Terms used in Financial statement analysis

 

Terms used inFinancial statement analysis

1		Net Sales		Gross Sales minus returns, discounts, excise duty.
2		Raw Materials consumed		Opening Stock of raw materials plus purchases of raw materials less Closing stock of raw
				material .
3		Cost of Production		Raw materials consumed, stores and spares consumed, power and fuel, direct labour,
				repairs and maintenance, other manufacturing expenses and depredation plus opening
				stock of stock in process minus dosing stock of stock in process.
4		Cost of Sales	Cost of production (3) plus opening stock of finished goods minus dosing stock of finished
				goods.
5		Gross Profit		Net Sales - Cost of Sales (Item 1 minus Item 4)
6		Operating Profit		Gross Profit (5) minus interest, selling general and administrative expenses.
7		Net Profit before tax		Operating profit plus other incomes minus other expenses
8		Net Profit after tax		Profit before taxation minus provision for taxes.
9		Retained Profit		Net profit minus dividend paid / dedared
10		Cash Profit		Profit before charging Depreciation (Net Profit + Depredation)
11		Cash-Loss		Loss before charging Depredation (Net Loss — Depredation)
_12		Assets	Things owned by a business Not converted into cash in normal course of business, These
13		Fixed Assets		are acquired to use them in the production of other goods and services.
14		Current Assets		Assets which are meant to be converted into cash or consumed in normal course of
				business say within 1 year. These are also called as gross working capital.

15         Intangible assets               Expenditure on invisible assets, likely to yield benefit to the company in future                                                                                        e.g

		goodwill, patent, trade marks, designs.
16	Fictitious Assets	Which have notional value only e.g. losses, preliminary expenses.

         Miscellaneous Assets or Non current Which can't be classified as current, fixed or intangible e.g. inter Corporate investment assets

18	Tangible Assets	Total asset side of balance sheet minus intangible assets.
19	Quick Assets	Assets which can be converted to cash quickly. Cash, bank balances, marketable
		investments, bills receivables and sundry debtors considered goal. (Current Assets
		minus-Inventories & Prepaid Expenses)
20	Liabilities	Things owed by the business.
21	Owners Equity (Net	Paid up share capital, reserves and surplus, preference shares with more than 12 years
	Worth)	maturity.
22	Long term liabilities or Debt	Outsiders funds, payable in more than 12 months. Term loan (exduding instalment
		payable within 12 months) plus debentures maturing within more than one year,
		preference shares redeemable within 12years, deposits payable beyond one year.
23	Current Liabilities	Liabilities which are payable in less than one year e.g. sundry creditors, unsecured loans,
		advances from customers, interest accrued but not due, dividends payable, statutory
		liabilities, provisions, Bank borrowings for working capital etc
24	Total Outside Liabilities	Total of the liability side of balance sheet minus net worth
25	Tangible Net Worth	Total tangible assets minus total outside liabilities. Owner's funds minus Intangible &
		Fictitious assets ; Paid up capital plus reserves minus intangible assets
26	Gross Working Capital	Total of Current Assets
27	Net Working Capital	Current assets minus total current liabilities. Long Term Sources minus long term uses
28	Working Capital gap	Current Assets minus current liabilities other than Bank Borrowings.
29	Long term sources	Paid up capital, reserves and surplus (excluding specific reserves) i.e. Net Worth and long
		term liabilities.
30	Short Term Sources	Current Liabilities
31	Long Term Uses	Fixed Assets, Miscellaneous or Non. current assets, Intangible and Fictitious Assets
		(assets other than current assets)
32	Short Term Uses	Current Assets
33	Contingent Liabilities	Likely liability which may or may not arise on the happening or non happening of an
		event

CLASSIFICATION AS NPA

              CLASSIFICATION AS NPA     

Term Loan	If Interest and/ or instalment of principal remain overdue for aperiod of more than 90 days
CC/	if the account remains 'out of order or the limit is not renewed/reviewed within180 days from the
Credit/overdraft	due date of renewal. Out of order means an account where (i) the balance is continuously more
	than the sanctioned limit or drawing power OR (ii) where as on the date of Balance Sheet, there is
Bills	no credit in the account continuously for 90 days or credit is less than interest debited OR (iii)
	where stock statement not received for 3 months or more.  if the bill remains overdue for a
Agricultural accounts	(I) if loan has been granted for short duration crop: interest and/or instalment of principal
	remains overdue for two crop seasons beyond the due date.
	(ii) if loan has been granted for long duration crop: interest and/or instalment of principal remains
	overdue for one crop season beyond due date.
	(iii)Decision about crop duration to be taken by SLBC.
Loan against FD, NSC,	Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs and life policies not
KVP, LIP	treated as NPAs provided sufficient margin is available. Advances against gold
	ornaments, govt securities and all other securities are not covered by this exemption
Loan  guaranteed  by	Loan guaranteed by Central Govt not treated as NPA for asset classification and provisioning till
Government	the Government repudiates its guarantee when invoked. Treated as NPA for income recognition.
	Advances guaranteed by the State Government classified as NPA as in other cases
Consortium advances	Asset classification of accounts under consortium should be based on the record of recovery of
	the individual member banks.

Sole , Multiple Banking Arrangement, Consortium Lending, Syndication

Sole , Multiple Banking Arrangement, Consortium Lending, Syndication  

Sole Banking Arrangement: Sole banking arrangement is a lending by single bank to a large borrower, subject to the resources available with it and limited to the exposure limits imposed by the Reserve Bank of India. Many a times when you propose to approach to new bank for funding, they propose for sole banking that their complete banking should be transferred to their bank. This is done for two reasons one is to get complete business and second is very important is having complete monitoring of fund flow and cash flow of the firm.

 Multiple Banking Arrangement, Consortium Lending, Syndication: Multiple Banking: When the credit requirements of a borrower are beyond the capacity of a single bank or that the bank does not want to take more exposure on a particular borrower, he may then resort to multiple banking. It is an arrangement where a borrower borrows simultaneously from more than one bank independent of each other, under separate loan documents with each bank. Securities are charged to each bank separately. Remember, this is different from Consortium and Syndication

Consortium lending
Consortium lending also called joint financing or participation financing. It is a system of financial emerged due to consequential increase in demand for funds of substantial magnitude and inability of individual banks to take care of the entire fund requirement
of large borrowers. The system of consortium lending provides scope and opportunity to share risk amongst banks. The system is considered to be mutually beneficial to the banks as well as customers. Under multiple banking, there is no coordination among banks regarding appraisal, documentation, other terms and advances. In such a situation borrowers got the upper hand by playing one bank against the other. It was, therefore, necessary to formalize these credit arrangements to safeguard the interest of the banks. It is mainly catered in case of large corporate and certain mid-sized borrowers.

Syndication Lending
 Reserve Bank of India has permitted the banks to adopt syndication route to provide credit in lieu of consortium advance. A syndication credit differs from consortium advance. A syndicated credit differs from consortium advances in certain aspects.

The salient features of a syndicated credit are as follows:

 1. It is an agreement between two or more banks to provide a borrower a credit facility using common documents of the borrower.

2. The prospective borrower gives a mandate to a bank, commonly referred as a lead bank (lead manager), to arrange credit on his behalf. The mandate gives the commercial terms of the credit and the prerogatives of the mandated bank in resolving contentious issue in the course of the transaction of complete syndication.

3. The mandated bank prepares an information Memorandum about the borrower in consultation with the latter and distributes the same among st the prospective banks, inviting them to participate in the credit proposal.

What is a 'Syndicated Loan'
A syndicated loan, also known as a syndicated bank facility, is a loan offered by a group of lenders – referred to as a syndicate – who work together to provide funds for a single borrower. The borrower could be a corporation, a large project or a sovereignty, such as a government. The loan can involve a fixed amount of funds, a credit line or a combination of the two.

Credit Thrust

 Credit Thrust: It means the main focus area for a bank or a specific branch should

give. If a branch is in rural, thrust should be on agri sector loans, and so on. This gives
an opportunity for a bank/branch to gather maximum profit with minimum staff, as the
customer is ready. Precaution: While disbursement, the financials and history to be
checked to prevent NPA in future.
Credit Priorities are Same  as Credit thrust.
Credit Acquisitions: It means sanctioning the loans to customers by closing their
loans with other banks. In short, acquiring other bank‘s customers for business growth.
Points to remember:
1 Whether the loan in other bank is in standard condition
2 Why is the other bank ready to let go the loan
3 Credit history of the borrower
4 Adequate collateral
Statutory & Regulatory restrictions on Advances :
No banking company shall-
(a) grant any loans or advances on the security of its own shares, or
(b) enter into any commitment for granting any loan or advance to or on behalf
of-
(i) any of its Directors,
(ii) any firm in which any of its Directors is interested as Partner, Manager,
Employee or Guarantor, or
(iii) any company(proprietor/partner/pvt ltd/public) in which any of the
Directors of the banking company is a Director, Managing Agent,
Manager, Employee or Guarantor or in which he holds substantial
interest, or
(iv) any individual in respect of whom any of its Directors is a partner or
guarantor.
Restrictions on Grant of Loans & Advances to Officers and Relatives of Senior
Officers of Banks
The following guidelines should be followed by all the banks with reference to the
extension of credit facilities to officers and the relatives of senior officers:
(i) Loans & advances to officers of the bank
No officer or any Committee comprising, inter alia, an officer as member, shall, while
exercising powers of sanction of any credit facility, sanction any credit facility to his/her
relative. Such a facility shall ordinarily be sanctioned only by the next higher sanctioning
authority. Credit facilities sanctioned to senior officers of the financing bank should be
reported to the Board.
(ii) Loans and advances and award of contracts to relatives of senior officers of the bank
Proposals for credit facilities to the relatives of senior officers of the bank sanctioned by
the appropriate authority should be reported to the Board.
Credit Appraisal :

CREDIT RISK ASSESSMENT (CRA)
The CRA models adopted by the Bank take into account all possible factors into
appraising the risks, associated with a loan.
These have been categorized broadly into financial, business, industrial & management
risks are rated separately.


These factors duly weighted are aggregated to arrive at a credit decision whether loan
should be given or not
Validation of proposal:
It is done considering 5 key factors below:
1. CIBIL Score and Report: It is one of the most important factor that affects your
loan approval. A good credit score and report is a positive indicator of your credit
health.
2. Employment Status: Apart from a good credit history, banks also check for
your steady income and employment status.
3. Account Details: Suit filed or written off cases are carefully examined by banks.
4. Payment History: Banks check for any default on payments or amount overdue
cases, which might project a negative overview of your overall report.
5. EMI to Income Ratio: Banks also consider the proportion of your existing loans
when compared to your salary at the time of loan application. Your chances of loan
approval gets reduced if your total EMI‘s exceed your monthly salary by 50%.
Apart from your CIBIL Score, loan eligibility criteria differs from bank to bank and across
loan types. However, some of the basic requirements in terms of documentation are:
 Identity Proof: Aadhar Card, Valid Passport, Driving License, Voters ID or PAN
Card
 Address Proof: Aadhar Card, Valid Passport, Driving License, Voters ID or Utility
Bills
 Proof of Employment: Salary slip, Official ID card or letter from company
 Income Proof: Latest 3 months Bank Statement, salary slip for last 3 months
 3 Passport size photographs


Dimensions of Credit Appraisals
Six ―C‖ s
1. Character

You are considered to have good credit character when you live up to your
financial and credit agreements. Paying bills on time and meeting financial
obligations are signs of good character.
Your credit score and your credit history are good ways for a bank to learn about
your character or credit reputation and how well you pay your credit obligations.
2. Capacity
Capacity reflects your ability to repay a loan or other financial agreement.
Potential creditors want to see that you‘ll have enough cash left over after paying
your fixed monthly expenses to repay a new credit or loan account.
3. Capital
A potential bank also will assess your capital. Wondering if you have any?
Subtract all your debts from your assets, including any property that you may own,
and this is your capital. Banks and creditors like to see that you have enough
capital to handle another loan or credit account before approving you for new
credit.
4. Conditions
Banks look at conditions such as the stability of your employment, your other
debts and financial obligations, and how often you‘ve moved in the past year when
considering whether to approve you for a loan. The longer you‘ve been in a job
and the less frequently you‘ve moved the more stable your life conditions appear
to potential creditors and banks.
5. Collateral
Collateral is any property or possession that can be used as security for a
payment of a debt. For example, a home or automobile serve as collateral against
the loans you might take out to purchase them. Banks like collateral because it
guarantees them against a total loss if you fail to repay your loan. If that happens,
your collateral may be sold or repossessed to repay your financial obligation.
6. Cash Flow
adequate cash flow to repay a new loan.
Income in each month
Are you paid regularly, or does your income fluctuate based on seasonality or
other factors?
A Bank wants to make sure you have enough cash flowing your way on a regular
basis so that you can pay for a new credit obligation.

Credit management mcqs

 CREDIT MANAGEMENT 65 mcqs

01. Statutory corporations are controlled by which act for credit management.
a) Indian contract act
b) Company act
c) Act that created them
d) Indian partnership act
e) Indian trust act and public act
Ans: c
02. Which one of the following is not a non fund base credit?
a) Letter of credit
b) Bill discounting
c) Co-acceptance of bills
d) Forward contract
e) Derivatives
Ans: b
03. Mr. Shyam has a house in a rural village, very near to Agra. His house is very old and
required some repairing work. So, Mr. Shyam visited Agra main branch for a loan, how much
amount of loan he can avail from bank under housing finance.
a) 1 lakh
b) 2 Lakh
c) 5 Lakh
d) 10 Lakh
e) 20 Lakh
Ans: a
04. Small enterprises advance and export credit does not financed by both public sector and
PSU (export does not comes under priority sector advance) what percentage of small
enterprises advance and export credit is supposed to be given ___ and ___ respectively.
a) 40 and 32 %
b) 18 and 10%
c) 10 and 12%
d) No target and 12%
e) 10% and no target
Ans: c
05. RBI to free the landing rates of scheduled commercial banks for credit limit over ___.
a) 01 Lakh
b) 02 Lakh
c) 05 lakh
d) 10 Lakh
e) 20 Lakh
Ans: b
06. BPLR system of lending rates replaced by base rate system it was effected from ____.
a) 01 Jun 2010
b) 01 Jul 2011
c) 01 Jan 2010
d) 01 Jul 2010
e) 01 Jul 2003

Ans: d
07. No penal interest should be charged with effect from 10 Oct 2000 to borrower�s loan
under priority sector up to Rs _____.
a) 10000
b) 20000
c) 25000
d) 50000
Ans: c
08. No collateral security is required loan under MSME both manufacturing and production and
providing or rendering of services up to Rs ___.
a) 1 lakh
b) 2 lakh
c) 5 lakh
d) 10 lakh
e) 20 lakh
Ans: C
09. Which accounting standard makes it mandatory for some enterprises to prepare cash Flow
Statement for the accounting period?
a) AS-1
b) AS-3
c) AS-9
d) AS-17
Ans: b
10. Industries & business enterprises whose turnover for the accounting period exceeds Rs.
50 crore has to submit segment-wise reporting as per _____.
a) AS-3
b) AS-7
c) AS-17
d) AS-21
e) AS-22
ANS: C
11. MR. Rohit want to invest some money in XYZ co., he want to purchase some stocks of this
co. How Mr. Rohit can assess to financial statement of the XYZ co.
a) By balance sheet
b) By EPS
c) By financial statement
d) all
Ans: d (EPS- earning per Share)
12. Basic concept used in preparing of financial statements is given below pick up the odd
one.
a) Entity concept
b) Money market concept
c) Going concern concept
d) Dual aspect concept
e) Accrual concept
ANS: b


13. As per company act the maximum period of financial period is 15 months, MR Charles is
GM of ABC co. due to some contingency he is unable to prepare his Financial statement so he
want to extend his financial to another 03 months i.e. 18 months maximum period of financial
statement so MR Charles has to approach to whom for such extension.
a) Income Tex office
b) Reserve bank of India
c) Accountant general of region
d) Registrar of company
Ans: d
14. The companies Act classifies liabilities which shown on the left side of the horizontal form
pick up the odd one.
a) Share capital
b) Reserve & surplus
c) Miscellaneous expenditure
d) Secured & unsecured loans
e) Current liability & provisions
Ans: c
15. Revenue reserve represents accumulated retained earnings from the profits of normal
business operations. These are held in various forms that are given below pick up odd one
___.
a) General reserve
b) Investment allowance reserve
c) Advance payment received
d) Capital redemption reserve
e) Dividend equalization reserve
Ans: c
16. 17. Current liabilities and provisions as per classification under the co. act consist of the
following except one given below.
a) Advance payments received
b) Accrued expenses
c) Pre-paid expenses
d) Unclaimed dividend & dividends
e) Provisions for taxes
f) Gratuity and pensions
Ans: c
17. Which committee has prescribed inventory norms for various industries?
a) Narasimham committee
b) Raghawan committee
c) Tandon committee
d) Chakraborty committee
Ans: c
18. ____ % of small enterprises advances should go to micro enterprises in case of foreign
banks.
a) 20
b) 40
c) 60
d) 80

Ans: c
19. In order to avoid the problem in delay in realization of bills, bank may take advantage of
improved computer/communication network ___.
a) GUI
b) SFMS
c) ETF
d) SWIFT
ANS: b
20. Bank guarantee should normally have a maturity of more than ___.
a) 5 years
b) 10 years
c) 15 years
d) 20 years
e) 25 years
Ans: b
21. The conduct of LC business is governed by����..
a) RBI
b) IRDA
c) UCPDC 600
d) AMFA
e) GOI
Ans: c
22. What should bank do if the owner of the collateral security is someone other than the
borrower?
a) Reject the loan
b) Transfer security to the name of borrower
c) He should become first guarantor of the loan and create charge over the security
d) Security should be hypothecated to the banker
Ans: c
23. What bank should do to avoid asset-liability maturity mismatch that may arise out
extending long tenor to infrastructure projects.
a) Return on investment
b) break- even analysis
c) Liquidity support from IDFC
d) Take-out financing arrangement
e) Sensitivity analysis
Ans: d
24. Frequency of review should vary depending on the magnitude of risk for the average risk
account.
a) 01 month
b) 03 months
c) 06 Months
d) 12 Months
Ans: c
25. In case of company, the charge should be registered with ROC within ___ days from the
date of execution of documents.

a) 15 days
b) 30 days
c) 45 days
d) 2 m
Ans: b
26. What is Priority sector target of Direct & Indirect Agriculture for Domestic banks?
a) 13.5% of ANBC or Off Balance Sheet Items whichever is higher. 4.5% for Indirect Agri.
b) 10% of anbc or 6% for indirect agri
c) 12% of anbc or 4.5% for indirect agri
d) No target
Ans: a (it is 18% in total 13.5 % is direct Ans 4.5% is indirect agric)
27. What are targets and sub-targets of DRI advances?
a) 1% of total outstanding advances of previous year
b) Out of which 40% should go to SC/St
c) 2/3rd must route though Rural and Semi Urban branches
d) All of these
ANS: d
28. What are prudential norms for individuals and Groups as per RBI guidelines? Pick up odd
one.
a) Individuals Groups General 15% of Capital Funds
b) 40% of Capital Funds of borrower group
c) Infrastructure 20% of Capital Funds single borrower
d) 50% of Capital Fund to gp infrastructure project
e) Oil Companies 25% of Capital Funds
f) All correct
ANS: f
29. Monetary and Credit policy is issued by RBI how many times in a year?
a) Monetary Policy is issued annually
b) With quarterly review
c) Credit Policy twice a year
d) All of these
Ans: d
30. RBI has restricted bank to finance against/to _______________.
a) Bank�s own shares
b) Relatives of Directors and Senior Officers
c) Sensitive commodities under selective control measures
d) FDRs of other banks, CDs, Companies for buy back of shares and Industries consuming
Ozone Depleting Substance (ODS)
e) All of these
Ans: e
31. Explain Delivery of credit for WC limits of 10 crore and above.
a) CC component -20% & WCTL component-80%
b) WCTL component-80% & CC Components-20%
c) WCTL components-50% & CC Components-50%
d) CC Components-15% & WCTL components-85%
ANS: a- The proportion is not fixed but is flexible according to requirement of borrower.
32. What are provisioning norms for Standard Assets? Pick up odd one.
a) Direct SME and Direct Agriculture 0.25%
b) Others 0.40%
c) Commercial Real Estate 1%
d) Teaser Housing Loans 2%
e) None of these
Ans: e (It is Classification Rate of provision)
33. In how many years, Foreign banks with 20 branches and above in India need to achieve
PS target of 40%?
a) 2 years
b) 3 years
c) 4 years
d) 5 years
e) 7 years
Ans: d -starting from 1.4.2013 up to 1.4.2018.
34. What is ANBC?
a) Bank Credit in India + Bills Rediscounted with RBI/other approved institutions + Investment
in Non-SLR bonds under HTM category + other investments eligible to be treated as PS
b) Bank Credit in India + Investment in Non-SLR bonds under HTM category + other
investments eligible to be treated as PS
c) Bank Credit in India + Bills Rediscounted with RBI/other approved institutions + Investment
in Non-SLR bonds under HTM category
d) Bank Credit in India + Bills Rediscounted with RBI/other approved institutions + other
investments eligible to be treated as PS.
Ans: b
(Now amended) as per http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7460&Mode=0
35. Base Rate is determined in each bank by ___.
a) ALCO
b) BPLR
c) ALM
d) DSCR
e) SFMS
Ans: a (Asset Liability Management Committee)
36. The target given for advances to weaker sections in percentage of ANBC is ___.
a) 10% for domestic banks
b) 12% for foreign banks
c) No target for domestic banks
d) 10% for foreign banks
Ans: a
37. Mark the incorrect statement.
a) No target is given to domestic banks for small enterprise advances
b) No target is given for agriculture advances in for foreign banks
c) Export credit does not form a part of priority sector for domestic banks
d) Export credit does not form a part of priority sector for foreign banks
Ans: d
38. Gain on revaluation of asset is a ____.

a) General reserve
b) Investment allowance reserve
c) Capital reserve
d) Revenue reserve
Ans: c
39. Banks can file a civil suit for recovery of their dues in civil courts. This option is used for
dues ____.
a) Up to 5 lacs
b) Up to 10 lacs
c) Above 10 lacs only
d) Above 20 lacs only
Ans: c
40. What are provisioning norms for NPAs? Classification of assets Provision on Secured
Provision on Unsecured
a) Sub-Standard 15% 25%
b) Doubtful (D1) 25% 100%
c) Doubtful (D2) 40% 100%
d) Doubtful (D3) 100% 100%
e) Loss Assets 100% 100%
f) All correct
Ans: f
41. You are a loan in charge of ABC one of your a/c of personal loan in the name of Mr.
subhash is not paying his dues in time lots of reminder have been send by you for recovery ,
you have approached him for rehabilitation, he has agreed for that. What will be next step?
a) Rescheduling/restructuring
b) Legal action
c) Exit from the account
d) Compromise
e) Write off
Ans: d
42. Lok adalat (peoples� court) at present resoling issue of NPAs, the enhanced limit from
Aug 2004 is ___.
a) 5 lakh
b) 10 lakh
c) 20 lakh
d) 25 lakh
e) 25 lakh above
Ans: 20
43. Banks and FIs for expediting the recovery cases to DRTs (Debt Recovery Tribunals) for
NPAs value in excess of ___.
a) 05 lakh
b) 10 lakh
c) 20 lakh
d) 25 lakh
e) 25 lakh above
Ans: b
44. SARFAESI Act 2002 has been extended to cover co-operative banks by notitification dated

___.
a) 21 June 2002
b) 21 Jul 2002
c) 21 Jul 2010
d) 28 Jan 2003
e) 01 Jan 2003
Ans: d
45. CDR is a ____ mechanism.
a) Statutory
b) Non-statutory
c) Core
d) None of these
Ans: b (Corporate Debt Restructuring)
46. Define Small Business on the basis of annual Turnover?
Ans. Whose Annual turnover is less than 50 crore.
47. How will you define Retail Customers?
Ans. Borrowers with exposure of more than 5.00 crore
48. What is Priority sector target of Direct & Indirect Agriculture for Domestic banks?
Ans. 13.5% of ANBC or Off Balance Sheet Items whichever is higher. 4.5% for Indirect Agri.
49. What are targets and sub-targets of DRI advances?
Ans. 1% of total outstanding advances of previous year. Out of which 40% should go to SC/St
and 2/3rd must route though Rural and Semi Urban branches.
50. Priority Sector Target For Housing Loan
Ans. Housing Loan ----Rs. 25 lac for Metro stations having population 10.00 lac and above. Rs.
15 Lac for other cities.
For Repair-----------up to 2.00 (Rural and SU) and Rs. 5.00 lac (Urban and Metro)
51. Define Small and Marginal farmer.
Ans. Farmers having land up to 1 hector are Marginal Farmers and others having land up to 2
Hector are Small Farmers.
52. Define Micro, Small and medium for manufacturing and service units.
Ans. Investment in Plant and Machinery for Manufacturing Units
Investment in Equipment For Service Units
Micro Up To Rs. 25 lac Up To Rs. 10 lac
Small Up To Rs. 5.00 crore Up to Rs. 2.00 crore
Medium Up To Rs. 10.00 crore Up To Rs. 5.00 crore
53. What are provisioning norms for NPAs?
Classification of assets Provision on Secured Provision on Unsecured
Sub-Standard 15% 25%
Doubtful (D1) 25% 100%
Doubtful (D2) 40% 100%
Doubtful (D3) 100% 100%
Loss Assets 100% 100%
54. What are Prudential norms for individuals and Groups as per RBI guidelines?
Ans. Individuals Groups
General 15% of Capital Funds 40% of Capital Funds
Infrastructure 20% of Capital Funds 50% of Capital Funds
Oil Companies 25% of Capital Funds


55. How much amount of loan can be sanctioned to Agriculture and SME without Collateral?
Ans. Agriculture --------------1.00 lac
SME----------------------10.00 lac
56. Monetary and Credit policy is issued by RBI how many times in a year?
Ans. Monetary Policy is issued annually with quarterly review and credit Policy twice a year.
57. RBI has restricted bank to finance against/to _______________?
Ans.
1. Bank�s own shares
2. Relatives of Directors and Senior Officers.
3. Sensitive commodities under selective contro measures.
4. FDRs of other banks, CDs, Companies for buy back of shares and Industries consuming
Ozone Depleting Substance (ODS)
58. Explain Delivery of credit for WC limits of 10 crore and above.
Ans. CC component --------20%
WCTL component-----80%
The proportion is not fixed but is flexible according to requirement of borrower.
59. What are provisioning norms for Standard Assets?
Ans. Classification Rate of provision
Direct SME and Direct Agriculture 0.25%
Others 0.40%
Commercial Real Estate 1%
Teaser Housing Loans 2%
60. What are PS targets for Micro and Small Enterprises?
Ans. All MSE loans will be treated as PS. But sub-targets within overall MSE loans are as
under:
40% 20% 40%
Manufacturing units
having Investment in Plant and Machinery
Up to Rs. 5.00 lac
Above 5.00 up Rs. 25.00 lac
Above 25.00 lac
Service Units having Investment in Equipment
Up to Rs. 2.00 lac
Above Rs. 10.00 lac
Above Rs. 10.00 lac
61. What are PS targets for Foreign Banks having less than 20 branches in India?
Ans. Total Priority Sector 32% of ANBC or Off Balance Sheet Items (Higher)
Agriculture No specific target but forms part of Total PS
MSE units No specific target but forms part of Total PS
Export No specific target but forms part of Total PS
Weaker sector No specific target but forms part of Total PS
62. In how many years, Foreign banks with 20 branches and above in India need to achieve
PS target of 40%?
Ans. 5 years starting from 1.4.2013 up to 1.4.2018.
63. What are PS targets of weaker sector for Domestic banks and Foreign banks having 20
and above branches in India?
Ans. 10% of ANBC or Off Balance Sheet Items whichever is higher.
64. What is ANBC?
Ans. Bank Credit in India + Bills Rediscounted with RBI/other approved institutions +
Investment in non-SLR bonds under HTM category + other investments eligible to be treated

as PS.
65. Base Rate is determined in each bank by ____.
Ans. Asset Liability Management Committee (ALCO)Top of Form

VERY IMPORTANT FOR CAIIB BFM EXAM CGTMSE

 Credit Guarantee Fund Trust For Micro And Small Enterprises (CGTMSE) or Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH)

In case the advance covered by CGTMSE or CRGFTLIH guarantee becomes nonperforming, no provision need be made towards the guaranteed portion. The amount outstanding in excess of the guaranteed portion should be provided for as per the extant guidelines on provisioning for non-performing assets. An illustrative example is given below:

Example

Outstanding Balance	Rs. 10 lakhs
CGTMSE/CRGFTLIH Cover	75% of the amount outstanding or 75% of the unsecured amount or Rs.37.50 lakh, whichever is the least
Period for which the advance has remained doubtful	More than 2 years remained doubtful (say as on March 31, 2014)
Value of security held	Rs. 1.50 lakhs

Provision required to be made

Balance outstanding	Rs.10.00 lakh
Less: Value of security	Rs. 1.50 lakh
Unsecured amount	Rs. 8.50 lakh
Less: CGTMSE/CRGFTLIH cover (75%)	Rs. 6.38 lakh
Net unsecured and uncovered portion:	Rs. 2.12 lakh
Provision for Secured portion @ 40% of Rs.1.50 lakh	Rs.0.60 lakh
Provision for Unsecured & uncovered portion @ 100% of Rs.2.12 lakh	Rs.2.12 lakh
Total provision required	Rs.2.72 lakh