TYPE OF CUSTOMERS

TYPE OF CUSTOMERS

In this Chapter, for the convenience of study, types of Borrowers have been classified as under:

1. Individual

2. Partnership firm.

3. Hindu Undivided Family

4. Companies

5. Statutory Corporations

6. Trusts and Co-op Societies

7. Limited liability Patnership

One of the essential elements of a contract is “capacity of the parties to Contract”.

The Bank while dealing with an individual should ensure that he is competent to enter into contract. An individual is not competent to contract and money lent to him cannot be recovered in the following circumstances:

a) If an individual is a minor:

A person is minor in the eyes of the law if has not attained the age of 18 years under Indian Majority Act and the age of 21 years, if he/she is a ward, under the Guardians and Wards Act. The money lent to a minor cannot be recovered, if the minor fails to repay. Exception to this is a contract with a minor for supply of necessaries to the minor. If a Bank lends money to a minor to meet expenses for purchasing necessaries of life, then bank can recover the money from the estate of the minor.

b) If an individual is not of sound mind:

According to the Contract Act, if a person is not of sound mind, then he is incompetent to enter into a contract. The Act says that a person at the time when he makes the contract, he is not capable of understanding it and of forming a rational judgment as to its effect upon his interests, will be considered that he is ‘not of sound mind’. Hence, a contract would be invalid if it is proved that the time of entering into contract, the person was not in sound state of mind and could not understand what he was doing and could not understand the implications of entering into the contract.

c) Disqualified persons:

If a person is disqualified by the law in respect of his capacity to contract, then the contract entered into by such a person cannot be enforced. For example, a person might have been declared as insolvent under the Insolvency law. As long as the person continues to be undischarged insolvent, he cannot enter into contract.

2. PARTNERSHIP FIRM

‘Partnership Firm’ is another entity with which a Banker deals with in the course of his business. Partnership firm is governed by Indian Partnership Act 1932. A partnership is the relation between persons who have agreed to share the profits of a business, carried on by all or any of them acting for all. The relationship between partners is governed by partnership deed which can be written or unwritten.

Legal Position of a partnership:

A partnership is not distinct from its partners. The liability is joint and several. It means that they responsible for the act of the partnership firm in their capacity as partner as well as individual. The Indian Partnership Act 1932, provides for registration of the partnership and it is necessary that a Banker dealing with partnership firm, should verify as to whether the firm is registered or not. This would help him to know all the names of the partners and their relationship.

Authority of the Partners:

Section 19 of the Indian Partnership Act 1932 deals with the implied authority of a partner as an agent of the firm; and Section 22 deals with the mode of doing act to bind the firm. In view of the provisions of Section 19 and 22, it should be noted that the act of a partner shall be binding on the firm if done:

a) in the usual business of the partnership;

b) in the usual way of the business; and

c) as a partner, i.e. on behalf of the firm and not solely on his own behalf.

Business of partnership firm: Mode of Operation

Rights and duties of the partners are determined by Partnership Deed. It provides for opening of bank accounts, borrowing powers, signing of cheques etc. Generally there may be a managing partner, who conducts business on behalf of other partners. While dealing with partnership firms it should be ensured that business is conducted as per partnership deed. If the Managing Partner does not have power to conduct certain transaction, then it should be ensured that consent of all partners is obtained.

Partnership firm and transaction in immovable property:

Section 19 of the Indian Partnership Act 1932 states that a partner cannot effect transfer of immovable property of the firm unless expressly authorized. While taking mortgage security of firm’s immovable property, it should be ensured that the partner creating mortgage is expressly authorized to create mortgage. If the partner has no authority to create mortgage, then the banker should ensure that all the partners jointly create the mortgage.

Insolvency of the firm:

The banker on receiving notice of insolvency of the firm must immediately stop further transaction in the account irrespective of the fact that the account is in credit or debit. In case there is a credit balance, and the banker does not intend to set off the same against the dues in any other account, then the balance has to be handed over to the official receiver appointed by the Court or as directed by the Court. In case the account is in debit then the banker would be required to prove his debt before the Court and thereafter will be entitled to receive the same from the Official Receiver either in full or as per the dividend declared by the Court.

Insolvency of the Partner:

If at the time of insolvency of one of the partners the firms account is in credit then the same can be operated by the other partners, but the banker should obtain a fresh mandate and all previous cheques issued by the insolvent partner may be paid provided the other partners confirm the same. In case the account is in debit then further transactions in the account should be stopped.

Death of a partner:

In case of death, the principles, as stated* in the case of Insolvency of a partner, applies.

3. JOINT HINDU FAMILY (JHF) or HINDU UNDIVIDED FAMILY (HUF)

Joint Hindu Family is an entity of customary law among Hindus. This is governed by personal laws. In Bengal and other parts of erstwhile Bangal province, a Hindu Undivided Family is governed by Dayabhaga Law. In other parts of India, it is governed by Mitakshara Law.

Constitution of a Joint Hindu Family:

A Joint Hindu Family consists of male members descended lineally from a common male ancestor, together with their mothers, wives or widows and unmarried daughters bound together by fundamental principle of family relationship. The Joint Hindu Family is purely a creature of Law and cannot be created by act of parties.

in so far as he manages the family property or business or looks after the family interests on behalf of the other members. The Managership of the JHF property comes to a person by birth and he does not owe his position as Manager on consent of the other co-parceners. The liability of the Karta is unlimited, whereas the liability of the co-parceners is limited to their shares in the Joint Family Estate.

Powers and Duties of the Manager

A Manager or Karta of a Joint Hindu Family has the following powers and duties:

Powers:

i. Right to possession and management of the joint family property.

ii. Right to income from the joint family property

iii. Right to represent the joint family

iv. Right to sell the joint family property for family purpose.

Duties:

v. Duty to run the family business and manage the property for the benefit of the family

vi. Duty to account the income from the joint family business and property.

Banker and his dealings with Joint Hindu Family

i. A banker dealing with JHF, should know the Karta of the family.

ii. Banker should ensure that Karta of the Joint Hindu Family deals with the Bank and borrows only for the benefit of Joint Family Business.

iii. The application to open the account must be signed by all the members and all adult members should be made jointly and severally liable for any borrowings or if the account gets overdrawn.

4. COMPANIES

A Company is another type of customer, which a banker deals with. A company is a juristic person created by law, having a perpetual succession and Common Seal distinct from its members. A Company depending upon its constitution is governed by various laws.

Basic Law Governing Company:

In India Companies are governed by Companies Act, 1956. All the companies are required to be registered under Companies Act, 1956.

The Business and objectives of a company are known by two important documents called Memorandum of Association and Article of Association. Therefore for the formation of company these documents are essential.

Memorandum of Association

The Memorandum of Association is charter of a company. Its purpose is to enable the shareholders, creditors and those dealing with the company to know its permitted range of business.

Memorandum of Association of a company contains the following details among others:

i. Name of the company

ii. Place of the business of the company

iii. Objects of the Company

iv. Name of the first Directors of the company

v. Share capital of the company

Articles of Association

Articles of Association are rules and regulations governing the internal management of the company. They define the powers of the officers of the company. Articles of Association are subordinate to Memorandum of Association and it contains the following details among other things:

i. Number of Directors of the company

ii. Procedure for conducting meeting of shareholders, Board of Directors etc.

iii. Procedure for transfer and transmission of shares.

iv. Borrowing powers of the company

v. Officers of the company and other details

Types of Companies:

A. Private Company:

According to Section 3 (1) (iii), a Private Company is one which contains following provisions in its Articles of Association:

i. Restriction on the right to transfer its shares.

ii. ii. Limitation on number of members to fifty excluding the people, who are employees and ex-employees of the company.

iii. iii. Prohibition as to participation by General public in its capital requirements.

iv. B. Public Company:

v. A Public Company is one which is not a Private Company i.e. a Public Company does not have any restrictions of the Private Company and its main features are as follows:

vi. i. Shares are freely transferable.

vii. ii. No restriction on number of members

viii. iii. Public at large can participate in its share capital.

ix. The Public Company can be further classified as

x. (a) Limited Liability Company – Liability is limited to the share in capital.

xi. (b) Unlimited Liability Company – Liability of the members is unlimited

xii. (c) Limited by Guarantee - liability is limited to the amount guaranteed

xiii. C. Government Company:

xiv. A company in which Central Government or State Government or both has not less than 51 % of share capital.

xv. D. Statutory Companies:

xvi. There are some companies established by an act of Parliament. These are called Statutory Corporations. For example, State Bank of India is established under State Bank of India Act, 1955. Nationalised Banks are established under Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.

xvii. E. Other Companies:

xviii. Besides the above, Companies Act, 1956 classifies companies on the basis of time, place of incorporation and nature of working into the following categories:

xix. i.Existing Company:A company existing already before the coming into force of Companies Act, 1956.

xx. ii.Foreign Company: A company registered in a Foreign Country.

xxi. iii.Holding Company: A company owning more than 50 % of share capital in another company or a company which can appoint majority of Directors in another company.

xxii. iv. Subsidiary Company: it can be seen that when there is a holding company the other company is called Subsidiary Company.

xxiii. 5. OTHER TYPE OF CUSTOMERS

xxiv. (i) Clubs, Societies, Schools:

xxv. These bodies are usually governed by Companies Act or co-operative Societies Act and function within the ambit of those laws. For example clubs can be registered either under the Companies Act, 1956 or under Societies Registration Act or Co- operative Societies Act. In the case of lending to these bodies a Banker should study the bye-laws, rules and regulations applicable to them and ascertain the legality of lending to them.

xxvi. (ii) Trusts:

These are governed by Indian Trusts Act, 1882, if they are Private Trusts and if they are public trust, they are governed by Public Trusts Act or Religious and Charitable Endowments Act, if they are Trusts of Hindus and in the case of Muslims they are governed by Wakf Act.

A Banker dealing with Trusts should acquaint himself with the respective laws applicable to them and shall ensure that his lending is within the ambit of those laws.

(iii) Trustee:

The Trusts are managed by Trustees. The powers and duties of the Trustees are either provided in Trust deed or regulated by the respective laws applicable to such Trusts. For example in the case of Public Trusts, Charity Commissioners, or Commissioner of Endowments appointed by Government has power to supervise the activities of the Trusts. The Trustee of Muslim Wakf is called Mutawali and his conduct and function is regulated by Wakf Board. Therefore a Banker dealing with a Trust should ensure that all the permissions required for taking a loan is obtained from the respective Government authorities.

7. Limited Liability Partnership :

Limited Liability Partnership (LLP) is a new corporate structure that combines the

flexibility of a partnership and the advantages of limited liability of a company at a low

compliance cost. In other words, it is an alternative corporate business vehicle that

provides the benefits of limited liability of a company, but allows its members the

flexibility of organizing their internal management on the basis of a mutually arrived

agreement, as is the case in a partnership firm.

Owing to flexibility in its structure and operation, it would be useful for small and

medium enterprises, in general, and for the enterprises in services sector, in particular.

Internationally, LLPs are the preferred vehicle of business, particularly for service

industry or for activities involving professionals.

https://iibfadda.blogspot.com/

Certified credit professionals::

Certified credit professionals::

       (Simple and nice read every one)

Credit management is one of the core processes for all banks and therefore, the
ability to manage its process is essential to augment interest income and to enhance
its profitability. The success of a bank crucially depends how it manages its Asset
Portfolio as it is the major source of income and has direct bearing on the bottom-
line of the Bank. This demands an ability to perceive the early warning signals, which
necessitates control of both the quantitative and qualitative aspects of credit
evaluation. Thus, managing credit risk plays an important role and its effectiveness
lies in proper identification of borrower and appraisal besides adopting an efficient
recovery and exit strategy.
1. Know Your Customer (KYC): Proper identification of the borrower attains
utmost importance in the entire credit cycle for which adoption of KYC guidelines is a
must. It is observed that majority NPA accounts pertain to either new customers or

LOANS AND ADVANCES INCLUDING BALANCE SHEET ANALYSIS

LOANS AND ADVANCES INCLUDING BALANCE SHEET ANALYSIS

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:

Certified Credit professional Numerical s

Certified Credit professional Numerical s


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

Ethics in Banking

Ethics in Banking

An ethical bank, also known as a social, alternative, civic, or sustainable bank, is a bank concerned with the social and environmental impacts of its investments and loans. The ethical banking movement includes: ethical investment, impact investment, socially responsible investment, corporate social responsibility, and is also related to such movements as the fair trade movement, ethical consumerism, and social enterprise

What is Ethics
Ethics is a set of principle of right conduct. They are the Rules or standards governing the conduct of a person or the members of a profession or organisation. They help us examine whether a practice or conduct is good or bad within the context of a moral duty.


What is Value
A value is an enduring belief that a specific mode of conduct or a certain end state of existence is personally or socially preferable to an opposite or converse mode of conduct or end state of existence

.

Other areas of ethical consumerism, such as fair trade labelling, have comprehensive codes and regulations which must be adhered to in order to be certified. Ethical banking has not developed to this point; because of this it is difficult to create a concrete definition that distinguishes ethical banks from conventional banks. Ethical banks are regulated by the same authorities as traditional banks and have to abide by the same rules. While there are differences between ethical banks, they do share a desire to uphold principles in the projects they finance, the most frequent including: transparency and social and/or environmental values. Ethical banks sometimes work with narrower profit margins than traditional ones, and therefore they may have few offices and operate mostly by phone, Internet, or mail. Ethical banking is considered one of several forms of alternative banking.

Environmentally and socially conscious business practices
In general banks play an intermediary role in the economy; because of this the possibility for banks to contribute to sustainable development is extensive. Jeucken 2002 Banks have efficient and tested credit approval systems, which gives them a comparative advantage in knowledge (regarding sector-specific information, legislation and market developments).Jeucken & Bouma 1999 Banks are experienced and capable of weighing risks and attaching a price to these risks; because of this banks can fulfill an important role in reducing the information asymmetry between market parties and allow them to make better decisions. When depositors allow a bank to invest for them they may assume that the bank will attempt to select investments to maximize their returns. However, if clients are concerned with more than the simple monetary return and they, for instance, are interested in the costs to society and to the environment, then they may need to turn to an ethical bank which takes their ethics and morality into account when investing.

Some businesses externalize costs onto the environment and society. Aiming to create a more equitable distribution of costs in society, banks can raise interest rates or apply tariffs on loans given to clients and projects with high external costs. This would mean that companies would pay more if their business caused extensive environmental damage; taking some of the cost off of society as a whole and putting it on the company. This sort of tariff differentiation could stimulate the internalization of environmental costs in market prices.Jeucken & Bouma 1999 Through such price differentiation, banks have the potential to foster sustainability.Jeucken & Bouma 1999.

Banks may be able to support progress toward sustainability by society as a whole—for example, by adopting a ‘carrot-and-stick’ approach, where environmental and social front-runners would pay less interest than the market price for borrowing capital, while environmental laggards would pay a much higher interest rate.Jeucken & Bouma 1999 Banks can also develop more sustainable products, such as environmental, social, or ethical investment funds. By investing selectively based on values, ethical banks can promote socially/environmentally responsible companies and penalize those who do not conform to these standards. But there is a risk that banks could simply adopt certain practices that make them appear ethical (see greenwashing) while not adopting other practices that would have a greater impact



Ethics can be defined as a system of criteria and measures examining the values, norms and
rules underlying the individual and social relations on such moral grounds as right and wrong
or good and bad. Professional ethics regulates the relationships of members of the relevant
profession with each other and with society, and defines organizational ethics and in-house
behavioral culture by imposing certain rules for resolution of problems originating from
inside or outside the organization.
Performing the investment and saving functions by playing the role of a unifier and mediator
in the society between parties offering and demanding funds, banks, as a part of marketplace,
mainly and naturally target the profitability and productivity principles, which requires them
to operate in strict compliance with certain professional and organizational ethics principles.
Departing from the objectives of growth of banking system, enhancement of banking service
quality, best use of resources, creation of a fair and honest competitive environment among
banks, and prevention of unfair competition, banks are required and expected to regulate their
relations with each other and other organizations, and with their customers, shareholders and
employees in accordance with these ethical principles.



Ethics or moral philosophy is a branch of philosophy that involves systematizing, defending, and recommending concepts of right and wrong conduct. The field of ethics, along with aesthetics, concerns matters of value, and thus comprises the branch of philosophy called axiology.

Ethics seeks to resolve questions of human morality by defining concepts such as good and evil, right and wrong, virtue and vice, justice and crime. As a field of intellectual inquiry, moral philosophy also is related to the fields of moral psychology, descriptive ethics, and value theory.

Three major areas of study within ethics recognized today are:

Meta-ethics, concerning the theoretical meaning and reference of moral propositions, and how their truth values (if any) can be determined

Normative ethics, concerning the practical means of determining a moral course of action

Applied ethics, concerning what a person is obligated (or permitted) to do in a specific situation or a particular domain of action



Our Responsibilities

• What Do We Need to Do? Our Responsibilities
• As an Employee, We are Bank’s Brand Ambassador. Delivering the Promise of Banks  Brand rests on us.
• We are expected to:
• Be familiar with, understand and follow the Bank’s Ethics Code in letter and spirit.
• Commit to it as prescribed.
• Be familiar with the policies and procedures relevant to our current role.
• Ask any questions we have about the Code, policies & procedures and how they apply to us.
• Keep the values of STEPS in mind and treat colleagues & customers with respect to protect our reputation.
• Speak up and report a suspected violation of the Code, policies, procedures or law.
• Refer to the Ethical Decision-Making Guide or relevant policy in Resources Section of the Code, if we are not sure on what to do in a situation.
• Understand the Code and be in a position to guide our team properly.
• Foster a culture of ethics & uphold the spirit of the Code in daily actions.
• Make sure that our team feels comfortable in asking questions or raising concerns.
• Never tolerate retaliation or allow others to do so.
• Make sure that we have appropriate delegation before entering into any transaction or risk on behalf of Bank.
• Report a misconduct or to take action to redress the same

SERVICE
Serving our Customers
• We are aware that the Bank is committed to providing best-in-class products, services & solutions to the customers that are consistent with their needs and circumstances.
• We shall make our customers feel valued and important in each transaction.
• We shall treat our customers in the way we want to be treated ourselves.
• We shall put customers’ need above our own and serve them with a smile.
• We shall help our customers to make informed financial decisions.
• We shall treat our all customers fairly regardless of caste, creed, race, religion, disability or gender.
• We shall always seek customer feedback to improve the customer experience.
DOs
• Say “Thank you” to customers after doing their work.
• Listen with empathy - Always.
• Focus on customers’ needs.
• Keep yourselves updated to respond to customers’ queries.
DON’Ts
• Let customers wait.
• Attend to other tasks when dealing with a customer.
• Be inconsistent.

TRANSPARENCY
• Transparency
• Being Transparent we shall respect the right of customers for openness and transparency in their dealings with us at all times.
• We shall be truthful and responsible in all our transactions with all stakeholders.
• We shall always act in good faith and with due care while dealing with internal or external constituencies.
• DOs
• Be open and transparent in your dealings.
• Be accurate while exchanging information about Bank.
• DON'Ts
• Conceal or misrepresent facts regarding a product or service with anyone.
• Misconstrue a transaction.
• Mislead or cover up information while dealing with others
ETHICS Handling Conflicts of Interest- Actual, Potential or Perceived: Competing Fairly
• We are aware that the Bank has faith in open and fair competition and believes in having the competitive advantage through superior performance and shall act with the same spirit.
• We shall deal fairly with our customers and not place our desire to increase our performance before their best interests. For example, we shall not impose undue pressure on a customer or a potential customer to obtain another product or service from us as a precondition of approving a request for a Banks’ product or service.
• DOs
• Compete in good faith.
• Be fair - Always.
• DON’Ts
• Share sensitive information with competition.
• Be unfair while competing.


POLITENESS
Being Polite in Treating Customers
• We shall offer a polite, courteous and empathetic experience to our customers in their interactions with us.
• We shall ensure that we are understanding and understood while dealing with customers and seek to listen them more than we talk.
• We shall project an efficient image of the Bank by being punctual and adhering to the workplace discipline.
• We shall dress* well and convey a seemly impression of the Bank while dealing
• With customers, colleagues and public at large. * [However, there will be no bar in following a religious dress code applicable to any community.]
• DOs
• Determine customers’ need responsibly.
• Consider customers’ circumstances before giving advice especially in case of loans.
• Be a preferred choice of customers - Always.
• Dress smartly - Always.
• DON’Ts
• Be inattentive to a customer.
• Be irresponsible in meeting customer expectation


SUSTAINABILITY
Contributing to the Communities Around
We shall champion sustainability and invest time & resources to make our communities a better place to live and work.
• We shall be engaging with sustainable banking by promoting innovative products & services that protect and conserve our natural resources.
• We shall be pro-active about minimizing carbon footprint through waste minimisation, pollution prevention and adopting clean technology wherever feasible.
• DOs
• Connect with communities around - Give back.
• Be sensitive to social & environmental risks.
• Reduce, reuse & recycle.
• Conserve natural resources.
• DON’Ts
• Waste resources.
• Ignore social conscience.
Avoid participation in the projects that benefit communities.

Current Affairs on 28.02.2019

Today's Headlines from www:

*Economic Times*

📝 India’s GDP growth seen at 6.7-7.2% in 3rd quarter

📝 Air India seeks to raise Rs 7,000 crore via domestic bonds

📝 OnePlus, Qualcomm plan to start 5G trials in India

📝 PE investments see 36% rise in Jan: Grant Thornton

📝 Norway's $1 trillion fund loaded up on stocks at end of 2018

📝 Cabinet likely to clear Rs 10,000 crore FAME II scheme

📝 NITI Aayog partners with Adobe to boost digital literacy, creativity skills

📝 Crude steel output in India at 9.18 million tonne in January : Report

*Business Standard*

📝 Finance Ministry asks direct tax code panel to revise existing I-T slabs

📝 Sebi to tighten takeover regulations for companies under IBC process

📝 States expect subdued revenue receipts in FY20; cut expenditure growth

📝 Currency in circulation may touch around Rs 20.9 trillion by FY19

📝 Telecom dept directs BSNL, MTNL to explain 'viability' of revival plans

📝 $7 bn fund infusion into PSBs not enough to support lending growth: Fitch

📝 Rs 20,000 cr GST evasion detected in April-Feb FY19, half recovered

📝 Centre to conduct 5G auction this year, panel working on pricing

📝 Banks oppose RCom's proposal to use tax refunds to pay Ericsson dues

*Financial Express*

📝 DAC grants approval for purchase of defence equipment worth Rs 2,700 cr

📝 No Bond! FPIs pull out $650 million from debt market so far in February

📝 Cement firms’ margins to improve on tapering costs, rising demand: Ind-Ra

📝 India to evaluate Chinese telecom equipment threat after US, Australia boycott Huawei

📝 Relevance of private markets rises, global AUM touches new high of $5.8 trillion: Report

📝 Spotify India gets Rs 48 crore from parent, set to compete with JioSaavn, Gaana.com

📝 E-commerce policy: Vendors’ body wants changes in anti-counterfeiting measures

*Mint*

📝 Kotak India's affordable housing fund to invest in Shriram Properties project

📝 UK approved to rejoin $1.7 trillion WTO procurement deal

📝 Income tax dept, NIA step up drive against terror funding

📝 SBI reports fraud worth ₹7,951.29 crore in Apr-Dec

📝 Punjab National Bank to cut lending rates by 10 bps on 1 March

📝 Sebi plans amending norms pertaining to corporate debt rejig

📝 LSE Group invests in Nivaura, startup behind the first cryptocurrency bond

📝 IOC wins city gas licences for 10 areas, HPCL 9.

RISK Management Very important MCqs

RISK Management Very important MCqs

01.ALM not responsible for: achieving budgets and targets (it helps in managing liquidity risk and interest rate risk).
02.At present banks are required to maintain capital adequacy ratio of 9% and Tier II capital should not be more than Tier I. It
means that banks are required to bring Tier I capital of at least 4.5% of the risk weighted assets. With effect from which date,
banks will be required to bring Tier I capital of 6% of the risk weighted assets?: 31't March 2010.
03.Documents not stamped properly is what kind of risk?: Legal Risk
04.For calculation of capital adequacy ratio, the risk weight for Commercial Real Estate for commercial bldg is : 100%
05.For capital adequacy purposes, risk weight for personal loans is : 125%
06.Fraud – what type of risk : Operational risk
07.General Insurance works on principle of: Spreading the Risk.
08. If an Outsourcing agency does not serve properly – which type of Risk is faced by the bank?: Reputation Risk and Operational
Risk
09. Investment in perpetual bonds is risky because: the interest is not payable if the CRAR falls below the stipulated target.
10.Legal risk is part of: operational risk.
11.Loss due to inadequacy or failure of system, process, people or due to external events is called: Operational risk
12.Risk weight for claim on Banks which complies to Min CRAR requirement : Scheduled Banks 20%
13.Risk weight for exposure to Scheduled Commercial Bank that maintains CRAR as per RBI requirement: 20%
14.Sub-prime is an risk. (Operational and Credit Risk)
15.The capital adequacy ratio is computed by the following formula: Capital/Risk Weighted Assets
16.Tier 2 - general provisioning & loss reserves only up to 1.25% of total risk weighted assets.
17.Tier I should be at least 6% of Risk weighted assets and should be achieved before by all scheduled commercial banks:

31.3.2010.
18.What are the components of credit risk?: Transaction risk or default risk and portfolio risk
19.When does liquidity risk arises?: Liquidity risk arises when maturing liabilities are more than maturing assets-
20.While doing Risk Rating, an asset is downgraded from A+ rating to A rating. What type of risk is involved: Credit Risk

some important abbreviations::

some important abbrevetions::

SWIFT: Society for worldwide Interbank Financial Telecommunication
SFMS: Structured Financial Messaging System
OLTAS: Online Tax Accounting System
CBS: Centralized/ core Banking Solution
PIN: Personal Identification Number
LAN: Local Area Network (used in the same building)
MAN: Metropolitan Area Network (used in the same city)
WAN: Wide Area Network (used in different locations)
IDRBT: Institute for development & Research in Banking Technology
Banknet: Payment System Network established by RBI
NICNFT: National Informatics Centre Network (currency chest operation)
WWW: World Wide Web
HTTP: Hyper Text Transfer Protocol
URL: Uniform Resource Locator
VSAT: Very Small Aperture terminal
Firewall: Software programme that restricts unauthorized access to data and acts as a security to private network

JAIIB PPB exam recollected 04 November 2018

JAIIB today's exam recollected 04 November 2018 ..

1.Two questions on Basel 2 and 3 ... each 2 marks question

2.NEFT and RTGS details for 4questions

3.Can you accept it with as NEFT or RTGS or vice versa

4. Sections are asked from NI Act  around 6 questions
5.PMDJY - 3Qtns
6.A has dream cheque at Delhi, and sent for clearing to bank Y where he has his AC, it was returned due to insufficient funds 
Which Court A can approach
A resident location
Delhi
Y Bank
7.Mandate holder features in two questions
8.Can Two minors open a Joint AC?
9.LC issued for 10 lakh, at the time payment it was found in the bills mentioned as 10.90.. can it be acceptable or not   Answer Accept
10.Use of DRS system to CBS
11.Matching of 
Lien
Set off
Pledge
Appropriation 
with 

Rights of Physical property FD created before maturity of loan
12.Where as ASBA can be used
13.One qtsn Selective Credit Control.
Asked to find out which is not a feature of SCC
14.No of Cycle of a Product
15.Stages of Product   ..4
16.What's your reason while accept/not to accept to provide an acknowledgement for Loan request
17.Electronics chq is defined under sec...
18.Sec 6 ni act
19.Which asset cannot assign for loan?
Book Dept
LIC
Share certificate
Copy rights**
20.Minimum credit rating of company for issue CP should be _ 
A1
AAA
Aa1
A3**
21.Asset of mutual fund are held by 
Custodian**
Registar
Trusstee
Amc
22.Corporate security dealt with  __market    money market
23.Codes which are withdrawn by RBI?

24.Question related to bcsbi was there..
25.Which one is stamp duty
Lc
Bill purchase
Bank guarantee**
Bill discounting

26.A partner acts as agent of firm is called______
27.In call money what% can commercial bank take an advance?125
28.Electronic cheque is defined in section 6

29.Under LRS resident can remit______
30.. Servuction means what, 
31. Pull strategy pull means demand, supply, price, quality. 
32. Who introduces NEFT. 
34. in joint account nominee is their A expired in that what you will do. 
35. Kotler  marketing defination.
36.Forfiating,factoring
37.BG