TYPE OF RISKS, CREDIT RISK MEASUREMENT ASSESSMENT & CREDIT RISK MITIGATION

TYPE OF RISKS, CREDIT RISK MEASUREMENT ASSESSMENT & CREDIT RISK
MITIGATION

Risk is inherent in banking business, but the question before us is how we will
define risk and to identify what types of risk is being faced by banks.
Risk can be defined is the likelihood of an adverse deviation of the actual
result from an expected result. Banks that run on the principle of avoiding risks
cannot meet the legitimate credit requirements of the economy or the
shareholders’ expectations of reasonable, normal and adequate profits. On the
other hand, a bank that takes excessive risks is likely to run into difficulty .So a
balanced approach is required to be taken , where a calculative risk is required
to be taken by the banks.

Types of Risks faced by Banks
Banks face a number of risks in different areas of their operations, some of the
prominent risks faced by them are Credit Risk, market Risk, Operational Risk,
Liquidity Risk etc. One by one ,we will discuss some of the prominent risks faced
by the banks.
Credit Risk has been defined as “The possibility of losses associated with
diminution in the credit quality of borrowers or counterparties. In a bank’s
portfolio, losses stem from outright default due to inability or unwillingness of a
customer or counterparty to meet commitments in relation to lending, trading,
settlement and other financial transactions. Alternatively, losses result from
reduction in portfolio value arising from actual or perceived deterioration in
credit quality.”
Credit risk is the most common & predominant risk in banking and possibly the
most important in terms of potential losses. This risk relates to the possibility
that loans will not be paid or that investments will deteriorate in quality or go
into default resulting into potential loss for the bank. Credit risk is not confined
to the risk that borrowers are unable to pay; it also includes the risk of
payments of the bills being delayed beyond the maturity time, which can also
cause problems for the bank. some of the related risks to credit risk are
Counterparty Default Risk: This refers to the possibility that the other party
in an agreement will default.
Securitization Risk: Securitization is a process of distributing risk by
aggregating debt instruments in a pool and then issuing new securities backed
by the pool. There are two types of securities, viz. traditional and synthetic
securitizations. A traditional securitization is one in which an originating bank
transfers a pool of assets that it owns to an arm’s length special purpose
vehicle. A synthetic securitization is one in which an originating bank transfers
only the credit risk associated with the underlying pool of assets through the use
of credit-linked notes or credit derivatives while retaining legal ownership of
the pool of assets.
Concentration Risk: A concentration risk is any single exposure or group of
exposures with the potential to produce losses large enough (relative to a bank’s
capital, total assets, or overall risk level) to threaten a bank’s health or ability
to maintain its core operations.
Market Risk: Market risk generally refers to risks which result from changes in
market variable viz. price changes in the currency, money and capital markets
etc. Market risk also results from sensitivity to foreign exchange fluctuations
due to open foreign exchange positions and (in the broadest sense) open term
positions.
Interest Rate Risk (IRR): Interest rate risk (IRR) is defined as the change in
investors’ portfolio value due to interest rate fluctuations. The IRR
management system is concerned with measurement and control of risk
exposures, both in trading book (i.e. assets that are regularly traded and are
liquid in nature) and in banking book (i.e., assets that are usually held till
maturity and rarely traded).
Equity Price Risk: This risk arises due to fluctuations in market prices of equity
due to general market-related factors.
Foreign Exchange Risk: This risk arises due to fluctuations in exchange rates.
Operational Risk: The risk of loss resulting from inadequate or failed internal
processes, people and systems or from external events is called Operational
Risk. This definition includes legal risks, but excludes strategic and reputation
risk.
Compliance / Legal Risk: Compliance/Legal risk includes, but is not limited to,
exposure to fines, penalties or punitive damages resulting from supervisory
actions, as well as private settlements. Legal/compliance risk arises from an
institution’s failure to enact appropriate policies, procedures, or controls to
ensure it conforms to laws, regulations, contractual arrangements, and other
legally binding agreements and requirements.
Documentation Risk: The unpredictability and uncertainty arising out of
improper or insufficient documentation which gives rise to ambiguity regarding
the characteristics of the financial contract is referred to as documentation risk.
Liquidity Risk: Liquidity risks arise from a bank’s inability to meet its
obligations when they fall due, and refer to situations in which a party is willing
but unable to find counterparty to trade an asset.
Term Liquidity Risk: The risk arises due to an unexpected prolongation of the
capital commitment period in lending transactions (unexpected delays in
repayments).
Withdrawal / Call Risk: The risk that more credit lines will be drawn or more
deposits withdrawn than expected is referred to as withdrawal or call risk. This
brings about the risk that the bank will no longer be able to meet its payment
obligations without constraints.
Structural Liquidity Risk: This risk arises when the necessary funding
transactions cannot be carried out (or can be carried only on less favourable
terms). This risk is sometimes also called funding liquidity risk.
Contingent Liquidity Risk: Contingent liquidity risk is the risk associated with
finding additional funds or replacing maturing liabilities under potential, future
stressed market conditions.
Market Liquidity Risk: This risk arises when positions cannot be sold within a
desired time period or can be sold only at a discount (market impact). This is
especially the case with securities/derivatives in illiquid markets, or when a
bank holds such large positions that they cannot be sold easily. These market
liquidity risks can be accounted for by extending the holding period in risk
measurements (e.g. the holding period for VaR) or by applying expected values
derived from experience.
Other Risks
Strategic Risk: Strategic risk refers to negative effects on capital and earnings
due to business policy decisions, changes in the economic environment,
deficient or insufficient implementation of decisions, or a failure to adapt to
changes in the economic environment.
Reputation Risk: Reputation risk refers to the potential adverse effects which
can arise from bank’s reputation deviating negatively from its expected level. A
bank’s reputation refers to its image in the eyes of the interested public
(investors/lenders, employees, customers, etc.) with regard to competence,
integrity and reliability).
Capital Risk: Capital risk results from an imbalanced internal capital structure
in relation to the nature and size of the bank, or from difficulties associated
with raising additional risk coverage capital quickly, if necessary.
Earning Risk: Earning risk arises due to inadequate diversification of a bank’s
earnings structure or its inability to attain a sufficient and lasting level of
profitability.
Outsourcing Risk: While there are many ways to categorize outsourcing risk,
four of the most convenient are operational disruption risk, data risk, quality
risk and reputation risk.
Though lot number of risks is faced by banks, but Basel Committee on Banking
Supervision (BCBS) in their Basel II accord has elaborated three types of risks
viz. Credit Risk, Operational Risk and Market Risk, under Pillar 1 (component on
Minimum Capital Requirements). However, their Pillar 2 (component on
Supervisory Review Process) involves bank management to develop systems that
support the internal capital assessment process and it should also allow for
setting targets for capital that are commensurate with the Bank’s particular risk
profile and control environment.
Risk Management today is more than Compliance of Regulatory Guidelines. It is
about building value by optimizing, rather than minimizing risk. Risk
management is not about avoiding risk. It helps banks to be aware of the risks
inherent in the business and take advantage of this knowledge to gain a
competitive edge and enhance shareholders value.
Risk creates opportunity >>> Opportunity creates value >>> Value creates
stakeholders’ wealth.

Assessment of Working Capital Limit, Assessment of NFB limits

Assessment of Working Capital Limit
Under Assessment of WC limits, give comments on holding levels of Inventory, receivables, sundry creditors and OCA by comparing the same with last year estimates and actuals. Give comments on the reasons for variation, if any between the estimates and actuals. Further, also explain the reasons for the current year estimates like change in - order book position, capacity utilization etc. Similarly, give comments on funding pattern of TCA by NWC, SC, BF etc. Ideally see that contribution by BF not to exceed 50% and NWC with a minimum of 25% while funding TCA.
Any increase/ decrease in operating cycle has a cascading effect on the performance of the unit too. Hence, analyse the reasons like variation in sales, inventory, receivables vis-à-vis utilization of WC limits in the last as well as current year.
Always remember that whatever enhancement in CC limits is proposed to be recommended, it should have proportionate increase in sales. For example, in the last year, if the unit has achieved Rs 10 cr of sales with a CC limit of Rs 1 cr and now requested for Rs 2 cr of CC limit for achieving an estimated turnover of Rs 15 cr…there is no proportionate jump in sales when compared with the limits. This aspect has to be looked into critically.
Assessment of Term Loan
If any project report is available, ensure that the report is prepared by any of our empaneled agencies. Always ensure stipulated DE (Debt/ Equity), DSCR, various statutory approvals required for establishing the unit starting from Municipality approvals to PCB/ Coastal regulatory clearances if any for all the projects which we are going to finance.
DSCR: While structuring instalments, stipulate repayment as per cash flows during a year. See that DSCR always stands above 1.50 in all the years of repayment.

Assessment of NFB limits
Bank Guarantee:
1. In respect of BG limits, apart from qualitative data, focus on giving certain qualitative information on:
(a) Unit’s track record of executing the works timely.
(b) Position of invocation of BG’s, if any during previous years.
(c) Analyse the reasons for previous extensions, if any by putting focus on delay in release of drawings by clients, delay in handing over the sites, delay in environmental clearances, frequent revision in work scope, delay in release of funds causing execution delays etc.
2. Further, if any enhancement is proposed, write comments on:
✓ Orders bagged/ expected to be bagged by the unit during the current year.
✓ Success rate of the unit in the tenders participated during the previous years and arrive at the average strike rate.
Letter of Credit:
Understand the purpose for which the LC is proposed to be opened. In majority of the cases, it is for the purpose of procurement of raw material. If LC is requested for CAPEX purposes, invariably recommend for term loan too.
User has to be careful here, if the unit is also enjoying CC limit, so that double financing in the form of LC/ CC needs to be avoided.
Usance period: Always, ensure that usance period should not be more than the operating cycle of the unit, which may lead to diversion of funds.
In respect of LC’s, have the position of devolvement of LC’s, if any during previous years in order to understand the ability of the unit to pay bills on time.

APPRAISAL OF LOAN...MSME/CCP

APPRAISAL OF LOAN...MSME/CCP

The purpose of appraisal of term loan is to ascertain
whether the cash flows (mainly profits) of the firm will be
Appraisal of Term Loan
adequate to repay the term loan in installments over a
repayment schedule.
The cash flows/ profits depend on successful installation
of suitable machinery, the marketability of the products and
profitability of operations. Accordingly, the appraisal of term
loan covers the following stages:
I. Prima facie acceptability
II. Technical Feasibility.
III. Economic Viability
IV. Financial Feasibility.
V. Commercial Viability.


1. Prima facie Acceptability
A proposal, at this stage, needs to be checked to ascertain
if it conforms to the overall guidelines of the Bank. The
proposal is considered prima facie acceptable if it
conforms to:
• RBI guidelines & Govt regulations.
• Bank’s Loan policy guidelines, including prudential
exposure norms, industry exposure norms, takeover
norms, RBI Defaulters List & credit appraisal
standards (e.g. debt:equity ratio).
• The object clause and borrowing powers of the
company.
More than ordinary care should be taken while
entertaining proposals relating to industries (a) which
might face govt / sociological sanctions (e.g. polluting
industries, breweries, projects involving land acquisition
etc (b) whose profitability is not predictable (e.g. feature

films) and (c) where past experience of the Bank has
not been encouraging.
It is also required to examine the managerial competence.
The ‘man behind the project’ should have the necessary
competence to implement the project. His experience,
financial status etc as well as the firm’s organizational
structure, quality of management team etc should match
the demands of the project.

2. Technical Feasibility
Technical feasibility refers to vetting of the proposal to
ascertain if the project is technically capable of producing
the goods for the quantity envisaged. It depends on a
large number of factors of production, suitability of the
machinery and the production process.
The factors to be considered are:
• Location of plant & accessibility to critical inputs
• Size of the plant
• Technical arrangements
• Suitability of technology.
• Manufacturing process
• Availability of skilled labour etc
3. Economic Viability
Economic viability means whether the products of the
firm can be sold at the price and for the volume as
envisaged. It requires a thorough market analysis.
The factors to be examined here are:
• The nature of product (and the extent of regulation
over the product)
Appraisal of Term Loan
• The overall market potential for the product
• The existing level of demand and the likely increase
in demand for the product
• The existing players in the market & the degree of
competition
• The new projects in pipeline
• The areas where the products will be marketed and
the dependence on other industries/markets (as
ancillary industry, export oriented unit, intermediate
product etc)
• Overall demand-supply gap and the future trends in
demand/supply
• Market prospects for the unit
• Selling arrangement
• Pricing policy etc
The projections should be critically examined to rule out
over-ambitious projections, if any. In fact, the projections
should bear a relation to the similar existing units and
allow for uncertainties of a new unit.

4. Financial Feasibility
Financial feasibility refers to examination of the cost of
the project and the means of financing for the project.
The cost estimates of the project should be reasonably
accurate and the pattern of financing of the project should
be sound and acceptable.
Cost of the project includes the following:
• Land (Including site development) and building.
• Plant & machinery.
• Miscellaneous Fixed Assets.
• Technical know-how fees, etc.
• Preliminary & Pre-operative expenses.
• Contingencies.
• Margin on WC requirements (which needs to be
available for the project before it goes for working
capital finance).
Means of Finance for the project are generally the
following sources:
• Equity Share Capital from promoters/other
shareholders.
• Preference Share Capital from Preference
shareholders.
• Debentures.
• Unsecured Loans.
• Deposits.
• Loans from Friends & Relatives.
• Term Loans from Banks & FIs.
• Government subsidies.
• Internal accruals.
Each of the above components of cost of project and
source of finance needs to be critically examined to know
their reasonableness.

5. Commercial Viability
Commercial viability refers to the process of examining
whether the cost and profitability estimates are
reasonable and the cash accrual of the project is adequate
to service the term loan.

Balance Sheet

Balance Sheet


Liabilities                                      Assets
Share Capital                               Fixed Assets
Reserves & Surplus                      Investments
Secured Loans                              Current Assets, Loans &Advances
Unsecured Loans                           Miscellaneous Expenditure
Current Liabilities & Provisions   Profit & Loss A/c (Dr balance,if any)



A. LIABILITIES
(a) Share Capital
Capital is the amount contributed by the promoters to
the business. As the firm is seen as different from its
promoters, capital becomes a part of the firm’s ‘liability’
to the promoters.
For a company, the capital has a few stages:
• Authorized capital: the maximum amount which can
be raised by way of capital.
• Issued capital: the amount of authorized capital
which has been offered to shareholders.
• Subscribed capital: the amount of issued capital
which has been subscribed by the shareholders.
• Paid up capital: the amount of subscribed capital
which has actually been paid up (balance is unpaid).
(b) Reserves & Surpluses
Reserves are the earnings kept aside for a specific
purpose. Surpluses are the earnings not so earmarked.
The components of Reserves are:
• Capital Reserve: It includes
o Capital Redemption Reserve: for payment of
preference shares.
o Revaluation Reserve: as market value of fixed
assets.
o Debenture Redemption Reserve: for repayment
of debentures.
o Subsidy Reserves: subsidy held for use in a project.
(d) Unsecured Loans
Unsecured loans are the loans raised without offering
security. These loans include:
• Fixed deposits
• Loans & advances from subsidiaries
• Short term loans and advances from banks and
others
• Other loans and advances.
(e) Current Liabilities & Provisions
These are the liabilities which are payable within 1 year
from the date of balance sheet. Major components of
current liabilities are:
• Acceptances, i.e. the bills accepted for payment
• Sundry Creditors, i.e. the trade creditors against
receipt of materials and other creditors towards
expenses incurred
• Advance payments received- from dealers,
customers etc
• Unclaimed Dividends, i.e. the dividends declared
which are yet to be paid off
• Interest Accrued but not Due, which can arise in
respect of all loans and deposits
• Other liabilities, if any, which are payable within 1 year.
Major components of Provisions are:
• Provisions for Taxation, which are kept aside from
profit for eventual payment to income tax authorities

• Proposed Dividends, i.e. the amount provided for
pending declaration of dividends
• Other Provisions, viz, for contingencies, for provident
fund etc.



B. ASSETS


(a) Fixed Assets
Fixed assets are those assets which are held for use in
production or for providing goods and services over a
long run. In other words, fixed assets facilitate the
production process although these assets do not directly
go into the process of production.
A list of fixed assets appears in Sch VI of the Companies
Act. The fixed assets include land and building, plant and
machinery, furniture and fittings, patents, goodwill etc.
Fixed assets are presented as Gross Block and Net Block.
Gross Block represents the original cost of the fixed assets
and Net Block is the book value of the fixed assets which
is calculated as the original cost less accumulated
depreciation of each category of assets.
(b) Investments
Investments generally refer to the money deployed in
securities or assets which are not directly related to the
main activities of the company. A firm having surplus
cash invests the same in securities to earn returns instead
of holding the idle cash with it. A firm may also have
investments in real estates, subsidiary companies etc.
(c) Current Assets, Loans & Advances
Current assets are the assets which can be turned over
into cash within the operating cycle, maximum 1 year
The following types of current assets find mention in the
Sch VI of the Companies Act:
- Interest accrued on investments - Stores and spares
- Loose tools - Stock-in-trade
- Work-in-progress - Sundry debtors
- Cash balance on hand and Bank balances
Loans and advances are in the nature of short term
advances generally given in course of the business.
Examples of loans and advances are:
• Advances recoverable in cash or kind or for value to
be received
• Bill of exchange
• Balances with customs, port trusts etc
• Advances and loans to subsidiaries/ partnership firms
(d) Miscellaneous Expenditure
Miscellaneous Expenditure is the expenditure against
which the firm does not hold any tangible asset and,
hence, Miscellaneous Expenditure is also called ‘Intangible
Assets’. Such expenditure needs to be written off over a
period of time. Miscellaneous Expenditure which is not
written off appears on the asset side of the balance sheet.
Examples of the miscellaneous expenditure are:
• Preliminary expenses
• Exchange, commission, brokerage and other expenses
incurred or discount allowed on underwriting or
subscription of shares/debentures
• Interest paid out of capital during construction
period.
Balance in Profit and Loss Account
It represents the loss of the firm carried forward. While
the profit carried forward appears on the liability/credit side,
the loss carried forward appears on the asset/debit side. The
firm may adjust the loss against the uncommitted reserves,
if any, and carry forward the balance amount of loss in asset
side.
Banker’s Approach to Analysis of Balance Sheet
The balance sheets of the companies are drawn from
the point of view of their shareholders who are interested in
‘solvency’ of the business. However, the lending banker’s
approach to balance sheet is mainly a study in ‘liquidity’ of
the firm. The lending banker, therefore, re-classifies the
Balance Sheet with emphasis on proper identification of
current assets and current liabilities. The banker identifies
the ‘eligible current assets’ which can be financed. All
other items of “Current assets, Loans and Advances” in the
balance sheet are placed in CMA format as ‘non-current
assets’. Similarly, the banker identifies all current liabilities
payable within current year. In the process, some part of
term liabilities of the balance sheet is shown as current liability
in CMA format.
The guidelines for re-classification of current assets and
current liabilities are as under:
i. Cash margin for LCs and guarantees relating to working
capital can be taken as current assets.
ii. Fixed deposits in banks and trustee securities are to be
classified as current assets. Temporary investment of
surplus liquidity in MF, money market instruments
(CD, MMME etc) can be taken as current assets. All other
investments, like ICDs, investments in shares and bonds
etc will be excluded from current assets.
iii. Slow moving/obsolete inventory and overdue receivables
(say over 6 months) are to be removed from current assets
iv. Stores and spares should bear a relation to the
consumption of the unit (max 12 months consumption
taken as current assets for imported spares and 9 months
consumption for domestic spares)
v. Advances paid to employees, suppliers for raw materials
etc can be taken as current assets only for the amount
as realizable within 1 year.
vi. Investment in shares, advance to companies etc not
connected with business of the unit should be excluded.
Advance to interconnected companies can be taken as
current asset only if these are on market terms and at
reasonable level/period.
vii. Security deposits (for electricity, customs etc)/tender
deposits are to be excluded from current assets.
viii. Outstanding advance payments received from customers
are to be taken as current liability (unless specifically
payable after 1 year). Advance payments received against
works in progress are to be netted off.
ix. Deposits received from dealers are to be treated as
current liabilities unless payable on termination of
dealership.
x. Current liabilities would include: bank borrowings, usance
bills discounted, short term borrowings from banks/friend
and relatives, sundry creditors for materials and
expenses, interest accrued but not due, dividend and
other expenses payable. The instalment on term loan,
public deposits etc payable within 1year is classified as a
current liability.
xi. Provision for taxation should be netted off against the
Adavance Tax Paid for all years.
xii. Provision for disputed liabilities (e.g. excise duty, sales
tax etc) should be treated as current liability unless these
are payable in instalments as per the written orders of
the concerned authorities. If the amount is invested in
fixed deposits, the same should be netted off.
xiii. Provisions for all known/accrued liabilities should be
made, including those for prior period, events after
balance sheet date etc. If some known liabilities may be
payable eventually from general reserves in future, an
estimated amount should be taken as current liabilities.
xiv. ICDs taken will be shown as current liability/short
term borrowing (and also under additional information
in Form III)
xv. Bills negotiated under LCs: The facility of purchase of
demand and usance bills under LCs is provided outside
assessed bank finance (ABF). Therefore, receivables
under sale bills drawn under LCs (inland/export) will not
be included in current assets in Form III and bank
borrowings under LC Bills Purchase limit will be excluded
from projected bank finance under current liabilities.
However, the same will be shown as contingent liability
under ‘Additional Information’.
Above re-classification would give the lending banker a
true and fair view of the liquidity position of the firm and
helps him proper assessment of working capital requirement.

FINANCIAL STATEMENT ANALYSIS.Very Useful

FINANCIAL STATEMENT ANALYSIS

Financial statements are the statements that convey
information about the firm in financial terms. All the activities
of the firm (including HR, production, marketing etc) have
financial implications which are captured and presented
through financial statements.
IMPORTANT FINANCIAL STATEMENTS
Two commonly used financial statements are Profit and
Loss Account and Balance Sheet. Other financial statements,
which have specific uses, are the Funds Flow Statement and
Cash Flow Statement. In case of the companies, the audited
financial statements are supported by Schedules, Notes to
Accounts, Director’s Report, Auditor’s Report etc. Various
aspects of the financial statements are presented below mainly
from banker’s point of view.
1. PROFIT & LOSS ACCOUNT
Profit & Loss Account (P&L Account) presents the net
result of operations of the firm over a period of time. It is,
therefore, called the Operating Statement or Income
Statement.
A. Features of P&L Account:
(i) It is prepared for an accounting period, which is
normally one year. (i.e. accounting period concept).
However, the companies may prepare their financial
statements for an accounting period of maximum
15 months (or 18 months with approval of Registrar
of Companies).
(ii) Income is captured in P&L Account on accrual basis
(i.e. accrual concept) - hence, income is different
from cash.
(iii) For any income, the matching expense needs to be
accounted for (i.e matching concept)
(iv) Income is to be reckoned only if it is reasonably
certain whereas expense is to be provided if it is
reasonably possible (i.e. prudence concept)
(v) It records only revenue receipts and revenue
expenditure (and not capital receipts/expenses)
pertaining to the period.
B. Components of P&L Account
P&L Account can be studied broadly at 4 stages:
(i) Net Sales (i.e. revenue generated)
(ii) Cost of Sales (i.e. manufacturing cost of goods sold)
(iii) Operating Profit (i.e. income from main operations)
and
(iv) Net Profit (i.e. net result available for shareholders).
i. Net Sales:
It is computed as Gross Sales less Excide Duty and
adjusted for Sales Returns, Discounts etc.
Gross Sales: It is the number of units sold multiplied
by the average unit price. ‘Gross Sales’ is also adjusted for
Sales Returns and Discounts. Sales Returns represent goods
sold but subsequently returned. Thus, ‘Sales Returns’ reduce
the ‘quantity sold’. Discounts (which are given for bulk
purchase, timely payment, cash purchase etc) represent the
reduction in ‘unit price’. Thus, both Sales Returns and
Discounts effectively lower the sales figure during the period
and, hence, should be reduced from Gross Sales.
Excise Duty: It is deducted from Gross Sales because
excise duty is applicable as soon as the manufacturing process
is completed to make the product saleable (in other words,
excise duty is linked to production and precedes sale). Excise
duty is also collected for the government and, hence, does
not constitute a part of revenue of the firm. Moreover the
rate of excise duty may differ from year to year, which may
mislead while comparing sales over consecutive years.
For above reasons, ‘net sales’ is a more meaningful
parameter for analysis than ‘Gross Sales’.
ii. Cost of Sales
It is also called the Cost of Goods Sold. It is computed in
two stages, namely (a) Cost of Production and (b) Cost of
Sales.
(a) Cost of Production: It includes only those expenses
which directly go into producing the goods during the
period (regardless of whether the goods are sold or not).
These expenses, called direct expenses, include:
(a) raw materials and stores & spares consumed
(b) direct labour (i.e wages of manpower engaged in
production)
(c) power & fuel (on factory side)
(d) other manufacturing expenses (e.g. repairs &
maintenance)
(e) depreciation of fixed assets and
(f) adjustments for semi-finished goods or Stocks-In-
Process (i.e. add opening SIP and subtract closing
SIP)
‘Raw materials consumed’ is the value of raw materials
which go into production. It is different from raw materials
purchased as under
Raw materials consumed =
Raw materials purchased + Opening Stock - Closing Stock
of raw materials
Similar method is used for calculation of stores and spares
consumed during the accounting period.
Direct Labour and Power & Fuel: Only those expenses
which pertain to the manufacturing side are taken here. For
example, the direct wages and the salaries of the production
staff form a part of direct labour whereas the salary of
administrative staff is excluded.
Depreciation: It is a notional charge towards wear and
tear of the fixed assets through use or efflux of time or
obsolescence. It needs to be fully provided for replacement
of fixed assets in future. (In fact, companies are not
permitted to pay dividends or managerial remuneration before
providing for dividend in full). Being notional, it is a non-cash
expense.
Calculation of depreciation is based on three factors: (a)
the original cost of fixed asset (b) its estimated scrap value
and (c) its useful life. The original cost less scrap value is
depreciated over the useful life of the asset.
Two commonly used methods of depreciation (which are
also recognized by the Companies Act 1956) are the Straight
Line Method and Written Down Value Method.
In Straight Line Method(SLM), the depreciable value of
the fixed asset is divided equally over the number of years of
its useful life:
Annual Depreciation = (Original Cost - Scrap Value)/
Useful Life
Thus, in SLM, the depreciation is a constant amount every
year.
In Written Down Value (WDV) Method, the depreciation
is calculated with reference to the book value of the asset
(and not the original cost). Here, the applicable rate of
depreciation is first determined (based either on useful life
or as given in statutes) and then the book value is multiplied
by the rate of depreciation. Since the book value is more in
initial years, the amount of depreciation is more in initial
years than in later years.
A comparison of SLM and WDV methods of depreciation
would show the following:
• The amount of depreciation is constant in SLM whereas
it is progressively reducing in WDV method. It is less in
SLM than in WDV method in initial years and more in
later years
• The resultant net profit of the firm with SLM will be more
in initial years (as depreciation expense is less under
SLM) than with WDV method.
Accounting Standard (AS-6) permits change in method
of depreciation in case of (a) change in statute (b) change in
accounting standard or (c) to present information in a more
appropriate manner. Many companies change the method of
depreciation to suit their needs and the financial analyst needs
to probe into the same.
Stock-In- Process (SIP): The manufacturing expenses
are adjusted for the SIP consumed in production. For the
purpose, the opening SIP is added (as it is used in production
in current period) and the closing SIP is subtracted (as it is
not used in current period).
Above expenses added together give the Cost of
Production (COP) of goods.
(b) Cost of Sales: It is the Cost of Production adjusted for
the stock of finished goods. The opening stock of finished
goods is added to COP and the closing stock of finished
goods is subtracted to ascertain the Cost of Sales
(because the opening stock of finished goods has gone
into sales whereas the closing stock is still left out).
iii. Operating Profit
Operating Profit is profit generated from operations. It is
ascertained at three stages (a) Gross Profit (b) Operating
Profit before Interest and (c) Operating Profit after Interest.
(a) Gross Profit: It is computed as Net Sales – Cost of
Sales. It is the net amount that the production process
has given to the firm to sell the goods and make profits.
It is a measure of business risk (i.e. more gross profit
means lower risk in business).
(b) Operating Profit Before Interest: It is calculated as
the amount of Gross Profit less Selling, General and
Administrative (SGA) expenses. SGA expenses include
the staff salaries, bonus, marketing expenses,
administrative expenses and all non-manufacturing
expenses (except interest cost).
Operating Profit Before Interest is also called the Earnings
Before Interest & Tax (EBIT). It measures the operating
efficiency of the firm (prior to financing charges/interest)
(c) Operating Profit After Interest: It is calculated as
the amount of Operating Profit before Interest less
Interest expenses.
Interest expense: It is the amount of financing cost of
the firm, i.e. its expense towards borrowed funds. The
borrowings can be by way of loan from banks, public deposits,
debentures etc. Interest cost should bear a relationship to
the outstanding borrowing amount and the applicable rate of
interest. Other expenses like discounts, ancillary costs,
financial charges, exchange differences etc should be
segregated.
Operating Profit After Interest shows the overall operating
efficiency of the firm.
iv. Net Profit
This is the amount of profit available to the shareholders.
It is calculated in 2 stages: (a) Profit Before Tax (PBT) and
(b) Profit After Tax (PAT).
(a) Profit Before Tax: It is the profit earned by the
firm after all operating, financing and non-operating
expenses are accounted for. PBT is, therefore,
calculated as Operating Profit (after Interest) plus
net non-operating income. The non-operating
income (Other Income) and non-operating expenses
(Other Expenses) are kept ‘below the line’ of
operating profit for financial statement analysis as
they do not accrue from core operations.
(b) Profit After Tax: It is calculated as the PBT less
Provision for Tax. Net Profit is the net amount
available to the firm (and its shareholders) after all
expenses are paid for.
In case of companies, dividend, if declared, is paid out
of the net profit. In such a case, the balance amount is called
the Retained Profit, which is transferred to Reserves & Surplus
Account of Balance Sheet.
Banker’s Approach to Analysis of P&L Account
The approach of bankers to analysis of P&L account
differs from that of the shareholders mainly in following
respects:
(i) Bankers break down the income and expenses into
operating and non-operating items in their CMA format
as they are interested in operating efficiency of the firm.
(In contrast, companies present the P&L Account as
Income & Expenditure Statement, where the Total
Income and Total Expenditure are given over major
heads). Bankers also segregate the revenue of core
operations from non-core operations (e.g. trading profit)
(ii) Secondly, bankers look for full provision of various
expenses in the P&L account (e.g. depreciation, prior
period expenses, events after balance sheet date etc).
(iii) Thirdly, they ignore pure accounting transactions like
revaluation of fixed assets, deferred tax accounting etc.
(iv) Fourthly, they look for consistency in presentation of
various components of P&L account for inter-year
comparison of efficiency of operation.
The resultant profitability will show a reasonably correct
picture of viability of operations.

CHECKLIST FOR INSPECTION OF UNITS

CHECKLIST FOR INSPECTION OF UNITS
1 Take a copy of the latest Stock Statement of the Unit & also the immediate previous
stock statement.
2 Ensure that If limits granted on the basis of book debts, then list of Debtors (classified
age-wise / country-wise)
3 Make a Note of the details viz.
a) The Latest Limit
b) Drawing power
c) Outstanding
d) Notes on the promises made during last visit & notings made during the last
inspection
e) Average Sales (Monthly) as per “projections’ given
f) No. of Shifts / Average employees during each shift
g) Average Creditor and Debtor Level
h) Rejection Level / Sales Returns data
4 Observe & make a note of the present ‘Activity level” at the Unit (No. of shifts worked,
Avg. No. of employees, Sales, Creditor elves, Debtor level) & compared with the
previous levels
5 Ensure that all the machineries are in effective use.
6 a
6 b
Ascertain any machinery discarded if so How the Sale Proceeds were utilized
Similarly ascertain if any machinery has been purchased new – if so what was the
source of funds for the purchase.
7 Observe about the labour situation and also make casual but purposive enquiries
thereon.
8 Notice the Key change in Management Positions within the Unit.
9 Observe the Production levels & make a critical comparison with the “Projections”. If
substantial variance observed, then reasons for the shortfall ascertained and made
note of.
10 Note the quantity of Rejections / Sales returns, ascertain reasons, compare with data
for the previous month / quarter.
11 Notice the Average Sales levels and make a critical comparison with the ‘Projections’ /
check for the reasons.
12 Conduct a random check of the stocks with focus on
a) The present levels of stocks - should commensurate with production cycles
b) Quantity of slow-moving items - should be minimum or nil
c) Inclusion of obsolete items as part of stocks – should not be done
d) Sudden but phenomenal increase / decrease in stocks in comparison to those
as per latest stock statement – the reasons should be clarified with the
borrower
13 Ensure that the ‘Statutory Dues” like PF, ESI, Sales Tax, Income Tax, Property Tax,
EB dues etc have been paid and are evidenced by presence of receipts thereof on
record.
14 Observe that books of accounts are written-up, up to date.
15 If accounts remain irregular, then a meaningful discussion on regularization of
accounts to be held with borrower / executives.
16 Make a note of any difficulty in verifying stocks / book debts or in carrying out
inspection at the Unit.
17 Ensure that The commitments given during last inspection have been met or
acceptable reasons for not meeting the commitments given.
18 Ensure that the suggestions given by the Bank during last inspections have been
implemented.
19 Record any positive / negative developments that are likely to befall the Unit.
20 Discuss the adverse features observed during Inspection with the borrower /
executives of the Unit.
21 Submit the observations regarding the inspections holistically to the next higher
authority in the prescribed format and in time.
22 Ensure to record the visit in the Inspection Register maintained at the Bank as well as
in the Unit Inspection Register at the Unit and NOT in any other forms / registers of the
Unit thereat.

Cyber crime recollection

Cyber crime and fraud management recollected on 28.12.2019


Recollected questions:
Cyber crimes are handled by which orgnanisation in india
Type 1 crime
Preventive control
Detective control
Detterant control
Logical control
Sections and their fine with imprisonment in years
Committes of it security ,it governance, it controls
Netra by which organisation
Fast flux
Stux net
Phising
Shoulder surfing
Digital signature
Oldest agency in india
Few questions on cert in
Passive attack
Active attack
Direct attack
In direct attack
Logic bomb
Zeus
India own operating system boss in under whom
Confidentiality
Availability
Integrity
Conventional crime
Cyber crime
Same features of conv and cyber crime
Tailgating
imp topics are  1differences between viruses and worm
2 it act
3 different types of cyber crimes
4 various types of cards
5 gate way payment
6 prevention and detection control
7 pss act
8 2 tier authentication
9 passive and active attacks
mostly questions from 2  and 3 and 4...units

 Cyber terrorism
1. Who Coordinates with Interpol in India ? - CBI
2. Which department was designated as Nodal Agency for Cyber Crime prevention - CERT-IN
3. What is the difference between Virus and Worm - Virus need human intervention to activate or multiply whereas worm automatically get multiplied
4. Worms are mainly used by hackers to - Occupy more space in the system/heavy usage of bandwidth in the network
5. One of the employee carefully watching the password entered by the Manager. What type of threat it is - Shoulder Surfing
6. Leaving a Logged in Computer by an employee - is human negligence
7. Hackers scans the computer pre attack to identify - Vulnerability in the system
8. Hackers inject worms/virus into the network to reach the target system and it - exploits the Vulnerability
9. Non updation of antivirus is - one of the major vunerability
10. One customer recieved a call in his mobile phone and the person posing himself as a bank manager collected the card credentials from him.This type is called - Phising
11. Online Banking sites are borne to what risk - Phising/IP spoofing
12. Data transfer between systems vide Network can be secured by - PKI
13. Customers can make sure that they deal with the authenticated website - by checking the Lock icon near the address bar
14.In https, S denotes - Secured/Security
15.This kind of worms directly attacks the root directory - Rootkits
16. This worms are really hard to detuct and delete - Rootkits
17. The compromised systems in the network are commonly termes as - Zombies
18. Customer security credentials were compromised by way of fraudulent SMS is called - smishing
19. The employees who try to hack their own company's site/find the vulnerabilities are called - White hat hackers
20.DDos - Distributed Denial of Service
21.Ransomware which blocks the access to the website demanding ransom for the same is - Denial of Service attack
22. Using same method for both encryption and decryption is called - symmetric encryption
23. Providing Last Login detail in Internet banking site is to - to detect any unauthorised usage earlier
24.Limits for retrying the passwords is - to avoid the unauthorised access
25. To safeguard from the Key Loggers attack - Use Virtual Key board to enter passwords
26.UTM stands for - Unified Threat Management
27.Setting up smoke detectors in the branch is - Detective Method
28.Placing Security guard in system room to avoid - Physical damage/attack on systems
29. Following the authorised person to enter into system room and making entry into the room is - Tailgatting
30.Dumbster Driving is a method - Searching for vulnerability in deleted files and data
31.FIrewall is - Intrusion Detection System
32.Authentication of electronic data/document can be assertained by - Digital Signature
33. When two or more persons illegally tries to enter into a critical room with single id/same id - Masquerading
34.Detection is normally - Post incedent
35. Post incident study mainly for the purpose of - study the impact of the attack and lessons for future prevention
36. Indian Agency working on Digital Forensics and Cyber security - C-DAC
37. OLTP refers to - On line Transaction Processing
38. OLTP is also termed as - Payment Gateway
39. Payment Gateway the Acquiring Bank to - Issuing bank through the Card Scheme to complete the transaction
40.Security Concerns arise in Payment Gateways are - At the User Level, Bank level and Merchant POS
41. Credit Card data theft through POS is falls under - Merchant PoS Security
42.Data encrypted using Private key can be decrypted by the public key available with - the Receiver
43. Cross verifying the Signature on the Slip against the Signature in the back side of the ATM card is doen by - the Merchant
44.Data should be secured in the following stages - Saved, Transit and Retrival
45.Intruder software in a network which attacks the data while in trnasit and thus commits data theft - Man in the Middle Attack
46. Captures a widows sessio for the purpose of data theft before it reaches the recipient is - Session Hijacking
47. Limits set for retrying of password is to avoid - Brute Force attack
48. ISSP stands for - Information System Security Policy
49.ICANN stands for - International Corporation for Assigned Names and Numbers
50.TLD stands for - Top Level Domain
51.Globally recognized set of rules defined for electronic records is - e-UCP
52.Technique used to redirect traffic from the infected device is called - Sinkholding
53. The technique which can intercept unencrypted data transit of mobile apps is called - Wi FI Snifing
54. This is one type of malware which doesnot affect the system/network - Ad-ware
55. This usually comes as a Pop up/add on screen which carries link for dubious websites - Ad-ware
56.EMV cards follow standard of - ISO/IEC No 7816
57. EMV cards follow this standard for Contactless card - ISO/IEC 14443
58. NFC is the technique used in contactless cards - Near Field Communication
59.PCI - DSS stands for - Plastic Card Industries - Data Security Standards
60. NFC cards works under - RFID Technology
61. Providing Access controls to employess based on roles/need is - Risk based Authentication
62. Seeking PIN to complete a transaction in PoS is - 2FA
63.SSL - Secure Socket Layering
64.SSL ensures - Encrypted link between a web server and a browser
65. Sending annoying messages to a person causing irritation/nuisance - Cyber Stalking
66. Black mailing a person using Computer/or network is - Cyber Extortion
67. Ransomware is type of - Cyber Extortion
68. Disputes on Domain names and protest are redressed globally by - UDRP
69. Phising/Vishing is type of - Cyber Cheating
70. Group of people attacks a Computer/ group of computers for propagating a objective - Cyber Terrorists
71. Hackers with common interest attack rival government's department site and database are - Cyber terrorists
72. ____ refers to the quality of secrecy associated with the data and the state of keeping an information asset secret - Confidentiality
73.____ refers to the state of remaining in the same format and not allowing for any tampering/manipulation - Integrity
74. ____ refers to the state o confirmation that the user has the authority to issue the command to the system - Authorisation
75. Quality of non denial, the stake holders are not permitted to denythe particular act of doing the act is - Non-repudiation
76. CAPTCHA refers to - Completely Automated Public Turing test to Tell Computers and Humans Apart
77. Placing letters in different sizes and styles which is hard to read by systems/robots is called - CAPTCHA
78. _______ is an important component for study and analysis to under the modus operandi of a Cyber Attack - Threat Vector
79. In cyber Crime, Threat landscape is denoted as - Study of entire overview of the network which was attacked
80. Conventional Crimes are - Physical crimes that involve thet of systems and hardware devices
81.Cyber Crimes are - System Crimes that involves data theft or tampering
82.Insider Attack Threat is - attack on the system/network by own employee without any permission/authentication
83.______ is the most dangerous attack in cyber crimes - Insider Attack
84. An employee copied and sold the sensitive information to a competitor concern is an example of - Insider Attack
85. Hackers scan the port/system and develop worm or codes to attack the same based on this - Vulnerability
86. ____ doesnot wait for any executable file to run for getting activated in the target system - Worm
87.____ refers to small piece of programs injected into the target system to spy on the activities - Spyware
88. Drones are classified as - Spying Devices
89. UAV stands for - Unmanned Aerial Vehicle
90. Most of the UAV used by the polic/defence authorities for - Survelliance purposes
91.The persons who are hired by companies to hack their own website/to identify the Vulnerability are - Blue Hat Hackers
92. System of effectively taking care of URL filterig, web-filtering, anti-virus, as all in one solution is referred as - Unified Threat Management
93. Force Log out option in Internet banking after certain time of Idleness is to guard the system against - Session Hijacking
94. Installing anti virus into the system is - Preventive Method
95.A statement used to create, alter, drop objects in a database is called - Data Definition Language
96. Fault Detection, isolation nad recovery are closely associated wiht - Detection Control
97. Installing Bio Metric devices to check unauthorised entry is - Physical Control
98. Unless properly logged, straightaway accessing the database through a SQL is termed as - Back end Access
99.IT Act 2008 describes the activity of hacking as a criminal activity in section no 66
100. IT Act 2000 came in force on - 17 October 2000
101. IT Amendment Act came into force on - 27 October 2009
101. IT Act consists of - 13 Chapters and 90 Sections
102. The Section which deals with cyber crimes as civil offence - Section 43
103. The Section deals with cyber crimes as Criminal Offences - Section 66
104. IT Amendment Act included the following which is not in the IT Act 2000 - Electronic Signature
105. Electronic Signature has been dealt in - Section 15
106. Under Section 43A, if any body corporate handling any sensitive personal data is negligent in implementing and maintaining reasonable security the compensation may go upto - five crore rupees
107. Under Section 43, if one found guilty on Data theft/alters/destroys the same the penalty/compensation may go upto - One Crore rupees
108. Tampering with Computer Source Documents - Section 65
109. Punishment under Section 65 may go upto - Three years imprisonment and extend upto Two Lakhs Fine
110. Computer Related offences which were dealt under section 43 can also be dealt as criminal offence under section - 66
111. Punishment under Section 66 may go upto - two three years and/or fine upto five lakhs rupees
112. Crime of Cyber Stalking ( sending electronic messages for the purpose of causing annoyance/inconvenience/decieve/mislead the recipient) may lead to - two three years imprisonment
113. Identity Theft is dealt under Section - 66c
114. Punishment of Identity Theft - may extend to three years term and/or fine upto One lakhs rupees
115. Puishment for Cyber Cheating - may extend to three years term and/or fine upto One lakhs rupees
116. Cyber Cheating is dealt under - Section 66D
117. Punishment for Cyber Terrorism may extend upto - Life time Imprisonment
118. Cyber Terrorism is dealt under - Section 66F
119. Publishing obscene material in electronic form dealt under - Section 67
120. Punishment under Section 67 may extend upto - two three years term and/or five lakhs fine
121. Punishment for Sudsequent conviction of the same crime under section 67 is - 5 years term and/or ten lakhs rupees fine
122. Sexually explicit content in electronic form dealt under - Section 67A
123. Punishment under Section 67A is - Five years term with fine
124.Punishment for Sudsequent conviction of the same crime under section 67A is - 7 years term and/or ten lakhs rupees fine
125. CERT-IN has been designated as Nodal agency for Critical Information Infrastructure Protection under Section - 70B
126. Mispresentation/Suppression of material Fact dealt under - Section 71
127. Penalty under Section 71 - Two years term and/or fine upto One lakh rupees
128. Breach of confidentiality and Privacy dealt under Section - 72
129. Analysing the style of writing or the langauage style for the purpose of Crime Investigation is - Stylometry
130. RBI issues licenses for Payment Banks in India based on approval from - BPSS
131. NTRO stands for - National Technical Research Organisation
132. Netra, the light weight UAV was developed by - DRDO
133.NCIIPC stands for - National Critical Information Infrastructure Protection Centre
134. DSCI - Data Security Council of India
135. Digital Forensic tools used by our Police Department were developed by - C-DAC
136. C-DAC stands for - Centre for Development of ADvanced Computig
137. NTRO works under - Prime Minister's Office
138. Two acts which are mainly handled by ED - FEMA and PMLA
139. Money laundering using banking systems/Internet banking is - Conventional Crime
140. Obtaining an IP address similar to some other and demanding a ransom for forego the same is - Cyber Squatting
141. Data Protection while in transit using non repudiation techniques can be achieved through - Public Key Infrastructure
142. Card Skimming is a technique mostly used th steal the card details and it mostly placed on - ATM manchines
143. Card Skimming Data Theft can be avoided using - Contactless Cards/NFC Cards
144. To avoid the Card Credentials in Online sites these cards were introduced - Virtual Cards
145. Smart Cards which are loaded with Money prior to issue is called - Prepaid Cards
146. Virtual Cards normally comes with a validity of - 24 hours to 48 hours
147. Maximum loading permitted in a Prepaid as per RBI instruction is - 50000/-
148. Hackers try to capture the login credentials by analysing the keys pressed in the Key boards. the worms captures such data is called as - Key Loggers
149. By clicking unauthenticated link, customers may diverted to fake websites to capture the sensitive personal. This is type of - Website spoofing/IP Spoofing
150. Ad wares are used not to harm the computers but to - make a catch by making the user to click on the dubious link to fake websites

IT security recollected

IT SECURITY

***********

Giv priority to Technical terms...

***************

26.10.2019 MEMORY BASED RECOLLECTED QUESTIONS

Salomi technique



Accountability- biometric login wat d user has/knows/is



Access control

Access privilege



Maker checker principle



Ciso/cfo role



Anti piracy



Thteat/vulnerability/impact



RFID radio frequency identification



Perimeter security



3 most common metal detector



Fire extinguishers



E waste



BYOT/BYOD /work from home



Commonly used sever



Router/modem/switch/gateway



White box/black box testing



Alpha/beta testing



ISO certfctn standard specifctn



COBIT



STEGNOGRAPHY/RANSOMWARE/CYBER TERRORISM/SOCIAL ENGG



DOS/DDOS



CAPTCHA



MALWARE/SPYWARE/ADWARE/ROOTKIT/BOTNETS



FASTFLUX/STUXNET



HOTSITE/WARMSITE/COLDSITE



IS AUDIT QUALIFCTNS



GUIDELINES FOR FRAUD PREVENTION



FSDC

Assets

ASSETS::

Fixed Assets :
Assets which are purchased for long
term and not meant to be sold but used for production.
Land & Building,Plant & Machinery
Vehicles,Furniture & Fixture
Office equipment,Capital Work in Progress These are
represented as under:
Original value (Gross Bock) Less depreciation
Net Block or book value or written down
Value Method

Non Current Assets:

Assets which cannot be classified as current or
fixed or intangible assets Book Debts or Sundry
Debtors more than 6 months old/ Disputed Debts,
Investment of long term nature in shares,
govt. securities, associates or sister firms or
companies. Long term security deposits. Unquoted
investments; Investments in subsidiaries or sister
concerns; Loans & Advances to directors, officers;
Accounts receivables in respect of sale of plant &
machinery; Advances to concerns in which directors
are interested; Deposits with customs port trust etc
Intangible & fictitious Assets Which do not have
physical existence. For example: Goodwill, Patents,
Trade Mark, Copy Right, Preliminary or pre operative
expenses, other formation expenses, debit balance of
P & L account, accumulated losses, bad debts,
Capital issue expenses e.g. discount on issue of
share & debentures, commission on underwriting of
shares & debentures; Deferred revenue expenditure
e.g. Advertisement

Current Assets : Cash in hand, Bank balance
including fixed ,deposits with banks. Stocks/inventory
(such as raw material, stock in process, finished
goods, consumable stores and spares),Book
debts/Sundry debtors/Bills Receivable/ Accounts
receivable/ debtors, Government and other trustee
securities
(other than for long term purposes e.g. sinking funds,
gratuity funds etc.),Readily Marketable/quoted govt. or
other securities meant for sale,Interest accrued and
receivables,Advance payment of taxes,
pre-paid expenses,Advance payments for
merchandise; unexpired insurance

Basics what is what? Banking terms

Basics what is what? Banking terms

What is FII?
FII (Foreign Institutional Investor) used to denote an investor, mostly in the form of an institution. An institution established outside India, which proposes to invest in Indian market, in other words buying Indian stocks. FII's generally buy in large volumes which has an impact on the stock markets. Institutional Investors includes pension funds, mutual funds, Insurance Companies, Banks, etc.
What is FDI?
FDI (Foreign Direct Investment) occurs with the purchase of the “physical assets or a significant amount of ownership (stock) of a company in another country in order to gain a measure of management control” (Or) A foreign company having a stake in a Indian Company.
What is IPO?
IPO is Initial Public Offering. This is the first offering of shares to the general public from a company wishes to list on the stock exchanges.
What is Disinvestment?
The Selling of the government stake in public sector undertakings.
What is Fiscal Deficit?
It is the difference between the government’s total receipts (excluding borrowings) and total expenditure.
What is Revenue deficit?
It defines that, where the net amount received (by taxes & other forms) fails to meet the predicted net amount to be received by the government.
What is GDP?
The Gross Domestic Product or GDP is a measure of all of the services and goods produced in a country over a specific period; classically a year.
What is GNP?
Gross National Product is measured as GDP plus income of residents from investments made abroad minus income earned by foreigners in domestic market.
What is National Income?
National Income is the money value of all goods and services produced in a country during the year.
What is Per Capita Income?
A: The national income of a country, or region, divided by its population. Per capita income is often used to measure a country's standard of living.
What is Vote on Account?
A vote-on account is basically a statement ,where the government presents an estimate of a sum required to meet the expenditure that it incurs during the first three to four months of an election financial year until a new government is in place, to keep the machinery running.
Difference between Vote on Account and Interim Budget?
Vote-on-account deals only with the expenditure side of the government's budget, an interim Budget is a complete set of accounts, including both expenditure and receipts.
What is SDR?
The SDR (Special Drawing Rights) is an artificial currency created by the IMF in 1969. SDRs are allocated to member countries and can be fully converted into international currencies so they

serve as a supplement to the official foreign reserves of member countries. Its value is based on a basket of key international currencies (U.S. dollar, euro, yen and pound sterling).
What is SEZ?
SEZ means Special Economic Zone is the one of the part of government’s policies in India. A special Economic zone is a geographical region that economic laws which are more liberal than the usual economic laws in the country. The basic motto behind this is to increase foreign investment, development of infrastructure, job opportunities and increase the income level of the people.
What is corporate governance?
The way in which a company is governed and how it deals with the various interests of its customers, shareholders, employees and society at large. Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Is defined as the general set of customs, regulations, habits, and laws that determine to what end a firm should be run.
Functions of RBI?
The Reserve Bank of India is the central bank of India, was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Reserve Bank of India was set up on the recommendations of the Hilton Young Commission. The commission submitted its report in the year 1926, though the bank was not set up for nine years. To regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage." Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. Banker to banks: maintains banking accounts of all scheduled banks.
What is the dispute between the RBI and GOVT OF INDIA presently
What is monetary policy?
Monetary policy is the process by which the government, central bank, of a country controls (i) the supply of money, (ii) availability of money, and (iii) cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economy.
What is Fiscal Policy?
Fiscal policy is the use of government spending and revenue collection to influence the economy. These policies affect tax rates, interest rates and government spending, in an effort to control the economy. Fiscal policy is an additional method to determine public revenue and public expenditure.
What is Core Banking Solutions?
Core banking is a general term used to describe the services provided by a group of networked bank branches. Bank customers may access their funds and other simple transactions from any of the member branch offices. It will cut down time, working simultaneously on different issues and increasing efficiency. The platform where communication technology and information technology are merged to suit core needs of banking is known as Core Banking Solutions.

What is bank and its features and types?
A bank is a financial organization where people deposit their money to keep it safe. Banks play an important role in the financial system and the economy. As a key component of the financial system, banks allocate funds from savers to borrowers in an efficient manner.
i. Regional Rural Banks were established with an objective to ensure sufficient. Institutional credit for agriculture and other rural sectors. The RRBs mobilize financial resources from rural / semi-urban areas and grant loans and advances mostly to small and marginal farmers, agricultural labourers and rural artisans. The area of operation of RRBs is limited to the area as notified by GoI covering one or more districts in the State.
ii. Banking services for individual customers is known as retail banking.
iii. A bank that deals mostly in but international finance, long-term loans for companies and underwriting. Merchant banks do not provide regular banking services to the general public
iv. Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by their retail or virtual bank.
v. Mobile Banking is a service that allows you to do banking transactions on your mobile phone without making a call , using the SMS facility. Is a term used for performing balance checks, account transactions, payments etc. via a mobile device such as a mobile phone.
vi. Traditional banking is the normal bank accounts we have. Like, put your money in the bank and they act as a security and you will get only the normal interests (decided by RBI in our case, FED bank in US).
vii. Investment banking is entirely different. Here, people who are having so much money (money in excess which will yield only less interest if in Banks) will invest their money and get higher returns. For example, If i have more money instead of taking the pain of investing in share market, buying properties etc. I will give to investment banks and they will do the money management and give me higher returns when compared to traditional banks.
What is E-Governance?
E-Governance is the public sector’s use of information and communication technologies with the aim of improving information and service delivery, encouraging citizen participation in the decision making process and making government more accountable, transparent and effective.
Credit Rating Agencies in India?
The credit rating agencies in India mainly include ICRA and CRISIL. ICRA was formerly referred to the Investment Information and Credit Rating Agency of India Limited. Their main function is to grade the different sector and companies in terms of performance and offer solutions for up gradation. The credit rating agencies in India mainly include ICRA and CRISIL(Credit Rating Information Services of India Limited)
CODE OF BANK'S COMMITMENTS
Code of Bank's Commitments made to the individual customers during July 2006 is valid for three years. The code is voluntary which stresses minimum standard of banking practices to follow while dealing with the customers in their day-to-day operations. The code has been developed to promote minimum standards, to increase transparency, to achieve higher operating standards, to promote fair and cordial relationship between the banks and customers and to foster confidence in the banking system. The Code of Bank's Commitment includes all products and services,
whether they are provided by branches or subsidiaries across counters, over phone or through Internet. Customers can lodge complaints related to Internet banking and non-adherence to the provisions of the fair practices code for banks of the Banking Codes and Standards Board of India (BSCBI), as per amendment brought in by the RBI to the Banking Ombudsman Scheme in February 2009.
Help on any enquiry on the Code of Bank's Commitment is available at Indian Banks' Association, Mumbai. The monitoring agency on the implantation of Code of Bank's Commitment is Banking Codes and Standards Board of India, RBI.

LIMITED LIABILITY PARTNERSHIP ACT - SALIENT FEATURES

LIMITED LIABILITY PARTNERSHIP ACT - SALIENT FEATURES
 The LLP will be an alternative corporate business vehicle that would give the benefits of limited liability but would allow its members the flexibility of organizing their internal structure as a partnership based on an agreement. The proposed Bill does not restrict the benefit of LLP structure to certain classes of professionals (as in some countries) but would be available for all enterprises that fulfill the requirements of the Act. LLP will be a body corporate and a legal entity separate from its partners.
 A LLP will have perpetual succession. While the LLP will be a separate legal entity, liable fully of its assets, the liability of the partners would be limited to their agreed contribution in the LLP.
 Further, no partner would be liable on account of the independent or un-authorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
 Indian Partnership Act, 1932 shall not be applicable to LLPs and there shall not be any upper limit on number of partners in an LLP unlike an ordinary partnership firm where the maximum number of partners cannot exceed 20.
 A LLP shall be under obligation to maintain annual accounts reflecting true and fair view of its state of affairs.
 Since tax matters of all entities in India are addressed in the Income Tax Act, 1961, the taxation of LLPs will be as addressed in the Income Tax Act.
 Provisions are made in the Bill for corporate actions like mergers, amalgamations etc.
 While enabling provisions in respect of winding up and dissolutions of LLPs have been made in the Bill, detailed provisions in this regard would be provided by way of rules under the Act.
 The Act also provides for conversion of existing partnership firm, private limited company and unlisted public company into a LLP.
 Nothing Contained in the Partnership Act 1932 will affect an LLP.
 The Registrar of Companies will register and control LLPs also.
Conceptually, an LLP is a hybrid corporate form entity combining features of the existing partnership firms and limited liability companies. LLP combines the benefits of limited liability for partners with flexibility to organize internal management based on mutual agreement among the partners. India’s 1932 Partnership law permitted partnership firms with unlimited liability.
Following are as the salient features of the LLP bill, 2008:
 LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession like a corporation;
 Provisions of the Indian Partnership Act, 1932 shall not be applicable to LLPs and there shall not be any upper limit or number of partners in an LLP unlike an ordinary partnership firm where the maximum number of partners cannot exceed 20; (10 in case of banking);
 While the LLP will be a separate legal entity, liable to the full extent of its assets, the liability of the partners would be limited to their agreed contribution to the LLP. Further, no partner would be liable on account of independent or unauthorized actions of other partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct;
 The framework of LLP is not restricted to professional services alone. Several business activities can be undertaken using the LLP structure;
 Any individual or body corporate may be a partner in LLP:
 An LLP shall be under obligation to maintain annual accounts reflecting true and far view of its rate of affairs; and
 The bill contains procedures for corporate actions like mergers, amalgamations, liquidations etc.

The LLP Act will be administered by Ministry of Corporate Affairs. LLPs would need to be necessarily registered with registrar of companies by submitting necessary documents. The registration of LLPs will be a time bound (approx 2 weeks) and paperless affair and would be covered under MCA-21 e-governance programme of the Ministry of Corporate Affairs

*Very very useful financial tips*

*Very very useful financial tips*

1. *Avoid buying property on loans unless you have a clear plan for its repayment. Monitor cash flow*

2. *Start a SIP at a very young age*

3. *Avoid buying a car unless you use it everyday*

4. *Do not let this sentence scare you. “Mutual fund investment are subject to market risk”. Look at the history and growth of Mutal Funds*

5. *Try having a simple wedding*

6. *Atleast 20% of your wealth should be liquid so you can utilize it when necessary*

7. *Considering inflation, do not keep huge money in savings bank account*

8. *If you invest in stocks, pay due attention*

9. *Do not have a belief that property & car make you rich*

10. *Never invest in insurance for returns*

11. *Use credit card for needs not for wants*

12. *Cancel all credit cards before you die, or inform family. Even a small residue will cost your family much*

13. *Invest on yourself & then on other investments*

14. *Balance your earnings with your savings first, then on spending and loans. Never take unnecessary loans*

15. *Always have a plan for future events on your career, life, spending and finance*

16. *Always have a reserve on your savings for contingency and urgent situations*

17. *Investment like, have a regular health check & do healthy workout every day*

18. *Do buy adequate term Insurance if you have dependents*

19. *Prepare a Will*

Micro finance recollected

 microfinance exam questions from,
1. Chikola group
2. Rrb bank established in the year
3. Rbi act, rrb act,
4. Bank rakyat Indonesia
5. Malegam committee recommendation
6. Shg bank linkage program
7. Sewa bank
8. Break even analysis also named as
9. As 2 deals with
10. Examples of cash flow like travel expenses interest expenses
11. 2 numericals from break even anaysis
12.average case load formula
13. Question from relationship risk

NEGOTIABLE INSTRUMENTS ACT, 1881

NEGOTIABLE INSTRUMENTS ACT, 1881
Negotiable Instrument Act 1881 came into force w.e.f. Mar 01, 1882.
Latest amendment was carried out in December 2002. The Act has total 147 sections which are applicable throughout India including Jammu & Kashmir state.
STATUTE: Section 13 gives the meaning of Negotiable Instruments and states Negotiable Instruments means a Promissory Note, Bill of Exchange or Cheque payable either to order or to bearer.
Definition of Negotiable Instruments:
No direct definition of an NI is available. But as per Sec 13, NI means and include Promissory note (PN), Bill of exchange (BoE) and Cheque.
TYPE OF NEGOTIABLE INSTRUMENTS:
(a) As per NI Act - 1: Promissory note, 2: bill of exchange, 3: cheque and 4: Demand draft
(b) As per Transfer of property Act (Sec 137) - Documents of title to goods such as Bill of Lading, Rail Reciept, GR issued by transport operators approved by IBA, Warehouse receipt , AirWay Bill Dock Warrant, Delivery Order etc. also called Quasi Negotiable instrument.
(c) As per usage or practice - such as Certificate of Deposit , Commercial Paper , Treasury Bills, Hundi, Govt. Promissary Notes.
RESTRICTION ON ISSUE OF BEARER PN & BOE:
As per NI Act, BoE and PN can be made payable to bearer.
But only Central Govt. and RBI, are permitted to draw PN & BoE payable to Bearer u/s 31 of RBI Act 1934. Other persons in India can draw only payable to order.
DD is issued payable to ORDER due to this restriction.
Cheques can be issued as bearer or order, as this restriction is not applicable to cheques. PRESUMPTIONS OF NIs:
U/s 118, NIs are presumed to be:
(a) made for consideration,
(b) bear date on which they are made.
(c) every holder is a holder in due course.
PROMISSORY NOTE (Section 4 NI Act):
PN is in an unconditional undertaking or promise, in writing signed by the maker (the debtor), to pay a certain sum of money to or to the order of a certain person or to the bearer thereof.
Promise is a compulsory condition, in a promissory note.
Acknowledgement is not a promissory note (example I owe you Rs.500 is an acknowledgement and not a promissory note).
PARTIES:
In PN there are 2 parties maker (debtor) & payee (creditor)
CURRENCY NOTES:
Currency/bank notes are not promissory notes as these are excluded from the definition of promissory notes.
CHEQUE:
Cheque is a demand bill of exchange drawn on a specified bank. It also includes truncated cheque (in case of CTS in NCR and Chennai) and electronic cheque. (Sec 6).
Cheque can be made payable to bearer or order (restriction of Section 31 of RBI Act on issuing bearer is not applicable on cheque).
BEARER AND ORDER:
If a cheque bears, the words bearer / order both, it is payable to bearer. If does not bear such words it is payable to order.
TRUNCATED CHEQUE:
It is a paper cheque, which is retained by the collecting bank. To collect the payment, the collecting bank sends scanned image of the paper cheque to the drawee bank + digital signatures of collecting bank.
ELECTRONIC CHEQUE :
It is a scanned image of the paper cheque + digital signatures of the drawer.
(Digital signature has two keys, public key (which is disclosed) and private key (which is kept secret). Public key is used to verify the digital signatures and private key is used to sign.
FORMAT OF CHEQUE:
Format is a practice. It is not prescribed in any Act.
POST DATED CHEQUE:
Cheque bearing date subsequent to date of its presentment. It cannot be paid before its date. Example - Cheque dated Jan 22, is presented on Jan 16. It will be returned.
ANTE-DATED CHEQUE:
A cheque bearing date prior to the date, when it was actually drawn.
Example - Cheque issued on Jan 22 but it is dated Jan 05, while the account was opened on Jan
10. Such cheque can be paid.
IMPOSSIBLE DATE :
If an impossible date is written (say Feb 29 in case of leap year, 31 Apr, 31 Jun, 31 Sep,Nov 31), the cheque would be paid on last day of month (Nov 30).
INCOMPLETE DATE:
If date is not complete (say Jun 2010). It cannot be paid.
AMOUNT IN WORDS AND FIGURES DIFFERS (Sec 18):
Such cheque can be paid for amount written in words. Amount written in figures shall be ignored. If amount in words is written and in figures not given, it is incomplete cheque and cannot be paid.
DIFFERENT HANDWRITINGS / INKS / SCRIPTS
A cheque drawn in different handwritings or in different inks or different script would be paid.
FORGED CHEQUE:
A forged cheque (where signatures of the drawer are forged) is not a mandate of the drawer and in no circumstances it can be paid. If paid bank would be liable.
HOLDER (Sec 8):
Holder is a person who is
(a) entitled to possession of the instrument
(b) entitled to receive or recover the due amount thereon.Actual possession and consideration is not compulsory for a holder.
HOLDER IN DUE COURSE (Sec 9):
It is a person who is
(a) entitled to possession of the instrument
(b) entitled to receive or recover the due amount thereon
(c) obtained the possession for consideration
(d) obtained the possession in good faith.
Payee or endorsee of a cheque is a holder in due course. But if the cheque is lost, he becomes only a holder. Similarly, the payee of a gift cheque is only a holder and not a holder in due course, as there is no consideration.
Holder or Holder in due course can
(a) complete an inchoate (incomplete) instrument,
(b) cross an uncrossed cheque,
(c) obtain a duplicate if original is lest and
(d) convert a bearer into order.
                       HOLDER ( Sec. 8 )  HOLDER IN DUE COURSE (Sec.9 )
Consideration Not essential             Essential
Actual Possession Not essential      Essential
Defective Title Will affect the instrument Will not affect the Instrument
RIGHTS OF HOLDER
a) Holder can obtain a duplicate of the lost Instrument (Section 45-A).
b) Holder can cross the cheque if not already crossed, convert a general crossing to a special crossing, endorse and can negotiate If !tie negotiation is not restricted
c) Holder can sue in his own name In relation to the instrument
d) Holder can complete an Inchoate Instrument.
e) Holder can give proper discharge to the person making the payment
RIGHTS OF HOLDER IN DUE COURSE
 Every prior party to a negotiable Instrument is liable thereon to a holder in due course until the Instrument IS duly satisfied (Sec. 36).
 If a bill is drawn payable to the drawer's order In a fictitious name, the acceptor IS not relieved from liability to any holder in due course, provided endorsement and the drawer's signatures are in the same handwriting (Sec. 42).
 If a bill of exchange or promissory note IS negotiated to a holder in due course, the other parties to the Instrument cannot escape liability on the ground that the delivery of the instrument was conditional or for a special purpose only (Sec. 46)
INCHOATE INSTRUMENT:
As per Section 20, it is incomplete instrument in which one or the other particulars are not given (but it bears signatures of the drawer). It can be completed by the Holder. These are, otherwise, valid instruments, but cannot be paid till completed.
A cheque date June 2012, is incomplete. It can be paid only when date is completed.
NEGOTIATION
It means transfer of an instrument from one person to another to make the transferee the holder thereof.
METHOD OF NEGOTIATION :
BEARER-
Negotiation is completed by delivery only in case of bearer instruments (Sec 47).
ORDER:
It is completed by endorsement followed by delivery by the same person (Sec 48) in case of order instrument.
If endorser dies after endorsement but before delivery, the negotiation can be completed by legal heirs, with fresh endorsement and then delivery.
ENDORSEMENT
As per Sec 15, endorsement means signing on the face or backside of an instrument (or on a separate paper, called allonge) for the purpose of negotiation i.e. transfer of cheque to next person. Person transferring the instrument is called endorser. He can be drawer, payee or an existing endorsee. The person to whom it is transferred is called an endorsee.
BEARER CHEQUES :
On a bearer cheque endorsement is not required. If made, it will be ignored, as a bearer is always a bearer (Sec 85-2).
U/s 35, liability of an endorser is similar to drawer of the cheque. If cheque is dishonoured, the endorsee can recover the amount from the endorser or drawer.
ENDORSEMENT BY MINOR:
Minor can endorse u/s 26. But he is not liable.
CROSSING OF CHEQUES
Crossing means putting two parallel lines across the face of a cheque or demand draft, with or without words.
Parallel lines can be on any part or in any manner on the face, not necessarily transverse lines.
BoE & PN : Crossing is applicable for cheques and demand drafts only. Promissory notes or bill of exchange cannot be crossed.
PAYMENT OF CHEQUE
OBLIGATION OF BANKS: U/s 31 of NI Act, the banks are under statutory obligation to honour cheques issued by the customer where:
(a) there are sufficient funds (in the same account on which cheque is drawn). If bank makes payment by creating overdraft without customer consent, it is recoverable from the customer, if customer has not objected to payment of cheque.
(b) funds are meant for payment of the cheque and
(c) there is proper demand to make the payment i.e. within business hours.
(d) signatures are as per record (if cheque is paid for signatures different from record, but otherwise genuine, customer cannot ask for refund).
On payment in due course, bank will be discharged from obligation.
WHEN PAYMENT NOT TO BE MADE:
Payment should not be made in case of:
(a) death, insolvency, insanity of customer OR insolvency of partner or firm OR liquidation of company
(b) stop payment of cheque
(c) receipt of garnishee/attachment order
(d) post dated or mutilated or stale cheque.
(e) Insufficient balance
(f) Different signatures
(g) Material alteration
(h) Payment demanded by payee after business hours (payment to drawer after business hours, can be made)

Term Loan (MSME)

1A term loan is a loan granted for the purpose of acquisition of capital assets, such as purchase of land, construction of, buildings, purchase of machinery, modernisation, renovation or rationalization of plant, and repayable from out of the future earnings of the enterprise, in instalments, as per a prearranged schedule.

1There are four broad aspects of appraisal, namely

a. Technical feasibility, b. Economic feasibility, c. Financial feasibility, and d. Managerial competence.

1The purpose of appraisal is to ascertain whether the project will be sound – technically , economically, financially and managerially – and ultimately viable as a commercial proposition.

l Technical Feasibility – To determine the suitability of the technology selected and the adequacy of the technical investigation and design;

l Economic Feasibility - To ascertain the extent of profitability of the project and its sufficiency in relation to the repayment obligations pertaining to term assistance;

l Financial Feasibility – To determine the accuracy of cost estimates, suitability of the envisaged pattern of financing and general soundness of the capital structure; and

Managerial Competency – To ascertain that competent men are behind the project to ensure its successful implementation and efficient management after commencement of commercial production