you score 50%/more. The best part of Exam is that result of each paper is shown to you immediately after submit your online Exam.

Simple 5 Steps to Prepare for the JAIIB/CAIIB Exam:
Take off the burden from your mind, you're required to score only 50% which's not very difficult & the Good thing is that there's No NEGATIVE (-) Marking.
Here is a simple step by step guide which will help the Bankers to be prepared for JAIIB/CAIIB.
If you come from Commerce/Finance background  (BBA/MBA), It's relatively easy to break the JAIIB/CAIIB. Because you would have studied atleast 65% of topics covered. If you're not from Commerce/Finance backgroue you need to make little Extra Efforts.
1. GET THE RIGHT BOOKS: After reg. for JAIIB/CAIIB, 1st thing you should do is to get the Books for all 3 Subjects. Best books available for JAIIB/CAIIB are by McMillan, which IIBF also suggest. these Books are available on Amazon:
-JAIIB (PPB-AFB-LRAB)
-CAIIB (ABM-BFM-OPTIONAL SUB).
These Books might seem bulky but has covered the entire syllabus & has everything you need to know. The Book is designed in a way that 1can easily be prepared by just reading the definition & summary. the MCQs will give you a fair Idea of level of preparations.
If you don't have enough time & don't want to study IIBF Books, you can by the Books JAIIB/CAIIB by N.S.Toor, which are in QA format.
2. KNOW YOUR SYLLABUS: As a Banker it's likely that there will not be a lot of time left for studies after a hectic day of work. Hence it's best to start early. the Idea is to plan for the Syllabus & Time them so that the Level of Preparedness is High. Knowing your syllabus will give Idea, how much time need to prepare.
If you've been a Commerce student, you'll find the AFB & some part of LRAB, you've already covered during your studies earlier. So 60% of your Job is already done. You can mark these topics & focus on those topics which you've not studied earlier.
If You've been Arts/Science & Engg Student, everything is New for you & need to prepare for everything..

3. MAKE A STRATEGY FOR STUDYING: ( I've already posted about JAIIB-CAIIB Study Strategy & Study Plan a Month Ago, You must keep follow them out of action).

4. PRACTICE & ATTEMPT SOME MOCK TESTS: Another great step is to find out previous 3years Question Papers. Prepare them all leaving 1 which will work as a model test before you actually face the Exam. the Idea is to practice a lot of question type compared to cramming. You can attempt in JAIIB-CAIIB Forum, Blogs website 'Free Mock Tests for JAIIB-CAIIB', which will give you an Idea how the actual exam is held. attempting Mock Test help you practice the actual Exam conditions.
5. ON THE ACTUAL TEST DAY: Choose the easy questions 1st as they will give you an estimate of the Score. then come back to the Questions which were missed. Also, there's No NEGATIVE (-) Marking, so attempt all Questions. If you stuck in a question, leave that by Marking & Go ahead..

ALL THE VERY BEST.
WISH YOU GOOD LUCK...

MSMEs in India -Opportunities, Issues and Challenges

MSMEs in India -Opportunities, Issues and Challenges

 The MSME sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades. It contributes significantly in the economic and social development of the country by fostering entrepreneurship and generating the largest employment opportunities at comparatively lower capital cost, next only to agriculture. It has played a crucial role in not only providing large employment opportunities and increasing exports but also in promoting industrialisation of rural and backward areas, thereby reducing regional socio-economic imbalances. MSMEs are complementary to large industries as ancillary units, and this sector contributes significantly in the inclusive industrial development of the country. The UN General Assembly in its 74th  Plenary held on April 6, 2017 declared June 27 as MSMEs Day, recognising the importance of MSMEs in achieving sustainable development goals and in promoting innovation, and sustainable work for all. MSME defined MSMEs are defined under Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act, 2006), on the basis of the original cost of investment in plant and machinery / equipment as mentioned in Table 1. The Government of India (GoI) has introduced the Bill to redefine MSMEs from ‘investment in plant and machinery / equipment’ to ‘annual turnover’ as follows: • A Microenterprise will be defined as a unit where the annual turnover does not exceed INR 5 crores. A Small enterprise will be defined as a unit where theannual turnover is more than INR 5 crore but does not exceed INR 75 crore. • A Medium enterprise will be defined as a unit where the annual turnover is more than INR 75 crore but does not exceed INR 250 crore. After passing of the Bill in the Parliament, Section 7 of the MSMED Act, 2006 will accordingly be amended to define units producing goods and rendering services in terms of annual turnover as above

Mission to redefine  MSME
Taking turnover as a criterion can be pegged with reliable figures available eg in GST Network and other methods of ascertaining which will help in having a non-discretionary, transparent and objective criteria and will eliminate the need for inspections, make the classification system progressive and evolutionary, help in overcoming the uncertainties associated with the classification based on investment in plant and machinery / equipment and employment and improve the ease of doing business and the consequent growth and will pave the way for

increased direct and indirect employment in the MSME sector of the country. It has also received criticism, to redefine MSME on the turnover basis, on the ground that: • It will end the distinct identity of the MSME; • There should be an arm’s length to the large industry so that MSME can evolve with all support from the government; • Nowhere in the world, turnover is the sole criterion to define MSME. MSME in Indian Economy – Potentialities for growth and opportunities Globally, the MSMEs segment plays a crucial role in employment generation and contributes significantly to overall economic activity. In India, the MSME sector: • Constitutes a vast network of over 63 million units. • Employs around 111 million people. • The share of MSME in overall GDP is around 30 percent (GoI,2018). • Contributes 40 percent of total exports of the country. • Accounts for 45 percent of manufacturing output. MSMEs, as above, have significantly contributed to the development of Indian economy. MSMEs have greater opportunities to grow as ancillary industries to unleash higher industrial growth. MSMEs being less capital intensive and more employment-friendly have easier access to raw-materials, subsidies and other incentives under cluster programmes. Development of this sector is, therefore, extremely important as it holds the key to inclusive growth and plays a pivotal role in the economic development of the country. The MSME sector has the potentialities to emerge as the backbone of the Indian economy and to continue as an engine of growth, must be provided with an environment-friendly policy framework and enabling infrastructural support. MSME issues Credit flow to MSMEs As per a quarterly report by Transunion Cibil and Small Industries Development Bank of India (SIDBI), the overall credit to the MSME segment grew 16.1 percent for the year to June 2018, in which, PSBs reported a growth of 5.5 percent, compared with 23.4 percent for the private sector competitors. Data given in Chart 2 and Chart 3 reveal that the credit to MSME has shown an increasing trend during and after 2017. As per the (Mint Street Memo No 13) RBI report dated August 17, 2018, credit growth in the MSME sector had started decelerating even before demonetisation and declined further during the demonetisation phase. In contrast, GST implementation does not seem to have had any significant impact on credit. Overall, MSME credit and especially microcredit to MSMEs including loans by banks and NBFCs shows a healthy rate of growth in recent quarters. During the quarter April-June 2018, bank credit to MSMEs increased on average by 8.5 percent (y-o-y). The Reserve Bank of India (RBI) observed ‘Despite significant contribution to economic growth, MSMEs face several bottlenecks inhibiting them from achieving their full potential. A majorobstacle for the growth of MSMEs is their inability to access timely and adequate finance as most of them are in niche segments where credit appraisal is a major challenge. The challenges faced by MSMEs in accessing finance are due to lack of comprehensive formal documentation relating to accounts, income and business transactions. As a result, loans are provided to the MSMEs mainly through the appraisal of their collaterals rather than assessing their true business potentials. Further, banks do not trust start-ups, view such loans as risky and thus do not prefer extending finance to MSMEs’. (RBI CIR-Aug 18) (2) Private Banks, NBFCs outdo PSBs in lending to SMEs In a study conducted by Transunion Cibil, it is found that there has been an increase in the Turn-Around Time (TAT) for loan processing across all the three segments as mentioned in Table 3:
In order to improve the TAT for processing of MSME loan proposals, the Finance Minister on 25thwww.psbloansin59minutes.com September, 2018 while reviewing the performance of PSBs announced a common online portal for MSMEs credit space. ‘The web portal () will enable in principle approval for MSME loans up to INR 1 crore within 59 minutes, without entrepreneurs having to visit branches, from SIDBI and five Public Sector Banks (PSBs)’. From the Chart 4, 5a and 5b data, it is indicated that : • The share of Scheduled Commercial Banks (SCBs) to MSME credit has shown a declining trend; whereas the share of NBFCs has an increasing trend. (Chart-
4) • The share of PSBs has a declining trend vis-à-vis an increasing trend revealed by private sector banks. • The share of credit extended to MSMEs in overall bank credit declined steadily to around 14 percent by end-March 2018 from about 17 percent in 2007. This could be partly due to over-lending to large corporates (now stressed) in the second half of the 2000s. Additionally, within the credit to the industrial sector, the share of credit to medium enterprises has dropped significantly as compared to the share of micro and small enterprises .From from the data collected by Transunion Cibil and SIDBI, the share of 21 PSBs has fallen to 50.7 percent as of June 2018, from 55.8 percent in June 2017 and 59.4 percent in June 2016. (3) Non-Performing Assets (NPAs) From the data in chart 6, it is clear that the growth of credit by PSBs during the past three years has declined. Conversely, the NPAs has increased. The credit growth was 7 percent, and NPA increase was 13.1 percent. In the case of Private sector banks, the credit growth toMSME sector registered 14.3 percent, and NPA level is contained at a manageable level of 2.7 percent. As per the data obtained by Transunion Cibil, despite aggressive growth, private sector banks and NBFCs far better on asset quality as well. The PSBs (NPAs) from the MSME book increased to 15.2 percent (June 2018) from 14.5 percent(June 2017), while in case of private sector banks, the ratio decreased marginally to 3.9 percent in June 2018 from 4 percent in June 2017. (4) Documentation Many of the MSMEs, particularly the Micro units, do not have adequate documentation to match the rigours of a formal financial system. The absence of documentation drives the small entrepreneurs to informal sources that are willing to provide credit with minimum documentation. Further, a vast majority of the MSMEs are informal, which brings down the credit score of the entrepreneur and hinders the ability of the formal financial system to lend to them. Banks, on their part, will need to leverage modern technology algorithms and big data so that they can differentiate between a good borrower and not so good one even in the absence of conventional documentation.Documentation has now, of late, not posed a problem since most of the banks have adopted simple common loan application forms for extension of credit facilities to MSMEs up to credit limit of INR 2 crore.Further, Financial Literacy Centre (FLC) have been started by different banks which help in capacity building in existing and potential entrepreneurs.Similarly, (RSETIs) Rural Self Employment Training Institutes, is initiated as an initiative of Ministry of Rural Development (MoRD) to have dedicated infrastructure in each district of the country to impart training and skill upgradation of rural youth geared towards entrepreneurship development. RSETIs are managed by banks with active co-operation from the GoI and State Governments. MSME – Challenges: In spite of substantial contributionsmade by MSME enterprises for the development of the economy, they face following common challenges which prove obstacles in the path of their growth and development: 1. Lack of adequate capital and credit. 2. Poor and inadequate infrastructure. 3. Market access. 4. Lack of skilled human resources. 5. Inadequate access to new technology. 6. Cumbersome regulatory practices. MSME challenges – A breather Following are some of the solutions provided by GoI, RBI, Ministry of MSME, Banks and others for mitigating the challenges of MSME: 1. Capital is the lifeblood of business. Without adequate capital and credit, MSME units will either not come forward or die prematurely. (a) Now MSME units are provided with working capital facility @ 25 percent of turnover and in case of MSME units that transact digitally @ 30 percent of turnover instead of 20 percent earlier. (b) Guarantees are provided by Credit Guarantee Trust Micro and Small Enterprises (CGTMSE) for extending collateral free lending to MSMEs through Banks and financial institutions (Fis) including NBFCs.

(c) ‘Credit Linked Capital Subsidy Scheme (CLCSS)’ provides a capital subsidy on institutional finance. (d) Various credit rating agencies like Small and Medium Enterprises Rating Agencies (SMERA) has been established for a rating of MSME units which help banks in the assessment of credit facilities. Such ratings also enable MSME units to get interest concessions from various banks and Fis. (e) In terms of the recommendations of the Prime Minister’s Task Force on MSMEs, banks are advised to achieve: • 20 percent year–on–year growth in credit to micro and small enterprises; • 10 percent annual growth in the number of microenterprise and accounts; and • 60 percent of total lending to the MSE sector as on corresponding quarter of the previous year to microenterprises. (f) As per the RBI guidelines, banks are mandated not to accept collateral security in the case of loans up to INR 10 lacs extended to units in the MSE units. Further, banks may, on the basis of good track record and financial position of the MSE units, increase the limit to dispense with the collateral requirement for loans up to INR 25 lacs (with the approval of the appropriate authority). (g) A composite loan limit of INR 1 crore can be sanctioned by banks to enable the MSE entrepreneurs to avail of their working capital and term loan requirement through Single Window. The Ministry of MSMEs has vide their GazetteNotification dated May 29, 2015 had notified a ‘Framework for Revival and Rehabilitation of MSMEs’ to provide a simpler and faster mechanism to address the stress in the accounts of MSMEs and to facilitate the promotion and development of MSMEs. 2. (a) SFURTI – Scheme of Fund for Regeneration of Traditional Industries is the scheme to organise traditional industries and artisans into clusters to make them competitive and provide support for their long term sustainability. (b) Scheme for Micro and Small Enterprises Cluster Development Programme (MSE-CDP): The Ministry has adopted the cluster development approach as a key strategy for enhancing productivity and competitiveness as well as capacity building of MSEs. 3. The government has introduced a flexible growth stimulating and artisan oriented Market Development Assistance (MDA) scheme, in place of the erstwhile system of Rebate. Under MDA, financial assistance is provided to the institutions @ 20 percent of the value of production of khadi and polyvastra, to be shared among artisans, producing institutions and selling institutions in the ratio of 40:40:20. As a boost for marketing assistance, Special Marketing Assistance Scheme (SMAS) has been launched in which SC / ST entrepreneurs shall be allowed reimbursement under SMAS for a maximum of 2 international events and four domestic events in a financial year. 4. Under the Ministry of MSME, A Scheme for Promotion of Innovation, Rural and Entrepreneurship (ASPIRE) has been developed to: • Create new jobs and reduce unemployment; • Promote entrepreneurship culture in India; • Grassroots economic development; • Facilitate innovative business solution for unmet social needs; and • Promote innovation to strengthen the competitiveness of the MSME sector. National Small Industries Corporation (NSIC) is an ISO 9001-2008 certified Government Enterprise under Ministry of MSME is a premier organisation fostering the growth of MSMEs. It promotes and supports MSMEs by providing integrated support services encompassing, Marketing, Finance, Technology and other Services. National Institute for MSMEs (NIMSME) has been in existence since 1960. Enterprise promotion and entrepreneurship development being the central focus of NIMSME’s functions, the Institute’s competencies converge on the following aspects:
• Enabling enterprise creation • Capacity building for enterprise growth and sustainability • Creation, development and dissemination of enterprise knowledge • Empowering the underprivileged through enterprise creation. While inaugurating the Udyam Sangam – 2018 in New Delhi on International MSME Day 2018, the President of India Ram Nath Kovind launched Udyam Sakti portal of the MSME Ministry and said that it would empower women and weaker sections by providing training to 80 lac women. 5. The Ministry of MSMEs, GoI has launched on 18th October, 2016 a new scheme ‘Financial support to MSMEs in ZED Certification scheme’ for the benefit of MSMEs. The scheme envisages promotion of Zero Defect and Zero Effect (ZED) manufacturing amongst MSMEs for developing an ecosystem for Zero Defect manufacturing in MSMEs, promoting adaption of quality tools / systems and energy efficient manufacturing without impacting the environment. 6. (a) To enable ease of registration of MSMEs, the Ministry of MSME has notified a simple one-page registration form ’Udyog Aadhaar Memorandum’ (UAM) on 18th September, 2015. (b) To facilitate the enterprises to take benefit of various schemes by the Office of Development Commissioner (MSME), his office has launched a web-based application module, namely, MyMSME. (c) The Ministry has started an MSME internet grievance monitoring system (e-SAMADHAN) to track and monitor other grievances and suggestions received in the Ministry. MSME SAMADHAAN launched on8th December, 2017 under the MSMED Act, 2006 deals with addressing the issues relating to the Delayed Payments to MSEs by the buyers to the MSE supplier. (d) MSME-SAMBANDH: The Ministry of MSMEs MSME-SAMBANDH launched on 8th December, 2017 notified the public procurement policy for MSMEs which mandates 20 percent of annual procurement from MSEs including 4 percent from enterprises owned by SC / ST entrepreneurs by the Central Ministries / Departments of Central Public Sector Enterprises. (e) Banking Codes and Standard Board of India (BCSBI) prepared code in place in 2008 and revised in 2015 in which it sets minimum standards of banking practices for banks to follow while dealing with MSEs. (f) Banking Ombudsman Scheme: Within 30 days of lodging a complaint with the bank, if MSEs do not get a satisfactory response from a bank and MSEs wish to pursue other avenues it may approach Banking Ombudsman. Conclusion MSME sector is a platform of nursery for entrepreneurship development and a school of innovation. Countless medium and large corporates in India have evolved out of being micro and small entrepreneurs. MSME sector is crucial for the success of the national agenda of Financial Inclusion. Technology and innovation will continue to play a pivotal role in creating a businessfriendlyatmosphere for the MSMEs. This sector has exhibited enough resilience to sustain itself on the strength of our traditional skills and expertise and by infusion of new technologies, capital and innovative marketing strategies and possesses enough potential and possibilities for accelerated industrial growth in our developing economy and well poised to support various national programmes like ‘Make in India’. All stakeholders – whether banks, MSME firms or the policymakers- must make efforts in their respective domains to seize the opportunity that the MSME sector provides. For a healthy and mutually beneficial relationship between the banks and borrowers, it would be essential for both parties to understand and appreciate each other’s point of view and work proactively.

Crypto Currency – Is it Safe?

Crypto Currency – Is it Safe?

Crypto-currency is a digital asset that can be used as a form of electronic payment and an alternative to Fiat currency. It is generated by a process called mining and no entity or government can influence the value of the cryptocurrency, since it is born within the network, and it stays there. It works on cryptography proof that allows any two willing parties to transact directly with each other without the need for a trusted third party – whether it is State or Bank or Regulator. The important crypto currencies that are in circulation viz., Bitcoin, Ethereum, Litecoin, Zcash, Dash, Ripple, Rilcoin etc. It is a fast evolving in terms of merchant adoption and many large business houses, including Microsoft, Dell, PayPal, Dish Network, Expedia, NewEgg and TigerDirect are accepting crypto currency as mode of payment. Opportunities / Challenges: Though, it suits for cost effective cross-border money transfers, it lack intrinsic value as their value depends only on the willingness of users to accept them. There are concerns with regard to maintenance of its value, KYC compliance, taking undue advantage of the system by unscrupulous persons/agencies and lack of consumer protection. The circulation of crypto-currencies may lead to proliferation of black money, heaven for drug peddlers and source for terror funding, which are detrimental to the interest of the nations/globe. The major challenge is the integrating of crypto currency with the existing financial system where global central banks control the strings. With currency in circulation having major bearing on inflation and monetary policies, these banks are unlikely to allow digital currencies to disrupt the balance. Present Status: Globally, different regulatory approaches are emerging by recognizing virtual currencies as payment method by Canada, Switzerland and Thailand while Russia, Israeli, Japan and USA are considered to be more user-friendly with little regulatory controls. The Central Banks of Europe, China, and India expressed their concerns about the usage of the unregulated currency and imposed ban on dealing with crypto currencies. There is an imminent need to have proper control mechanism to reap the associated benefits through implementing adequate security protocols, comply with AML guidelines and ensure greater transparency with regard to reporting and disclosure requirements.

Mergers/Consolidation of Banks : Boon or Bane?

Mergers/Consolidation of Banks : Boon or Bane?

Background: Banking was not a smooth sail and it had witnessed turbulent times especially with regard to Private Sector Banks. Around 1600 banks were closed down their operations and many of the depositors lost their money during 1913 to 1960s. To address the issue, Banking Regulation Act suitably amended in 1960 to protect the interests of the depositors. Any failed bank would likely to be put on moratorium followed by merger with peer bank. It is a fact that there was no instance where the bank depositor (Public/Private banks) lost a single rupee on account of bank failure in the post nationalisation era. Merger Banks: In the first phase, some mergers have taken place but mostly confined to new generation private sector banks and very little happened on PSBs front. In the past, the amalgamation of banks was primarily triggered by the weak financials where as now the mergers are taking place among healthy banks, driven by business and commercial considerations. However, in the post reform era, majority of mergers happened among Private/Public/RRBs. Merger of RRBs: The initiatives of the government to promote amalgamation of geographically neighbouring Regional Rural Banks (RRB) with in a state with an objective to improve operational efficiency proved success as the number of RRBs have come down from 196 in 2005 to 45 in 2019 and moving forward to consolidate further to 38 by end of the current financial year. Of course, the issues confronted in the RRBs merger process are limited as both the merged entities belong to similar operating and geographical environment. Merger of PSBs: Many small private sector banks got merged with PSBs on account of weak financials during pre and post reform periods. The merger of New Bank of India with Punjab National Bank; State Bank Associates & Bharatiya Mahila Bank with State Bank of India; Dena Bank, Vijaya Bank with Bank of Baroda has unveiled the first round of consolidation of PSBs. The imminent mergers viz., Oriental Bank of Commerce and United Bank of India with Punjab National Bank; Syndicate Bank with Canara Bank; Andhra Bank and Corporation Bank with Union Bank of India; and Allahabad Bank with Indian Bank have unveiled second round of mega mergers among PSBs. The consolidation process was aimed to strengthen the health of the weak PSBs reeling under increased stressed assets and capital inadequacy. Broadly the mergers can be categorized into Compulsive, Forced Mergers and Synergy-Driven. In the past, the merger of banks primarily triggered by the weak financials where as now the mergers are taking place even among the healthy banks driven by business and commercial considerations. Opportunities: i) Economies of Scale: High Volume – Low Margin – High Profit is the Mantra of Present Banking in India. The large scale operations enable the banks to bring down the operation costs substantially and facilitate to offer better interest rates to the customers. To survive in the present competitive market, banks need to improve the operational efficiency which includes cost efficiency and profit efficiency, which is possible only through economies of scale. Similarly, the size offers greater manoeuvrability in enhancing business volume and productivity. ii) Capital Base: Banks need to improve the capital base to tap the potential business opportunities as well as to meet the Basel-III requirements. Further, the adverse business cycles put pressure on the banks on account of increased NPAs thereby the denting the capital for provisioning requirements. Thus, banks need to generate additional capital from its own internal sources besides scouting options for rights/follow-on issues. However, Public Sector Banks face strange situation as the existing guidelines do not permit to dilute equity beyond 51%, thereby the chances for raising funds from market are limited. And also the market conditions are not favourable to go for public issue. On the other hand, the government is unable to provide budgetary support on account of increased fiscal deficit. Hence, consolidation may be a route for PSBs to infuse funds to strengthen their capital base.
iii) Diversified Activities: The improvement in capital will enable the banks to take up new and diversified activities, such as financing equity underwriting, distributing investment and insurance
products, issuing asset-based securities and providing new delivery channels for their products. It provides the opportunity to cross-sell products by leveraging on technology. iv) Risk Spread: Mergers enable the banks to extend the business to various segments at many locations across the country/globe. Hence, the risks are spread across various regions and segments, which protect the Banks from adverse Business Cycles and unexpected financial crisis. Presence in large geographical area paves the way to reduce risks on both asset and liability side. v) Improved Delivery: Shared infrastructure will give customers a wider use of delivery channels such as Branch and ATM network in a most cost effective way. vi) Other Positive Triggers: Technology: Hitherto, technology used to be the major impediment for bank’s mergers as there was no uniformity among banks with regard to adoption of technology. Of late, almost all banks have moved to Core Banking platform and have been operating in technology neutral environment. Standardization: The recent standardization initiatives taken by the Government with regard to recruitment policies, internal promotions, performance appraisals, accounting practices, audit procedures etc., especially among Public Sector Banks will definitely be handy for banks to go for consolidation. HR Practices: Issues such as pay structure, incentives, perks, retirement age, service conditions etc., are also similar to a great extent across PSBs. Regulated environment: In the deregulated environment, banks are free to fix their own interest rates on deposits and advances but in reality more or less the similar interest rates are seen across the banks. In a way, Regulated interest rate regime is in vogue in the deregulated environment, this led for smooth merger process. Challenges - For smooth process of Mergers in the Indian Banking industry, Banks need to focus attention on the following areas: Share value/Swap Ratio: The valuation of Banks is a critical activity since it involves both financial and human assets while arriving swap ratio. Attention must be paid to evolve more realistic and transparent methodology. Identity & Cultural issues: Majority of PSBs have grown from specific regions and have retained certain unique strengths despite some of them coming under the government fold. A merger of such institutions with another bank would whittle down such strengths. Further, there are bound to be problems in the areas of corporate culture, values and approach. Integrating work forces is always a tough task, and any incompatibility in the process may result in gross inefficiencies, defeating the very objective of the mergers. Human Resources are another sensitive issue on the road to consolidation. Mergers make some of the workforce redundant; and banks are forced to undertake large-scale redeployment exercise for effective use of human resources. The anchor bank may be forced to absorb the entire workforce without a commensurate business requirement. It also requires the integration of the heterogeneous work cultures. The views of the employees towards various aspects of the new organization, management styles, training, leadership, etc are to be considered in a critical manner. The varied aspects of the work environment, if not handled properly, may lead to resentment and shrinkage in productivity. Change Management: Managing the merged entity by the management teams drawn from different banks is really a formidable task. Improving the quality of management is yet another challenge for anchor bank. Monopolistic structures: It is a fact that the mergers act as impediment to perfect competition and may give rise to monopolistic structures. In the process, these entities are likely to levy higher fees / service charges to the customers. De-nationalization: The other counter argument with regard to Mergers is that it derails the very objective of Nationalization of Banks. In fact today our country need more number of branches to be opened instead of Merger of Banks to accelerate the Financial Inclusion initiatives thereby Inclusive Growth. The biggest strengths of PSBs are its branch network and trained manpower which require harnessing the said strengths further. The idea of creating bigger banks to take on competition sounds attractive but one must realize even the largest banks through the proposed consolidation are small by global standards. Most importantly, the mergers ignore the fact that beyond a point, the size may not enhance efficiency. Creating behemoths of large banks is likely to add more layers to the organisation structure which may potential lead to bureaucratic culture. Recent Developments: Mergers are supposed to take place through mutual understanding and with the consent of the respective Bank Boards, but the recently concluded mergers and the proposed mega mergers are happening at the instance of government mandate which is against the basic principles of mergers

In order to leverage the benefits of bigger size, geographic expansion, huge loan portfolios, improved technology, product diversification and reduced transaction costs, Indian banks are gradually but surely moving from a cluster of “Large number of Small Banks” to “Small number of Large Banks”. Consolidation will positively amplify the business prospects of the industry in the domestic as well as in the international markets. Thus, it is desirable to look for Synergy Driven Mergers rather than Compulsive/Forced Mergers.

Strategies to avert Slowdown in Economy

Strategies to avert Slowdown in Economy

 Background: Global GDP growth has been coming down (around 3%) over the years. The recent US-China trade war, currency devaluations by major economies and the volatile political and economic situations across the globe have been adding fuel to the fire. The Indian economy is also showing signs of downward spiral despite initiating bold and important reforms like GST, Insolvency and Bankruptcy Code (IBC), FDI liberalization, and better ease of doing business. Major sectors are drastically slowing down and layoffs are increasing. NITI Aayog opined that the current stress in the financial sector is unprecedented and urged government to initiate necessary steps to avert slowdown. In the above backdrop, the Finance Minister, Mrs. Sitharaman has announced the following slew of measures in August 2019 to take the reform process forward and to bring the economy on track. Banking/Finance Sector: Government announced upfront capital infusion of `70000 crore into PSBs to add liquidity to the financial system by generating fresh lending to the tune of `5 lakh crore.
Providing `20000 crore liquidity support in addition to `10000 crore support announced earlier by
National Housing Corporation (NHB), to the struggling Housing Finance Companies (HFC) to enhance their lending capacity. Directed the banks to pass on RBI rate cut benefits to the borrowers by introducing Repo or External Benchmark Linked rates to retail loans. Proposed to introduce online tracking of loan applications by customers of Retail, MSME, Housing, Vehicle and Working Capital limits with an aim to increase transparency and to improve Turn Around Time (TAT). Banks to issue improved transparent OTS policy to benefit to MSME and Retail borrowers with simplified procedure (Check box approach) Rationalization/Simplification of Taxes: Withdrawal of enhanced super-rich tax (imposed in the recent budget) on foreign and domestic equity investors. All tax notices to be issued from centralized system to end harassment of taxpayers. Start-ups will get exemption from “Angel Tax”. Pending GST refunds to MSMEs shall be paid within 30 days and future refund matters to be sorted out within 60 days. Corporate Tax: In order to encourage the domestic companies, the corporate tax rate is reduced from 30% to 22% for all existing companies and it is 15% for new manufacturing units that start production before 2023. The sharp cut in direct taxes has the potential to revive growth. MSME Sector: Amendment to MSME Act to move towards single definition to be considered. Use of GSTN system, in long run, to enhance market for bill discounting (TReDS). U K Sinha Committee recommendations on ease of credit, marketing, technology, delayed payments etc., are to be implemented within 30 days Automobile Sector: Increase of depreciation rate from existing 15% to 30% on all vehicles acquired from now till March 2020. Ban on govt departments lifted for purchase of vehicles to replace old ones. Government will come out with a ‘scrap age’ policy for old vehicles to revive demand for the already dented sector. Bond Market: Establish an organization to improve access to long term finance to Infrastructure and Housing projects. Development of Credit Default Swap market in consultation with RBI and SEBI. Infrastructure Industry has been reeling under stress on account of structural issues and delayed payments from Government/CPSEs, which need to be addressed on priority. Government announced that the issue of delayed payments is to be monitored by Department of Expenditure and reviewed by Cabinet Secretariat. Proposed to form “Inter-ministerial Task force” by Department of Economic Affairs to finalize the pipeline of infrastructure projects. Way forward: Hope, the measures initiated by the government, definitely paves the way to arrest slowdown and keep the economy on the growth path. Indian Economic Slowdown: A long term problem, how to come out of it? Indian Economy, no doubt is passing through a sluggish economic growth since 2016 as compared to earlier years, although Indian Economy is still showing positive growth at the rate which may not be considered as very slow, if we go by the global economic growth standards. The facts and background India’s Economic growth has slowed for 5 consecutive quarters beginning from late 2015-16 onwards. Now growth is slower than it was in the quarter in which The Modi Government assumed office. It could be serious blow for a government that had promised to turn around the economy through decisive governance. India’s GDP growth has gone down from a high of 9.2% in third Quarter of the year 2016 to 5.7% in current 4th
All four contributors to economic growth – domestic consumption, foreign consumption or exports, private investment and government spending – are hit by the slowdown. In the first quarter of this fiscal year, domestic consumption fell to 6.66% as against 8.41% in the same period last fiscal; exports as a share of the Gross Domestic Product was down to 19% from 20%; quarter of 2017. The economic growth rate is probably the slowest in last many years. However, Indian Economy as per global standard is not in recessionary stage. The UK and the European Union consider an economy in recession only when real GDP growth actually turns negative over two consecutive quarters and by this criterion, with a positive growth rate of 5.7%, Indian economy is far off from being in a recession.
and fixed capital formation decreased from about 31% of the GDP to 29.8%, signalling a slowdown in the industry as well. Causes of Economic slow down The cause of the problem as shared by some of the experts consists of supply-side shocks. Besides, three important contributors to this problem include Demonetisation & stressed banking sector, GST Implementation and problems in Agriculture sector. The public goods are provided by government and the government needs tax revenues to supply them, and these depend upon national income. Then there is employment. A demand for labour exists only when there is a demand for goods. So growth is necessary if employment is to be assured. There is not only a pool of unemployed persons in India to absorb but the country also needs to provide employment to youth continuously entering the labour force. The slowing of the economy is a source of concern as an economy that has been slowing for five quarters is unlikely to turn around quickly. Besides, it may not be able to revive on its own. No demand - No Investment: Vicious Circle operates Since it is capital formation, or investment, that drives growth in the economy, investment is an immediate source of demand as firms that invest buy goods and services to do so. It also expands the economy’s capacity to produce. The two sources of investment are private and public. The Private investment source is depressed as of now due to the factors cited above and is difficult to revive unless some external force is applied for example – tax sops, incentives for investment, creating demand for certain products through public funded projects among others. When there is no demand, supply has to be stopped due to piling up of stocks and production units go idle, leading to cut in labour force. It further reduces the income leading to less demand and further reduction in supply and stopping of production. Since, investment involves committing funds for a long period under uncertainty, the stepping-up of public investment when private firms are unwilling to invest more is required. Increased public investment increases demand and quicken growth and also encourages private investors, as the market for their goods expands. Reforms: Are they leading to slowdown? Structural reforms are being taken by almost all the governments or they have been claiming to be doing for more or less a quarter of a century now. Since 2014, in particular, “the ease of doing business” has received great attention from this government. But, the economy today is still less regulated than it was in 1991. Labour market reforms have not been taken up yet in Parliament. Share of manufacturing may rise if the labour market is liberalised. Another fact is how the economy came close to achieving 10% growth in the late 1980s and during 2003-08 when the policy regime was no more liberal than it is now. It is also difficult to relate slowing domestic growth to sluggish world trade as data show 2016-17 to be a year of a major turnaround in exports. On the other hand, capital formation as a share of output has declined almost steadily for six years now. In 2014-15 it rose slightly. Is it temporary phenomenon? A few of the experts see it as a temporary or technical issue and think that its effects would soon fade out while others view this as a more serious crisis created by a barrage of supply-side shocks to the economy. However, the crisis is seen as a deep structural issue rather than merely a short-run one. Now the government has to play a key role and understand the economic realities and avoid adventurism in policymaking and implementation. Corporate sector & Industry criticize the Government Although, a concrete plan to address the problem is being developed in consultation with Prime Minister Narendra Modi. However, a section of the industry and many economists have criticised the government for not being prudent enough to read the distress signs and for treating the slowdown as temporary and transient. The economy grew by a mere 5.7% in the quarter ended June 2017. In the first quarter of this financial year, growth fell to 5.7% as against 7.9% in the same period last fiscal year.
How can India come out of slow down? Leading economists and market researchers suggest following remedies to bring the Indian Economy on high growth track More Government Expenditure Government needs to spend more now to overcome the situation. Although the government has already spent much of its budgeted expenditure, it needs to spend more to spur investment and demand in the economy. An immediate boost without worrying much for consequences is needed by way of spending. Let Indian Rupee be weaker Even a weaker Indian rupee should not be a problem. Stronger rupee is hurting both the exports and the business. Imports are surging and they are eating into the domestic market share. India needs growth now, so there is no need for ratings as of now. Lower Lending rates The recently announced monetary policy of RBI has not given any relief to boost Indian economy. The economists now advocate a steep rate cut in the benchmark lending rates to allow for monetary policy expansion. The Reserve Bank needs to cut interest rates for banks, thereby making borrowing cheaper for the industry and spurring investment. Certainty in Business required More certainty in the business environment is required. Businesses should be without shocks like demonetisation. In fact, after demonetisation shock, there is an environment of uncertainty in the economy. This stops the Private sector short of announcing the new projects. There should be an environment of certainty that no such disruptive moves would rock the economy in the near term. No need for excuses: Acknowledge and spend in rural areas The government needs to spend more on rural areas. Increasing rural people’s incomes can drive up the consumption demand, which in turn will boost the industry. To create more demand the Government needs to spend more in rural areas, construction sector and the unorganised sector World Bank hopeful: Slow down to wane soon
Corporate Governance is the system by which companies are directed and controlled by the Management with greater transparency in the best interest of all the stake-holders viz., Customers, Employees, Investors, Vendors, Government, Regulators and society at large. India’s corporate governance regulations rely heavily on Independent Directors (ID) but in reality, they are the weakest link and quite a few corporate boards feature proxy IDs who toe the line of the promoter. This has led to many corporate scams in India such as Stock market, UTI, Khetan Parek, Satyam etc. In the above backdrop, SEBI set up a committee under the Chairmanship of Uday Kotak in this regard. The committee recommended increasing the number of IDs from the existing 3 to 6 members with requisite qualifications and competency; and also suggested strengthening the hands of the auditors to gauge the operations of the company in a prudent manner. The committee has recommended creating a roster of “Fit and Proper” professionals for IDs and drawing them as and when required. Banks & Corporate Governance: The major recommendations of Ganguly Committee are Boards should be more contemporarily professional by inducting technical and specially qualified personnel (marketing, technology and systems, risk management, strategic planning, treasury operations, credit recovery, etc.). Directors should comply “fit and proper” norms viz., formal qualification, experience and track record. The eligible criteria to become director of PSBs should be between 35 to 65 years of age and, among other things, should not be The recent slowdown in India's economic growth is temporary and is an "aberration" mainly due to the temporary disruptions in preparation for the GST. It will get corrected in the coming months. The World Bank President Jim Yong Kim said that the Goods and Services Tax (GST) is going to have a hugely positive impact on the Indian economy. According to him, "We think that the recent slowdown is an aberration which will correct in the coming months, and the GDP growth will stabilise during the year. We've been watching carefully, as Prime Minister Modi has really worked on improving the business environment, and so, we think all of those efforts will pay off as well." Accordingly, if the due corrective steps are taken, Indian Economy could come back on rails with a high growth achievement of 10%.

Evolving Economy

Evolving Economy

 Multiple Opportunities for Banks to Grow Despite the backdrop of articulation of a clear vision to
increase the size of the economy to US $ 3 trillion by 2020, US $ 5 trillion by 2025 on its way to reach US $ 10 trillion by 2030 as envisaged in the interim budget, union budget and followed by reinforcing policies, there is a marked slowdown of GDP to 5 percent in Q1 of the current fiscal obfuscating such aspirations. Notwithstanding such near term disruptions, the potential spurt in the size of the economy would open up multiple opportunities to different sectors, more importantly, to banks that are meant to undertake speedy and efficient financial intermediation. Banks can take a cue from the most important intentions, and aspirations were set out beginning with the economic survey, union budget, series of stimulus packages and more significant is the proposed mergers among the Public Sector Banking space. These could pose both challenges and opportunities to the banks to move to a higher growth trajectory. But the realisation of growth objectives will be contingent upon coordinating synergy of a large number of players that have an umbilical connect with banks such as nonbanks,fintech companies and peer-to-peer lenders and so on. Going by the same logic, deposits of the banking system now at INR 127 trillion and bank credit at INR 97 trillion (September 13, 2019) should be close to double its size by 2025. The stronger and fewer Public Sector Banks (PSBs) in new dispensation can look forward to handling business size far higher than they handle today. The capacity needs to be increased with improved human resource productivity and synergy of technology. With consolidation and big banks in the fray, better economies of scale can be attained. The 27 PSBs at one point of time now turning into 12 should be able to make them more capable of handling a larger chunk of business. But to tap such newer opportunities, organisational preparedness requires a granular analysis of impending scope to work out growth strategies for different lines of business. 1. Opportunities for banks To start the journey of the uphill trek to reach the GDP target of US $ 5 trillion, the road map and resource algorithm in union budget and stimulus packages (UB&Sps) are well-calibrated with continued thrust on fiscal prudence with an avowed objective to peg fiscal deficit at 3.3 percent of the GDP. It is the right opportunity for banks, more importantly, the stronger and bigger PSBs whose market share has been declining after the asset quality review (AQR) of the Reserve Bank of India (RBI) and its aftermath. PSBs need to reinstate their strategic role in supporting the economic growth and help attain the sustainable development goals set out by Niti Ayog. Overcoming the near term disruptions, achieving a sustained real GDP growth of 8 percent per annum will be necessary to inch up close to the long term growth objectives. It may look to be a tough challenge to realise the broad vision of growth, but banks can sense huge opportunities in the new measures of relief. In a bank-led economy, the efficiency of the financial sector will be critical for ensuring seamless monetary transmission and flow of credit. Many thoughtful measures built in the set of UB&Sps for strengthening the banking sector and rescuing Non-Bank Finance Companies (NBFCs) can lead to the development of a robust financial sector ecosystem. The upfront infusion of INR 70000 crores of capital into selected PSBs can shore up capital adequacy and create more lending space. The impact of these relief measures on how the financial sector groaning under the weight of ailing NBFCs and continued asset quality woes will be able to work will depend on the strategies designed andimplemented with full vigour. To unleash such opportunities, banks will have to work out strategies to overcome the series of shocks and collateral damage caused to the financial sector. It began with Infrastructure Leasing and Financial Services (IL&FS) fiasco in September 2018 with its ramifications on Dewan Housing Finance Limited (DHFL) and other interconnected NBFCs. It exacerbated with the fallout of fraud in Punjab and Maharashtra Cooperative Bank (PMCB) perpetrated in connivance with Housing Development Infrastructure Limited (HDIL). These adverse developments weakened the sentiments in financial intermediation impeding the growth. 2. Consolidation of PSBs When 18 PSBs eventually converge into 12 large and more capable PSBs, they can compete with large private peers and pose a challenge to other financial intermediaries. In the process, the customers can look forward to improved quality of customer service with fine-tuned risk-based pricing policies. Realising the need for a strong capital base to comply with Basel – III standards by March 2020, the government has infused capital in many targeted PSBs assessing the needs. It is in addition to INR 2.5 trillion already provided to PSBs in the last five years. The enhanced capital allocation can restore lending appetite.

The slowdown in credit growth in the last three years due to large-scale bad loans is also being tackled by amending several clauses of Insolvency and Bankruptcy Code -2016 (IBC) to make it strong and pragmatic. Near term disruption in the working of 10 PSBs to be formed into four large banks cannot be ruled out, but it needs to be minimised with a suitable plan of action. But more important is to derive the synergy of amalgamation in the long term. With boards of PNB, Union Bank, Canara Bank and Indian bank approving the amalgamation plan, the process has moved to the next stage to obtain formal approval of the government. Out of the newly carved outset of PSBs, six of them will be bigger in size and reach, and their role will be significant to decide the future course of financial intermediation. The 10 PSBs under merger plans have a total business share of INR 55.56 trillion with a branch network of 37663. They together wield significant clout on the banking system. It will be challenging for them to minimise the disruption in the working. The process of amalgamation should not be allowed to mar the prospects of their growth in the intervening period. Formation of separate teams for rolling out amalgamation plans and hiving off lines of responsibilities will be essential. Cordoning the disruption from stretching to operations need to be pursued by enhancing the levels of follow up and monitoring of regular performance. 3. Policy impact on banks Policies are getting aligned to work out the methods to prevent other people (other than account holder) from depositing money into a bank account. This has become necessary after the large-scale deposit of funds by the third party into the account belonging to someone else during demonetisation that impacted the efficacy of the process. It will help banks check the menace of money laundering. It will further scale down cash transactions. As part of the ease of living for customers, PSBs are expected to harness technology and increase the offer of personal loans online and can roll out doorstep banking. Senior citizens and people needing special assistance and differently-abled would get preferred attention of banks as a part of the transformation. Liquidity relief is provided to the NBFCs that have caused huge collateral damage to the financial system after IL&FS collapse and its aftermath. The lingering liquidity shortfall continues causing successive default in honouring their financial commitments. Under the new arrangement, the government will now encourage PSBs to buy highrated pooled assets of the sound NBFCs up to INR 1 trillion for which the government will provide a one-time six-month partial credit guarantee for the first loss of up to 10 percent. Banks are also incentivised to support the NBFCs by using one percent of their Net demand and time liabilities (NDTL) to be treated as high-quality liquid assets for computing their liquidity coverage ratio (LCR). This extra liquidity can be used to extend fresh funding to NBFCs and Housing Finance Companies (HFCs) effective July 5, 2019. NBFCs will also be treated at par with banks in respect of tax breaks on interest received. They will now be able to handle taxes on losses arising out of Non- Performing Assets (NPAs). Government has proposed an amendment to Section 45-IA of the RBI Act 1934 to empower the central bank to supersede the board of NBFCs and enable resolution of financially troubled NBFCs through merger, restructuring or splitting them into viable and non-viable units known as bridge institutions. RBI can now remove auditors, call for audit of any group company of an NBFC and can even decide upon the compensation of senior management. Such comprehensive empowerment can improve public confidence in the NBFC sector. RBI will now regulate HFCs, a power so far vested with National Housing Bank (NHB). Out of the 82 HFCs, top five HFCs have a marketshare of over 90 percent that is more important to be brought under robust regulations. 4. Scope for increased flow of credit Despite hefty repo rate cuts by the RBI in the current rate cycle beginning February 2019, the role of banks in transmitting policy rates has remained subdued. The weighted average lending rates (WALR) on fresh rupee loans hardly decreased by 29 basis points (bps) and the WALR on outstanding loans increased by seven bps.
Further drilling down the WALR trends will indicate that foreign banks, private banks and PSBs have brought them down by 66, 48 and 25 bps respectively. Similarly, the market share of fresh rupee loans of private banks has gone up to 49.3 percent as against 39.8 percent of PSBs during the fiscal up to August 2019. Such trend reflects a more aggressive role of private banks compared to PSBs that are struggling with the high volume of toxic assets. The rest of the market share of 10.9 percent of fresh rupee loans goes to other sectors of banks. Since the bulk of the beneficiaries at the bottom of the pyramid are with PSBs, the flow of credit may not have reached the wider section of the society limiting the revival process. However, with an increasing market share of private banks and enhanced lending activism, the benefit is beginning to impact the larger segment of borrowers even at the lower rung of the society. Even an overall trend of credit growth of banks does not augur well to push growth prospects. The year-on-year (y-o-y) bank credit growth has been tepid at 10.3 percent as on September 13, 2019 as against 13.5 percent recorded during the corresponding period of the previous year that reflects marked slowdown in credit off-take during current fiscal 2020. Banks can work on new opportunities to increase credit flow based on the recent additional tax concessions extended up to INR 1,50,000 on interest on affordable housing loans. The increased allocation under Pradhan Mantri Awas Yojana (PMAY) will open up more scope for the retail lending sector. Similarly, the tax concession on home loans now at INR 2 lacs will go up to INR 3.5 lacs. The added tax concession will be available only to fresh loans to be granted during the financial year 2020. It will increase the sudden demand for home loans. With the Real Estate Regulatory Authority (RERA) institutionalised in many states, the construction / housing sector will be better regulated, protecting the rights of buyers. With a target of 1.95 crore housing units to be constructed in a record time of next two-three years to move towards the objective to provide housing for all by 2022, the sector will get a boost, and banks can tap this source which has a high cross-selling opportunity. Similarly, the income tax concession on interest on loans taken to buy electric vehicles can create additional demand for car loans. Eventually, even the auto industry may gradually shift towards manufacturing electric vehicles to fall in-line with green initiatives. With hardly one percent of the people opting for electric vehicles as of now, there will be a spurt in buyers in higher tax bracket who can save more. Increase in retail loan portfolio could be possible with the new dispensation. The infrastructure sector will be under focus with an expenditure outlay of INR 1 trillion to be spent in the next five years. Allocation of INR 80250 crores for phase-III of Pradhan Mantri Gram Sadak Yojana (PMGSY) for the upgradationof 1.25 lac kilometres of road in the hinterland will activate many interdependent businesses to boost rural infrastructure. Similarly, under ‘National Rural Drinking Water Mission’, all rural households are to be provided piped water supply by 2024. Presently, 18 – 20 percent of the households have such facility. This will also bring up many rural activities right from laying pipelines, construction of overhead tanks, civil works, job works, and sale of hardware accessories along with the job creation. Every such activity brings increased bank collaboration. Proposals to increasingly use the Public-Private Partnership (PPP) model by railways and privatisation of some of its activities when seen together with increased capital expenditure (capex) spent by the government will benefit many sectors. The proposal to raise foreign currency resources from overseas will open up new opportunities for many sectors of the economy. 5. Increased thrust on MSME Since MSME and ‘Startups’ are known to be critical employment-intensive sectors, measures are proposed to increase the flow of credit to unleash its potentiality. The angel tax has been addressed, and a two percent interest subvention is allowed on fresh loans to be granted to Goods, and Service Tax (GST) registered MSMEs for which an allocation of INR 350 crores is made in Union Budget 2019-20. Rationalisation of labour laws can help them accelerate the formalisation of the economy. The corporate tax rate is brought down to 25 percent for the firms having a turnover of up to INR 400 crores, raised from INR 250 crores which will provide relief to 99.3 percent of the 1.5 lac companies incorporated so far according to the data of Ministry of Corporate Affairs (MCA).
To reinforce ‘Make in India’ campaign to pump prime manufacturing activity, the import tariffs are calibrated to boost local manufacturing. Increase in customs duty of certain automobile components and electronic devices will increase local manufacturing activities and more so when loans are made
available with interest subvention. MSME units will be encouraged to increase production by taking benefit of concessions using digital mode. When these budgetary sops are seen together with the key recommendations of the recent report of the ‘Expert Committee on MSME (Chairman: U K Sinha)’, it will provide further insight on the emerging potentiality of the sector. Among many far reaching recommendations, the game changing proposals relate to (I) formation of Stressed Asset Fund of INR 5000 crores for the units impacted by change in external environment beyond the control of the entrepreneur; (ii) setting up an apex National / State level council for MSMEs; (iii)doubling of limits of collateral free loans under Pradhan Mantri MUDRA Yojana and Startup India to increase flow of funds; (iv)expansion of scope of Small Industries Development Bank of India (SIDBI) to be the fulcrum to steer the sector to the next level of growth; (v) creation of incentives and disincentives to the lenders by introducing Rural Infrastructure Development Fund (RIDF) scheme requiring the banks to deposit shortfall in achieving MSME targets; (vi)making it mandatory to source 25 percent of Public Sector Undertakings (PSU) needs from MSME units through Government e-Marketplace (GeM) portal; (vii) expansion of number of MSE Facilitation Council (MSEFC) to help address the delayed payment conundrum of the sector along with strengthening Trade Receivables electronic Discount System (TreDS) platform. At the same time, the government has also directed PSBs to assign credit availability aspects of MSME sector to GM level executive for accelerating the flow of credit. It also suggested a well-calibrated monitoring mechanism to institutionalise weekly feedback in a bid to improve accountability for performance. Despite several expert committees providing guidance and policy interventions from time to time, the plight of MSME continues to be weak. To energise the sector, the government had earlier rolled out 12-point MSME outreach initiatives in November 2018. One of the most important initiatives was the introduction of ‘in-principle’ sanction of loans to MSME units up to INR 1 crore in just 59 minutes. The intending borrower should log into a dedicated website – ‘psbloansin59minutes’ which will collect borrower’s details online from various digitally connected sources such as income tax department, GST and other sources to provide an in-principle sanction with which the potential borrower can approach any PSB to get the loan. These are some early efforts to speed up credit delivery, if implemented well may facilitate the borrowers. The demand for external credit of MSME sector is estimated to be in the range of INR 37 trillion in 2018 as against formal credit flow of INR 14.5 trillion that hardly meets half its needs. Bank credit to MSME sector was INR 11.7 trillion in March 2015 that could reach INR 15.77 trillion by March 2019 working out an annualised growth of 6.9 percent far below the banking industry credit growth. Because of these developments, banks can work towards increasing exposure to the MSME sector in a big way and pursue inclusive development.

Why Urban Co-operative Banks (UCBs) failing often?

Why Urban Co-operative Banks (UCBs) failing often?

Introduction: The UCBs are playing an important role in providing basic banking services to the general public across the country. There are around 1550 UCBs operating in India with a deposit base of `4.60 lakh crore and credit portfolio of `2.80 lakh crore. Majority of the depositors of these banks are middle class people and senior citizens who are attracted by the higher interest rate compared to Public Sector Banks. Present Reference: The Punjab & Maharashtra Cooperative Bank Ltd (PMC), a multi-state cooperative bank with a network of 137 branches spread in six states with total business of `20000 crore (Dep `12000 crore & Adv `8000 crore) failed to meet the commitments to the customers in September 2019. Another Bangalore based bank, Guru Raghavendra Sahakara Bank joined in the fray in January 2020 and RBI imposed restrictions on the Bank. The major reasons for fallout of UCBs are: Small Capital Base - The capital required for opening of a UCB is `25 lakhs compared to `100 crore for small finance banks. These guidelines enabled many unscrupulous elements to enter in to this sector easily. Vested Interests – UCBs are susceptible for external influences and sanction huge amounts without valid purpose. Majority of these loans are not backed by collateral securities. The promoters are misusing their official position and siphoning funds. Undue exposure to Real Estate Companies is also one of the reasons for failure of UCBs. Lack of Supervision – UCBs are operating under dual control viz., RBI and Registrar of co-operatives. RBI’s supervision is not as stringent as that of commercial banks and the regular audit by the respective state governments is not effective. Recent Developments: In order to protect the interests of the small depositors of Urban Co-operative Banks, RBI initiated the following measures: The exposure limits are revised - Single borrower from 15% to 10% and a Group of connected borrowers from 40% to 25% of Tier-1 capital. The priority sector targets increased from 40% to 75% of ANBC by 31st March 2023 with a stipulation that minimum 50% of credit should comprise with `25 lakh and below credit limits. The said measures are expected to reduce the credit concentration risk of the UCBs. The CRILC guidelines are now applicable to all UCBs and they need to share information of borrowers having aggregate exposure (fund ad nonfund) of `5 crore and above to CRILC. RBI advised all UCBs with deposits of over `100 crore to constitute a Board of Management (BoM) comprising experts to oversee their functioning with an objective to improve the corporate governance in UCBs.