BFM Recollected Previous year questions.

CAIIB PAPER 2 BFM Recollected questions By Srinivas Kante

BFM Recollected questions::

Daily votality is 5% 2.5 Find modified duration - Ans is 2.38

STRIPS (Separate Trading of Registered Interest and Principal Securities) is a ...... zero-coupon securities

Which is not a derivative product ? - Repo (Swap, Option, Forward, Repo)

ECB limit - USD 500 mn up to minimum period of 5 years and USD 20 mn up to minimum period of 3 years without prior approval of RBI

ECB is denominated in which currencies.....USD, Euro or JPY

Consessive rate of interest on postshipment rupee export credit to gold card status holder can be extended maximum - 365 days

One importer want import one machine from China.He has to open lc. The exporter wants advance payment. What type lc - red clause

Value at risk is a measure of? Gap risks in foreign exchange operations

Which office not under treasury ? Options given r Mid office, back office, front office, legal office*, 

Under standard assets, provision for loss, RSV should be?? Ans - less than 10%

If interest of principle is not serviced for 90 days, what is the position of account? ans- outof order

Basel 3 teir 1 components. (Plz remember that Revaluation reserve is also now under Teir 1)

If treasury assets r withdrawn before maturity, what type of risk is it? ,

A 91 Day T bill of 93.21 wl have yield of? 

If 91 days treasury is 88., then its implied yield is?

ICAAP is related to? 

ADR related question

Double forward is called what ?

Related to Nro account

Nro account can be opened as sb,CA,FD type

Derivatives also lot of questions

Advising bank roles ... Like what he can do what can't

INCOTERM

IRS

Swap

Risk weightage

Lot of RWAs questions

Which is not included in calculation of NDTL/DTL for CRR/SLR

Component of tier 1

Rwa as per Basel III for housing loan based on LTV

Many questions sellect correct or incorrect about NRO NRE FCNR ECB EEFC CCIL

Estimated occurence of probability

Questions on currency derivatives, forwards, swaps

Forex market characteristics

One question related to embedded option risk

As per basic indicator approach calculation of capital charge 15% of average gross income over there years given but one of the year is having negative one that we have to ignore.

8.83GS2023price100.49 with yield 8.75 .....just it is given and based on this statement he asked for 5marks

Crystallization period for export

One question on American and europian option

Capital charge on operational risk based on standardized approach and basic indicator approach

Questions on ADR AND GDR

Questions on option and forward contact, future

Loan To Value Ratio

Risk Weight %

Swap Defination , ADR and INCOTERMS

RWA calculation for operational risk under Standardized approach

DGAP

Conceptual question on FCNR, RFC, NRO, NRE

Operational risk calculation all approaches

Modified duration

Tier 1 n tier 2 numerical

LC based case studies for 5 marks

Basic inducater appoach market risk 5 number

Modified duration of equity5 ques

Calculations of capital adequacy ratio quite a few questions

10 questions at from various risks associated with Treasury operations

Interest rate swap 5 questions

Bill buying 5 questions

EXCHANGE RATE

AAA A BB Rating Chart Questions for Risk Weighted Calculations

Yield Calculation

W RSA,RSL NUMERICAL

RATED BOND NUMERICAL

Yeild of bond numerical

BASIC INDICATOR APPROACH NUMERICAL

BPV

Forex t.bill 

Leverage 

Forward contact

CRAR

Operational risk

Treasury theoritical

60question theory easy

No ques from volatility and bpv

Call risk problems

packing credit problems

Rsl. Rsa.. Md problems

Leveage ratio related case study

BASEL III Tier 1 Tier 2 capital Minimum equity ratio related 

BFM Book page no 415 ICCAP related question

BFM Book page no 443 stock approach related 05 question

BFM Book page no 477 - RSL/RSA/DGAP/Modified Duration Gaps

BFM Book page no 20 - Export Bill 5 marks

BFM Book page no 295 - Estimated level of Operational Risk 

Case study numerical-TEIR 1 TEIR 2 CAPITAL CONVERSION BUFFER QUESTION BASEL ON BASEL3

Case study on RFC account 5 marks

Case study on forex exchange buying commission etc 5marks

Case study on mkdified duration gap 5marks

VAR - 1 QUESTION 

TEIR 1 COMPONENT-2 QUESTION

CBLO- 1 QUESTIOn

Case Studies on

1. Cancellation of contract

2. NRE/NRO POA

3. RWA

4. MEAN & SD

5. SLR

6. YTM

7. SHORT LERM & LONG TERM GAP ASSET VS Liabilities

8. NII & NIM

9. Tier1, Tier2

10. Capital adequecy

11. Nostro Vostro Loro

12. Daily volatilty

13. Stop loss limit

14. Operational risk case study

15. Foreign exchange numericals

16. Swap numericals

17. Liquidity case study

18. Forward rate agreement 25 crore 3 month swap, three year three business line calculate yield and risk weightage

19. Calculate CET Basel 3

20. Calculate Aadditional tier 1

...........................................

2 to 3 question duration

5 question export bill(cancellation of contract rate, margin amount,rebook rate,etc)

5 question on capital adequacy (balance sheet provided, compute equity capital, tier 1 capital, total rw, capital adequacy, buffer capital)

5 question on nostro,loro vostro

5 question on FRA 

5 question on net interest margin 

2-3 question on bonds

3-4 question on LC

some 2-3 sums on bpv

...........................................

1. Rate qoute 1 ques

2.LC partial delivery UCPDC rule

3.FRA 6*9 dates of delivery and maturity

4.case study on rules and guidelines regarding NRE, NRO and FCNR accounts- amt of loan,POA,remittance,fund transfer limit etc

5.coupon swaps,forward contracts

6.securitization-SPV or Commercial bank allocation of assets 

7.Case study on NII,NIM,EER

8.Case study on Cash flows,deviation during years,SD/mean

9.ECGC insurance premium bear by?

10.CHIPS-USA

11.treasury risk management 4-5 ques

12.European put option

13.Authorises person categ 2

14. ques on BOP expansion 

15.bank margin calculation from rates 

16.Stop loss given- asked whether buy or sell at what rate to book profit or stop loss

17.monthly volatility given-calculate daily volatility 

18.modified duration calculation 

19.case study on Nostro Vostro and Loro and Mirror accounts

20.which is not an off balance sheet item of following 

21.crystallisation of sight bills 30 days

22.LC date expired due to bank closed due to hurricane UCPDC rule

23.standard ECGC policy cover-political risk

24.basel III - tier 2 capital req of total risk wtd assets, pillar 3 def

25.standardised approach and basic indicator approach and AMA all methods for operational risk calcualtion

24. volatility can also be measured by?

25.price volatility depends on yield volatility,BPV,Yield and price

26.VaR related 2 ques theoretical

27.derivatives hedge underlying risks

28.call risk

29.Maturity ladder or baskets case study

30.provision coverage ratio def

31.asset liability mismatch

32. Bond ytm,current yield 2-3 ques

Caiib Today ABM morning Batch reply from iibf

CAIIB ABM Today exam 55 Recollected Questions June 2018

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

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THE FATF RECOMMENDATIONS:: Total 40

THE FATF RECOMMENDATIONS::  Total 40

A – AML/CFT POLICIES AND COORDINATION

1 - Assessing risks & applying a risk-based approach *
2  - National cooperation and coordination

B – MONEY LAUNDERING AND CONFISCATION

3  Money laundering offence *
4 Confiscation and provisional measures *

C – TERRORIST FINANCING AND FINANCING OF PROLIFERATION

5 Terrorist financing offence *
6 Targeted financial sanctions related to terrorism & terrorist financing *
7 Targeted financial sanctions related to proliferation *
8  Non-profit organisations *

D – PREVENTIVE MEASURES

9 Financial institution secrecy laws
Customer due diligence and record keeping
10  Customer due diligence *
11  Record keeping
Additional measures for specific customers and activities
12  Politically exposed persons *
13  Correspondent banking *
14 Money or value transfer services *
15 New technologies
16  Wire transfers *

Reliance, Controls and Financial Groups

17  Reliance on third parties *
18  Internal controls and foreign branches and subsidiaries *
19  Higher-risk countries *
Reporting of suspicious transactions
20  Reporting of suspicious transactions *
21 Tipping-off and confidentiality

Designated non-financial Businesses and Professions (DNFBPs)

22  DNFBPs: Customer due diligence *
23 DNFBPs: Other measures *

THE FATF RECOMMENDATIONS
INTERNATIONAL STANDARDS ON COMBATING MONEY LAUNDERING AND THE FINANCING OF TERRORISM & PROLIFERATION
 2012 OECD/FATF 5

E – TRANSPARENCY AND BENEFICIAL OWNERSHIP
OF LEGAL PERSONS AND ARRANGEMENTS

24  Transparency and beneficial ownership of legal persons *
25 Transparency and beneficial ownership of legal arrangements *

F – POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES
AND OTHER INSTITUTIONAL MEASURES
Regulation and Supervision

26 Regulation and supervision of financial institutions *
27  Powers of supervisors
28  Regulation and supervision of DNFBPs
Operational and Law Enforcement
29 Financial intelligence units *
30 Responsibilities of law enforcement and investigative authorities *
31 Powers of law enforcement and investigative authorities
32  Cash couriers *
General Requirements
33  Statistics
34  Guidance and feedback

Sanctions

35  Sanctions

G – INTERNATIONAL COOPERATION

36 International instruments
37  Mutual legal assistance
38 Mutual legal assistance: freezing and confiscation *
39  Extradition
40 Other forms of international cooperation

Kyc aml case study analysis

KYC AML CASE STUDY ANALYSIS:

Mrs T (teacher) from country A, entered into a life insurance policy with a small initial premium being paid. The transaction was arranged by Mr B who was the agent of insurance company C and a cousin of Mrs T. Two days later, company C made a payment of an additional premium, in excess of 540,000, on behalf of Mrs T. After one month, Mrs T cancelled her policy and transferred the refund of contributions to three different accounts:
a) Mr MD (Managing Director of Company C) – 240,000;
b) Mrs N (niece of Mr MD) – 150,000; and
c) Mr U – 150,000.
All of them subsequently transferred the money onwards to other accounts in different banks. Following an investigation it appeared that the money being laundered was linked to fuel smuggling. The accounts were blocked by the Financial Intelligence Unit (FIU) and the case was forwarded to the public prosecutor.

Kyc Aml short notes 1

KYC AML :: (Short notes 1)

1. The objective of KYC/AML/CFT guidelines is to prevent banks/FIs from being used,
intentionally or unintentionally, by criminal elements for money laundering or terrorist
financing activities.
2. The PMLA came into effect from 1st July 2005. Necessary Notifications / Rules under the
said Act were published in the Gazette of India on 1st July, 2005 by the Department of
Revenue, Ministry of Finance, Government of India. The PMLA has been further amended
vide notification dated March 6, 2009 and inter alia provides that violating the prohibitions
on manipulative and deceptive devices, insider trading and substantial acquisition of
securities or control as prescribed in Section 12 A read with Section 24 of the Securities and
Exchange Board of India Act, 1992 (SEBI Act) will now be treated as a scheduled offence
under schedule B of the PMLA.
3. KYC procedures also enable banks/FIs to know/understand their customers and their
financial dealings better and manage their risks prudently.
4. For the purpose of KYC Norms, a ‘Customer’ is defined as a person who is engaged in a
financial transaction or activity with a reporting entity and includes a person on whose
behalf the person who is engaged in the transaction or activity, is acting.
5. “Designated Director" means a person designated by the reporting entity (bank, financial
institution, etc.) to ensure overall compliance with the obligations imposed under chapter IV
of the PML Act.
6. In terms of PML Act a ‘person’ includes: (i) an individual, (ii) a Hindu undivided family, (iii) a
company, (iv) a firm, (v) an association of persons or a body of individuals, whether
incorporated or not, (vi) every artificial juridical person, not falling within any one of the
above persons (i to v), and (vii) any agency, office or branch owned or controlled by any of
the above persons (i to vi).
7. “Transaction” means a purchase, sale, loan, pledge, gift, transfer, delivery or the
arrangement thereof and includes- (i) opening of an account; (ii) deposits, withdrawal,
exchange or transfer of funds in whatever currency, whether in cash or by cheque, payment
order or other instruments or by electronic or other non-physical means; (iii) the use of a
safety deposit box or any other form of safe deposit; (iv) entering into any fiduciary
relationship; (v) any payment made or received in whole or in part of any contractual or
other legal obligation; or (vi) establishing or creating a legal person or legal arrangement.
8. Banks/FIs should frame their KYC policies incorporating the following four key elements: (i)
Customer Acceptance Policy (CAP); (ii) Customer Identification Procedures (CIP); (iii)
Monitoring of Transactions; and (iv) Risk Management.
9. Documents and other information to be collected from different categories of customers
depending on perceived risk and the requirements of PML Act, 2002 and
instructions/guidelines issued by Reserve Bank from time to time.
10. Customer Identification Procedure (CIP) : Customer identification means undertaking client
due diligence measures while commencing an account-based relationship including
identifying and verifying the customer and the beneficial owner on the basis of one of the
OVDs
11. Customer Due Diligence requirements (CDD) while opening accounts
12. introduction is not necessary for opening of accounts under PML Act and Rules or the
Reserve Bank’s extant instructions, banks/FIs should not insist on introduction for opening of
bank accounts.
13. Small Accounts If an individual customer does not possess either any of the OVDs or the
documents applicable in respect of simplified procedure (as detailed at paragraph 2.3
above), then ‘Small Accounts’ may be opened for such an individual. A ‘Small Account'
means a savings account in which the aggregate of all credits in a financial year does not
exceed rupees one lakh; the aggregate of all withdrawals and transfers in a month does
not exceed rupees ten thousand and the balance at any point of time does not exceed
rupees fifty thousand. A ‘small account’ maybe opened on the basis of a self-attested
photograph and affixation of signature or thumb print.
14. a small account shall be opened only at Core Banking Solution (CBS) linked branches or in a
branch where it is possible to manually monitor and ensure that foreign remittances are not
credited to the account and that the stipulated monthly and annual limits on aggregate of
transactions and balance requirements in such accounts are not breached, before a
transaction is allowed to take place;
15. a small account shall remain operational initially for a period of twelve months, and
thereafter for a further period of twelve months if the holder of such an account provides
evidence before the banking company of having applied for any of the officially valid
documents within twelve months of the opening of the said account, with the entire
relaxation provisions to be reviewed in respect of the said account after twenty four
months.
16. Where a customer categorised as low risk expresses inability to complete the
documentation requirements on account of any reason that the bank considers to be
genuine, and where it is essential not to interrupt the normal conduct of business, the bank
may complete the verification of identity within a period of six months from the date of
establishment of the relationship.
17. Procedure to be followed in respect of foreign students : Banks should follow the following
procedure for foreign students studying in India: 1) Banks may open a Non Resident
Ordinary (NRO) bank account of a foreign student on the basis of his/her passport (with visa
& immigration endorsement) bearing the proof of identity and address in the home country
together with a photograph and a letter offering admission from the educational institution
in India. 2) Banks should obtain a declaration about the local address within a period of 30
days of opening the account and verify the said local address. 3) During the 30 days period,
the account should be operated with a condition of allowing foreign remittances not
exceeding USD 1,000 or equivalent into the account and a cap of monthly withdrawal to Rs.
50,000/-, pending verification of address. 4) The account would be treated as a normal NRO
account, and will be operated in terms of instructions contained in the Reserve Bank of
India’s instructions on Non-Resident Ordinary Rupee (NRO) Account. Students with Pakistani
and Bangladesh nationality will need prior approval of the Reserve Bank for opening the
account.
18. Where the customer is a company, one certified copy each of the following documents are
required for customer identification: (a) Certificate of incorporation; (b) Memorandum and
Articles of Association; (c) A resolution from the Board of Directors and power of attorney
granted to its managers, officers or employees to transact on its behalf and (d) An officially
valid document in respect of managers, officers or employees holding an attorney to
transact on its behalf.

19. Where the customer is a partnership firm, one certified copy of the following documents is
required for customer identification: (a) registration certificate; (b) partnership deed and (c)
an officially valid document in respect of the person holding an attorney to transact on its
behalf.
20. Where the customer is a trust, one certified copy of the following documents is required for
customer identification: (a) registration certificate; (b) trust deed and (c) an officially valid
document in respect of the person holding a power of attorney to transact on its behalf.
21. Where the customer is an unincorporated association or a body of individuals, one certified
copy of the following documents is required for customer identification: (a) resolution of the
managing body of such association or body of individuals; (b) power of attorney granted to
transact on its behalf; (c) an officially valid document in respect of the person holding an
attorney to transact on its behalf and (d) such information as may be required by the
bank/FI to collectively establish the legal existence of such an association or body of
individuals.
22. Proprietary concerns: (1) For proprietary concerns, in addition to the OVD applicable to the
individual (proprietor), any two of the following documents in the name of the proprietary
concern are required to be submitted: (a) Registration certificate (b) Certificate/licence
issued by the municipal authorities under Shop and Establishment Act. (c) Sales and income
tax returns. (d) CST/VAT certificate. (e) Certificate/registration document issued by Sales
Tax/Service Tax/Professional Tax authorities. (f) Licence/certificate of practice issued in the
name of the proprietary concern by any professional body incorporated under a statute. (g)
Complete Income Tax Return (not just the acknowledgement) in the name of the sole
proprietor where the firm's income is reflected, duly authenticated/acknowledged by the
Income Tax authorities. (h) Utility bills such as electricity, water, and landline telephone bills.
23. When the client accounts are opened by professional intermediaries: When the bank has
knowledge or reason to believe that the client account opened by a professional
intermediary is on behalf of a single client, that client must be identified. Banks may hold
'pooled' accounts managed by professional intermediaries on behalf of entities like mutual
funds, pension funds or other types of funds. Banks, however, should not open accounts of
such professional intermediaries who are bound by any client confidentiality that prohibits
disclosure of the client details to the banks.
24. Where funds held by the intermediaries are not co-mingled at the bank and there are 'sub-
accounts', each of them attributable to a beneficial owner, all the beneficial owners must be
identified. Where such funds are co-mingled at the bank, the bank should still look into the
beneficial owners. Where the banks rely on the 'customer due diligence' (CDD) done by an
intermediary, they should satisfy themselves that the intermediary is a regulated and
supervised entity and has adequate systems in place to comply with the KYC requirements of
the customers. It should be understood that the ultimate responsibility for knowing the
customer lies with the bank.
25. Beneficial ownership :When a bank/FI identifies a customer for opening an account, it
should identify the beneficial owner(s) and take all reasonable steps in terms of Rule 9(3) of
the PML Rules to verify his identity, as per guidelines provided below:
(a) Where the client is a company, the beneficial owner is the natural person(s), who,
whether acting alone or together, or through one or more juridical person, has/have a
controlling ownership interest or who exercises control through other means.

Explanation- For the purpose of this sub-clause- 1. “Controlling ownership interest” means
ownership of/entitlement to more than 25 per cent of the shares or capital or profits of the
company. 2. “Control” shall include the right to appoint majority of the directors or to
control the management or policy decisions including by virtue of their shareholding or
management rights or shareholders agreements or voting agreements.
(b) Where the client is a partnership firm, the beneficial owner is the natural person(s),
who, whether acting alone or together, or through one or more juridical person, has/have
ownership of/entitlement to more than 15 per cent of capital or profits of the partnership.
(c) Where the client is an unincorporated association or body of individuals, the beneficial
owner is the natural person(s), who, whether acting alone or together, or through one or
more juridical person, has/have ownership of/entitlement to more than 15 per cent of the
property or capital or profits of the unincorporated association or body of individuals.
(d) Where no natural person is identified under (a), (b) or (c) above, the beneficial owner is
the relevant natural person who holds the position of senior managing official.
(e) Where the client is a trust, the identification of beneficial owner(s) shall include
identification of the author of the trust, the trustee, the beneficiaries with 15% or more
interest in the trust and any other natural person. exercising ultimate effective control over
the trust through a chain of control or ownership.
(f) Where the client or the owner of the controlling interest is a company listed on a stock
exchange, or is a subsidiary of such a company, it is not necessary to identify and verify the
identity of any shareholder or beneficial owner of such companies.
26. KYC exercise should be done at least every two years for high risk customers, every eight
years for medium risk customers and every ten years for low risk customers. Such KYC
exercise may include all measures for confirming the identity and address and other
particulars of the customer that the bank/FI may consider reasonable and necessary based
on the risk profile of the customer, taking into account whether and when client due
diligence measures were last undertaken and the adequacy of data obtained.
27. Freezing and closure of accounts :
(i) In case of non-compliance of KYC requirements by the customers despite repeated
reminders by banks/FIs, banks/FIs may impose ‘partial freezing’ on such KYC non-compliant
accounts in a phased manner.
(ii) During the course of such partial freezing, the account holders can revive their accounts
by submitting the KYC documents as per instructions in force.
(iii) While imposing ‘partial freezing’, banks/FIs have to ensure that the option of ‘partial
freezing’ is exercised after giving due notice of three months initially to the customers to
comply with KYC requirements to be followed by a reminder giving a further period of three
months.
(iv) Thereafter, banks/FIs may impose ‘partial freezing’ by allowing all credits and
disallowing all debits with the freedom to close the accounts.

(v) If the accounts are still KYC non-compliant after six months of imposing initial ‘partial
freezing’ banks/FIs should disallow all debits and credits from/to the accounts thereby,
rendering them inoperative.
(vi) Further, it would always be open to the bank/FI to close the account of such customers
after issuing due notice to the customer explaining the reasons for taking such a decision.
Such decisions, however, need to be taken at a reasonably senior level. In the circumstances
when a bank/FI believes that it would no longer be satisfied about the true identity of the
account holder, the bank/FI should file a Suspicious Transaction Report (STR) with Financial
Intelligence Unit – India (FIU-IND) under Department of Revenue, Ministry of Finance,
Government of India.
28. At-par cheque facility availed by co-operative banks : Some commercial banks have
arrangements with co-operative banks under which the latter open current accounts with
the commercial banks and use the cheque book facility to issue ‘at par’ cheques to their
constituents and walk-in- customers for effecting their remittances and payments. Since the
‘at par’ cheque facility offered by commercial banks to co-operative banks is in the nature of
correspondent banking arrangement, banks should monitor and review such arrangements
to assess the risks including credit risk and reputational risk arising there from. For this
purpose, banks should retain the right to verify the records maintained by the client
cooperative banks/ societies for compliance with the extant instructions on KYC and AML
under such arrangements.
29. In this regard, Urban Cooperative Banks (UCBs) are advised to utilize the ‘at par’ cheque
facility only for the following purposes:
(i) For their own use.
(ii) For their account holders who are KYC complaint provided that all transactions of
Rs.50,000/- or more should be strictly by debit to the customer’s account.
(iii) For walk-in customers against cash for less than Rs.50,000/- per individual. In order to
utilise the ‘at par’ cheque facility in the above manner, UCBs should maintain the following:
(i) Records pertaining to issuance of ‘at par’ cheques covering inter alia applicant’s name and
account number, beneficiary’s details and date of issuance of the ‘at par’ cheque. (ii)
Sufficient balances/drawing arrangements with the commercial bank extending such facility
for purpose of honouring such instruments. UCBs should also ensure that all ‘at par’ cheques
issued by them are crossed ‘account payee’ irrespective of the amount involved.
30. Simplified norms for Self Help Groups (SHGs) : KYC verification of all the members of SHG
need not be done while opening the savings bank account of the SHG and KYC verification of
all the office bearers would suffice. As regards KYC verification at the time of credit linking of
SHGs, no separate KYC verification of the members or office bearers is necessary

Updated NPA Provisioning

Asset Classification	Period as NPA	Current provisioning (%)	Revised accelerated provisioning (%)
Sub- standard (secured)	Up to 6 months	15	No change
	6 months to 1 year	15	25
Sub-standard (unsecured ab-initio)	Up to 6 months	25 (other than infrastructure loans)	25
		20 (infrastructure loans)
	6 months to 1 year	25 (other than infrastructure loans)	40
		20 (infrastructure loans)
Doubtful I	2nd year	25 (secured portion)	40 (secured portion)
		100 (unsecured portion)	100 (unsecured portion)
Doubtful II	3rd & 4th year	40 (secured portion)	100 for both secured and unsecured portions
		100 (unsecured portion)
Doubtful III	5th year onwards	100	100

FEMA ACT PDF

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

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

1.Keynote address delivered by Shri S. S. Mundra, Deputy Governor, Reserve Bank of India at the 2nd CII 
National Conference on MSME Funding held in New Delhi on August 23, 2016 ). 
Thank you for inviting me to deliver the keynote address at this second edition of the Conference on 
MSME Funding. I compliment the CII for having chosen a very relevant theme for the Conference 
‘Propelling MSME Growth through Enhanced Financial Access and Support’. The theme lays emphasis on 
two crucial pillars that are pertinent for the sector i.e. enhancing financial access and ensuring adequate 
support to enable MSMEs to attain faster growth. 
2.It is universally recognized that small businesses are the best vehicles for generate jobs. A IFC 
/Mckinsey Study has estimated worldwide MSME population at 420 to 510 million, of which 360 to 440 
million alone, are in emerging markets. The report also estimates that the formal SMEs contribute up to 
45 percent of total employment and up to 33 percent of national income (GDP) in emerging economies 
and these numbers could be significantly higher when informal SMEs are included. The Asia SME Finance 
Monitor 2014 published by the Asian Development Bank has estimated that 96% of all enterprises in the 
Asian region fall under the MSME category, absorb close to 2/3rd of the working force and contribute to 
about 42 % of GDP. 
3. According to MSME Ministry’s Annual Report for 2015-16, MSME sector in India today is a network of 51 
million enterprises providing employment to 117.1 million persons and contributing 37.5 per cent of 
India’s GDP2
. The development of this sector is, therefore, crucial in generating significant levels of 
employment across the country, more so since we have a large young and educated population which is 
on lookout for employment. 
MSME – Significance beyond job creation 
4. While job creation is certainly critical, small businesses play a far greater role than just providing 
employment. Let me state two key contributions of MSME sector here. 
5.One, the MSME sector is a nursery for entrepreneurship and a school for innovation. Countless medium
and large corporates in India have evolved out of being micro and small sometime in not so distant past. I 
am sure many in the audience here, who own fairly large businesses today, would have cut their teeth in 
business through the route of micro and small enterprises. 
6. Secondly, MSME sector is crucial for the success of the national agenda of Financial Inclusion. Let me
explain. Normally, when we talk about financial inclusion, we do so largely from the perspective of an
individual or at best a household. However, to my mind, universal financial inclusion cannot be considered 
to have been achieved unless it is ensured that the micro and small businesses are financially included. 
Credits to these small family run or individual run entities from the formal financial channels would make 
these businesses sustainable and help them move out of poverty and propel them to a better quality of 
life. 
7. The surmise that I am trying to drive at is that if this is the sector that is the bulwark for such criticaldevelopmental paradigms, there are compelling enough reasons for all stakeholders- be they the 
Associations, the Financial Institutions, the regulators or the Government, to put all their might together 
in a convergent fashion so that the right environment is created to propel growth of MSMEs in our 
country. 
8. For achieving this objective, there is a need to create an ecosystem which can facilitate handholding 
and nurturing of MSME units particularly at the nascent stages. Also, there is a need to eliminate a host of 
impediments – of permits, of inspections, of red tape and provide a set of enablers – skill development, 
infrastructure, markets, technology etc. However, of all the enablers, probably none is more important
than Credit. The IFC/Mckinsey has estimated the credit gap for formal and informal MSMEs worldwide at 
around $ 3.9 trillion globally, of which $2.1 to 2.6 trillion is in emerging markets. 
The ABCD of Credit 
9. As I said, credit is perhaps the most critical component for MSME entrepreneurs. Provision for Credit is 
essentially dependent on four pivotal issues which I would call ‘ABCD’ of credit. Let me take you through 
each of them and also explain what we are doing to iron out these issues. 
a) The Á of Credit –Access/Availability 
10. The 4th All India survey of MSMEs states that close to 90 per cent of MSMEs are dependent on 
informal sources, which by any standards is a worrisome figure. Since that survey, some headway must 
have been made in improving MSMEs’ access to formal financial channels; however, it still remains a 
challenge. The public sector banks today have close to 3000 specialized branches which specialize in 
lending to MSME units. Private sector banks have built up products and processes, which enable quick 
disbursal of loans. Most banks have switched over to centralized credit sanctioning, which enables better 
turnaround time. Many others have increased the credit limits to the field level functionaries. While these 
steps have improved access, there is still a huge unmet demand for credit for MSMEs. (There is a total 
finance requirement of INR 32.5 trillion ($650 billion) in the MSME sector, which comprises of INR 26 
trillion ($ 520 Billion) of debt demand and INR 6.5 trillion ($130 Billion) of equity demand).As per 
provisional data for period ended March 2016, total outstanding loan of the banking system to MSME 
sector stood at around 11.1 trillion rupees in 20.6 million loan accounts. Contrast this to the estimated 
need of INR 26 trillion and number of MSMEs at 51 million. 
11. An important piece of the problem is adequacy of banking outlets. Small entrepreneurs are spread 
across remote locations in the country where physical bank branches are not available. Also, the banking 
correspondent mechanism is yet to mature to a level where they can play a key role in credit disbursal. 
Second and perhaps a more import dimension is availability of credit at a time when it is required by the 
entrepreneur. Ability of small entrepreneurs to withstand life cycle shocks is extremely limited and hence 
availability of timely credit becomes critical for their survival. The formal financial system, due to a variety 
of reasons, which may include cumbersome procedures, lack of understanding of the business model, 
inability of the entrepreneur to meet the requirements of the banks etc., is unable to meet this immediate 
need of the entrepreneur. 
b) ‘B’- Banks and Business 
12. ‘B’ in the ‘ABCD’ paradigm of credit fundamentally refers to the information asymmetry between the 
two Bs – Banks and Business. 
The United States Agency for International Development (2009) defines a financially literate SME 
owner/manager as “someone who knows what are the most suitable financing and financial management 
options for his/her business at the various growth stages of his/her business; knows where to obtain the 
most suitable products and services; and interacts with confidence with the suppliers of these products 
and services. He/she is familiar with the legal and regulatory framework and his/her rights and recourse 
options.” 
13.I don’t think that majority of the MSME entrepreneurs in the country today meet the criterion. 
Financial literacy in the context of a MSME focuses on an individual’s ability to translate financial literacy 
concepts to business needs. Financial literacy is essential for effective money management and low levels 
of financial literacy hinder the understanding of available financial products and services. MSE 
entrepreneurs are also constrained by lack of operational skills, accounting and finance acumen, business 
planning etc. which underscores a need for facilitation by banks/other agencies. 
14. However, it is not a one way street. Large-scale retirements in banks in recent years have also 
adversely impacted the collective skill-sets available at the field level in understanding, appraising and 
monitoring the MSME loan portfolio. The poor underwriting skills leads to avoidable under or ovefinancing, which can have a telling effect on the health of the MSME units, particularly in adverse life cycle 
situations. 
c) ‘C’- Collateral Requirements 
15. The formal financial institutions particularly banks consider lending to MSMEs as highly risky since the 
entrepreneurs often do not possess adequate collateral to support the credit. Very often, the loans are 
rejected, despite the project prima facie, being feasible. While there are several dispensations to tide over 
the problem, the credit culture has not matured enough to a level existing in developed economies where 
lending is done against the assets of the firm including its movable assets. This also necessitates that we 
build up strong financial infrastructure, which would support the banks in lending to these sectors without 
worries and using all types of assets available to secure the loan. It is also pertinent for banks to realise 
that though the loan to the individual entities in the sector may be riskier on a solo basis, overall on a 
portfolio level, these are less vulnerable than loans to corporate. 
d) ‘D’- Documentation 
16. Many of the MSMEs, particularly the Micro units, do not have adequate documentation to match the 
rigours of a formal financial system. 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 on modern technology 
algorithms and Big data so that they can differentiate between a good borrower and a not so good one 
even in the absence of conventional documentation. 
17. Having analysed various impediments in finance to the sector let me dwell on some of the steps 
taken by RBI, Government of India and other Apex institutions in bridging these gaps. 
(i) Access/ Availability 
RBI has initiated several measures to improve the availability of banking services, especially in the rural 
and far-flung areas where access to formal finance is arduous. 
18. New institutions: As you are aware, two new universal banks have started operations while in-
principle approval has been granted to 10 entities to set up Small Finance Banks that would primarily 
focus on lending to unserved and underserved sections including small business units, small and marginal 
farmers, micro and small industries and unorganized
sector entities. These small finance banks have been mandated to extend 75 per cent of its Adjusted Net 
Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL) by the Reserve 
Bank. At least 50 per cent of its loan portfolio should constitute loans and advances of up to Rs. 25 lakh. 
Many of the SFBs have prior experience of working with small businesses as MFIs/NBFCs and we believe 
that they will be able to bring in technology backed innovative last mile practices to serve their 
customers. 
19. Increased branch penetration/ Specialized branches: RBI has advised banks to set up ‘brick and 
mortar’ branches in villages with population of more than 5000 in a phased manner. Coupled with a more
mature Banking Correspondent mechanism, this would give considerable fillip in meeting the banking 
needs of the MSMEs particularly in rural areas. Besides, creating presence of physical branch, there is 
also a need to have large number of bank officials with appropriate skill sets and knowledge to handle
the life cycle needs of the small businesses. Already, Public Sector banks have established specialized 
MSME branches in every district to cater to the needs of the small businesses. We are already working 
towards improving the skill sets and entrepreneurial sensitivity of the field level functionaries. 
20. P2P lending: New players have entered the MSME lending landscape in form of P2P companies. These 
entities use an online platform to match lenders with borrowers to provide unsecured loans and mostly for 
receivables financing. P2P lending has great potential as an alternative form of low-cost finance as it can 
reach to the needy where formal sources are unable to reach or unwilling to lend. RBI has been mindful of 
a need to regulate these entities without stifling their ability to innovate and is currently in the process of 
issuing final guidelines on P2P lending. 
21. Policy intervention for Life Cycle Issues: We have advised the banks to keep a provision for 
additional credit limits (Standby Credit Facility for term loans and an additional provision within the overall 
working capital limits) in order to provide timely financial support to Micro and Small enterprises facing 
financial difficulties during their lifecycle. Banks have also been advised to carry out mid-term review of 
regular working capital limits and fix up timelines for credit decisions. I am happy to say that most banks 
have put in place similar provisions in the last one year or so. 
22. Co-origination of loans: While several steps have been taken to address the problems related toaccessibility, there are certain structural problems which would take their own sweet time in getting 
sorted out. One of this is the issue of reaching the last mile. Much as we have encouraged the banks to 
establish brick and mortar branches across remote villages, we must be conscious that they would always 
be driven by viability assessments/ 
cost considerations. One possible solution for this problem could be convergence of efforts between banks 
on one hand and the NBFCs, MFIs on the other, who have ‘feet on the ground’ in such locations, better 
understanding of the local conditions and business viability, better knowledge about the credit worthiness 
of individuals, their repayment capabilities etc. Could we envisage a framework for co-origination of 
loans by banks and the NBFCs/MFIs with risk participation? While it would ensure skin in the game 
for both parties, it would benefit the entrepreneurs in terms of cost of credit, which on account of blending 
could be substantially lower. This could probably be the most ideal structure to serve the micro 
enterprises who are the most deprived in terms of availability of credit. 
(ii) Banks and Business 

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