CCP export credit and RBI priority Guidelines

Export Finance
Export Finance : Funds advanced by a lending institution (such as an exportimport
bank or trade development bank) against confirmed orders from qualified foreign
buyers to enable the exporter to make and supply ordered goods. Usually, the exporter
arranges a commitment from the buyer to make the payment directly to the lender.
Upon receipt of payment the lender deducts the loan amount plus interest and other
charges and forwards the balance to the exporter.


RBI and DGFT::
RBI controls Foreign Exchange and DGFT (Directorate General of Foreign
Trade) controls Foreign Trade. Exim Policy as framed in accordance with
FEMA is implemented by DGFT. DGFT functions under direct control of
Ministry of Commerce and Industry. It regulates Imports and Exports
through EXIM Policy.
On the other hand, RBI keeps Forex Reserves, Finances Export trade and
Regulates exchange control. Receipts and Payments of Forex are also
handled by RBI.
IEC - Importer Exporter Code::
One has to apply for IEC to become eligible for Imports and Exports. DGFT
allots IEC to Exporters and Importers in accordance with RBI guidelines
and FEMA regulations. EXIM Policy is also considered before allotting IEC.
Export
Declaration
Form
All exports (physically or otherwise) shall be declared in the following Form.
1. GR form--- meant for exports made otherwise than by post.
2. PP Form---meant for exports by post parcel.
3. Softex form---meant for export of software.
4. SDF (Statutory Declaration Form)----replaced GR form in order to
submit declaration electronically.
SDF is submitted in duplicate with Custom Commissioned who puts its
stamp and hands over the same to exporter marked “Exchange Control
Copy” for submission thereof to AD.
Exemptions
• Up to USD 25000 (value) – Goods or services as declared by the
exporter.
• Trade Samples, Personal effects and Central Govt. goods.
• Gift items having value up to Rs. 5.00 lac.
• Goods with value not exceeding USD 1000 value to Myanmar.
• Goods imported free of cost for re-export.
• Goods sent for testing.
ADs may consider waiver for export of goods free of cost for export
promotion up to 2% of average annual exports of previous 3 years subject
to ceiling of Rs. 5.00 lac. The limit is Rs. 10.00 lac for Status Holder
Exporters.
Prescribed Time limits::
The time norms for export trade are as under:
• Submission of documents with “Exchange Control Copy” to AD
within 21 days from date of shipment.
• Time period for realization of Export proceeds is has been reduced
to 9M for all types of exports including exports to SEZ (Special
economic zones), SHE(Status Holder Exporters) and 100%EOUs.
Previously, the time period was 12Months for SEZs and SHEs.
• For, Exports to Warehouse established outside India, as soon as it
is realized and in any case within fifteen months from the date of
shipment of goods
• After expiry of time limit, extension is sought by Exporter on ETX
Form. The AD can extend the period by 6M.
However, reporting will be made to RBI on XOS Form on half yearly basis
in respect of all overdue bills which remained outstanding for more than
prescribed period or the bills which are overdue
Direct Dispatch
of Shipping
Documents::
AD banks may handle direct dispatch of shipping documents provided
export proceeds are up to USD 1 Million and the exporter is regular
customer of at least 6 months.
Advance Payments::
Exporters may receive advance payments from their overseas importers
provided:
• Shipment is made within 1 year from receipt of advance.
• Rate of interest payable should not exceed LIBOR+100 bps.
• Documents are routed through AD from which advance was routed.
Prescribed
Method of
payment and
Reduction in
export proceeds
Exporter will receive payment though any of the following mode:
• Bank Drafts, TC, Currency, FCNR/NRE deposits, International
Credit Card. But the proceeds can be in Indian Rupees from Nepal
and Bhutan.
• Export proceeds from ACU countries can be settled in ACU/EURO
or ACU/Dollar. A separate Dollar/Euro account is maintained which
is denominated as ACU Dollar or ACU EURO.
ACU – Asian Clearing Union was formed in Tehran, Iran in 1974 and it
comprises of following 9 countries as members.
India, Bangladesh, Bhutan, Myanmar, Iran, Pak, Srilanka, Nepal and
Maldives.
Exporters may be allowed to reduce the export proceeds with the following:
• Reduction in Invoice value on account of discount for pre-payment
of Usance bills (maximum 25%)
• Agency commission on exports.
• Claims against exports.
• Write off the unrecoverable export dues up to maximum limit of 10%
of export value.
The proceeds of exports can be got deposited by exporter in any of the
following account:
1. Overseas Foreign Currency account.
2. Diamond Dollar account.
3. EEFC (Exchange Earners Foreign Currency account)
DDA _ diamond Dollar accounts
Diamond Dollar account can be opened by traders dealing in Rough and
Polished diamond or Diamond studded Jewellary with the following
conditions:
1. With track record of 2 years.
2. Average Export turnover of 3 crores or above during preceding 3
licensing years.
DDA account can be opened by the exporter for transacting business in
Foreign Exchange. An exporter can have maximum 5 Diamond Dollar
accounts.
EEFC Exchange Earners Foreign Currency accounts can be opened by exporters.
100% export proceeds can be credited in the account which does not earn
interest but this amount is repatriable outside India for imports (Current
Account transactions).
Pre-shipment
Finance or
Packing Credit::
Packing credit has the following features:
1. Calculation of FOB value of order/LC amount or Domestic cost of
production (whichever is lower).
2. IEC allotted by DGFT.
3. Exporter should not be on the “Caution List” of RBI.
4. He should not be under “Specific Approval list” of ECGC.
5. There must be valid Export order or LC.
6. Account should be KYC compliant.
Liquidation of Pre-shipment credit
• Out of proceeds of the bill.
• Out of negotiation of export documents.
• Out of balances held in EEFC account
• Out of proceeds of Post Shipment credit.
Concessional rate of interest is allowed on Packing Credit up to 270
days. Previously, the period was 180 days. Running facility can also be
allowed to good customers.

Loans and advances CCP exam

Loans and Advances::(Useful for Certified credit officers( professionals) , Caiib also)) very important for bankers



1. ˜Credit Rating Agencies in India are regulated by: RBI

2. ˜CRISIL stands for: Credit Rating Information Services of India Ltd.

3. ˜Deferred Payment Guarantee is : Guarantee issued

when payment by applicant of guarantee is to be made in installments over a period of time.

4. ˜If Break Even Point is high, it can be construed that the margin of safety is ____: Low.

5. ˜Long Term uses – 12; total Assets – 30; Long Term source 16; What is net working capital : 4

6. ˜On which one of the following assets, depreciation is applied on Straight line method: Computers.

7. ˜Projected Turnover is Rs.400 lacs, margin by promoter is Rs. 20 lacs. What is maximum bank

finance as per Annual Projected Turnover method: 80 lakhs.

8. ˜Rohit was a loanee of the branch and news has come that he has expired. On enquiry, it was

observed that he left some assets. Upto what extent the legal heirs are liable to the Bank? Legal heirs are

liable for the liabilities upto the assets inherited by them.

9. ˜The appraisal of Deferred Payment Guarantee is same as that of a) Demand Loan b) OD c) Term

Loan d) CC : Term Loan.

10. A cash credit account will be treated as NPA if the CC limit is not renewed within ___days from the

due date of renewal: 180 days.

11. A director of a bank wants to raise loan of Rs 10 lakh from his bank against Life Insurance Policy with

surrender value of more than Rs 15 lakh. What will be done?: Bank can sanction.

12. A firm is allowed a limit of Rs.1.40 lac at 30% margin. It wants to avail the limit fully. How much will

be the value of security : Rs.2 lac

13. A guarantee issued for a series of transactions is called: Continuing guarantee

14. A lady who has taken a demand loan against FD come to the branch and wants to add name of her

minor son, as joint a/c holder. What you will do?: Name can be added only after adjustment of the loan.

15. A letter of credit which is issued on request of the beneficiary in favour of his supplier: Back to Back

LC

16. A loan is given by the bank on hypothecation of stock to Mr. A. Bank receives seizure order from

State Govt. What should bank do?: Bank will first adjust its dues and surplus if any wilt be shared with

the Govt.

17. A loan was sanctioned against a vacant land. Subsequently a house was constructed at the site.

What security is available now to the bank? : Both

18. A minor was given loan. On attaining majority he acknowledges having taken loan and promises to

pay. Whether the loan can be recovered? : He can not ratify the contract. Hence recovery not possible.

19. A negotiating bank and issuing bank are allowed days each for scrutiny of documents drawn

under Letter of credit to ensure that documents are as per LC: 5 banking days each.

20. Age limit staff housing loan: 70 years;

21. An L/C is expiring on 10.05.2008. A commotion takes place in the area and bank could not open.

Under these circumstances can the LC be negotiated?: The L/C can not be negotiated because expiry date

of LC can not be extended if banks are closed for reasons beyond their control.

22. As per internal policy of certain banks, the net worth of a firm does not include: a. Paid up capital b.

Free Reserve c. Share Premium d. Equity received from Foreign Investor : Revaluation Reserves

23. Authorised capital is Rs.10 lac. Paid up capital Rs.6 lac. The loss of previous year is Rs.1 lac. Loss in

current year is Rs3 _ lac. The tangible net worth is : Rs.2 lac

24. Authorised capital= 10 lac, paid-up capital = 60%, loss during current year = 50000, loss last year =

2 lacs, what is the tangible net worth of the company? : 3.5 lac

25. Bailment of goods by a person to another person, to secure a loan is called : Pledge

26. Balance outstanding in a CC limit is Rs.9 lakh. Value of stock is Rs.5 lakhs. It is in doubtfUl for more

than two years as on 31 March 2012. What is the amount of provision to be made on 31-03-2013?: Rs.9

lakhs (100% of liability as account is doubtful for more than 3 years)

27. Balance Sheet of a firm indicates which of the following – Balance Sheet indicates what a firm

owes and what a firm owns as on a particular date.

28. Bank limit for working capital based on turn over method: 20% of the projected sales turnover

accepted by Banks

29. Banks are required to declare their financial results quarterly as per provisions of : SEBI

30. Banks are required to maintain -a margin of ___ for issuing Guarantee favouring stock exchange on

behalf of share Brokers.

31. Banks are required to obtain audited financial papers from non corporate borrowers for granting

working capital limit of: Rs.25 lakh &above

32. Banks provide term loans and deferred payment guarantee to finance capital assets like plant and

machinery. What is the difference between these two: Outlay of funds.

33. Benchmark Current Ratio under turn over method is: 1.25

34. Break Even Point: No profit no loss. ( TR-TC=Zero)

35. Calculate Debt Equity ratio – Debenture – Rs 200, capital 50; reserves – 80; P& L account credit

balance – Rs 20: 4: 3 ( 200 divided by 150).

36. Calculate Net working capital– Total assets 1000; Long Term liabilities 400; Fixed assets, Intangible

assets and Non current assets (i.e. long term uses) Rs 350; What is net working capital : 400- 350= Rs

50

37. Calculate Tangible Net Worth: Land and building: 200 Lacs; Capital:80000 intangible asset:15000:

65,000

38. CALCULATION OF INTEREST IN LOAN ACCOUNT: MONTHLY

39. CARE stands for : Credit Analysis & Research Ltd

40. Cash Budget method is used for sanctioning working capital limits to : Seasonal Industries

41. CC limit Rs 4 lacs. Stock 6 lacs. Margin 25% . What is drawing power? : NOTIONAL - 4.5 lacs, BUT

ACTUAL Rs. 4 LAC.

42. Central Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI) is a

government company licensed under Section 25 of the Companies Act, has been incorporated to operate

and maintain the Central Registry under the provisions of _____: SARFAESI Act 2002.

43. CIBIL is the agency that provides information to the member banks on (i) Credit Rating (ii)

Information on credit History: Information on Credit History of borrowers

44. Contribution means : profit + fixed cost

45. Current Assets 600, Long Term sources - 600, Total Assests1000, what is NWC and Current Ratio: CR

1.5 : 1; NWC = 200 .

46. Current Liabilities are those liabilities which are to be paid: within one Year

47. Current Ratio = 2:1, Net working Capital=60000, What is the Current Liability of the firm? : 60000

48. Current ratio indicates: Liquidity of the firm (ability of a firm to pay current liabilities in time)

49. Current Ratio is 1.33:1, Current Assets is 100, what will be the amount of Current Liability: 75 lakhs



50. Debt Equity Ratio indicates: Long term solvency or capital structure of the firm.

51. Debt Securitization refers to: Conversion of receivables into debt instruments.

52. Debt Service coverage ratio is used for: Sanction of Term Loans

53. Deferred Payment guarantee is: Financial Guarantee

54. Deferred payment guarantee issued by a bank is a : Contingent Liability.

55. Difference between Long Term Source and Long Term Use is called: Net Working capital.

56. DSCR indicates: Ability of firm to repay term loan instalments

57. DSCR is for evaluating: Term Loan repayment-surplus generating capacity.

58. Duty of confirming bank: Only to verify the genuineness of L/C.

59. Equitable Mortgage is created by deposit of title deeds with bank at – (a) any where in India; (b)

state capital; (c) only at Mumbai, Chennai or Kolkatta; (d) Any place notified by state government for this

purpose: Correct answer is (d).

60. Excess of current liability over current assets means the firm may face difficulties in meeting its

financial obligations in short term.

61. Expand CRILC: Central Repository of Information on large credits.

62. Expand IRR : Internal Rate of Return

63. Finance for construction of road and port is classified as: Infrastructure Finance.

64. For ascertaining that a firm will be able to generate sufficient profit to repay instalments of term

loan, which ratio is computed?: Debt Service Coverage Ratio

65. For assessing Fund Based Working Capital limit for MSME upto _______Turnover method is followed

under Nayak committee: Rs.5 crore.

66. For classification of assets in consortium accounts, which of the following is to be considered?: In

consortium accounts, each bank will classify the account as per its record of recovery.

67. For Takeover of accounts from other Banks, the account copies of all the borrower accounts with the

present bankers / financial institution shall be obtained at least for the last ______: 12 months.

68. Formation of consortium, when essential : When bank touches its exposure ceiling

69. Full form of DSCR: Debt Service coverage ratio;

70. Gold is pledged with bank as security for a Bank Guarantee by a borrower. Bank Guarantee stands

expired. Whether a temporary overdraft availed by the borrower which is overdue can be got adjusted by

selling the Gold held as security for issue of guarantee: Yes, because Bankers lien is a general lien and is

an implied pledge. Further, the Gold was deposited in the ordinary course of business.

71. Green field project is related to : setting up new projects

72. Guarantee issued by a bank in favour of Custom department that party will fulfill export obligation for

availing exemption from custom duty regarding tax. Such guarantee is called: Financial Guarantee

73. Guarantee issued by a bank which is still outstanding is shown in the Balance Sheet as: Contingent

Liability.

74. Guarantors Liability: Recall the a/c and cause demand against the borrower and guarantor. Balance

in guarantor's SB a/c cannot be appropriated directly.

75. Holiday period given for repayment of installements in a loan is termed as: Moratorium period

76. How DSCR is calculated?: (Profitafter tax + Depreciation + Interest on Term Loan) divided by (Annual

instalment of term loan+ interest on term loan)

77. How much additional risk weight has been provided on restructured loans?: 25%

78. Hypothecation can be converted to pledge by: taking possession with the consent of the borrower.

79. Hypothecation described under SARFEASI Act.

80. If a businessman start a business with a Capital investment of Rs.3,00,000/- and withdraw

Rs.25,000/- later. If Net Profit is Rs.1,20,000/- and income tax paid thereon is Rs.30,000/-, what is the

position of capital account (net worth) at the end of the year – 395000; 365000; 360000; nil:

Rs.3,65,000/-

81. If a LC contains a clause "about" regarding the amount and quantity of goods, how much tolerance is

permitted?: 10%

82. If current ratio is 2:1, net working capital is Rs 20,000, current asset will be: Rs 40,000

83. If debtors are Rs 4 lac, annual sale is 60 lac, what is the Debt collection period: 0.8 months

84. If Debtors velocity ratio increases, it means debt collection period has increased or sales have

decreased.

85. If documents are to be presented in about July month: these can be presented within 5 days before

or 5 days after.

86. If in a Guarantee issued is silent, what will be the limitation period: 3 yrs and in case of Govt

guarantee it is 30 years.

87. If in a LC words around is written with date then variation of is allowed in the period: +/- 5 calendar

days

88. If limit is 3 lacs, margin is 25% what should be stock to avail full limit?: Rs4 lac

89. If on a letter of credit it is not mentioned whether it is revocable or irrevocable, then as UCPDC 600, it

will be treated as : Irrevocable LC

90. If on a Letter of Credit, date is mentioned as "end of the month", then as per UCPDC 600, it will

mean: 21st to last day of the month.

91. If stock statement is not submitted for 3 months from its due date and DP is allowed on the basis of



old stock report, then the account will be considered NPA after:90 days

92. If the projected sale of a-small (manufacturing) enterprise is Rs 80 lakh, margin available with the

borrower is Rs 4 lakh, then as per turnover method, working capital limit will be: Rs 16 lakh.

93. If working capital limit to a borrower is Rs 10 crore and above, then as per RBI guidelines, the loan

component should be at least: as per bank's discretion.(earlier it used to be 80%).

94. In a company, the registration of charges is required for: a)loan against FD b)lien on Govt Securities

c) assignment of Book Debts d) lien on Shares : Book Debts

95. In A current account OD of Rs. 12000 is made. The FDR has become due later on if the right of

appropriation can be used. The borrower has objected that he never requested for overdraft, hence

payment can not be appropriated. The customer is right.

96. In a letter of credit, it is written that documents can be negotiated about 30th June. In this case, the

documents can be negotiated: Before or after 5 clays of 30th June.

97. In case of a loan under consortium, each bank can have Maximum working capital limit of Rs-No

rule in this regard. Rules of consortium to be framed by members of consortium.

98. In case of loan given by more than one bank under a consortium, how the asset classification is done

by various banks?: Each bank will classify the account based on its record of recovery.

99. In case of revaluation of fixed assets, what percentage of revaluation reserve will be added to Tier

II capital of the bank?: 45%

100. In Letter Of Credit jmporter is called: Opener of Letter of Credit

101. In project finance, Debt Equity Ratio requirement for other than Infrastructure finance is: 2:1

102. In respect of a project report, the feasibility which is given least importance by the preparers of the

report, but very important for a banker is : a) Commercial b) Technical c) economic d) financial Ans: C

103. In the Balance Sheet of a bank, Contingent Liabilities are shown as: footnote to the Balance Sheet.

104. In the case of advance to a limited company for purchase of vehicle, the charge is registered with

Regional Transport Authority in addition to registration of charge with. Registrar of Companies. Why this is

done?:So that borrower can not sell the vehicle without intimation to the bank

105. Interest rate on advances is related to – Bank rate; Base Rate; PLR: MCLR Rate

106. Limit sanctioned Rs 5 lac; Stock Rs 6 lac; Margin 25%; What will be Drawing power: Rs 4.5 lac

107. Loan Delivery System is not applicable to: a) Loan to Soft ware industry b) export credit: export

credit

108. Loan Delivery System suggested by Rashid Mani Committee is applicable on borrowers with working

capital limits of: Rs 10 crore and above

109. Loan is in the name of A&B. Both have signed documents. A signs the Balance Confirmation but B

does not. In this case limitation will extend against: both

110. Lorry Receipts issued by Transport Operators approved by IBA are preferred. The reason is the

Transport Operators will take care of: Carriers Risk.

111. Stand by LC is just like : Financial guarantee (A guarantee of payment issued by a bank on behalf of a

client that is used as "payment of last resort" should the client fail to fulfill a contractual commitment with

a third party. Standby letters of credit are created as a sign of good faith in business transactions, and are

proof of a buyer's credit quality and repayment abilities)

112. Standard Score under CIBIL: 300 to 900

113. Stock Audit is required in respect of loans of : Rs.1.00 crore & above

114. Subordinate Debt is shown as part of in the Balance Sheet of a bank: Other Liabilities and

Provisions

115. Tangible Net Worth (TNW) is calculated as: Total paid up capital + Reserves – Intangible Assets.

116. The appraisal of deferred payment guarantee is similar to term loan: The difference is outlay of funds.

117. THE APPRAISAL OF DEFERRED PAYMENT GUARANTEE IS SIMILAR TO: TERM LOAN

118. The Audited Balance sheet for the latest financial year is to be obtained within ______ to finalise

credit rating and re-fix interest accordingly: 6 months.

119. The Bank did not disclose all material facts regarding loan to the guarantor while obtaining

guarantee. Can guarantor escape liability?: Guarantor cannot escape from his liability as it is not

necessary to disclose all the materials facts with regards to the loan.

120. The Borrower has to bring funds as his contribution for loan from: Long term Sources

121. The charge on stocks is created by: Hypothecation ( also by pledge or lien)

122. The concept of Base Rate is not applicable in the case of: Loan against Bank’s own deposit

123. The limitations of financial statements are : only quantitative not qualitative.

124. The long term liability to tangible net worth ratio implies : Long term solvency of the firm .

125. The main distinction between Hypothecation and Pledge is on accountof : Possession

126. The Meaning of Debtor Velocity Ratio is: Cycle of Debt Collection Period

127. The procedure used for ascertaining Customers Credit worth is called: Credit Rating

128. Time Limit for registration of equitable mortgage with CERSAI: 30 days from date of deposit of

title deeds. (Normally 30days and then delay can be condoned up to 30days on payment of penalty).

129. To improve Current Ratio of 2:1, what has to be done? a) Recover cash from Receivables b) Cash

sales c) Decrease the Bills payables.

130. Total Indebtedness Ratio is represented by: Total outside liabilities divided by Tangible Net Worth

131. What is "pari passu" means: Sharing in the ratio of outstanding.

132. What is a Break even point-The level of sales at which a firm does not earn any profit and does not

incur any loss.

133. What is cash loss : net loss before depreciation (Net loss minus depreciation)

134. What is Deffered Payment Guarantee?: Guarantee issued when payment by applicant of

guarantee is to be made in instalments over a period of time.

135. What is Mortgage? Transfer of interest in specific immovable property to secure an existing

or future debt.

136. What is nature of Banker's Lien?: It is implied pledge because Banker can dispose-off the goods after

giving notice to the borrower.

137. What is Pari Passu charge?: In case of consortium advance sale proceeds of security will be

shared among banks in proportion to their outstanding.

138. What is Real Rate of Interest?: Prevailing interest rate minus inflation rate

139. What is the meaning of Group in Exposure Norms: Commonality of management & Effective Control

140. What is the relationship between bank and customers in case of overdraft?: Creditor and Debtor

141. What is the risk weight for Personal Loans? 125%

142. What is the risk weight for Unrated companies?: 100%

143. What is the type of liability for the bank on account of issue of Bank Guarantee?: Contingent Liability

144. What type of bank gaurentee bank gives when a customer purchases a machine on instalment basis?:

Deferred Payment guarantee.

145. What type of Guarantee is Deffered Payment Guarantee: Financial Guarantee

146. What type of liability is represented by Bank Guarantee?: Contingent Liability and shown as a

footnote in the Balance Sheet.

147. What will be the tangible net worth if total assets are Rs 35 crore; total outside liability Rs 30 crore;

intangible assets Rs 3 crore: Rs 2 crore

148. What will happen in case of negative working capital limit: Current Liabilities are more than

Current Assets

149. Which is not a Credit Rating Agency – CRISIL, CARE, SMERA, ICRA, CIBIL: CIBIL

150. Which is not found in operating expenses statement of P&L statement - Salaries, Rent, Power: Power

151. Which is not included in Contingent liability – Bank Guarantee; Letter of Credit; Forward Contract;

Bills Payable: Bills payable

152. Which of the following is a contingent liability – deposits, borrowings, capital, guarantee: Bank

Guarantee

153. Which of the following is a Credit Information company – CIBIL, FIMDA, AMFI, CRISIL: CRISIL

154. Which of the following is part of the Solvency Ratios: debt equity ratio.

155. Which of the following represent Debt Service Coverage Ratio: (Net Profit after tax + Depreciation

+ Interest on Term loan) divided by (Annual instalment of term loan + interest on term loan)

156. Which of the items will not be an asset in banks bal sheet: Advances/Fixed Asset / Deposits :

Deposits

157. Which one of following is credit information company?: Equifax

158. Which system replaced Benchmark Prime Lending rate in banks: Base Rate

159. While arriving Drawing Power for financing against book debts, only Book Debts _____and below are

to be taken in to consideration. (other than MSME advances): 90 days

160. While doing Project Appraisal, sensitivity analysis is useful for: Viability and sustainability of project.

161. While financing for TL, Bank should look for the ability of the firm to generate the income to service

the debt

162. While granting loans to a partnership, banks generally insist that the firm should be registered

whereas registration of a partnership firm is optional. What is the reason for the same?: An

unregistered firm can not sue its debtors for recovery of its dues whereas other can sue the

firm for recovery of their dues

163. While undertaking technical appraisal, the following is not considered: cost of production and sales (it

is used for economic viability).

164. Who is bound to file particulars of charge with the Registrar of Companies under MCA 21, when a

company creates charge of somebody on its movable or immovable property except by way of

pledge?: officials of the company.

165. Why banks do not grant loan to a minor?: A minor is not competent to contract Therefore, Ioan given

to a minor can not be recovered.

166. Why banks ensure that charge created on any asset of the company should be registered with ROC

within stipulated period?: If charge is not registered, bank will become unsecured creditor.

167. Why banks prefer financing of bills?: because the advance is self liquidating

168. Why fund flow statement is taken from the borrower?: To know sources from where funds have been

raised and how funds have been utilized and to know changes in net working capital position.

169. Why loan against Partly Paid Shares are not preferred by banks?: Because partly paid shares

represent contingent liability. In case company makes demand and the borrower does not pay the

amount then the bank will have to pay the amount otherwise share may be forfeited. Moreover it is

prohibited by RBI

170. Working capital requirement of a firm is required to be met through : Short term sources and surplus

Letter of credit problems steps

Letter of credit problems steps





For Assessing LC Limit we have to take care of following thing .

1.what will be annual purchases.
2.Wht is EOQ-economic order quantity which is calculated by source of supply,means of transport and any discount.
3.Lead time- the time taken in recving the goods after LC opened
4.Transit time if any
5.Usance time- the time to make the payment at any future date accepted by buyer.
Nw he we calculate we hv to convert annual purchases in to months
Then decide whether LC is DA or DP
Da Lc- the LC for which payment is made by the buyer at any future date after its acceptance by him .this is also called usance LC
dP Lc- LC for which the payment is made on production of documents no further time is given.this is also called sight Lc
So It's clear if we talk about dP Lc- we don't count usance time while calcuting total time/LC cycle so it will be Lead time+transit time
If talk Da Lc- it will be Lead time+transit time +usance time
Hw LC limit is calculated on that basis
Monthly purchases*total timing
Total timing will depend on what LC is opened whether do or da
We assume that
-annual consumption of material to b purchased under LC .........C RS.
-Lead time ...L(months)
-transit time...T(months)
-usance period....U(minths/)

Purchase cycle=L+t+u ie.P(months)
LC limit=P*C/12
Why C/12 bcz C is annual purchasing we hv to convert it in months basis while calculating LC limit

Quasi credit (Non Fund based):

Quasi credit (Non Fund based):

Quasi Credit signifies financing for trade, and it concerns both domestic and

international trade transactions. A trade transaction requires a seller of goods and

services as well as a buyer. Various intermediaries such as banks and financial

institutions can facilitate these transactions by financing the trade

Non Fund Business

Bank Guarantee: As a part of Banking Business, Bank Guarantee (BG) Limits are

sanctioned and guarantees are issued on behalf of our customers for various

purposes. Broadly, the BGs are classified into two categories:

i) Financial Guarantees are direct credit substitutes wherein a bank irrevocably

undertakes to guarantee the payment of a contractual financial obligation. These

guarantees essentially carry the same credit risk as a direct extension of credit i.e.

the risk of loss is directly linked to the creditworthiness of the counter-party against

whom a potential claim is acquired. Example – Guarantees in lieu of repayment of

financial securities/margin requirements of exchanges, Mobilization advance,

Guarantees towards revenue dues, taxes, duties in favour of tax/customs/port/excise

authorities, liquidity facilities for securitization transactions and deferred payment

guarantees.

working capital

WORKING CAPITAL

Working capital, also known as net working capital, is the difference between a company’s current assets, like cash, accounts receivable (customers’ unpaid bills) and inventories of raw materials and finished goods, and current liabilities, like accounts payable.
Working Capital = Current Assets - Current Liabilities

The objective of running any industry is earning profits. An industry will require funds to
acquire “fixed assets” like land, building, plant, machinery, equipments, vehicles, tools etc.,
and also to run the business i.e. its day to day operations.
Funds required for day to-day working will be to finance production and sales. For
production, funds are needed for purchase of raw materials/stores/fuel, for employment of
labour, for power charges etc., for storing finished goods till they are sold out and for
financing the sales by way of sundry debtors/ receivables.
Capital or funds required for an industry can therefore be bifurcated as fixed capital and
working capital. Working capital in this context is the excess of current assets over current
liabilities. Current assets are those assets that in the ordinary course of business will be
converted into cash within a brief period (during the operating cycle of the industry and
normally not exceeding one year) without undergoing diminution in value and without
disrupting the operation. Current liabilities are those liabilities intended at their inception, to
be paid in the ordinary course of business within a reasonably short time (normally within a
year) out of the current assets or the income of the business. The above definition of
working capital, however, takes into account only the funds available to the industry from
long term sources like capital and long term borrowings, after meeting the expenses
towards fixed and other non-current assets. It does not represent the total funds required
by the industry for working capital to sustain its level of operations.
The excess of current assets over current liabilities is treated as net working capital or
liquid surplus and represents that portion of the working capital which has been provided
from the long term source. This can be explained by the following diagram.



Working Capital Assessment :
Concept of Working Capital: Working capital denotes the amount of funds needed for
meeting day-to-day operations of a concern.
This is related to short-term assets and short-term sources of financing. Hence it deals
with both, assets and liabilities
There are two concepts or senses used for working capital.
1. Gross Working Capital: The concept of gross working capital refers to the total
value of current assets. In other words, gross working capital is the total amount
available for financing of current assets. However, it does not reveal the true financial
position of an enterprise. How? A borrowing will increase current assets and, thus, will
increase gross working capital but, at the same time, it will increase current liabilities
also.
As a result, the net working capital will remain the same. This concept is usually
supported by the business community as it raises their assets (current) and is in their
advantage to borrow the funds from external sources such as banks and the financial
institutions.
In this sense, the working capital is a financial concept. As per this concept:
Gross Working Capital = Total Current Assets
2. Net working Capital: The net working capital is an accounting concept which
represents the excess of current assets over current liabilities. Current assets consist of
items such as cash, bank balance, stock, debtors, bills receivables, etc. and current
liabilities include items such as bills payables, creditors, etc. Excess of current assets
over current liabilities, thus, indicates the liquid position of an enterprise.
The ratio of 2:1 between current assets and current liabilities is considered as optimum
or sound. What this ratio implies is that the firm/ enterprise have sufficient liquidity to
meet operating expenses and current liabilities. It is important to mention that net
working capital will not increase with every increase in gross working capital.
Importantly, net working capital will increase only when there is increase in current
assets without corresponding increase in current liabilities.

CCP Break even analysis

BREAK EVEN ANALYSIS

 Profit

Business organisations have profit as their primary goal and various management

decisions (such as product pricing, production levels, expansion, diversification, etc.) are

aimed at subserving this goal.

 Profit, simplistically stated, is the difference between sales realisations and the costs

incurred. The profit and loss statements of organisations give details of sales

realisations as well as costs.

In other words, one could say, Profit = Sales - Costs

Profit could, therefore, be increased by increasing sales and by taking steps to see that

costs do not increase, at least correspondingly.

Profit and Loss Account:

Profit, however, is not directly related to the level of activity or volume of sales of an

organisation. Stated differently, profit does not necessarily increase or decrease directly

in proportion to the volume of sales. This is because costs consist of various

components, all of which do not vary proportionately with sales. There are some

components of costs, which vary proportionately, but there are others, which are not

dependent on the volume.

Types of costs

Broadly speaking, costs could be divided into two categories -fixed costs arid variable

costs.

 Fixed Costs

Fixed Costs are those costs which tend to remain the same irrespective of the volume of

output. In other words, they do not vary when output changes. Factory rent, Managing

Director’s salary etc. are all examples of Fixed Costs.

Fixed Costs are, however, not truly fixed at all times but only over a comparatively

shorter time period e.g. a quarter or even over a year. Over a very long period, fixed

costs may undergo some changes.

 Similarly fixed costs remain the same within a well defined range of output, but once a

new range is reached the costs change. For example one foreman may be adequate for

one shift, but once the organisation decides to operate two shifts, one more foreman

may have to be employed and the fixed costs, representing the salary of foremen, would

double. Fixed costs are, therefore, referred to as “stepped costs” also in such cases.

 Variable casts

40.1 Variable costs are those costs which do vary in relation to the output. As a result, when

output increases, variable costs go up proportionately. Raw materials consumed, stores

and spares consumed etc., are examples of variable costs.

 Semi-variable Casts:

 There are some costs which are called semi-variable costs or semi-fixed costs. These

are hybrid costs made up of a fixed element and a fully variable element. There is a

tendency for the costs to vary with output, but the variation is irregular.

 If costs could be segregated into fixed and variable costs, it becomes easier to study the

behaviour of profit in relation to volume. For a very broad understanding and use of

contribution analysis, one could divide all costs into two categories only viz, fixed costs

and variable costs. In other words, semi-fixed/semi variable costs could be treated as

fixed. If such broad analysis should indicate the need for deeper probe into the profitplans,

an in-depth study could be made by breaking up such semi-fixed/semi-variable

costs into fixed and variable components.

 Contribution

 The difference between the sales price and the variable costs is called Contribution. The

“contribution” is the term used to describe this relationship between variable costs and

selling price.

Contribution = Sales - Variable Costs

In view of the fact that variable costs by definition are directly related to sales, the

contribution will increase when sales increase and contribution will go down, when sales

go down. The two important features of contribution are:

a) Contribution increases directly in proportion to the volume i.e., there is a linear

relationship between the two and

b) if nothing is produced and sold, the variable cost is nil and the loss incurred is

equal to fixed costs.

Importance of contribution in profit planning:

 As stated earlier,

Profit = Sales - Costs

In view of the fact that we have now been able to identify that costs consist of two

components viz., fixed and variable, the above statement could be restated as under:

Profit = Sales - (Variable Costs + Fixed Costs)

or Profit =(Sales - Variable Costs)- Fixed Costs Where,

sales – variable costs = contribution.

or Profit = Contribution - Fixed Costs

In view of the fact that contribution increases directly in relation to sales and as fixed

costs by definition remain the same, profit could be maximised by increasing

contribution. In other words, organisations should have maximisation of contribution as

one of their major goals and various management decisions must subserve this goal.

Profit Volume Ratio

 The ratio of contribution to sales turnover is called profit volume ratio (or P/ V ratio). The

P/ V ratio is a measure of the rate of contribution made by each rupee of sale out of

which fixed expenses must be met.

 The profit volume ratio thus becomes an important factor in taking various management

decisions. If there are two alternatives open to the management as a result of which two

profit/volume ratios would emerge, the management would prima facie choose the

alternative which gives a higher profit volume ratio.

Certified credit professionals numericals

Numericals:



Assets
Net Fixed Assets - 800
Inventories - 300
Preliminary Expenses - 100
Receivables - 150
Investment In Govt. Secu - 50
Total Assets - 1400
Liabilities
Equity Capital - 200
Preference Capital - 100
Term Loan - 600
Bank C/C - 400
Sundry Creditors - 100
Total Liabilities – 1400


1. Debt Equity Ratio = ?
a. 1:1
b. 1:2
c. 2:1
d. 2:3
Ans - c
Explanation :
600 / (200+100) = 2 : 1
2. Tangible Net Worth = ?
a. 100
b. 200
c. 300
d. 400
Ans - b
Explanation :
Only equity Capital i.e. = 200
3. Total Liabilities to Tangible Net Worth Ratio = ?
a. 7:2
b. 11:2
c. 13:2
d. 15:2
Ans - b
Explanation :
Total Outside Liabilities / Total Tangible Net Worth : (600+400+100) / 200 = 11 : 2
4. Current Ratio = ?
a. 1:1
b. 1:2
c. 2:1
d. 3:1
Ans - a

Explanation :
(300 + 150 + 50 ) / (400 + 100 ) = 1 : 1



Q.2

Assets

Net Fixed Assets - 265

Cash - 1

Receivables - 125

Stocks - 128

Prepaid Expenses - 1

Intangible Assets - 30

Total - 550

Liabilities

Capital + Reserves - 355

P & L Credit Balance - 7

Loan From S F C - 100

Bank Overdraft - 38

Creditors - 26

Provision of Tax - 9

Proposed Dividend - 15

Total - 550

1. Current Ratio = ?

= (1+125 +128+1) / (38+26+9+15)

= 255/88

= 2.89 : 1

2. Quick Ratio = ?

(125+1)/88

= 1.43 : 11

3. Debt Equity Ratio = ?

= LTL / Tangible NW

= 100 / (362 – 30)

= 100 / 332

= 0.30 : 1

4. Proprietary Ratio = ?

= (T NW / Tangible Assets) x 100

= [(362 - 30 ) / (550 – 30)] x 100

= (332 / 520) x 100

= 64%

5. Net Working Capital = ?

= CA - CL

= 255 - 88

= 167

6. If Net Sales is Rs.15 Lac, then What would be the Stock Turnover Ratio in Times ?

= Net Sales / Average Inventories/Stock

= 1500 / 128

= 12 times approximately

7. What is the Debtors Velocity Ratio if the sales are Rs. 15 Lac?



= (Average Debtors / Net Sales) x 12

= (125 / 1500) x 12

= 1 month

8. What is the Creditors Velocity Ratio if Purchases are Rs.10.5 Lac?

= (Average Creditors / Purchases ) x 12

= (26 / 1050) x 12

= 0.3 months

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



Q.3 Current Ratio of a firm is 1 : 1. What will be the Net Working Capital ?

a. 0

b. 1

c. 100

d. 200

Ans - a

Explanation :

It suggest that the Current Assets is equal to Current Liabilities hence the NWC would be

0

(since NWC = C.A - C.L)

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

Q.4 Suppose Current Ratio is 4 : 1. NWC is Rs.30,000/-. What is the amount of Current

Assets ?

a. 10000

b. 30000

c. 40000

d. 50000

Ans - c

Explanation :

Let Current Liabilities = a

4a - 1a = 30,000

a = 10,000 i.e. Current Liabilities is Rs.10,000

Hence Current Assets would be

4a = 4 x 10,000 = Rs.40,000/-

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

Q.5 The amount of Term Loan installment is Rs.10000/ per month, monthly average interest

on TL is Rs.5000/-. If the amount of Depreciation is Rs.30,000/- p.a. and PAT is

Rs.2,70,000/-. What would be the DSCR ?

a. 1

b. 1.5

c. 2

d. 2.5

Ans - C

Explanation :

DSCR = (PAT + Depr + Annual Intt.) / Annual Intt + Annual Installment

= (270000 + 30000 + 60000 ) / 60000 + 12000

= 360000 / 180000

= 2

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

Q. 6     A Company has Net Worth of Rs.5 Lac, Term Liabilities of Rs.10 Lac. Fixed Assets worth

RS.16 Lac and Current Assets are Rs.25 Lac. There is no intangible Assets or other Non

Current Assets. Calculate its Net Working Capital.

a. 1 lac

b. 2 lac

c. - 1 lac





d. - 2 lac

Ans - c

Explanation :

Total Assets = 16 + 25 = Rs. 41 Lac

Total Liabilities = NW + LTL + CL = 5 + 10 + CL = 41 Lac

Current Liabilities = 41 – 15 = 26 Lac

Therefore Net Working Capital = CA – CL = 25 – 26 = (-) 1 Lac

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

Q. 7  Merchandise costs - Rs. 250000, Gross Profit - Rs. 23000, Net Profit - Rs. 15000. Find

the amount of sales.

a. 227000

b. 235000

c. 265000

d. 273000

Ans - d

Explanation :

Amount of sales = Merchandise costs + Gross Profit

= 250000 + 23000

= 273000

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

Q.8 Total Liabilities of a firm is Rs.100 Lac and Current Ratio is 1.5 : 1. If Fixed Assets and

Other Non Current Assets are to the tune of Rs. 70 Lac and Debt Equity Ratio being 3 :

1. What would be the Long Term Liabilities?

a. 40 Lacs

b. 60 Lacs

c. 80 Lacs

d. 100 Lacs

Ans - b

Explanation :

Total Assets = Total Liabilities = 100 Lac

Current Asset = Total Assets - Non Current Assets

= Rs. 100 L - Rs. 70 L

= Rs. 30 L

If the Current Ratio is 1.5 : 1

then Current Liabilities works out to be Rs. 20 Lac.

That means, Net Worth + Long Term Liabilities = Rs. 80 Lacs.

If the Debt Equity Ratio is 3 : 1,

then Debt works out to be Rs. 60 Lacs and equity Rs. 20 Lacs.

Therefore the Long Term Liabilities would be Rs.60 Lac.

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

Q.9 Current Ratio = 1.2 : 1.

Total of balance sheet being Rs.22 Lac.

The amount of Fixed Assets + Non Current Assets is Rs. 10 Lac.

What would be the Current Liabilities?

a. 10 Lacs

b. b. 12 Lacs

c. 16 Lacs

d. 22 Lacs

Ans - a

Explanation :

Total Assets is Rs.22 Lac.

Fixed Assets + Non Current Assets is Rs. 10 Lac

Then Current Assets = 22 – 10 = Rs. 12 Lac.

Current Ratio = 1.2 : 1

Current Liabilities = Rs. 10 Lac

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







Q.10 M/s Raj&co's balance sheet included the following accounts:

Cash: 10,000

Accounts Receivable: 5,000

Inventory: 5,000

Stock Investments: 1,000

Prepaid taxes: 500

Current Liabilities: 15,000

Find the Quick Ratio

Quick Ratio = Cash + Cash Equivalents + Short Term Investments + Marketable

Securities + Accounts Receivable) / Current Liabilities

= (10000+5000+1000) / 15000

= 16000 / 15000

= 1.07

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

Q.11 M/s Raj&co's balance sheet included the following accounts:

Inventory : 5,000

Prepaid taxes : 500

Total Current Assets : 21,500

Current Liabilities : 15,000

Find the Quick Ratio

Quick Ratio = (Current assets – Inventory - Advances - Prepayments Current Liabilities) /

Current Liabilities

= (21500 - 5000 - 500) / 15000

= 16000 / 15000

= 1.07

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

Q.12 XYZ Pvt Ltd has the following assets and liabilities as on 31st March 2015 (in Lakhs) :

Non Current Assets

Goodwill 75

Fixed Assets 75

Current Assets

Cash in hand 25

Cash in bank 50

Short term investments 45

Inventory 25

Receivable 100

Current Liabilities

Trade payables 100

Income tax payables 60

Non Current Liabilities

Bank Loan 50

Deferred tax payable 25

Find the Quick Ratio

Quick Ratio = (Cash in hand + Cash at Bank + Receivables + Marketable Securities) /



Current Liabilities

= (25+50+45+100) / 160

= 220 / 160

= 1.375

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





Q.14 GHI Ltd. manufacturers two products :Product G and Product H. The Variable cost of the manufacture is as

follows:

Product G Product H

Direct Material 3 10

Direct Labour (Rs.6 per hour) 18 12

Variable Overhead 4 4

Product G sells for Rs.40 and Product H at Rs.30. During the month of January, the Company is having

only 21000 of direct labour. The maximum production capacity of Product G is 5000 units and Product H is

10000 units.

From the above facts, answer the following:

I. The contribution from Product G and H together is-----

a) Rs.32

b) Rs.19

c) Rs.27

d) Rs.40

II. The contribution per labour hour from Product H is-----

e) Rs. 4

f) Rs. 2

g) Rs. 3

h) Rs. 5

III. The contribution per labour hour from Product G is-----

a) Rs.2

b) Rs.5

c) Rs.15

d) Rs.3





Q.15 Read the following and answer

Cost / unit

Raw material 50

Direct labour 20

Overheads 40

Total cost 110

No. of units 10,000

No. of units

Sold on credit 8000

Average raw material in stock : 1 month

Average work in progress : ½ month

Average finished goods in stock : ½ month

Credit by supplier : 1 month

Credit to debtor : 2 months

Take 1 year = 12 months

1) Investment of working capital in raw material inventory is

(a) 41666

(b) 50000

(c) 33333

(d) 10000

2) Investment in working capital for finished goods is

a) 45833

b) 49090

c) 56453

d) 50000

Current Affairs on June 30 2018

Gyanoji Rao:
Today's Headlines from www:

*Economic Times*

📝 India’s external debt rises by 12.4% on higher overseas borrowing and NRI deposits

📝 Nissan sets up first global digital hub in India, to hire 500 this fiscal

📝 Lenovo India eyes over 500% growth in ultra-slim laptop market

📝 Fine Organic, RITES to list on bourses on Monday

📝 22,000 rural agriculture markets to be linked by 2020: Agri Minister

Digital banking

Three party card scheme... Digital banking

The Customer. The customer initiates the payment to the merchant using his or her credit card through its issuing bank.
The Merchant. The merchant is the recipient of the customer’s payment and authorizes/settles the payment with the acquiring bank.
The Processor. The credit card processor is the third-party company that facilitates payments. The processor fulfills transactions, moving money from one account to another.
Issuer/Acquirer. The issuer and acquirer in this model is represented by the card network (e.g. Discover, American Express). In essence, payment services are provided directly to merchants and cardholders by the network without involving third party financial institution intermediaries.

Four Party card model digital banking

Digital banking ::

The Four Party Model is an academic term used to describe the credit card business model created by the banks and card association networks consisting of banks, cardholders, merchants, and networks. Most all electronic card payments are constructed on the back of the Four Party Model. The system that Visa and MasterCard run are considered Four Party models.

What are card schemes
There are two main types of card schemes: a three-party scheme and a four-party scheme. A four-party scheme is essentially the Four Party Model. The three-party scheme is commonly referred to as a closed scheme while the four-party scheme is commonly referred to as an open scheme.

As you can probably tell by the name, a three-party scheme consists of just three parties. The issuer in this model has a relationship directly with the cardholder while the acquirer has a relationship with the entity. Therefore, there is typically no charges between the acquirer and the issuer.

How the four party model works
Visa and MasterCard can be used to pay for just about anything at the vast majority of retailers in just about every country in the world. The Four Party Model is the reason this is possible. Both Visa and MasterCard permit all participating retailers, consumers, acquirers, and issuers to conduct business with one another. Essentially, the Four Party Model serves to keep the entire system together. This ensures that all parties involved, especially retailers and consumers, can enjoy secure and convenient payments that don’t involve cash.

In spite of its name, other entities have been joining the four parties of the Four Party Model. Some of these entities include technology vendors, mobile network operators, and device manufacturers. All of these entities work to provide services to one or more of the four parties of the Four Party Model. In some cases, these entities form partnerships with any of the four parties of the Four Party Model.

Steps that describe how the Four Party Model works:
The consumer receives a Visa or MasterCard account from the issuer. The account could be credit, debit, or prepaid. The account can operate via the Internet, a physical card, or mobile devices.
The consumer chooses the goods and services they wish to purchase with the Visa or MasterCard account.
The acquirer receives the transaction from the retailer.
The transaction is submitted from the acquirer to the issuer.
The issuer must approve of the transaction and tells the acquirer the retail price.
The retailer is paid by the acquirer. The merchant service charge is negotiated between the retailer and the acquirer.
The account of the consumer is debited with a retail price. This retail price appears on the statement of the merchant.

Treasury management

TREASURY MANAGEMENT ::

1. RBI pays interest on the cash balances in excess of which of the following to bank, of their
NDTL?
a) 2%
b) 3%
c) 5%
d) 6%
ans: b
2. while the exposure limits are generally left to the banks discretion. RBI has imposed
which ceiling of total business in a year with individual brokers.
a) 2%
b) 5%
c) 10%
d) 15%
ans : b
3. Ability of a business concern to borrow or build up assets on the basis of a given capital
is called.
a) debt service coverage ratio
b) good will
c) reputation
d) Leverage
ans: D

Risk management

Risk Management::(Most Important)

01 RBI implemented the Basel-III recommendations in India, w.e.f:
a) 01.01.2013, b. 31.03.2013, c. 01.04.2013, d. 30.09.2013
02 Basel III recommendations shall be completely implemented in India by:
31.03.2020, b. 31.03.2019 c. 31.03.2618 d. 31.03.2017
03 Basel III capital regulations were released by Basel Committee on Banking Supervision (BCBS) during as a
Global Regulatory Framework for more resilient banks and banking systems:
December 2010, b. March 2011, c. December 2011, d. December 2012
04 Basel III capital regulations are based on 3 mutually reinforcing pillar. These pillars are (1) Pillar-1 minimum capital standards (2)

Ratio Analysis

Ratio Analysis
Financial statements: The statement which provides us the financial position of a
Balance Sheet are called “Finance Statements”, which includes – Trading Account (in
case of Manufacturing concerns), Profit & Loss Account, Balance Sheet, Cash Flow

Financial Ratios ::: (Most useful) Very important read everyone

Financial Ratios ::: (Most useful) Very important read everyone

The broad categories in which Financial

Ratios are classified are:
 Liquidity Ratios
 Gearing Ratios
 Profitability Ratios
 Turnover Ratios
 Coverage Ratios

Liquidity Ratios
 Liquidity Ratios are important for the working
capital lenders, who provide loans for shorter
duration. As such Banks, which generally
provide working capital loans, want to know
the liquidity position of the unit over a short
term period say one year. These ratios can
be analysed in under noted two forms:
 Current Ratio
 Acid Test Ratio or Quick Ratio

Current Ratio
 Current Ratio = Current Assets / Current
Liabilities
 Acid Test Ratio = (Current Assets - Inventory)
/ Current Liabilities

Gearing Ratios
 Gearing Ratios are of two types:

CCP Ratios

Ratio Analysis::

1. Accounting ratios are relationship expressed in mathematical terms between accounting figures which
for meaningful purpose.
2. Classification: P & L Ratios
3. Balance Sheet Ratios
4. Composite or Inter-Statement Ratios.

Functional Classification
1. Profitability
2. Turnover/Activity Ratios
Financial/Solvency Ratios
3. Financial Ratios may be further classified as Short Term Ratios/Liquidity Ratios or Long Term/
Solvency Ratios

What is the 'Plowback Ratio':::CCP

What is the 'Plowback Ratio':::

The plowback ratio in fundamental analysis measures the amount of earnings retained after dividends have been paid out. It is sometimes referred to as the retention rate.

The plowback ratio, also known as the retention rate, represents the percentage of earnings that have not been paid out as dividends to shareholders. These funds might be reinvested into the business, reserved for large purchases or used to pay off liabilities. A high plowback ratio may be good if the company is growing. A lower ratio indicates the company is giving back to the investors by paying out more dividends. The plowback ratio can be calculated by subtracting the dividend payout ratio from 100.

Identify the dividend per equity share and earnings per share. Assume, for example, the dividend per equity share is quoted as 0.32 and earnings per share is 3.10.

Divide the dividend per equity share by the earnings per share. Multiply by 100 to get a percentage: 0.32/3.10 x 100 = 10.32. This is the dividend payout ratio.

Components of Credit Management :::

Loan Policy of the Bank

Influenced by market conditions, policies of other banks, own SWOT analysis, RBI guidelines
Exposure limits-single borrower/group
Exposure limits for sectors
Discretionary powers

Credit Appraisal :

Five Cs - Character, Capacity, Capital, Conditions and Collaterals
Credit delivery-documentation, creation of charges
Control and Monitoring
Rehabilitation and Recovery
Risk management-identification,
Measurement & Evaluation
Delivery
Control and Monitoring
Rehabilitation and Recovery
Credit Risk Management
Refinance

RBI Guidelines

End use of funds
Priority sector 40%(agr 18%),weaker sector 10% foreign banks 32%, small enterprises 10%, export credit 12% of ANBC/off balance sheet expo, whichever is higher. Agr, MSE, housing(20 lacs), Education(10 lacs/20 lacs abroad), Export credit, SHG, KVI, Retail
Weaker sec. –small/marginal farmers, artisans, SGSY, SC/ST, DRI, SJSRY, SLRS, SHG
Micro, small and medium enterprises
Mfg sec: Micro upto 25 lacs, Small 25 lacs to 5 crs, Medium 5 crs to 10 crs
Service : Rs 10 lacs, 10-2 crs, 2-5 crs
Credit Exposure Norms –

For individuals/groups : 15/40 of capital funds- addl 5/10 for infra.
NBFC/NBFC-AFC 10/15%- 15/20% on lent infra
Base Rate System

Wef 1/7/2010 replaced BPLR
Banks may determine actual roi
Transparent, applicable to all except DRI, bank’s own employees, against deposits, qtrly review of BR
Existing loans with BPLR to continue, switch over option to be given
Credit Restrictions

Adv against bank’s own shares
Relatives of directors/sr officers
Industries consuming ozone depleting substances
Sensitive commodities
FDRs of other banks/CD
Buy back of shares
Credit Assessment/Delivery

MPBF method
For SME upto 5 crs limits turnover method
Working capital above 10 crs , loan component 80%
For seasonal/cyclical industrial bank may exempt with approval of board.

Fair practices code

Pertains to

Loan application, processing
Appraisal, terms and conditions
Disbursement
Post sanction supervision
Discrimination, harassment in recovery, takeover of accounts

Certified credit professionals

Components of credit management:::

The components include (1) Loan policy of the bank (2) Appraisal (3) Delivery (4) Control and Monitoring (5) Rehabilitation and
recovery (6) Credit risk management (7) Refinance.
1. Loan policy : Each bank formulates its own policy for sanction of credit proposals. The policy normally provides for (a) exposure
limits for individual and group borrowers (b) exposure limits for different sectors (c) discretionary powers at various levels within the
bank.
2. Appraisal : It done on the basis of credit history, financial status, market report of the borrower, the prospects of economic

Credit Management Important MCQs

Credit Management Important MCQs:::

1. An account will be classified as substandard if it remains NPA for a
period not exceeding----months.
A. 18
B. 12
C. 24
D. 6
E. 36
Ans B

2. An account which remains in NPA category for a period of more than --
--- months will be classified as doubtful assets.
A. 18
B. 12
C. 24
D. 6
E. 36
Ans. B
3. An account guaranteed by state government will become NPA if the
interest and or instalment remain overdue for a period of
A. 90 Days
B. 180Days
C. It does not become NPA
D. Depends on case to case basis
E. As per government’s instructions
Ans A
4. In case of a consortium advance account the asset classification has to
be done on the basis of record of recovery with the
A. Bank concerned
B. Leader Bank
C. Majority of Banks
D. Majority of Banks by number
E. Majority of Banks by Share
Ans A
5. In accounts where the erosion of the value and the realizable value is
less than 10% of the outstanding, the account will be classified as
A. Substandard asset
B. Doubtful asset
C. Loss asset
D. No such guideline
E. On case to case basis
Ans C
6. In case of doubtful asset which has remained doubtful for more than 3
years the provision to be made against the secured portion is -----% of
the secured amount.
A. 20
B. 30
C. 50
D. 75
E. 100

7. In case of unsecured exposures in substandard category the provision
to be made is ----% of the total exposure.
A. 15
B. 25
C. 12.5
D. 10
E. 100
Ans B
8. What is the time limit prescribed by the DRT act for final disposal of
application filed for recovery of dues
A. 180 Days from date of receipt of application
B. No such limit is fixed
C. 180days for clean loans and 240 days for secured loans
D. 180days from close of evidence of both the sides
E. 60 Days from date of receipt of application
Ans A
9. The DRT are constituted by
A. RBI
B. Supreme court
C. High courts of respective states
D. Central Government
E. Lok adalats
Ans D
10. What is the minimum pecuniary jurisdiction of DRT
A. There is no such minimum stipulation
B. Rs.10 lacs
C. Rs.100 lacs
D. Rs.5 lacs
E. Rs.25 lacs
Ans B
11. With regard to DRT, find the incorrect-
A. The act extends to the whole of India except the state of Jammu
and Kashmir
B. Debts secured by mortgage of immoveable property are not
covered under DRT
C. The presiding officer of the tribunal is appointed by the Government
of India
D. The RRBs’ can also file suit with DRT for recovery of debt.
E. The minimum pecuniary jurisdiction of DRT is Rs.10 lac
Ans B
12. With regard to DRT an appeal to the Appellate Tribunal is to be made
within -----days of the order of the DRT.
A. 30 days
B. 45 Days
C. 60Days
D. 90Days
E. 120Days
Ans B
13. Which types of accounts fall under the CDR category
A. Standard,substandard,doubtful
B. Substandard only
C. Any kind of NPA account

D. Standard and doubtful only
E. Standard and substandard only
Ans A
14. The following organisations purchase non-performing assets from
Banks with a purpose to resolve the same.
A. Asset Management Companies
B. Asset reconstructuin companies
C. Asset recovery companies
D. Debt Recovery tribunal
E. DRAT
Ans B