Kyc aml bits

KYC AML

1. Cash receipt or cash payment of more than Rs 10 lakh are reported to FIU on CTR statement

which should be sent to FIU within _____ from the close of the month: 15 days.

2. Suspicious Transaction report is sent to FIU within: 7 days from confirmation of

suspicion.

3. In case of transactions carried out by a non-account based customer, that is a walk-in customer,

where the amount of transaction is equal to or exceeds rupees whether conducted as a single

transaction or several transactions that appear to be connected, the customer's identity and

address should be verified: fifty thousand

4. As per KYC norms, banks are required to periodical update data. In respect of High risk

customers, full KYC exercise will be required to be done at least every: two years

5. As per KYC norms, for how much period banks are required to preserve records in respect of

photograph and proof of address or identity?: 5 years from date of close of account

6. As per KYC norms, in the event of change in this address due to relocation or any other

reason, customers may intimate the new address for correspondence to the bank within: two

weeks of such a change

7. As per KYC norms, risk classification of customers should be reviewed in every: 6 Months

8. Banks are required to FIU, cash transactions which are integrally connected to each other and

total amount of receipt or total amount of payment in a month is more than: Rs 10 lac

9. Cash Transaction Report (CTR) in respect of cash receipt or cash payment of more than Rs 10

lac is to be sent to Director – FIU. What is the periodicity of the report – Fortnightly, Monthly,

Quarterly, half yearly: Monthly, within 15 days of the close of the month.

10. FIR to be filed if number of Counterfeit notes in a single deposit is: 5 or above

11. If a customer does not comply with KYC requirements despite repeated reminders

by banks, banks should impose ‘partial freezing’ by allowing all credits and

disallowing all debits with the freedom to close the accounts after ____ months

notice followed by a reminder for further period of ____months. If the accounts are

still KYC non-compliant after _____months of imposing initial ‘partial freezing’

banks may disallow all debits and credits from/to the accounts, rendering them

inoperative: 3, 3, 6 months.

12. In a cash deposit made by a customer, one piece of counterfeit note is detected. What should

the bank do - (i) It should be impounded and acknowledgement to be issued(ii) Should be

destroyed (iii) Should be returned back: It should be impounded and acknowledgement

to be issued to depositor signed by cashier.

13. In case of counterfeit notes received in a deposit by a person with bank, FIR is not lodged

and only a monthly consolidated report is sent if counterfeit notes in one remittance is up

to: 4

14. In case of Non-KYC compliant customer, after how much time notice, account should be

freezed?: 3 months notice

15. In respect of Low Risk customers, KYC norms relating to obtaining photograph and proof of

address and ID should be applied once in: 10 Years

16. In respect of Medium Risk customers, KYC norms relating to obtaining photograph and proof of

address and ID should be applied once in: 8 Years

17. Process of making illegally-gained proceeds (i.e. "dirty money") appear legal (i.e. "clean") is

called: Money Laundering

18. RBI has allowed banks to accept at least _____ of the documents prescribed by RBI as activity

proof by a proprietary concern, for opening a bank account in respect of a sole proprietary

firm: One

19. What is the Risk category of Trust account High/Low/medium risk?: High Risk

20. When in case of deposit of cash over counter, two counterfeit notes are detected by bank,

what should the bank do – (a) To be returned to customer, (b) impounded immediately, (c)

call the police, (d) destroy it: impound immediately and issue acknowledgement to

tender signed by the cashier

21. While opening bank account, as per KYC norms, what another document is taken by bank in

addition to proof of ID?: proof of address ( Both can be same also)

22. Relaxation in KYC norms is permitted if the depositor undertakes that the balance outstanding

in his account will not be more than and credits in a financial year will not exceed

. Rs 50,000; Rs 100,000

23. Why KYC guidelines have been issued by RBI under section 35 A of the Banking Regulation

Act: To prevent Money Laundering -

24. The terms used for hiding money to avoid tax is : Money laundering

25. Money laundering: conversion of illegal money into legal through banking channels.

26. For the purpose of KYC rules any addition & modification on which recommendation: Financial

Action Task Force

27. Risk type for customer having political exposed person: High Risk

28. As per KYC Guidelines, Records of transactions to be maintained for at least ten years from the

dateof transaction, instead of _________from the date of cessation of transactions, and

records pertaining to identification of the customer and his address to be preserved for at least

ten years after the business relationship is ended: ten years

29. A customer who does not complete all KYC norms, what type of account is opened for him? No

Frill account in which cannot be more than Rs.50000 and credits in the Financial Year cannot

be more than Rs.100000.

30. There were three cash withdrawals of Rs 5.80 lac ,Rs 4.90 lac & 0.25 lacs from an account in a

month. Which of these transactions is/are will be reported to Financial Intelligence Unit as part

of CTR? Cash withdrawals of Rs 5.8 lac and Rs 4.9 lac.

31. Under Prevention of Money Laundering Act, banks are required to preserve records relating to

opening the account for how much period?: 5 years from date of closure of account.

32. Which of the following is not the key element of KYC policy a) Customer Acceptance Policy; b)

Customer Identification Procedures; c) Monitoring of Transactions; d) Risk Management e)

Customer Awareness Policy: Ans is E i.e. Customer Awareness Policy.

33. On whose recommendations, KYC norms came into force? (a) Goiporia Committee (b) Ghosh

Committee (c) FATF: Ans is FATF

34. Under KYC Norms, Documents relating to opening the account like proof of address and

identity and photograph should be taken again at what interval? (a) once in 10 years for low

risk customer (b) once in 8 years for medium risk customers (c) once in 1 year for high risk

customers (d) Both (a) and (b): Ans is (d)

35. Record of cash receipt and payment under KYC to be maintained if cash receipt or payment in

a single day from one account is more than Rs 10 lakh.

36. For Low Risk customers, periodical up-dation of KYC data: Once in 10 years.

Current Affairs on 24.11.2018

Today's Headlines from www:

*Economic Times*

📝 OECD expects India’s economy to grow close to 7.5% in 2019, 2020

📝 Blackstone to acquire $300 mn stake in Sona BLW, to merge it with Comstar

📝 Crypto losses near $700 billion in worst week since bubble burst

📝 Indian business leaders seek AI collaboration with Singapore

📝 Reliance Industrial Investments and Holdings Ltd. sets up unit in Estonia

📝 77 percent Indian households use Ayurvedic products: PwC report

📝 All isn't lost for banks under PCA as their retail loan pie jumps 400 bps to 19%

*Business Standard*

📝 Bajaj's quadricycle Qute to take on small carmakers; set for Feb launch

📝 Thailand's Minor International plans majority stake in Leela hotels

📝 Vodafone Idea to pare 16,000 distributors and 2,000 retail stores

📝 Iron ore import to rise 60% to 15 million tons in FY19: Report

📝 Even $1 rise in crude can inflate import bill by Rs 61.6 bn: India Ratings

📝 Govt transfers over Rs 16 bn to 4.8 mn eligible mothers under PMMVY scheme

📝 Nyara Energy to get $1.5-billion fuel-backed loan from Trafigura, BP

*Financial Express*

📝 ABB signs potential $1.9 billion deal for Power Grids products in China

📝 Broadband subscriber base at 463.6 million in August-end: Department of Telecom

📝 Forex reserves up by $568.9 million to $393.58 billion

📝 RBI likely to maintain status quo on policy rates, says Report

📝 EIB, SBI expand cooperation in wind energy financing

📝 Sharp rise in trade-restrictive measures from G20 economies, claims WTO

📝 Few takers for model agricultural land leasing law, says NITI Aayog

*Mint*

📝 ESR-Allianz Real Estate JV to invest $1 billion in India

📝 Oil India to buy back 4.45% shares for Rs 1,085 crore

📝 Government likely to stick to capital infusion programme for PSU banks

📝 Yamuna Expressway Industrial Authority allots land to Vivo for Rs 3,500cr unit

📝 To tide over churn, realty firms eye partnership deals

📝 Auto sales fizzled in festive season, say dealers

📝 Gensol engineering eyes Rs 20 crore from IPO next year.

FATF recommendations

THE FATF RECOMMENDATIONS::  Total 40

A – AML/CFT POLICIES AND COORDINATION

1 - Assessing risks & applying a risk-based approach *

2  - National cooperation and coordination

B – MONEY LAUNDERING AND CONFISCATION

3  Money laundering offence *

4 Confiscation and provisional measures *

C – TERRORIST FINANCING AND FINANCING OF PROLIFERATION

5 Terrorist financing offence *

6 Targeted financial sanctions related to terrorism & terrorist financing *

7 Targeted financial sanctions related to proliferation *

8  Non-profit organisations *

D – PREVENTIVE MEASURES

9 Financial institution secrecy laws

Customer due diligence and record keeping

10  Customer due diligence *

11  Record keeping

Additional measures for specific customers and activities

12  Politically exposed persons *

13  Correspondent banking *

14 Money or value transfer services *

15 New technologies

16  Wire transfers *

Reliance, Controls and Financial Groups

17  Reliance on third parties *

18  Internal controls and foreign branches and subsidiaries *

19  Higher-risk countries *

Reporting of suspicious transactions

20  Reporting of suspicious transactions *

21 Tipping-off and confidentiality

Designated non-financial Businesses and Professions (DNFBPs)

22  DNFBPs: Customer due diligence *

23 DNFBPs: Other measures *

THE FATF RECOMMENDATIONS

INTERNATIONAL STANDARDS ON COMBATING MONEY LAUNDERING AND THE FINANCING OF TERRORISM & PROLIFERATION

 2012 OECD/FATF 5

E – TRANSPARENCY AND BENEFICIAL OWNERSHIP

OF LEGAL PERSONS AND ARRANGEMENTS

24  Transparency and beneficial ownership of legal persons *

25 Transparency and beneficial ownership of legal arrangements *

F – POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES

AND OTHER INSTITUTIONAL MEASURES

Regulation and Supervision

26 Regulation and supervision of financial institutions *

27  Powers of supervisors

28  Regulation and supervision of DNFBPs

Operational and Law Enforcement

29 Financial intelligence units *

30 Responsibilities of law enforcement and investigative authorities *

31 Powers of law enforcement and investigative authorities

32  Cash couriers *

General Requirements

33  Statistics

34  Guidance and feedback

Sanctions

35  Sanctions

G – INTERNATIONAL COOPERATION

36 International instruments

37  Mutual legal assistance

38 Mutual legal assistance: freezing and confiscation *

39  Extradition

40 Other forms of international cooperation

Forex individual and operations exam differences

IIBF certifications maximum members getting this doubt??

What is the difference between forex exchange for individuals and forex operations ??

1.Both Certifications are different

2.Foreign remittance facilities for individuals is a part of forex operations.

3. First one deals only with retail operations but in forex operations you will be learning about trade as well as trade finance

4. If you want to learn trade you can try forex operations.

Difference LC and BG

Difference between Letter of Credit and Bank Guarantee
Difference between Letter of Credit and Bank Guarantee
📣📣📣📣📣📣📣
Introduction🏙
⬅⬅⬅⬅⬅⬅⬅⬅
This two terminology looks similar but both are very different. When one wants to expand the business means beyond the national boundary or within, one needs assurance from the buyer side that after delivery of goods or services the payment will receive and this can be done by the bank only.

In short, both these terms are used while doing business or transactions with domestic or international companies.
So, both these services are facilitated by the bank but in a different way as per the need of seller party.
Letter of Credit🏙
⬅⬅⬅⬅⬅⬅⬅⬅⬅
It is used while there is a high level of risk involves in business.It is used while doing import and export transactions with international companies.L/C is a written commitment issued by the bank or some other financial institutions for payment assurance to the seller party from buyer’s request.In L/C, the seller gets a guarantee of payment from the buyer’s banks on the due date payment will receive only if the seller meets all the conditions of deal like timely delivery etc.Banks offer a service like L/C on the basis of proof provided by the buyer’s party.If the buyer fails to make payment to the seller, the bank pays on behalf of a buyer and then the bank will recover it from a buyer anyhow.Banks will charge fees for this type of facilities.So in short, letter of credit is beneficial when product or service is delivered and payment is not done.It eliminates the financial risk involved in the business.

Types of Letter of Credit🎎
⬅⬅⬅⬅⬅⬅⬅⬅⬅⬅⬅
🗼Irrevocable Letter of Credit:
It is not modified or cancelled without the concern of all the parties.
🗼Revocable Letter of Credit:
In it, the issuing bank can revoke or cancel the letter of credit any time without prior notice to the seller.
🗼Confirmed Irrevocable Letter of Credit:
In it, the confirming bank gives more assurance to seller same as issuing bank.
🗼Unconfirmed Irrevocable Letter of Credit:
In it, an advisory bank from the seller's side performs as an agent for the issuing bank without any responsibility to the seller.
🗼Revolving Letter of Credit
This type of letter is used if in case regular transactions take place and remain valid for a long term without issuing the another letter of credit.

Bank Guarantee🏙
⬅⬅⬅⬅⬅⬅⬅⬅⬅⬅
🏦 guarantee is a service by which bank gives a guarantee to the seller on behalf of his client for assurance of payment.
🏢So, Bank guarantee has the same function as a letter of credit but with some differences.
🏦 guarantee generally used in domestic transactions.
🏦 guarantee is beneficial when contractual obligations are not fulfilled by the other seller party.
🏦 guarantee is used in infrastructure and real estate projects to reduce risk level.
⤵Letter of Credit V/s 🎎Bank Gurantee
Basis🎟
⤵Letter of CreditBank Guarantee-DefinitionA letter of credit is an obligation by the bank to the seller if the criteria met, the bank will make payment.

🎎In bank guarantee, if the opposing party doesn’t fulfil contractual obligations the Bank will make payment.
Boundary🎟
⤵It is used internationally.
🎎It is used domestically.
Protection🎟
⤵It protects both parties but favours exporter.
🎎It also protects both but favours buyer.
Industry🎟
⤵It is used by merchants.
🎎It is used by real estate and infrastructure developer.
L/Cs are frequently used in international transactions compared with bank guarantees. When comparing the two instruments, the market for bank guarantees is much larger than that for L/Cs.

DIFFERENT KINDS OF RISKS RELATED TO FOREX TRANSACTIONS

DIFFERENT KINDS OF RISKS RELATED TO FOREX TRANSACTIONS

Foreign exchange operations face large no. of different type of risk due to a variety of reasons such as location of forex

markets without any single location, markets existing in different time zones, frequent fluctuations in the foreign currency

rates, effect of policies of the government and central banks of the related country etc.

Foreign exchange exposure: The exposure can be classified into 3 categories:

1. Transaction exposure : This arises on account of normal business operation. A transaction in foreign exchange can

exposure a firm to currency risk, when compared to the value in home currency.

2. Translation exposure : It arises on valuation of assts and liabilities created through foreign exchange and receivables or

payable in home currency, at the end of accounting period. These are notional and not actual.

3. Operating exposure : These are the factor external to a firm such as change in competition, reduction in import duty,

reduction in prices by other country exporters etc.

Exchange rate risk : Even the major currencies may experience substantial exchange rate movements over relatively short

periods of time. These can alter the balance sheet of a bank if the bank has assets or liabilities domiciled in those currencies.

An adverse movement of the rate can alter the value of the foreign exchange holdings, if not covered properly. The dealers

have to cover the position immediately.

Positions in a foreign currency : When the assets and the outstanding contracts to purchase that currency are more than the

liabilities plus and the outstanding contracts to sell that currency.

 Long or overbought position : When the purchases (and outstanding contracts to purchase) are more than the sale (the

outstanding contracts to sell).

 Short position or oversold position : When the purchases (and outstanding contracts to

purchase) are less than the sale (the outstanding contracts to sell).

Overbought or oversold position : It is called open position

Covering of position risk : The position is covered by fixing suitable limits (such as daylight position limit, overnight position limit,

single deal limit, gap-for-ward mismatch limits).

Prudent limit prescribed by RBI for open position : RBI has given discretion to bank Boards to fix their own open position limits

according to their own requirement, expertise and other related considerations.

Pre-settlement risk : It is the risk of failure of the counter party, due to bankruptcy or closure or other risk, before maturity of the

contract. This may force the bank to cover the contract at the ongoing market rates resulting into loss due to difference prevailing

between the contracted rate and rate at which the contract covered.

Settlement risk: Payment/delivery of one currency and received of other currency by both the parties. Settlement risk is the

risk of failure of the counter party during the course of settlement due to time zone differences between the two currencies

which are to be exchanged. For example, if a bank in the earlier time zone (say in Australia) performs its obligation and

delivers the currency and a bank in a later time zone (say USA) fails to deliver or delivers with delay, the loss may be caused to

the bank in the earlier time zone.

Foreign exchange settlement risk is also called temporal risk or Herstatt risk (named after failure of Bankhaus Herstatt in Germany)

The settlement risk can be taken care of by operating the system on a single time basis and also on real time gross settlement

(RTGS) basis.

Liquidity risk: The liquidity risk is where a market does not have the capacity to handle, at least without significant adverse

impact on the price, the volume of whatever the borrower buys or sells at the time he want to deal. Inability to meet debt

when they fall due could be another form of such risk.

For example, if there is deal of UK Pound purchase against the rupee and the party selling the UK Pound is short of pound in its

NOSTRO account, it may default in payment or it may meet its commitment by borrowing at a very high cost.

Country risk: It is the risk that arises when a counter party abroad, is unable to fulfill its obligation due to reasons other than the

normal risk related to lending or investment.

For example, a counter party is willing and capable to meet its obligation but due to restrictions imposed by the govt. of the

country or change in the polices of the govt., say on remittances etc. is unable to meet its repayment / remittance capacity.

Country risk can be very high in case of those countries that are having foreign exchange reserve problem.

Banks control country risk by putting restrictions on overall exposure, country exposure.

Country risk is in addition to normal credit risk. While the normal credit risk is due to failure on meeting obligation on the part of

counterparty on its own, the country risk arises due to actions initiated by the Govt. of that country due to which counterparty is not

able to perform its part.

Sovereign risk : It is larger than country risk. It arises when the counterparty is a foreign govt. or its agency and enjoys sovereign

immunity under law of that country. Due to this reason, legal action cannot be taken against that counterparty. This risk can be

reduced through disclaimers and by imposing 3,d country jurisdictions.

Interest rate risk: The potential cost of adverse movement of interest rates that the bank faces on its deposits and other

liabilities or currency swaps, forward contracts etc. is called interest rate risk. This risk arises on account of adverse

movement of interest rates or due to interest rate differentials. The bank may face adverse cost on its deposit or adverse

earning impact on its lending and investments due to such change in interest rates.

Interest rate can be managed by determining the interest rate scenario, undertaking appropriate sensitivity exercise to estimate the

potential profit or losses based on interest rate projections.

Gap risk : Banks on certain occasions are not able to match their forward purchase and sales, borrowing and lending which

creates a mismatch position, which is called gap risk. The gaps are required to be filled by paying or receiving the forward

differential. These differentials are the function of interest rates.

The gap risk can be managed by using derivative products such as interest rate swaps, currency

swaps, forward rate agreements.

Fledging risk: This occurs when one fails to achieve a satisfactory hedge for one's exposure, either because it could not be

arranged or as the result of an error. One may also be exposed to basic risk where the available hedging instrument closely

matches but does not exactly mirror or track the risk being hedged.

Operational risk : It is a potential catch that includes human errors or defalcations, loss of documents and records, ineffective

systems or controls and security breaches, how often do one consider the disaster scenario.

Legal, jurisdiction, litigation and documentation risks including netting agreements and cross border insolvency. Which country's

laws regulate individual contracts and the arbitration of disputes ? Could a plaintiff take action against a borrower in an

overseas court where they have better prospects of success or of higher awards ? There is a growing and widespread belief

that, whatever goes wrong, someone else must pay. The compensation culture whatever its justification or cause, is becoming

a big problem for many businesses.

Current Affairs on 23.11.2018

Today's Headlines from www3

*Economic Times*

📝 Volvo to assemble hybrid electric vehicles in India from next year

📝 SBI likely to raise Rs 3,000-5,000 crore via perpetual bonds

📝 HCL Tech & Bajaj Fin to replace Wipro & Adani Ports in Sensex

📝 IndiGo plane tilts mid-air; aviation regulator DGCA starts probe

📝 Indirect tax mop-up in FY'19 may fall short by Rs 90,000 crore: Report

📝 BMW to hike prices in India by up to 4 pc from January

📝 Bharti AXA Life logs 52% growth in new policies

*Business Standard*

📝 PSBs get more power to ask govt for look-out circulars against defaulters

📝 Favourable domestic realisations, deals to keep Tata Steel's prospects firm

📝 HDFC Bank's wholesale loan book grows 23% to Rs 3.5 trillion in FY19 so far

📝 Textile ministry may simplify ATUFS norms soon to make it industry friendly

📝 Indirect tax mop-up may fall short by Rs 900 bn

📝 Rupee nears 3-month high of 70.69 as brent crude falls to $63.25 a barrel

📝 Fortis Healthcare takes a shot at moving the brand away from controversy

*Financial Express*

📝 Employable population: India's employability rises to 47%; engineers most employable

📝 FPIs buy bonds worth $723 million in Nov so far

📝 India’s gas usage to rise 2.5 times by 2030: Modi

📝 General insurers post 12% gross premium growth till October

📝 NHAI files papers with Sebi to raise Rs 10,000 crore via bonds

📝 CAD may narrow to 2.6% of GDP in FY19 on falling crude: Report

📝 Panel for upfront payments by REC, PFC to IPPs

*Mint*

📝 WTO says G20 curbs affect $481 billion of trade

📝 Bank credit grows by 14.88%, deposits by 9.13%

📝 Airtel completes tender offer to buyback $1.5 billion debt

📝 NBFC Mudra loans grew faster than banks in FY18

📝 Online shoppers during festive season sale surged 71%: report

📝 Quikr FY18 revenue jumps 52% at Rs 199 crore, losses shrink

📝 I-bankers hit the road for IL&FS’s highway, renewable assets sale

📝 Sebi comes out with new rules for re-classification of promoter as public investor.

Non-Applicability of SARFAESI ACT

Non-Applicability of Sarfeasi ACT in certain cases:

1. lien on any goods, money or security given by or under the Indian Contract Act, 1872 or the Sale of Goods Act, 1930 or any other law for the time being in force;

2. pledge of movable within the meaning of Section 172 of the Indian Contract Act, 1872;

3.creation of any security in any aircraft as defined in clause(1) of Section 2 of the Aircraft Act, 1934;

4.creation of security interest in any vessel as defined in clause (55) of Section 3 of the Merchant Shipping Act, 1958;

5.any conditional sale, hire-purchase or lease or any other contract in which no security interest has been created;
any rights of unpaid seller under Section 47 of the Sale of Goods Act, 1930;

6.any properties not liable to attachment or sale under Section 60 of the Code of Civil Procedure, 1908;

7.any security interest for securing repayment of any financial asset not exceeding one lakh rupees;

8.any case in which the amount due is less than 15% of the principal amount and interest thereon.

9. Agriculture Loans

Current Affairs on 22.11.2018

Today's Headlines from www:

*Economic Times*

📝 Kotak, L&T, NBCC, 2 others submit EoI to take over bankrupt Jaypee Infratech

📝 Indian OTT market has a potential to reach $5bn by 2023: BCG

📝 Aye Finance raises Rs 70 crore in debt from BlueOrchard

📝 Indiabulls Housing raises Rs 23,615 crore past two months

📝 NHAI to raise Rs 10K crore via bonds, may offer 8.5-9%

📝 GDP growth may ease to 7.2% in July-September on sluggish economy

📝 Air India revives plans to raise Rs 500 cr; to mop up Rs 6,100 cr from aircraft sale and lease back

📝 Ultratech Cement makes Binani its subsidiary

*Business Standard*

📝 European Union flags concerns on certain provisions of Data Protection Bill

📝 Almost a million payroll additions in September highest in 13 months

📝 Maersk, DP World face probe for antitrust behaviour at Mumbai port: Sources

📝 Zircon Tech gets Sebi's nod for IPO; total clearance reaches 70 in 2018

📝 Price cap on drugs, medical devices helped patients save Rs 150 bn: Govt

📝 If ONGC, OIL fields tapped fully, total natural gas output to rise by a 3rd

📝 Indian airlines seek waiver from airports, oil firms for financial revival

📝 Facebook, Instagram hit by global outage due to unspecified problems

*Financial Express*

📝 Xiaomi to set up 5,000 offline stores in rural India

📝 Gold worth $37 billion traded in London each day, new data show

📝 Expert panel on RBI’s capital framework to be set up soon, say sources

📝 PSBs’ Q2 provisions 1.5 times their operating profit

📝 Reliance Mutual Fund announces 3rd FFO for CPSE ETF

📝 Paper mills see red as Trai dubs phone bills as anti-green

📝 Eram Scientific, Bill Gates foundation in talks for toilet technology

📝 Japan’s KDDI to avail Jio’s VoLTE international roaming services in India

*Mint*

📝 Shapoorji Pallonji Group plans $1 billion share sale of solar unit

📝 Bharti Airtel signs for over $2 billion loan amid threat of ratings cut

📝 India, Russia sign $500 million deal for two warships

📝 ICICI Bank to raise ₹25,000 crore to fill void left by NBFCs

📝 Credit set for worst year since 2008 as crashes roil market

📝 HDFC returns to masala bond market after tax change

📝 Delisting: Sebi allows promoters to make counter offers

📝 Banks get ₹3.7 trillion lending boost with RBI-FinMin ceasefire.

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

Risk management principles

Principles for Sound Liquidity Risk Management:

After the global financial crisis, in recognition of the need for banks to improve their liquidity risk

management, the Basel Committee on Banking Supervision (BCBS) published “Principles for Sound

Liquidity Risk Management and Supervision” in September 2008. The broad principles for sound liquidity

risk management by banks as envisaged by BCBS are as under:

Fundamental principle for the management and supervision of liquidity risk

Principle 1 A bank is responsible for the sound management of liquidity risk. A bank should

establish a robust liquidity risk management framework that ensures it maintains

sufficient liquidity, including a cushion of unencumbered, high quality liquid assets, to

withstand a range of stress events, including those involving the loss or impairment of

both unsecured and secured funding sources. Supervisors should assess the

adequacy of both a bank’s liquidity risk management framework and its liquidity

position and should take prompt action if a bank is deficient in either area in order to

protect depositors and to limit potential damage to the financial system. Governance of liquidity risk management

Principle 2 A bank should clearly articulate a liquidity risk tolerance that is appropriate for its

business strategy and its role in the financial system. Principle 3 Senior management should develop a strategy, policies and practices to manage

liquidity risk in accordance with the risk tolerance and to ensure that the bank

maintains sufficient liquidity. Senior management should continuously review

information on the bank’s liquidity developments and report to the board of directors

on a regular basis. A bank’s board of directors should review and approve the

strategy, policies and practices related to the management of liquidity at least annually

and ensure that senior management manages liquidity risk effectively. Principle 4 A bank should incorporate liquidity costs, benefits and risks in the internal pricing, performance measurement and new product approval process for all significant

business activities (both on- and off-balance sheet), thereby aligning the risk-taking

incentives of individual business lines with the liquidity risk exposures their activities

create for the bank as a whole. Measurement and management of liquidity risk

Principle 5 A bank should have a sound process for identifying, measuring, monitoring and

controlling liquidity risk. This process should include a robust framework for

comprehensively projecting cash flows arising from assets, liabilities and off-balance

sheet items over an appropriate set of time horizons. Principle 6 A bank should actively monitor and control liquidity risk exposures and funding needs

within and across legal entities, business lines and currencies, taking into account

legal, regulatory and operational limitations to the transferability of liquidity. Principle 7 A bank should establish a funding strategy that provides effective diversification in the

sources and tenor of funding. It should maintain an ongoing presence in its chosen

funding markets and strong relationships with funds providers to promote effective

diversification of funding sources. A bank should regularly gauge its capacity to raise

funds quickly from each source. It should identify the main factors that affect its ability

to raise funds and monitor those factors closely to ensure that estimates of fund

raising capacity remain valid. Principle 8 A bank should actively manage its intraday liquidity positions and risks to meet

payment and settlement obligations on a timely basis under both normal and stressed

conditions and thus contribute to the smooth functioning of payment and settlement

systems. Principle 9 A bank should actively manage its collateral positions, differentiating between

encumbered and unencumbered assets. A bank should monitor the legal entity and

physical location where collateral is held and how it may be mobilised in a timely

manner. Principle 10 A bank should conduct stress tests on a regular basis for a variety of short-term and

protracted institution-specific and market-wide stress scenarios (individually and in

combination) to identify sources of potential liquidity strain and to ensure that current

exposures remain in accordance with a bank’s established liquidity risk tolerance. A

bank should use stress test outcomes to adjust its liquidity risk management

strategies, policies, and positions and to develop effective contingency plans. Principle 11 A bank should have a formal contingency funding plan (CFP) that clearly sets out the

strategies for addressing liquidity shortfalls in emergency situations. A CFP should

outline policies to manage a range of stress environments, establish clear lines of

responsibility, include clear invocation and escalation procedures and be regularly

tested and updated to ensure that it is operationally robust. Principle 12 A bank should maintain a cushion of unencumbered, high quality liquid assets to be

held as insurance against a range of liquidity stress scenarios, including those that

involve the loss or impairment of unsecured and typically available secured funding

sources. There should be no legal, regulatory or operational impediment to using

these assets to obtain funding. Public disclosure

Principle 13 A bank should publicly disclose information on a regular basis that enables market

participants to make an informed judgment about the soundness of its liquidity risk

management framework and liquidity position. Thus, a sound liquidity risk management system would envisage that:

i) A bank should establish a robust liquidity risk management framework.

ii) The Board of Directors (BoD) of a bank should be responsible for sound management of liquidity risk

and should clearly articulate a liquidity risk tolerance appropriate for its business strategy and its role in

the financial system.

iii) The BoD should develop strategy, policies and practices to manage liquidity risk in accordance with

the risk tolerance and ensure that the bank maintains sufficient liquidity. The BoD should review the

strategy, policies and practices at least annually.

iv) Top management/ALCO should continuously review information on bank’s liquidity developments and

report to the BoD on a regular basis. v) A bank should have a sound process for identifying, measuring, monitoring and controlling liquidity risk,

including a robust framework for comprehensively projecting cash flows arising from assets, liabilities and

off-balance sheet items over an appropriate time horizon. vi) A bank’s liquidity management process should be sufficient to meet its funding needs and cover both

expected and unexpected deviations from normal operations. vii) A bank should incorporate liquidity costs, benefits and risks in internal pricing, performance

measurement and new product approval process for all significant business activities. viii) A bank should actively monitor and manage liquidity risk exposure and funding needs within and

across legal entities, business lines and currencies, taking into account legal, regulatory and operational

limitations to transferability of liquidity.

ix) A bank should establish a funding strategy that provides effective diversification in the source and

tenor of funding, and maintain ongoing presence in its chosen funding markets and counterparties, and

address inhibiting factors in this regard. x) Senior management should ensure that market access is being actively managed, monitored, and

tested by the appropriate staff. xi) A bank should identify alternate sources of funding that strengthen its capacity to withstand a variety of

severe bank specific and market-wide liquidity shocks. xii) A bank should actively manage its intra-day liquidity positions and risks. xiii) A bank should actively manage its collateral positions. xiv) A bank should conduct stress tests on a regular basis for short-term and protracted institution-specific

and market-wide stress scenarios and use stress test outcomes to adjust its liquidity risk management

strategies, policies and position and develop effective contingency plans. xv) Senior management of banks should monitor for potential liquidity stress events by using early

warning indicators and event triggers. Early warning signals may include, but are not limited to, negative

publicity concerning an asset class owned by the bank, increased potential for deterioration in the bank’s

financial condition, widening debt or credit default swap spreads, and increased concerns over the

funding of off- balance sheet items. xvi) To mitigate the potential for reputation contagion, a bank should have a system of effective

communication with counterparties, credit rating agencies, and other stakeholders when liquidity

problems arise. xvii) A bank should have a formal contingency funding plan (CFP) that clearly sets out the strategies for

addressing liquidity shortfalls in emergency situations. A CFP should delineate policies to manage a

range of stress environments, establish clear lines of responsibility, and articulate clear implementation

and escalation procedures. xviii) A bank should maintain a cushion of unencumbered, high quality liquid assets to be held as

insurance against a range of liquidity stress scenarios. xix) A bank should publicly disclose its liquidity information on a regular basis that enables market

participants to make an informed judgment about the soundness of its liquidity risk management

framework and liquidity position. 5. Governance of Liquidity Risk Management:

The Reserve Bank had issued guidelines on Asset Liability Management (ALM) system, covering inter

alia liquidity risk management system, in February 1999 and October 2007. Successful implementation of

any risk management process has to emanate from the top management in the bank with the

demonstration of its strong commitment to integrate basic operations and strategic decision making with

risk management. Ideally, the organisational set up for liquidity risk management should be as under:

A. The Board of Directors (BoD):

The BoD should have the overall responsibility for management of liquidity risk. The Board should decide

the strategy, policies and procedures of the bank to manage liquidity risk in accordance with the liquidity

risk tolerance/limits as detailed in paragraph 14. The risk tolerance should be clearly understood at all

levels of management. The Board should also ensure that it understands the nature of the liquidity risk of

the bank including liquidity risk profile of all branches, subsidiaries and associates (both domestic and

overseas), periodically reviews information necessary to maintain this understanding, establishes

executive-level lines of authority and responsibility for managing the bank’s liquidity risk, enforces

management’s duties to identify, measure, monitor, and manage liquidity risk and formulates/reviews the

contingent funding plan. B. The Risk Management Committee:

The Risk Management Committee, which reports to the Board, consisting of Chief Executive Officer

(CEO)/Chairman and Managing Director (CMD) and heads of credit, market and operational risk

management committee should be responsible for evaluating the overall risks faced by the bank including

liquidity risk. The potential interaction of liquidity risk with other risks should also be included in the risks

addressed by the risk management committee. C. The Asset-Liability Management Committee (ALCO):

The Asset-Liability Management Committee (ALCO) consisting of the bank’s top management should be

responsible for ensuring adherence to the risk tolerance/limits set by the Board as well as implementing

the liquidity risk management strategy of the bank in line with bank’s decided risk management objectives

and risk tolerance. D. The Asset Liability Management (ALM) Support Group:

The ALM Support Group consisting of operating staff should be responsible for analysing, monitoring and

reporting the liquidity risk profile to the ALCO. The group should also prepare forecasts (simulations)

showing the effect of various possible changes in market conditions on the bank’s liquidity position and

recommend action needed to be taken to maintain the liquidity position/adhere to bank’s internal limits. 6. Liquidity Risk Management Policy, Strategies and Practices:

The first step towards liquidity management is to put in place an effective liquidity risk management policy, which inter alia, should spell out the liquidity risk tolerance, funding strategies, prudential limits, system for

measuring, assessing and reporting / reviewing liquidity, framework for stress testing, liquidity planning

under alternative scenarios/formal contingent funding plan, nature and frequency of management

reporting, periodical review of assumptions used in liquidity projection, etc. The policy should also

address liquidity separately for individual currencies, legal entities like subsidiaries, joint ventures and

associates, and business lines, when appropriate and material, and should place limits on transfer of

liquidity keeping in view the regulatory, legal and operational constraints. The BoD or its delegated committee of board members should oversee the establishment and approval of

policies, strategies and procedures to manage liquidity risk, and review them at least annually. 6.1 Liquidity Risk Tolerance:

Banks should have an explicit liquidity risk tolerance set by the Board of Directors. The risk tolerance

should define the level of liquidity risk that the bank is willing to assume, and should reflect the bank’s

financial condition and funding capacity. The tolerance should ensure that the bank manages its liquidity

in normal times in such a way that it is able to withstand a prolonged period of, both institution specific

and market wide stress events. The risk tolerance articulation by a bank should be explicit, comprehensive and appropriate as per its complexity, business mix, liquidity risk profile and systemic

significance. They may also be subject to sensitivity analysis. The risk tolerance could be specified by

way of fixing the tolerance levels for various maturities under flow approach depending upon the bank’s

liquidity risk profile as also for various ratios under stock approach. Risk tolerance may also be expressed

in terms of minimum survival horizons (without Central Bank or Government intervention) under a range

of severe but plausible stress scenarios, chosen to reflect the particular vulnerabilities of the bank. The

key assumptions may be subject to a periodic review by the Board. 6.2 Strategy for Managing Liquidity Risk:

The strategy for managing liquidity risk should be appropriate for the nature, scale and complexity of a

bank’s activities. In formulating the strategy, banks/banking groups should take into consideration its legal

structures, key business lines, the breadth and diversity of markets, products, jurisdictions in which they

operate and home and host country regulatory requirements, etc. Strategies should identify primary

sources of funding for meeting daily operating cash outflows, as well as expected and unexpected cash

flow fluctuations. 7. Management of Liquidity Risk:

A bank should have a sound process for identifying, measuring, monitoring and mitigating liquidity risk as

enumerated below:

8.1 Identification:

A bank should define and identify the liquidity risk to which it is exposed for each major on and off- balance sheet position, including the effect of embedded options and other contingent exposures that

may affect the bank’s sources and uses of funds and for all currencies in which a bank is active. 8.2 Measurement of Liquidity Risk:

There are two simple ways of measuring liquidity; one is the stock approach and the other, flow approach. The stock approach is the first step in evaluating liquidity. Under this method, certain ratios, like liquid

assets to short term total liabilities, purchased funds to total assets, core deposits to total assets, loan to

deposit ratio, etc. are calculated and compared to the benchmarks that a bank has set for itself. While the

stock approach helps up in looking at liquidity from one angle, it does not reveal the intrinsic liquidity

profile of a bank. The flow approach, on the other hand, forecasts liquidity at different points of time. It looks at the liquidity

requirements of today, tomorrow, the day thereafter, in the next seven to 14 days and so on. The maturity

ladder, thus, constructed helps in tracking the cash flow mismatches over a series of specified time

periods. The liquidity controls, apart from being fixed maturity-bucket wise, should also encompass

maximum cumulative mismatches across the various time bands. 8. Ratios in respect of Liquidity Risk Management:

Certain critical ratios in respect of liquidity risk management and their significance for banks are given

below. Banks may monitor these ratios by putting in place an internally defined limit approved by the

Board for these ratios. The industry averages for these ratios are given for information of banks. They

may fix their own limits, based on their liquidity risk management capabilities, experience and profile. The

stock ratios are meant for monitoring the liquidity risk at the solo bank level. Banks may also apply these

ratios for monitoring liquidity risk in major currencies, viz. US Dollar, Pound Sterling, Euro and Japanese

Yen at the solo bank level.

No. Average

(in %)

1. (Volatile liabilities – Temporary Assets)

/(Earning Assets – Temporary Assets)

Measures the extent to which volatile money supports

bank’s basic earning assets. Since the numerator

represents short-term, interest sensitive funds, a high

and positive number implies some risk of illiquidity. 40

2. Core deposits/Total Assets Measures the extent to which assets are funded

through stable deposit base. 50

3. (Loans + mandatory SLR +

mandatory CRR + Fixed

Assets)/Total Assets

Loans including mandatory cash reserves and

statutory liquidity investments are least liquid and

hence a high ratio signifies the degree of ‘illiquidity’ embedded in the balance sheet. 80

4. (Loans + mandatory SLR +

mandatory CRR + Fixed

Assets) / Core Deposits

Measure the extent to which illiquid assets are

financed out of core deposits. 150

5. Temporary Assets/Total

Assets

Measures the extent of available liquid assets. A

higher ratio could impinge on the asset utilisation of

banking system in terms of opportunity cost of holding

liquidity. 40

6. Temporary Assets/ Volatile

Liabilities

Measures the cover of liquid investments relative to

volatile liabilities. A ratio of less than 1 indicates the

possibility of a liquidity problem. 60

7. Volatile Liabilities/Total

Assets

Measures the extent to which volatile liabilities fund the

balance sheet. 60

Volatile Liabilities: (Deposits + borrowings and bills payable up to 1 year). Letters of credit – full

outstanding. Component-wise CCF of other contingent credit and commitments. Swap funds (buy/ sell)

up to one year. Current deposits (CA) and Savings deposits (SA) i.e. (CASA) deposits reported by the

banks as payable within one year (as reported in structural liquidity statement) are included under volatile

liabilities. Borrowings include from RBI, call, other institutions and refinance. Temporary assets =Cash + Excess CRR balances with RBI + Balances with banks + Bills

purchased/discounted up to 1 year + Investments up to one year + Swap funds (sell/ buy) up to one year. Earning Assets = Total assets – (Fixed assets + Balances in current accounts with other banks + Other

assets excluding leasing + Intangible assets)

Core deposits = All deposits (including CASA) above 1 year (as reported in structural liquidity

statement)+ net worth

The above stock ratios are only illustrative and banks could also use other measures / ratios. For

example to identify unstable liabilities and liquid asset coverage ratios banks may include ratios of

wholesale funding to total liabilities, potentially volatile retail (e.g. high cost or out of market) deposits to

total deposits, and other liability dependency measures, such as short term borrowings

https://iibfadda.blogspot.com/2018/08/principles-for-sound-liquidity-risk.html?m=1

Treasury and ALM management

Treasury and Asset-Liability Management::

Banks accept deposits from customer the maturity of which ranges from 7 days to 10 years. The banks return these deposits on
maturity for which the depositors have the comfort that banks will not default in repayment on time. These funds are partly invested
in cash to meet CRR requirement, in Govt_ securities to meet the SLR requirements, and in loans and advances of various maturities.
Banks however, do not have similar type of comfort for receiving these funds back, particularly from the borrowers.
For example, a bank raised a term deposit of 3-years at 7% and lends the amount repeatedly for a 3-months bills discounting at
9%. After every 3 months the bank will face the liquidity problem besides other risk. Similarly, if by that time there is decline in
the interest rate (say it comes down from 9% to 8%), the bank will also face interest rate risk. Hence, the risk arises out of
mismatch of assets and liabilities of the bank and the ALM manages such balance sheet risk.
Liquidity Risk vs Interest Rate Sensitivity Risk
Liquidity and interest rate risks: Banks are sensitive to liquidity risk because they cannot afford to default on their payment
obligation towards the depositors as that may lead to a run on the bank. Banks have to roll over the deposits and advances on
market determined terms. Any mismatch in the maturity profile will not only lead to liquidity risk but to interest rate risk.
Liquidity : Liquidity refers to a positive cash flow in the form of cash or cash like assets. The available cash resources are compared
with the immediately due liabilities or liabilities in a given time range (called bucket). The difference between these sources and uses
of funds in specific time buckets is the liquidity gap which may be negative or positive_ Hence the liquidity gap arises out of
mismatch of assets and liabilities. RBI has prescribed 11 maturity time bands (called buckets) beginning from next day to more than
5 years for measuring and monitoring the liquidity gap.
Interest rate: Interest rate risk is measured by the gap between the interest rate sensitive assets and liabilities in a given time band.

Rate sensitive assets and liabilities: Assets and liabilities are called to be rate sensitive when their value changes in the reverse
direction corresponding to a change in the market rate of interest. For example, if a bank has invested in a bond having 8% coupon
and later on the market interest rate increases to 9%, the value of the bond would decline. The difference between rate sensitive
assets-
and liabilities in each time band, either in absolute amount or as sensitivity ratio, is indicative of the risk arising out of interest
rate mismatch.
Role of Treasury in ALM
Treasury maintains the pool of funds of the bank and its core function is funds management. Hence its activities expose the
bank to liquidity and interest rate risk. Treasury Head in a bank is normally an important member of ALCO. Risk management
has become integral part of Treasury, due to the following reasons:
1. Treasury operates in financial market directly by establishing a link between the core banking functions (of
collecting deposits 4: lending) and the market operations. Hence, the market risk is identified and monitored
through Treasury.
2. Treasury makes use of derivative instruments and other means to bridge the liquidity and rate sensitive gaps which arise
due to mismatch in the residual rnattuity of various assets and liabilities in different time buckets.
3. Treasury itself is exposed to market risk due to its trading positions in forex and securities market.
4. With development of financial markets, certain credit products are being substituted by treasury products (in place of
cash credit, the emergence of commercial paper by large companies). Treasury products are marketable and help in
infusion of liquidity in times of need.
Use of Derivatives in ALM
Derivative instruments are used to reduce the liquidity and interest risk or in structuring new product to mitigate market
risk. These are used due to following reasons:
1_ Derivatives replicate the market movements and can be used to counter the risks inherent in regular transactions. For
example, if stocks that are highly sensitive to market movement are purchased, the Treasury can sell the index futures
as a hedge against fall in stock prices.
2. Derivatives require small capital as there is no funds deployment, except margin requirement.
 3. Derivatives can be used to hedge high value individual transactions or aggregate risks as reflected in the assets liability
mismatch. For example, if a bank is funding a term loan of 3 years (having higher rate of interest),
with a deposit of 3-months duration (having very low rate of interest) by rolling over the deposit, it has to be rolled over 12 times
and every time the bank is exposed to interest rate risk. To take care of this, the bank may swap the 3--month interest rate into a
fixed rate of 3 years, so that interest cost is fixed and the spread on the loan is protected.
4. Treasury can also protect the foreign currency obligations of the bank from exchange risk by buying call options where it has
to deliver foreign exchange and by buying put option where it has to receive the foreign currency payment The options help
the bank to protect rupee value of the foreign currency receipts and payments.
5. Treasury helps the bank in structuring new products to reduce the mismatch in the balance sheet, such as floating rate
deposits and loans, where the interest rate is linked to a bench mark rate. similarly, the corporate debt paper can be issued
with call and put option. The option improves the liquidity of the investment. (A 5-year bond issued with a put option at the
end of 3"1
 year is as good as a 3-year investment).
Treasury and Credit risk & Credit derivatives
Credit risk in Treasury business is largely contained in exposure limits and risk management norms. Treasury gets exposed to
credit risk in the following ways:
Investment in treasury products such as corporate commercial paper and bonds (instead of lending, investing through these
debt instruments). But, the credit risk in a commercial paper being similar to a cash credit advance, the commercial paper is
tradable due to which it is a liquid asset. Hence bank has an easy exit route. Hence the non-SLR portfolio supplements the
credit portfolio and at the same time is more flexible from ALM point of view.
2. The products like securitization convert the traditional credit into tradable treasury products. For example, the housing loans
secured by mortgage, can be converted into pass through certificates (PTCs) and sold in the market (which amounts to sale
of loan assets).
3. Credit derivative instruments such as credit default swaps cr credit linked notes transfer the credit risk of the lending bank to
the bank (called protection seller) which is able to absorb the credit risk, for a fee. Credit derivatives are transferable
instruments due to which the bank can diversify the credit risk.
Treasury and Transfer Pricing
Transfer pricing refers to fixing the cost of resources and return on -assets of the bank in a rational manner. Treasury buys and
sells the deposits and loans of the bank, notionally, at a price which becomes the basis of assessing the profitability of the
banking activity. The price is fixed by Treasury on the basis of :
· market interest rate, cost of hedging market risk and cost of maintaining the reserve assets.

After implementation of transfer pricing, the Treasury takes care of the liquidity and interest rate risk of the bank.
Policy environment
For the ALM to be effective, the bank should have an appropriate policy in place.
1. It should be approved by Board of Directors.
2. .It should comply with RBI & SEBI regulations
3. .It should comply with current market practices and code of conduct evolved by FIMMDA or FEDAI.
4. . It should be subject to periodical review.

Components of integrated Risk rated Risk management Policy
Policy Component
_
ALM Policy Composition of ALCO, operational aspect of ALM 'Such as risk measures, risk monitoring, risk
neutralization, product pricing, MIS etc.
Liquidity policy Minimum liquidity level, -funding of reserve assets, limits on money market exposure, contingent
funding, inter-bank credit lines.
Derivative policy Norms for use of derivatives, capital allocation, restrictions on derivative trading, valuation norms,
exposure
ceilings etc. N Investment policy Permissible investments, norms relating to credit rating, SLR and non-SLR investment, private placement,
trading in securities and repos, accounting policy.

Transfer pricing

Methodology, spreads to be retained by Treasury, segregation of administrative cost and hedging cost,
allocation of cost to branches etc.

Jaiib 2pm batch recollected

Todays 2pm shift questions 
Q1
Statutory rights on company member ship 2marks +1mark

Q2
Upcountry cheque 2marks
Q3
Consumer protection act pecuniary jurisdiction levels
 Q4
 Consumer protection act calim limit
 Q5
 Bill of exchange limitation period
 Q6
 Claytons rule example cash credit or demand loan or bill of exchange
 Q7
 Financial gaurante definition
 Q8
 Pledge and gaurante differences
 Q9
 Equitable mortgage 2 marks question
 Q10
 Mortgage by conditional sale
 Q11 DRT Borrower may apply 45days
 Q12
 DrT Borrower has to deposit 50% and tribunal has power to reduce 25%
 Q13
 Agreement to sell risk
 Q14
 Consideration 1qurstion
 Q15
 Official gazette published in electronic for called
 Q16
 Money laundering act 1 question
 Q17
 Right to information act 1question
 Q18
 Actionable claims
 Q19
 FEMA curewntaccount transaction 1mark
 Q20
 FEMA another 2 question 
 Q21
 Memorandum of association object clause are classified in to sub clauses 1mark question
 Q22
 Moa clauses
 Q23
 Min and Max numbers in private public
  company
  Q24
  Partnership disslove on partner retire
  Q25
  Legal position of minor attains majority
  Q26
  Limited liability partnership 1question
  Q27
  Unpaid seller 1queation
  Q28
  Sale vs aggrement to sell 1queation
  Q29
  Consideration one question
  Q30
  Bailment and pledge question
  Q31
  Contract 1question
  Q32
  Place of source example question in tax
  Q33
  Organization of Lok adalats
  Q34
  If any clerical or arithmetical errors in recovery certificate who will change
  Q35
  Mardia case half mark
  Q36
  DRT 3 questions
  Q39
  Drat 1queation
  Q40
  Crr on rbi int will provide or not
  Q41
  NI act collection banker case study
  Q42
  Ni act paying bank case study
  Q43
  Huf half mark question
  Q44
  Bill finance question
 Holder
 Q45
 Hypothecation 1queation general lien question
 Q46
 Charges 2marks questions came like
 Gold coins is better than gold gewellery
 Like options given

JAIIB LEGAL 18.11.2018 recollected questions ...continuously updating

60 JAIIB LEGAL 18.11.2018 recollected questions ...


1.Banking ombudsman-max.amount,no.of members in Pvt LTD and public LTD company,
2.paid up capital for Pvt and public LTD company,
3.sale of goods act relate to??
4.DRT related 5 to 6 questions
5.Sec 131 of NI ACT
6.Many questions regarding drt  , negotiable instruments
7.More than 15- 20 case studies
8.RTI act rejected by
9.Amalagation of two banks
10. Chairman of sebi who appoint
11.LIABILITY of drawee cover under NI act
12.MONEY laundering related
13.Two parties of BOE
14.Appelate Tribunal chairmander
15. Order NISI garnishee order
16.Appeal against district court
17.1st appeal in appellate and fee
18.Around 10-20 questions are from only partnership and companies
19.IBC 2016 can be filed by
20.RBI inspection to Banking companies
21.FEMA ED IS ESTABLISHED BY
22 FEMA act objectives
23 .What is public key
24.features of Lokadalat
25. Award means by Lokadalat
26.rejected by district forum than where you can appeal
27.DRAT can be headed by
28.DRT to DRAT .....%of amount to deposit
29.RTI has to dispose information
30. More than 3 no.of parties involved in which.
a.LC
b.guarantee
C.BOE
D.indeminity

31.Banking license can be cancelled by??
32.One 2 mark question regarding mode of charges
1.car loan
2.finished goods
3.FDR
4.HOME LOAN
5.LIC POLICY

33.Consumer means???
34.Conract of goods what are going to transmit??

35.Recovery officer duties??
36.DRAT can transfer the cases to any other DRT within his juridiction

37.2 marks question...firm is registered at  mumbai and factory at chennai avail loan at kolakata based bank against factory ..then where will be mortagage takes palce??

38..Bank given loan against Hypothecation of work in process goods ....then Charge witb ROC will be filed when???

39.Counter claim filed under sub section8   has the same effect a

40.IBC 2016 can be filed by

41.Foreign banks question ...place of business mumbai with amount and profit % will be transferred to rbi???  Macmillan page 19

42.Assessee and assessment question based on place of residence
43.National council forum is headed by whom???

44.Minister of consumer affairs

45.Agreement related question ....contract = agreement + enforceability

46.National council forum is headed by whom???

47.Continuing guarantee in the case of death of guarantee??

48.Recovery officer duties??

49.DRAT can transfer the cases to any other DRT within his juridiction

50.Regarding nature of pledge

51.Parties related to LC


52.BR act 17(1)
53.NBFC

54.NI act

55.Sarfasei act

56.law of limitations

57.Types of securities


58.130 transfer property act

59.RTI act

60.lokadalat

61.Possesion of immobile property


Recollected questions posted by our members

Limitations period of foreclosure - 30 Years
Section 35 of RBI act - Initial assets and liabilities
Section 35 of Banking Regulation Act, 1949 - Inspection
Minor Partner liability in firm - cannot be held personally liable
Payee bank protection in case of forged Instrument - Sections 10, 85 and 128 of NI Act
Elder Male member called as in HUF - Karta
Non negotiation crossing Obligation to payee bank
Limitation period in case of Default of loan in EM
Bank Negotiation stamp of cheque, presented to other bank
5-6 questions frm DRT/DRAT
Bank Guarantee
Questions from NI Act
Limitation Act
Charges, Mortgage
Partnership Act
FEMA
Consumer Protection Act
Banking Ombudsman
Majority of the paper from Chapter A
Questions on minor admitted benefits
LC types i.e red clause and green clause
Public Ltd and Pvt company differs
No of members in pvt ltd
Case studies on Bank Guarantee
LC case study
Winding up decisions

• Loan documents signed by in case of loan to HUF

Cyber fraud management exam recollected questions on 17.11.2018

 Cyber fraud management exam recollected questions on 17.11.2018
The regulator of uav ,
Netra developed by,
Script kiddies,
Ethical hacking,
Blue hat hacking,
Nigeria 419,
Social engineering,
When a NRI contacted u by phone to transfer 500000 lakh rupee to another account in another branch.what action will be taken by you as a Branch manager.
.org,.com are Tld or Sld,
Cyber crime definition,
Cyber smearing,
Masquerading attack,
Email spoofing,
In a software application at end of page we use to see "I agree with term and conditions".what do you mean by that.
A.p case vs Tcs case,
Eucp started in which year,
Steps involved in online transfer processing.
Where scada is used.
Anonymous definition,
Tail gating,
Tress passing,
Harrasing a lady over mail comes under which crime,
Cyber warfare,
Definition of Durability,
Odd man out of the given below which is not an app
1.ola 2.google store.3.black berry.4.apple
Locard principle,
Malicious code writers,


By rama



Cyber crime definition

3 factors induce to commit fraud

Internet of things

Wank worm first hacktivist attack

Stuxnet

Script kiddies

Spoofing

CcTLD

Ransomware

SCADA

Vishing

Authorisation authentication difference

BYOD

authentication tech for e mail

Digital signature

Internet addiction disorder

CAPTCHA

blue hat hacker

2D bar coding known as matrix code

DML

prevention control

Detection control

Digital footprints

Brute force attack

Payment wallets

SWIFT

prepaid cards

Shoulder surfing

PCIDSS

TCS vs state of AP case

IPC forgery of electronic records

3 domain servers of security initiative

Compulsive disorders

Stylometry

Jilani working group

FSDC

• to combat computer related crimes, CBI has following specialized structure 

CBI Interpol