Risk Management and credit rating

Risk Management and credit rating
The risk that the banking business faces, can be:
· Credit risk
· Market risk (resulting from adverse movement of prices of govt. securities, interest rates, forex etc.)
· Operational risk (resulting from staff errors, failure of internal processes, external events etc.)
Credit Risk : It refers to the possibility of loss that the bank or financial institution may suffer as a consequence of inability of
the counterparty (i.e. the borrower, who is operating in an environment having many uncertainties resulting in threat to the
viability and sustainability of the activity) to meet its repayment or other commitment/s as per agreed conditions and commit
default.
Reserve Bank of India states that the credit risk or default risk involves inability or unwillingness of a customer or counterparty to
meet commitment in relation to lending, trading, hedging, settlement and other financial transactions.
In terms of the guidelines issued by RBI, the credit risk is generally made up of (I) transaction risk or default risk and (2) portfolio
risk. The portfolio risk in turn comprises intrinsic and concentration risk.
· The transaction risk is the risk arising from an individual transaction or a counterparty or b orrower's default in meeting the
commitment.
· The intrinsic risk is the risk which is inherent in respect of an activity due to the operating environment. This is also termed as
industry or activity risk.
· The concentration risk refers to the risk which arises as a result of undertaking exposure in only few industries or activities or
lines of business or borrowers and borrowing groups without ensuring the diversification of the portfolio.
Why does credit risk arise ?
The credit risk arises due to operation of a number of external and internal factors.
The external factors are the state of the economy of the concerned country or state or even global economy, wide swings in the
prices of various commodities, foreign exchange rates, interest rates, trade restrictions, economic sanctions, Govt. policies, natural
calamities etc.
The internal factors are the factors which may be internal to the borrower or internal to the financing institution.
· The factors internal to the borrowing entity may be planning factors, execution factors, finance factors, marketing factors,
management factors etc.
· The factors internal to the financing banks or institutions relate to the deficiencies in loan policies/administration,
absence of prudential credit concentration limits, inadequately defined lending limits for loan officers/credit committee,
deficiencies in appraisal of borrowers' financial position, excessive dependence on collaterals and inadequate risk pricing,
absence of loan review mechanism and post sanction surveillance etc.
Steps for credit risk mitigation:
The objective of mitigation is the restrict the risk within an acceptable limit and it involves steps to be taken at (a) macro level in
the bank and (b) micro level in the bank.
At Macro Level:
i. Frequent review of norms and fixing internal limits for aggregate commitments to specific sectors of industry and business.
2. periodical review of loan policies.
3. classification of portfolio based on certain parameters of quality
At Micro Level:
i. framing of policy regarding credit appraisal standards, sanction and delivery process, monitoring and review of individual
borrowers, obtaining collaterals.
2. obtaining credit rating and their updation.
Credit rating
The credit risk differs for each project and each promoter. The appraisal of proposal done with a view to measure the risk involved
and its quantification by using a credit rating method, with following objectives:
i. to take a decision whether to accept or reject a proposal without or without modification
2. to determine the rate of interest (risk pricing)
3. to help in. macro evaluation of the total credit portfolio by classifying the individual loan account in a specific category,
depending up on the rating.
Rating Models:
The rating can be done by using internal rating model available with the bank. Most of the banks have their rating models.
The rating can also be got done by using service of external rating agencies such as CRISIL, SMERA, CARE, ICRA etc.

Credit rating methodology:
Banks the credit rating model, based on which they are able to place their borrower in a particular rating category. The broader
categories of risk area that the rating models take into account are:
1. Management related aspects
2. Security related aspects
3. Financial aspects on the basis of financial statements
4. Business risk
These ratings are required to be reviewed periodically, in view of dynamic nature of the business of the borrower.
Derivative instruments for Credit Risk Management
The derivative instruments are used to hedge the inherent credit risk without transferring the loan account. Simple techniques for
transferring credit risk are available with the banks for very long time which include guarantors, collateral securities, credit
insurance from agencies like DICGC, CGTMSE. In recent some new instruments have also been introduced that include (a) Credit
default swaps and (b) credit linked notes.
Credit default swaps (CDS) : It is a contract between the financing bank (risk seller) and protection seller, whereby the protection
seller provides protection against credit events (i.e. default). For this purpose, the risk seller makes payment of premium to the
protection seller. The credit events include bankruptcy, failure to pay, restructuring etc.
Credit linked notes (CLN): In this arrangement, the protection seller (normally a special purpose vehicle — SPV) issues notes linked
to underlying credit. These notes can be purchased by general public as investors and the SPV purchases high rated securities with
that amount. On maturity, these securities are sold and money is returned to investors, if there is no credit default. In case of
credit default, the funds are used to make payment to risk seller.
The risk seller makes regular payment of premium.
New Capital Accord (Basel 2) : Implications on Credit Risk
The Basel Committee on Banking Supervision has proposed 3 approaches, viz.,
1. Standardised and
2. Foundation Internal Rating Based Approach
3. Advanced Internal Rating Based Approach
In India, presently the Standardized approach has been implemented.
Under the standardised approach, preferential risk weights in the range of o%, 20%, 50%, 100% and 150% are assigned by RBI for
certain risk weighted assets and some discretion has been given to bank where they can allot risk weight on the basis of external
credit assessments.
Internal Rating Based Approach
There are two approaches — foundation and advanced - as an alternative to standardised approach for assigning preferential risk
weights. Under the foundation approach, banks, which comply with certain minimum requirements viz. comprehensive credit
rating system. The adoption of these approaches requires substantial upgradation of the existing credit risk management systems.
The time schedule fixed by RBI for migrating to Internal Rating Based approach is as under: The earliest date of making application by
banks to RBI — April 01, 2012 Likely date of approval by RBI — March 31, 2014.
The banks have been advised by RBI to undertake an internal assessment of their preparedness for migration to advanced approaches,
in the light of the criteria envisaged in the Basel II document, as per the aforesaid time schedule, and take a decision, with the approval
of their Boards, whether they would like to migrate to any of the advanced approaches. The banks deciding to migrate to the advanced
approaches should approach us for necessary approvals, in due course, as per the stipulated time schedule. If the result of a bank's
internal assessment indicates that it is not in a position to apply for implementation of advanced approach by the above mentioned
dates, it may choose a later date suitable to it based upon its preparation.
It may be noted that banks, at their discretion, would have the option of adopting the advanced approaches for one or more of the
risk categories, as per their preparedness, while continuing with the simpler approaches for other risk categories, and it would not
be necessary to adopt the advanced approaches for all the risk categories simultaneously. However, banks should invariably obtain
prior approval of the RBI for adopting any of the advanced approaches.

Trade finance

Trade finance

Trade finance is the financing of international trade flows. It exists to mitigate, or reduce, the risks involved in an international trade transaction.

There are two players in a trade transaction: (1)an exporter, who requires payment for their goods or services, and (2)an importer who wants to make sure they are paying for the correct quality and quantity of goods.

WHAT ARE THE RISKS?

As international trade takes place across borders, with companies that are unlikely to be familiar with one another, there are various risks to deal with. These include:

Payment risk: Will the exporter be paid in full and on time? Will the importer get the goods they wanted?

Country risk: A collection of risks associated with doing business with a foreign country, such as exchange rate risk, political risk and sovereign risk. For example, a company may not like exporting goods to certain countries because of the political situation, a deteriorating economy, the lack of legal structures, etc.

Corporate risk: The risks associated with the company (exporter/importer): what is their credit rating? Do they have a history of non-payment?

To reduce these risks, banks – and other financiers – have stepped in to provide trade finance products.

TYPES OF TRADE FINANCE PRODUCTS

The market distinguishes between short-term (with a maturity of normally less than a year) and medium to long-term trade finance products (with tenors of typically five to 20 years)

                       

Trade finance signifies financing for trade, and it concerns both domestic and international trade transactions. A trade transaction requires a seller of goods and services as well as a buyer. Various intermediaries such as banks and financial institutions can facilitate these transactions by financing the trade.

While a seller (or exporter) can require the purchaser (an importer) to prepay for goods shipped, the purchaser (importer) may wish to reduce risk by requiring the seller to document the goods that have been shipped. Banks may assist by providing various forms of support. For example, the importer's bank may provide a letter of credit to the exporter (or the exporter's bank) providing for payment upon presentation of certain documents, such as a bill of lading. The exporter's bank may make a loan (by advancing funds) to the exporter on the basis of the export contract.

Other forms of trade finance can include Documentary Collection, Trade Credit Insurance, Finetrading, Factoring or Forfaiting. Some forms are specifically designed to supplement traditional financing.

Secure trade finance depends on verifiable and secure tracking of physical risks and events in the chain between exporter and importer. The advent of new information and communication technologies allows the development of risk mitigation models which have developed into advance finance models. This allows very low risk of advance payment given to the Exporter, while preserving the Importer's normal payment credit terms and without burdening the importer's balance sheet. As trade transactions become more flexible and increase in volume, demand for these technologies has grown.

Products and services
Banks and financial institutions offer the following products and services in their trade finance branches.

·         Letter of credit: It is an undertaking/promise given by a Bank/Financial Institute on behalf of the Buyer/Importer to the Seller/Exporter, that, if the Seller/Exporter presents the complying documents to the Buyer's designated Bank/Financial Institute as specified by the Buyer/Importer in the Purchase Agreement then the Buyer's Bank/Financial Institute will make payment to the Seller/Exporter.

·         Bank guarantee: It is an undertaking/promise given by a Bank on behalf of the Applicant and in favour of the Beneficiary. Whereas, the Bank has agreed and undertakes that, if the Applicant failed to fulfill his obligations either Financial or Performance as per the Agreement made between the Applicant and the Beneficiary, then the Guarantor Bank on behalf of the Applicant will make payment of the guarantee amount to the Beneficiary upon receipt of a demand or claim from the Beneficiary.

Bank guarantee has various types like 1. Tender Bond 2. Advance Payment 3. Performance Bond 4. Financial 5. Retention 6. Labour

·         Export

·         Import

·         Collection and discounting of bills: It is a major trade service offered by the Banks. The Seller's Bank collects the payment proceeds on behalf of the Seller, from the Buyer or Buyer's Bank, for the goods sold by the Seller to the Buyer as per the agreement made between the Seller and the Buyer.

Supply Chain intermediaries have expanded in recent years to offer importers a funded transaction of individual trades from foreign supplier to importers warehouse or customers designated point of receipt. The Supply Chain products offer importers a funded transaction based on customer order book.

New developments
Trade finance is going through a revolution. New technologies and development are energizing traditional players, transforming their offerings and pulling trade into the 21st century. One of the main developments is the introduction of blockchain technology into the trade finance ecosystem. The promise of blockchain is that it has the ability to streamline the trade finance process. In the past, trade finance has been provided primarily by financial institutions, unchanged for years, with many manual processes on old-legacy systems that are expensive and costly to update. Such structures are mostly managed manually or through antiquated systems, which are not scalable and result in higher operational costs for financial institutions.

Blockchain technology can provide enormous benefits to solve these technological challenges in trade finance. It can be used to provide the basic services that are essential in trade finance. At its core, blockchain relies on a decentralized, digitalized ledger model, which by its nature is more robust and secure than the proprietary, centralized models which are currently used in trade finance. As a consequence, blockchain can lead to radical simplification and cost reduction for large parts of transactions in trade finance, whilst making it more secure and reliable. It keeps an immutable record of all the transactions, back to the originating point of a transaction, also known as the provenance, which is essential in trade finance as it allows financial institutions to review all transaction steps and reduce the risk of fraud. One of the blockchain’s advantages is the speeding up of transaction settlement time which currently takes days, increasing transparency between all parties, and unlocking capital that would otherwise be tied up waiting to be transferred between parties in the transaction. Several companies are working on trade finance solutions leveraging blockchain technology such as the R3 consortium, which brings together the world's biggest financial institutions and TradeIX, which developed a connected and secured platform infrastructure for corporates, financial institutions, and B2B networks through standard communication channels (APIs) leveraging blockchain technology.


Methods of payment
International trade financing is required especially to get funds to carry out international trade operations. Depending on the types and attributes of financing, there are five major methods of transactions in international trade. In this chapter, we will discuss the methods of transactions and finance normally utilized in international trade and investment operations.

International Trade Payment Methods
The five major processes of transaction in international trade are the following −

Prepayment
Prepayment occurs when the payment of a debt or installment payment is done before the due date. A prepayment can include the entire balance or any upcoming part of the entire payment paid in advance of the due date. In prepayment, the borrower is obligated by a contract to pay for the due amount. Examples of prepayment include rent or loan repayments.

Letter of Credit
A Letter of Credit is a letter from a bank that guarantees that the payment due by the buyer to a seller will be made timely and for the given amount. In case the buyer cannot make payment, the bank will cover the entire or remaining portion of the payment.

Drafts
Sight Draft − It is a kind of bill of exchange, where the exporter owns the title to the transported goods until the importer acknowledges and pays for them. Sight drafts are usually found in case of air shipments and ocean shipments for financing the transactions of goods in case of international trade.

Time Draft − It is a type of foreign check guaranteed by the bank. However, it is not payable in full until the duration of time after it is obtained and accepted. In fact, time drafts are a short-term credit vehicle used for financing goods’ transactions in international trade.

Consignment
It is an arrangement to leave the goods in the possession of another party to sell. Typically, the party that sells receives a good percentage of the sale. Consignments are used to sell a variety of products including artwork, clothing, books, etc. Recently, consignment dealers have become quite trendy, such as those offering specialty items, infant clothing, and luxurious fashion items.

cash with order(CWO)-the buyers pay cash when he places an order.

cash on delivery(COD)-the buyer pays cash when the goods are delivered.

documentary credit(L/C)-a Letter of credit (L/C) is used; gives the seller two guarantees that the payment will be made by the buyer:one guarantee from the buyer's bank and another from the seller's bank.

bills for collection(B/E or D/C) -here a Bill of Exchange (B/E)is used; or documentary collection (D/C) is a transaction whereby the exporter entrusts the collection of the payment for a sale to its bank (remitting bank), which sends the documents that its buyer needs to the importer’s bank (collecting bank), with instructions to release the documents to the buyer for payment.

open account-this method can be used by business partners who trust each other; the two partners need to have their accounts with the banks that are correspondent banks.

Methods of payment: Cash in Advance (Prepayment) Documentary Collections Letters of Credit Open Account Combining Methods of Payment Summary Resources Activities Assessment

Open account is a method of making payments for various trade transactions. In this arrangement, the supplier ships the goods to the buyer. After receiving and checking the concerned shipping documents, the buyer credits the supplier's account in their own books with the required invoice amount.

The account is then usually settled periodically; say monthly, by sending bank drafts by the buyer, or arranging through wire transfers and air mails in favor of the exporter.

Trade Finance Methods
The most popular trade financing methods are the following −

Accounts Receivable Financing
It is a special type of asset-financing arrangement. In such an arrangement, a company utilizes the receivables – the money owed by the customers – as a collateral in getting a finance.

In this type of financing, the company gets an amount that is a reduced value of the total receivables owed by customers. The time-frame of the receivables exert a large influence on the amount of financing. For older receivables, the company will get less financing. It is also, sometimes, referred to as "factoring".

Letters of Credit
As mentioned earlier, Letters of Credit are one of the oldest methods of trade financing.

Banker’s Acceptance
A banker’s acceptance (BA) is a short-term debt instrument that is issued by a firm that guarantees payment by a commercial bank. BAs are used by firms as a part of the commercial transaction. These instruments are like T-Bills and are often used in case of money market funds.

BAs are also traded at a discount from the actual face value on the secondary market. This is an advantage because the BA is not required to be held until maturity. BAs are regular instruments that are used in international trade.

Working Capital Finance
Working capital finance is a process termed as the capital of a business and is used in its daily trading operations. It is calculated as the current assets minus the current liabilities. For many firms, this is fully made up of trade debtors (bills outstanding) and the trade creditors (the bills the firm needs to pay).

Forfaiting
Forfaiting is the purchase of the amount importers owe the exporter at a discounted value by paying cash. The forfaiter that is the buyer of the receivables then becomes the party the importer is obligated to pay the debt.

Countertrade
It is a form of international trade where goods are exchanged for other goods, in place of hard currency. Countertrade is classified into three major categories – barter, counter-purchase, and offset.

·        Barter is the oldest countertrade process. It involves the direct receipt and offer of goods and services having an equivalent value.

·        In a counter-purchase, the foreign seller contractually accepts to buy the goods or services obtained from the buyer's nation for a defined amount.

·        In an offset arrangement, the seller assists in marketing the products manufactured in the buying country. It may also allow a portion of the assembly of the exported products for the manufacturers to carry out in the buying country. This is often practiced in the aerospace and defense industries.

Legal Entity Identifier

LEGAL ENTITY IDENTIFIER

Reserve Bank of India has made Legal Entity Identifier (LEI) code mandatory for all market participants, other than individuals.

LEI:

• It is a 20 character global reference number conceived by G20 that uniquely identifies every legal entity or structure that is party to a financial transaction, in any jurisdiction.
• Internationally LEI is implemented and maintained by Global Legal Entity Identifier Foundation through Local Operation Units (LOU) established by each country independently and voluntarily.
• LEI information is publicly available free of charge and It is reviewed, updated and validated annually by LOUs.
• In India entities can obtain LEI from Legal Entity Identifier India Ltd (LEIL) (only LOU of India), subsidiary of The Clearing Corporation of India Ltd, recognized by RBI under Payment and Settlement Systems Act, 2007.
Need and benefits of LEI in India:
• Monitoring debt: Banks are now required to acquire LEI
number from the borrower and report it to Central Repository of Information on Large Credit. A consolidated data under LEI mechanism will help banks to monitor debt exposure of corporate borrowers and also prevent multiple loans against the same collateral, thus helping reduce NPAs
• Money Laundering: Global financial transactions are difficult to track. However, LEI being a unique global identifier, making it mandatory for all transactions regulated by RBI will help identifying the entity party to the transaction easily and accurately.
• Tool for RBI: To gain better insight into corporate actions (particularly M&A activity).
• Other benefits: LEI will improve internal data flow and risk monitoring processes and allow the industry to meet regulatory reporting requirements while minimizing costs.

New All IIBF Certifications PDFs in single link 2020-2021

All IIBF Certification PDFs in single link 2020-2021

Read corresponding  IIBF books .. Macmillan / Taxmann.

These all materials are extra information to get knowledge.

All the best


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Certified credit officer/Professionals 2020

https://drive.google.com/file/d/1lUW00Y-qnVzH9R9QB4ZjGqeShYDATS-e/view?usp=sharing

CAIIB ABM 2020

https://drive.google.com/file/d/10AkzgCtLyYexdKulaYY3B1ljHRJPGuLu/view?usp=sharing


MSME 2020

https://drive.google.com/file/d/1m1qF2hh9D0hpVvFTlNCR2rvpYAiEQTD8/view?usp=sharing


KYC AML:2020

https://drive.google.com/file/d/1T__7x42LV1HaG9YBQuMkAIPvS9GAHeL8/view?usp=sharing


BCSBI:2020

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CAIIB IT:2020

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Certified Treasury Professionals:2020
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Digital banking 2020
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Forex Individual 2020

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Forex Operations 2020
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International Trade Finance  2020
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IT SECURITY 2020
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Forex operations recollected questions on 23.02.2020

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

Recollected questions on IT security 19.01.2020

Recollected questions on IT security
19.01.2020


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

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

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

KYV AML mcqs

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

Caiib ABM recollcted

Re-collected questions posted by our members

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

1. Case Study on Demand Supply curves with graph

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

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

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

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

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

3. Simple Question on Y = a +bx

4. Halo effect means positive attitude rating

5. Inflation change calculation

6. Leniency error

7. Type of inflation

8. Bond problem

9. Ratio analysis

10. Linear program 5 marks

11. Probability 5 marks - Z values given

12. Sampling related 5 marks

13. Money Supply/ Demand curve related 5 marks

14. Narrow Money, Broad Money related case study

15. Credit Monitoring questions

16. Debtors turnover ration

17. STOCK TURNOVER RATIO

18. CURRENT RATIO

19. QUICK RATIO

20. FV formula

21. Calculating LC 5 mark case study

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

23. HRIS

24. Role erosion and role ambiguity

25. Net fiscal deficit

26. Green GDP

27. Real gross income

28. Standard estimate error

29. Regression/Coefficient

30. Interpretation of confidence interval

31. Simplex method

32. What is called broad money

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

34. Question on cluster sampling

35. GDP deflator

36. Who said what definition of economics

37. Working capital

38. Business cycle

39. Linear programming, HR theories, sampling

40. What is 3Vs

41. Sample proportion calculate

42. Marshall definition

43. Credit delivery

44. Case study on money measurements

45. Motivation theories with their founders

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

47. Johari window 1qs

48. SMA1

49. Zero coupon bond

50. Mixed economy

51. Performance appraisal systems

52. NPV

53. Microeconomics

54. Compensation

55. National domestic product

56. Left brain

57. B Type personality

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

59. Around 10 questions on Standard Deviation

60. Bell curve

61. Interpretation of confidence interval

Match the following was atleast 5

Numerical are easy

Many case study or questions from HR module

Risk management recollected questions

Caiib Risk management recollected


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

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


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

Recollected questions Jaiib legal on 24.11.2019

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

AFB jaiib November 2019 recollected

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

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

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

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

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

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

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

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

MSMEs in India -Opportunities, Issues and Challenges

MSMEs in India -Opportunities, Issues and Challenges

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

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

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

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

Crypto Currency – Is it Safe?

Crypto Currency – Is it Safe?

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

Mergers/Consolidation of Banks : Boon or Bane?

Mergers/Consolidation of Banks : Boon or Bane?

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

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