Jaiib legal important

JAIIB LEGAL VERY IMPORTANT 1

1. Charged created by Bailment of goods to secure payment of a debt is called: Pledge
2. Guarantee is defined in: Indian Contract Act
3. If on a letter of credit it is not mentioned whether it is revocable or irrevocable, then as UCPDC 600,
it will be treated as : Irrevocable LC
4. A director of a bank wants to raise loan of Rs 10 lakh from his bank against Life Insurance Policy
with surrender value of more than Rs 15 lakh. What will be done?: Bank can sanction.
5. In which of the following cases, the document is required to be attested by two witnesses?: (a)
Pledge (b) Hypothecation (c) Mortgage (d) Lien
6. A document was executed by three partners in different dates. When shall the limitation period
start?: The limitation period will start from the last date i.e. when the document was executed by the
last partner.
7. Loan to a company engaged in construction of projects, which method of financing is to be used:
Cash Budget method.
8. What is the meaning of Group in Exposure Norms: Commonality ofmanagement
9. The procedure used for ascertaining Customers Creditworth is called: CreditRating
10. Green field project is related to : setting up new projects
11. What is Real Rate of Interest?: Prevailing interest rate minus inflation rate
12. Themain distinction between Hypothecation and Pledge is on accountof : Possession
13. In Letter Of Credit jmporter is called: Opener of Letter of Credit
14. Cash Budgetmethod is used for sanctioningworking capital limits to : Seasonal Industries
15. Bank's charge over LIC Policy is created by: Assignment
16. Guarantee issued by a bankwhich is still outstanding is shown in the Balance Sheet as: Contingent Liability.
17. Why loan against Partly Paid Shares are not preferred by banks?: Because partly paid shares represent
contingent liability. In case companymakes demand and the borrower does not pay the amount then the bank will
have to pay the amount otherwise share may be forfeited.Moreover it is prohibited by RBI
18. Return on Investment is calculated to ascertain of the unit.: Profitability
19. For ascertaining that a firm will be able to generate sufficient profit to repay instalments of term
loan, which ratio is computed?: Debt Service Coverage Ratio
20. In the Balance Sheet of a bank, Contingent Liabilities are shown as: footnote to the Balance Sheet.
21. Finance for construction of road and port is classified as: Infrastructure Finance.
22. Banks are required to declare their financial results quarterly as per provisions of : SEBI
23. Loanwas raised fromthe bank against NSC byMr.Xand noting to this effect was recorded in the issuing
PostOffice.Xdies. The nominee approaches post office for payment ofNSC.Whowill have priority i.e. bank or
nominee?: Bankwill have prior claimagainstNSC.
24. Hypothecation can be converted to pledge by: taking possession with the consent of the borrower.
25. What charge to be created for demat shares with bank as security: Lien
26. Perpetual bonds and perpetual non cumulative preference shares as part of tier I capital can be up to%of tier I capital:
40%
27. Provisions on standard Assets are shown under which head in the balance sheet of the Bank?: Other
Liabilities and Provisions on Liabilities side.
28. For classification of assets in consortium accounts, which of the following is to be considered?:
In consortium accounts, each bank will classify the account as per its record of recovery.
29. Who is bound to file particulars of chargewith theRegistrar of Companies underMCA21,when a
company creates charge of somebody on itsmovable or immovable property except byway of pledge?: officials of
the company.
30. Credit ofRs.20,000/-was taken asRs.2000/- and as a result a chequewas returned in the account forwant
of funds. Bank has already sent statement of account to the depositorwho has acknowledged receipt of the statement
of account.Whether bank is liable?:Yes. Liable to drawer of cheque.
31. Advance to a companyagainstTrust receiptwhere document of title goods transferred to bank and goods to be
released against payment by the company.Whether a charge is to be registeredwith theRegistrar ofCompanies under
MCA21?:NotRequired
32. Under multiple banking system, exchange of information between the banks is to be done for the limits of
crores and above and periodicity is : Rs.5 crores and Quarterly
33. If a LC contains a clause "about" regarding the amount and quantity of goods, howmuch tolerance is
permitted?: 10%
34. What is the type of liability for the bank on account of issue of BankGuarantee?:Contingent Liability
35. To arrive at group concern, factors to be looked into are : commonality ofmanagement + effective
control.
36. The limitations of financial statements are : only quantitative not qualitative.
37. Hypothecation described under SARFEASI Act.
38. Off Balance sheet / On Balance sheet exposure- if altered the risk will be Credit Risk.
39. Guarantors Liability: Recall the a/c and cause demand against the borrower and guarantor.
Balance in guarantor's SB a/c cannot be appropriated directly.
40. Excess of current liability over current assets means the firm may face difficulties in meeting its
financial obligations in short term.
41. If documents are to be presented in about July month: these can be presented within 5 days before
or 5 days after.
42. Pledge is defined in: Indian Contract Act
43. When limitation will not extend: Balance Confirmation signed after expiry of limitation period
45. Onmaturity of bank guarantee, an intimation is send to customer and if no response received in 30 days,
vouchers are reversed. This is done for following reason? Bank has to maintain capital on Bank
Guarantee for the purpose of capital adequacy norms.
46. Which of the following is not a disadvantage of CC account? Issuance of cheque book
47. In case of revaluation of fixed assets, what percentage of revaluation reserve will be added to Tier
II capital of the bank?: 45%
48. When a loan is recovered from guarantor for dues payable by the Principal Debtor, debtor
becomes entitled to all rights and remedies which the creditor had against the Principal Debtor. This right
of guarantor is called: Right of subrogation.
49. in case of loan against bank deposit charge is created by: assignment
50. in case of loan against NSC, charge is created by: assignment
51. What is cash loss : net loss before depreciation (Net loss minus depreciation)
52. Why fund flow statement is taken from the borrower?: To know sources from where funds have
been raised and how funds have been utilized and to know changes in net working capital position.
53. Stand by LC is just like : Financial guarantee (A guarantee of payment issued by a bank on behalf
of a client that is used as "payment of last resort" should the client fail to fulfill a contractual commitment
with a third party. Standby letters of credit are created as a sign of good faith in business transactions, and
are proof of a buyer's credit quality and repayment abilities)
54. Banks provide term loans and deferred payment guarantee to finance capital assets like plant and
machinery. What is the difference between these two: Outlay of funds.
55. For the purpose of creation of equitablemortgage, the place for deposit of the title deed is notified by :
56. Number of days allowed to opening bank and negotiating bank to verify that documents are as per
terms of LC is: 5 banking days each
57. In the case of hypothecation : both possession&ownership is with borrower
58. If stock statement is not submitted for 3 months from its due date and DP is allowed on the basis of
old stock report, then the account will be considered NPA after:90 days
59. Limitation period formortgage :12 years
60. Loan is in the name of A&B. Both have signed documents. A signs the Balance Confirmation but B
does not. In this case limitation will extend against: both
61. What is negative Lien?: A declaration by borrower that he will not sell or create charge of any
body on a particular asset without consent of the bank
62. Why banks do not grant loan to a minor?: A minor is not competent to contract Therefore, Ioan
given to a minor can not be recovered.
63. Normally bank can not grant advance to its directors. However, there are certain exemptions to this rule.
Thus a bank can grant a loan to its director against the security of: Government securities, life insurance policies or fixed
deposit;
64. If on a Letter of Credit, date is mentioned as "end of the month", then as per UCPDC 600, it will
mean: 21st to last day of the month.
65. A minor was given loan. On attaining majority he acknowledges having taken loan and promises to
pay. Whether the loan can be recovered? : He can not ratify the contract. Hence recovery not possible.
66. A loan was sanctioned against a vacant land. Subsequently a house was constructed at the site.
What security is available now to the bank? : Both
67. Preoperative expenses forms part of the following: Intangible assets
68. Aand B raised a loan jointly and both are liable jointly and severally.When the limitation period is
approaching,Aacknowledges the debtwhile Bwas away fromIndia. Limitation expires before B comes to India and
after coming, he denies acknowledging the debt. Bank can proceed for recovery of the loan as per limitation act from:
Both
69. An L/C is expiring on 10.05.2008. A commotion takes place in the area and bank could not open.
Under these circumstances can the LC be negotiated?: The L/C can not be negotiated because expiry date of
LC can not be extended if banks are closed for reasons beyond their control.
70. A loan is given by the bank on hypothecation of stock to Mr. A. Bank receives seizure order from
State Govt. What should bank do?: Bank will first adjust its dues and surplus if any wilt be shared with
the Govt.
71. 3 partners signed a document on 3 different dates. Limitation period starts from: Date of last
signatures.
72. Acknowledgement of Debt can be obtained for how many number of times : No limit
73. In the case of advance to a limited company for purchase of vehicle, the charge is registered with
Regional Transport Authority in addition to registration of charge with. Registrar of Companies. Why this is
done?:So that borrower can not sell the vehicle without intimation to the bank
74. Why banks prefer financing of bills?: because the advance is self liquidating
75. Formation of consortium, when essential :When bank touches its exposure ceiling
76. A letter of credit which is issued on request of the beneficiary in favour of his supplier: Back to Back
LC
77. As per internal policy of certain banks, the net worth of a firm does not include: a. Paid up capital b.
Free Reserve c. Share Premium d. Equity received from Foreign Investor : Revaluation Reserves
78. A lady who has taken a demand loan against FD come to the branch and wants to add name of her
minor son, as joint a/c holder. What you will do?: Name can be added only after adjustment of the loan.
79. Guarantee issued by a bank in favour of Custom department that party will fulfill export obligation for
availing exemption fromcustomduty regarding tax. Such guarantee is called: FinancialGuarantee
80. Particulars of satisfaction of charge by a company are to be filed within: 30 days from date of adjustment
of loan.
81. In a company, the registration of charges is required for: a)loan against FD b)lien on Govt
Securities c) assignment of Book Debts d) lien on Shares : Book Debts
82. LoanDelivery Systemis not applicable to: a) Loan to Soft ware industry b) export credit: export credit
83. Stamp duty in usance bill of exchange: 0.25 per 1000/ 0.75 per 1000 / 1 per 1000 / none : It is
according to value and time i.e. Advalorem(it is Rs 0.65-per Rs 1000 up to 3 months usance)
84. Property equitably mortgaged on 08/03/08. A registered mortgaged created on this property, on 05/03/2008
whichwas got registered on 08/03/2008.Whichwill have priority: registeredmortgage as itwas created earlier.
85. The Bank did not disclose all material facts regarding loan to the guarantor while obtaining
guarantee. Can guarantor escape liability?: Guarantor cannot escape from his liability as it is not necessary
to disclose all the materials facts with regards to the loan.
86. Banks are required to obtain audited financial papers from non corporate borrowers for granting
working capital limit of: Rs.25 lakh &above
87. In the case ofHypothecation: neither possession nor ownership come to Bank.
88. Negative lien means: Undertaking by the borrower not to sell or create charge on a particular
property without consent of the Bank.
89. RecentlyRBIwarned banks against charging: excessive interest to small borrowers.
90. Which of the following is correct regarding reverse mortgage?: The scheme is available to senior
citizens only; the property should be self occupied by the owner.
91. What are the rules relating to advance against Kisan Vikas Petra?: It can be granted provided
KVP is assigned to the bank.
92. Bailment of goods to secure a debt is called: pledge.
93. Deferred payment guarantee issued by a bank is a : Contingent Liability.
94. When mortgage is created by a person by deposit of title deed orally, it is called mortgage :
Equitable
95. For the purpose of creation of equitablemortgage, the place for deposit of the title deed is notified by : State
Govt.
96. Under SARFAESIAct 2002 the banks give notice for payment of due amount to the borrower / owner of
charged assets
97. Action under SARFAESI Act can be taken simultaneously in DRT/Suit filed cases without taking
permission from the Competent Court
98. For enforcing right under SARFESAI Act, in the case of consortium advances, consent of which
bankers is required?: consent of 60% bankers by value is required.
99. SupervisoryReviewaccording towhich Central Bank of the country is to ensure that proper capital has been
provided for
risk exposure andmaintain proper systemfor the same is provided under?: Pillar II of Basel IL
100. Chargewhere SARFAESI action can not taken: Pledge
101. For taking action under SARFAESI, the outstanding should be:More than Rs.1.00 lac
102. Limit for filing suit in DRT: Rs.10 lacs and above
103. For acquiring securities charged to the bank under SARFAESI, notice of days is required to be
given to the borrower and for sale of securities so acquired notice of days is 60 & 30 days
104. As per a recent judgement of the Supreme Court,while initiating action under SARFAESI, the position in case
of suit filed in DRT would be: that no permission is required fromDRT and action under SARFAESI can be initiated as
both the cases can run together.
105. For taking action under SARFAESI, the outstanding should be:More than Rs.1.00 lac
106. In case of SARFAESI Act, before preferring appeal to DRAT, how much amount is to be deposited
by the borrower with DRAT?: 50% of the claim amount which

can be reduced to 25% by the DRAT.
For making application to DRT, no amount is to be deposited

Current affairs on 17.08.2019

Today's Headlines from www:

*Economic Times*

📝 V-Bazaar aims Rs 750 cr turnover by 2021, to have 120 stores

📝 Fitch downgrades Lodha bonds worth $325 million

📝 YES Bank raises Rs 1,930 cr via QIP; CEO Ravneet Gill says funds to be used for growth

📝 IIT Madras working on tech to produce power from estuaries

📝 Sembcorp commissions 200 MW wind power project in Bhuj, sees rise in profitability

📝 NMDC iron ore prices remain flat in Aug; output jumps 37% in July

📝 Sundaram-Clayton, Hero MotoCorp announce temporary production shut down

 📝 India needs $500-700 billion in renewable energy: IEEFA

*Business Standard*

📝 ED unearths $400-million fund diversion at Religare Enterprises

📝 Jet Airways creditors' claims balloon to Rs 30,558 cr as revival hopes fade

📝 PSBs may ease credit access to automobile dealers to boost sales

📝 State-run oil firms to deliver petrol at doorstep, expand diesel service

📝 Govt to tighten noose on Chinese e-commerce players evading duties

📝 Amtek Auto heads for liquidation; NCLAT clears the way for the process

📝 Govt adopts a new approach to bring reforms in public sector banks

📝 Fitch too downgrades Macrotech Developers on low liquidity concerns

*Financial Express*

📝 Top executives of Apple, Samsung, Xiaomi to meet government on August 19

📝 NBFC liquidity crunch to hit realty developers hardest

📝 Delay in DHFL’s submission of unaudited Q1 results

📝 IFIN drags SKIL infra to NCLT

📝 Monsoon rage grounds CIAL’s business by Rs 70 crore

📝 Sun Pharma gives licence to CMS for commercialization of 7 generic products in China

📝 Economic slowdown: Govt weighs fiscal stimulus; package soon for companies, exporters

*Mint*

📝 Sembcorp invests ₹521 crore in Indian renewable business

📝 IPOs likely to dry up as uncertainty rules Indian equity market

📝 SpiceJet to launch 12 new domestic flights from October

📝 Rupee settles 13 paise up at 71.14 against dollar despite outflows

📝 Ujjivan Small Finance Bank files draft papers for ₹1,200 crore IPO

📝 NBCC not to invest any money in Amrapali stalled projects

📝 India's forex reserves at new life-time high of $430.57 bn: RBI data

📝 Fitch Ratings raises Reliance's outlook to positive

📝 TRAI seeks relook at caps on channel discounts

📝 RBI to cut interest rates by 40 basis points before this fiscal-end: Fitch

📝 OPEC sees bearish oil outlook for rest of 2019, points to 2020 surplus.

PPF account details

PPF A/C Scheme : Highlights

✅An individual can have only one PPF account. However, he can open an account in his minor child's name.

✅The ceiling of amount deposited in PPF account increased to Rs. 1.50 lac.

✅Deposits made in PPF accounts ( Upto a maximum of limit of investment per annum ) are eligible for deduction under Section 80C of Income Tax Ac.

✅There is no concept of joint holding in a PPF account. It has to be in a single name only. You can however nominate your dependents to your PPF account.

✅Interest is computed on the minimum balance between the 5th and end of a month. If you are investing a lump sum to save tax, deposit the amount before march 5 of the year to get interest on your deposit. Therefore, to get interest on your deposit for the month in which the amount deposited; the amount be deposited before 5th day of the month.

✅You cannot offer the balance in your PPF account as collateral to take a loan. Nominee can claim the balance in the PPF account holder. they cannot continue the account or make additional contributions.

✅Balance in PPF account cannot be attached under court decree.

✅Entire deposit in a PPF account is exempt from the Wealth Tax.

✅The deposit in a minor account is clubbed with the deposit of the account of the guardian for the limit of Rs. 1,50,000/-.

(B) PPF Scheme Amendments

✅The Central Government on 21.06.2016 make the following amendments in the Public Provident Fund Scheme, 1968

Premature closure of PPF Account

✅A subscribers of the Public Provident Fund (PPF) can prematurely close his/ her account or the account of a minor of whom he is a guardian, on a written application to the Accounts Office, on any of the following grounds after completing five years.

✅that the amount is required for the treatment of serious ailments or life threatening diseases of the account holder, spouse or dependent children or parents, on production of supporting documents from competent medical authority.

✅that the amount is required for higher education of the account holder or the minor account holder, on production of documents and fee bills in confirmation of admission in a recognised institute of higher education in India or abroad.

✅The premature closure shall be allowed only after the account has completed five financial years

Interet on Premature Closure

✅1% Lesser Interest on Premature closure of PPF Account will be payable on the interest rates as applicable from time to time

C. PPF Scheme Features: Point Wise

✅When PPF came into force

✅The scheme came into force on Ist July, 1968. [Issued vide Government of India, MOF (DEA) Notification No. GSR 1136 dated 15.6.1968 and further amended from time to time]

Who can open a PPF Account

✅An individual can have only one PPF account in his name and may also subscribe on behalf of a minor.
Non Resident Indians are not eligible to open an account under the Public Provident Fund Scheme.

✅If a resident who subsequently becomes Non Resident Indian during the currency of the maturity period prescribed under Public Provident Fund Scheme, may continue to subscribe to the Fund till its maturity on a Non Repatriation Basis.

Where the PPF account can be opened?

✅PPF accounts can be opened at designated branches of State Bank of India and its associate banks
Designated branches of other nationalized banks

✅All Head Post Offices and other designated Post Offices

What are the tax benefits from PPF?

✅Deposits made in PPF accounts Upto a maximum limkit of Rs. 1,50,000/- eligible for deduction under limit of Section 80C of Income Tax Act.

✅On maturity, the entire amount including the interest is non-taxable.

Entire deposit in a PPF account is exempt from the Wealth Tax. Minimum And Maximum Amount that can be deposited?

✅Minimum amount of Rs. 500 and Maximum amount Rs. 1,50,000/- be deposited in a year.

Number of subscription in a year

✅The subscription in multiples of Rs. 5 may, for any year, be paid into the account in one lump sum.

✅In Installments not exceeding twelve in a year.

If fails to deposit amount in any year

✅A subscriber who fails to subscribe in any year according to the limits of minimum amount, may approach the Accounts Office for condonation of the default, on payment, for each year of default, a fee of Rs. 50 alongwith arrear subscription of Rs. 500 for each year.

Transfer of PPF Account?

✅A subscriber may apply for transfer of his account from one "Account Office" to another "Account Office" designated for this purpose.

Withdrawals from the PPF Account

✅Any time after the expiry of five years from the end of the year in which the initial subscription was made.

✅A subscriber may, if he so desires, apply in Form C or as near thereto as possible, together with his pass book for withdrawing from the balance to his credit.

✅An amount not exceeding fifty per cent of the amount that stood to his credit at the end of the forth year immediately preceding the year of withdrawal or at the end of preceding year, whichever is lower, less the amount of loan, if any, which remains to be repaid.

✅Provided that not more than one withdrawal shall be permissible during any one year.

Closure of account

✅Any time after the expiry of 15 years from the end of the year in which the initial subscription was made by him, a subscriber may, if he so desires, apply in Form C, near thereto as possible together with pass book.
Continuation of account after maturity

✅On the expiry of 15 years from the end of the year in which the initial subscription was made but before then expiry of one year thereafter, may exercise an option with the Accounts Office in Form H, or as near thereto as possible, that he would continue to subscribe for a further block period of 5 years.

Loan against PPF Account

✅Any time after the expiry of one year from the end of the year in which the initial subscription was made but before expiry of five years from the end of the year in which the initial subscription was made.

✅A subscriber may, he so desires, apply in Form D or as near thereto as possible, together with his pass book for obtaining loan not exceeding twenty five percent of amount that stood to his credit to at the ends of the second year immediately preceding the year in which the loan is applied for.

Loan in Minor Child's account

✅Where the application is made by a person who has made subscriptions to the Fund on behalf of a minor of whom he is the guardian, he shall furnish a certificate in the following form to get loan as above, namely:-

✅Repayment of loan and interest

✅The principal amount of a loan under this Scheme shall be repaid by the subscriber before the expiry of thirty six months from the first day of the month following the month in which then loan is sanctioned.

✅The interest on loan amount is plus 2% per annum against the prevailing interest rates.

Nomination and repayment after death

✅subscriber to the fund may nominate in Form E or, as near thereto as possible, one or more persons to receive the amount stading to his credit in the event of his death before the amount has become payable or, having become payable,has not been paid.

✅No Nomination shall be made in respect of an account opened on behalf of minor

Rate of Interest payable in PPF Account?

✅Interest at the rate, notified by the Central Government in official gazette from time to time, shall be allowed for calendar month on the lowest balance at credit of an account between the close of the fifth day and the end of the month and shall be credited to the account at the end of each year.

✅Provided that where the interest to be credited contains a part of a rupee. Then, if such part is fifty paise or more, it shall be increased to one complete rupee, and if such part is less than fifty paise, it shall be ignored.

✅Public provident fund (PPF) will earn an interest of 7.6% w.e.f. 01.01.2018

PPF Interest Rates Over a Period of Time from April-1986
Period Rate
01.04.1986 to 14.01.2000 12%
15.01.2000 to 28.02.2001 11%
01.03.2001 to 28.02.2002 9.5%
01.03.2002 to 28.02.2003 9%
01.03.2003 to 30.11.2011 8%
01.12.2011 to 31.03.2012 8.6%
01.04.2012 to 31.03.2013 8.8%
01.04.2013 onward 8.7%
01.04.2016 onward 8.1%
01.10.2016 onward 8.0%
01.04.2017 onward 7.9%
01.07.2017 onward 7.8%
01.01.2018 onward 7.6%

Jaiib legal

JAIIB LEGAL:

No of parties involved in LC - 7 (Applicant-Buyer-Importer-Opener, Issuing Bank,
Beneficiary-Exporter-Seller, Advising Bank, Negotiating Bank, Confirming Bank,
Reimbursing Bank)
............................ ............
Green clause - This permits pre shipment advance and also permits advances to the
exporter to cover storage at the port of shipment.
........................................
Forged instrument - Checks, drafts, bills of exchange, notes, bonds, stock certificates,
and paper money with false signatures or false denominations; false instruments with
genuine signatures; or COUNTERFEITS.
........................................
Differed payment guarantee - Deferred Payment Guarantee is issued by the bank at
request of customer when he purchases goods or machinaries from a creditor on the
terms of payment after a specified time in lump sum or in instalments.
........................................
Equitable mortgage - A mortgage in which the lender is secured by taking possession of
all the original title documents of the property that serves as security for the mortgage.
It gives the mortgagee the right to foreclose on the property, sell it, or appoint a
receiver in case of nonpayment.
........................................
Gratitious bailment - is a type of bailment in which the bailee receives no compensation.
For example, borrowing a friend's car. A gratuitous bailee is liable for loss of the
property only if the loss is caused by the bailee's gross negligence

Exposure norms : CCP AND CAIIB

     Exposure Norms are applicable to all scheduled commercial banks, excluding Regional Rural

Banks. These have been prescribed as a prudential measure aimed at better risk management and avoidance of

concentration of credit risks. Exposure Norms have been provided as ceiling on exposure to individuals or Groups;

capital market exposures; unsecured exposure and other related items details of which are given below:



2. Credit Exposures to Individual/Group Borrowers:

a) Ceiling (i) The exposure ceiling limits would be 15 percent of capital funds in case of a single borrower and 40

percent of capital funds in the case of a borrower group. (ii) Credit exposure to a single borrower may exceed the

exposure norm of 15 percent of the bank's capital funds by an additional 5 percent (i.e. up to 20 percent) and credit

exposure to borrowers belonging to a group may exceed the exposure norm of 40 percent of the bank's capital

funds by an additional 10 percent (i.e., up to 50 percent), provided the additional credit exposures are on account of

extension of credit to infrastructure projects. (iii) In addition to the exposure permitted above, banks may, in

exceptional circumstances, with the approval of their Boards, consider enhancement of the exposure to a borrower

(single as well as group) up to a further 5 percent of capital funds subject to the borrower consenting- to the banks

making appropriate disclosures in their Annual Reports. (iv) With effect from May 29, 2008, the exposure limit in

respect of single borrower has been raised to twenty five percent of the capital funds, only in respect of Oil

Companies who have been issued Oil Bonds (which do not have SLR status) by Government of India. In addition to

this, banks may in exceptional circumstances, consider enhancement of the exposure to the Oil Companies up to a

further 5 percent of capital funds. (v) The bank should make appropriate disclosures in the 'Notes on account' to the

annual financial statements in respect of the exposures where the bank had exceeded the prudential exposure

limits during the year pi) The exposure limits will also be applicable to lending under consortium arrangements (vii)

Bills purchased / discounted I negotiated under LC (where the payment to the beneficiary is not made 'under

reserve') will be treated as an exposure on the LC issuing bank and not on the borrower. In the case of negotiations

' under reserve' the exposure should be treated as on the borrower.

(b) Exposures to NBFCs : The exposure (both lending and investment, including off balance sheet exposures) of

a bank to a single NBFC / NBFC-AFC (Asset Financing Companies) should not exceed 10% / 15% respectively, of

the bank's capital funds as per its last audited balance sheet. Banks may, however, assume exposures on a single

NBFC / NBFC-AFC up to 15%120%respectively, of their capital funds provided the exposure in excess of 10%/15%

respectively, is on account of funds on-lent by the NBFC / NBFC-AFC to the infrastructure sector. Further, banksmay

also consider fixing internal limits for their aggregate exposure to all NBFCs put together. Infusion of capital funds

after the published balance sheet date may-also be taken into account for the purpose of reckoning capital funds.

Banks should obtain an external auditor's certificate on completion of the augmentation of capital and submit the

same to the Reserve Bank of India (Department of Banking Supervision) before reckoning the additions to capital

funds.

(c) Exemptions: Following types of credit will not be reckoned for exposure norms: (i) Existing/additional credit

facilities (including funding of interest and irregularities) granted to weak/sick industrial units under rehabilitation

packages. (ii) Food credit: Borrowers, to whom limits are allocated directly by the Reserve Bank for food credit, will

be exempt from the ceiling. (iii) Where principal and interest are fully guaranteed by the Government of India (iv)

Loans and advances (both funded and non-funded facilities) granted against the security of a bank's own term

deposits to the extent that the bank has a specific lien on such deposits. (v) Exposure on NABARD; However, there

is no exemption from the prohibitions relating to investments in unrated non-SLR securities. Definitions: For the

purpose of exposure norms, exposure, capital fund, Group and Infrastructure have been defined as under:

(d) Exposure: (a) Exposure shall include credit exposure (funded and non-funded credit limits) and investment

exposure (including underwriting and similar commitments). The sanctioned limits or outstandings, whichever are

higher, shall be reckoned for arriving at the exposure limit. However, in the case of fully drawn term loans, where there

is no scope for re-drawal of any portion of the sanctioned limit, banks may reckon the outstanding as the exposure. (b)

Credit exposure comprises of the following elements (i) all types of funded and non-funded credit limits. (ii) facilities

extended by way of equipment leasing, hire purchase finance and factoring services. (c) Investment exposure

comprises of the following elements: (i)investments in shares and debentures of companies (ii)investment in PSU

bonds (c)investments in Commercial Papers (CPs). (d) Banks' I Fls' investments in debentures/ bonds / security

receipts / pass-through certificates (PTCs) issued by a SC / RC as compensation consequent upon sale of financial

assets will constitute exposure on the SC I RC. In view of the extraordinary nature of the event, banks / Fls will be

allowed, in the initial years, to exceed the prudential exposure ceiling on a case-to-case basis. (e) The investment

made by the banks in bonds and debentures of corporates which are guaranteed by a Public Financial Institutions

(PFI) (as per list given by RBI) will be treated as an exposure by the bank on the PFI and not on the corporate. (f)

Guarantees issued by the PFI to the bonds of corporates will be treated as an exposure by the PFI to the corporates to

the extent of 50 percent, being a non-fund facility, whereas the exposure of the bank on the PFI guaranteeing the

corporate bond will be 100 percent. The PFI before guaranteeing the bonds/debentures should, however, take

into account the overall exposure of the guaranteed unit to the financial system.

(e) Capital Funds: Capital funds for the purpose will comprise of Tier I and Tier II capital as defined under

capital adequacy standards and as per the published accounts as on March 31 of the previous year.

However, the 'infusion of capital under Tier I and Tier II, either through domestic or overseas issue (in the

case of branches of foreign banks operating in India, capital funds received by them from their Head

Office), after the published balance sheet date will also be taken into account for determining the exposure

ceiling. Other accretions to capital funds by way of quarterly profits etc. would not be eligible to be reckoned

for determining the exposure ceiling. Banks are also prohibited from taking exposure in excess of the ceiling

in anticipation of infusion of capital at a future date.

(p Group: (a) The concept of 'Group' and the task of identification of the borrowers belonging to specific

industrial groups is left to the perception of the banks/financial institutions. However, the guiding principle

will be commonality of management and effective control. In so far as public sector undertakings are

concerned, only single borrower exposure limit would be applicable. (b) In the case of a split in the group, if

the split is formalized, the splinter groups will be regarded as separate groups. If banks and financial

institutions have doubts about the bona fides of the split, a reference may be made to RBI for its final view

in the matter to preclude the possibility of a split being engineered in order to prevent coverage under the

Group Approach.

Ethical behaviour

Ethical behaviour

Of late, serious concerns are voiced about the proprieties in business, because increasingly there are reports of improper behaviour. Some of the world‟s biggest companies have been found to have cheated through false accounts and dishonest audit certification. The funds of banks have been misused by their managements to bolster the greed of some friends. Officials have used their authority to promote personal benefits. Increasingly, people who are trusted by the community to perform their tasks are seen to have betrayed the trust. Personal aggrandisement and greed prevails.
Consequently, there is increasing discussion about accountability and corporate governance, all of which together can be called “Ethics” in business. Acts like the „Right to Information Act‟ and developments like „Public Interest Litigation‟ have assumed considerable importance as instruments to achieve better accountability and governance.
Ethical behaviour automatically leads to good governance. When one does her duty conscientiously and sincerely, there is good governance. Unethical behaviour shows little concern for others and high concern for self. When one tries to serve self-interest through one‟s official position, there is unethical behaviour. It is not wrong to look after one‟s interests. But it is wrong to do so at the cost of the interests of others.
Insurance is a business of trust. Issues of propriety and ethics are extremely important in this business of insurance. Breach of trust amounts to cheating and is wrong. Things go wrong when wrong information is given to the prospects tempting them to buy insurance or the plan of insurance suggested does not cater to all the needs of the prospect.
Unethical behaviour happens when the benefits of self are considered more important than of the other. The code of ethics spelt out by the IRDA in the various regulations is directed towards ethical behaviour.
While it is important to know every clause in the code of conduct to ensure that there is no violation of the code, compliance would be automatic if the insurer and its representatives always kept the interests of the prospect in mind. Things go wrong when the officers of insurers become concerned with the targets of business, rather than the benefits to the prospect.

Characteristics:

Some characteristics of ethical behaviour are:
a) Placing best interests of the client above one‟s own direct or indirect benefits
b) Holding in strictest confidence and considering as privileged, all business and personal information pertaining to client‟s affairs
c) Making full and adequate disclosure of all facts to enable clients make informed decisions
There could be a likelihood of ethics being compromised in the following situations:
a) Having to choose between two plans, one giving much less premium or commission than the other
b) Temptation to recommend discontinuance of an existing policy and taking out a new one
c) Becoming aware of circumstances that, if known to the insurer, could adversely affect the interests of the client or the beneficiaries of the claim

Forex

FOREX :

1. Under liberalized remittances by resident individuals upto ............................ for any permitted current or capital account transaction or a combination of both.

a) $ 150000 per financial year

b) $ 250000 per financial year

c) $ 150000 per calendar year

d) $ 250000 per calendar year

2. Capital account transaction refers to transaction which …………………………of a person resident in India.

a) alters the asset outside India

b) alters the asset within India

c) alters the liability outside India

d) alters the liability within India

3. Current account transactions means………………….

a) Transactions other than capital account

b) Transactions done through current account

c) Transactions done through saving account

d) Transactions done for business purpose

4. Release of foreign exchange above ……………… requires RBI permission in current account transactions.

a) $ 150000 b.$ 250000 c.$ 300000 d.$ 500000

5. For private visit to any country (except Nepal and Bhutan), any resident individual can obtain foreign exchange upto ……………………. In a financial year

a)150000 b)200000 c)250000 d)No such restriction,( any amount as per need)

6. For private visit to any country (except Nepal and Bhutan), any resident individual can obtain foreign exchange upto $ 250000 In a financial year but the number of trip should not be more than…………….

a) 5 b)10 c)12 for each month d)No such restrictions

7. For private visit to Nepal and Bhutan any resident individual can obtain foreign exchange upto ……………. In a financial year

a)$ 150000 b.$ 250000 c.$ 300000

d) No foreign currency could be released

8. Any resident individual may remit upto ………………….. in one Financial Year as gift to a person residing outside India

a)$ 250000 b.$ 200000 c.$ 150000 d.None of the above

9. A person going abroad for employment may draw foreing exchange upto ………………….. in one Financial Year

a)$ 100000 b.$ 150000 c.$ 250000 d.None of the above

10. Any resident individual may remit upto ………………….. in one Financial Year as donation to an organization outside India

a)$ 100000 b.$ 250000 c.$ 300000 d.None of the above

11. A person wanting to emigrate can draw foreign exchange upto

a)$ 100000 b.$ 250000 c.$ 300000

d).Amt prescribe by the country of emigration

12. A resident individual can remit upto …………………… per financial year towards maintenance of close relatives.

a.$100000 b.$200000 c.$250000 d.None of the above

13. Relative for business purpose aur official purpose has been defined in

a) Indian contract act

b) Indian Family dispute settlement act

c) Indian company act

d) Indian evidence act

14. For business trip to any foreign country, resident individuals can avail foreign exchange upto …………. during financial year.

a)$ 100000 b.$ 250000 c.$ 300000 d.None of the above

15. For medical treatment, Authorised dealer may release foreing exchange upto an amount of …........... per Financial Year without insisting on any estimate from a hospital/doctor.

a) $ 100000 b.$ 250000 c. $ 300000 d.none of the above

16. Who overseas the foreign exchange Market in India?

a) RBI

b) Ministry of Finance, Govt of India

c) Ministry of External Affairs, Govt of India

d) FEDAI

17. FEMA 1999 was enacted to replace FERA 1973. FEMA came into effect from

a) 1st April 1999 b) 1st October 1999

c) 1st June 2000 d) 1st October 2000

18. Prevention of Money Laundering Act 2000 came into effect from

a) 1st April 2005 b) 1st July 2005

c) 1st April 2006 d) 1st July 2006

19. FII are allowed to invest in all equity securities traded in the primary and second-ary market. the total investment by all the FII put together should not exceed ….............. of the issued and paid up capital of a company which can be raised up to the level of the prescribed sectorial cap.

a) 10% b)24% c)51% d)49%

20. Any Indian entity can make investment in an overseas joint venture or in a wholly owned subsidiary upto ….......... of its net worth?

a) 100% b) 200% c) 300% d) 400%

21. Foreign Inward Remittance Certificate (FIRC) is not required for any of the remit-tances to India if they involve relatives of NRI. However, For business purpose, one need FIRC for getting Tax concessions.

a) True

b) False

c) Can’t Say

d) FIRC is required for all the purpose

22. As per Income tax provision, a person will be treated as non-resident, if he/she stays outside India for

a) Less than 182 days in the preceding financial year

b) More than 182 days in the preceding financial year

c) Less than 182 days in the preceding calendar year

d) More than 182 days in the preceding calendar year

23. Foreign exchange is to be surrendered to AD within……………… from the date of receipt

a) 60 days b)90 days c)120 days d)180 days

24. Foreign exchange due or accrued as remuneration for services rendered whether in or outside India or in settlement of any lawful obligation or an income on asset held outside India or as inheritance settlement of gift is to be surrendered to AD with-in……………… from the date of receipt

a) 60 days b)120 days c)90 days d)180 days

25. AD can issue FIRC on security stationary only in respect of which of the following cases

a) Advance payment for exports

b) Receipt of export proceeds by an AD other than the one who handles EDF

c) Inward remittance covering FDI/FII

d) All of the above

Answers
1-b
2-a
3-a
4-b
5-c
6-d
7-d
8a
9-c
10-c
11-b
12-c
13-c
14-b
15-b
16-A
17-c
18-b
19-b
20-d
21-true
22-b
23-d
24-d
25-d

TT rates and Bill rates

TT Rates and Bill Rates:;

Following 4 types of buying and selling rates are important:
1. TT Buying rate
2. Bill Buying rate
3. TT Selling rate
4. Bill Selling rate
In Interbank market, exchange rate is quoted up to 4 decimals in multiples of 0.0025. e.g.
1USD=53.5625/5650
For customers the exchange rate is quoted in two decimal places i.e. Rupees and paisa. e.g. 1
USD =Rs. 55.54.
Amount being paid or received will be rounded off to nearest Rupee.

TT Buying Rate:::

It is required to calculate when our Nostro account is already credited or
being credited without delay e.g. Receipt of DD, MT, TT or collection ofForeign bills. This rate is used for cancellation of Forward Sales Contract.
Calculation
Spot Rate – Exchange Margin

Bill Buying Rate::

Bill Buying Rate Bill Buying rate is applied when bank gives INR to the customer before
receipt of Foreign Exchange in the Nostro account i.e. Nostro account is
credited after the purchase transaction. In such cases.
Examples are:
 Export Bills Purchased/Discounted/Negotiated.
 Cheques/DDs purchased by the bank.
Calculation

Spot Rate + Forward Premium (or deduct forward discount) – Exchange margin.

TT Selling Rate::

TT Selling Rate Any sale transaction where no delay is involved is quoted at TT selling rate.
It is desired in issue of TT, MT or Draft. It is also desired in crystallization of
Export bills and Cancellation of Forward purchase contract.
Calculation
Spot Rate + Exchange Margin

Bill Selling Rate:::

Bill Selling Rate It is applied where handling of documents is involved e.g. Payment against
Import transactions:
Calculation
Spot Rate + Exchange Margin for TT selling + Exchange margin for Bill
Selling

Examples::

Q. 1
Bank received MT of USD 5000 on 15th Sep. The Nostro account was already credited. What
amount will be paid to the customer: Spot Rate 34.25/30. Oct Forward Differential is 22/24.
Exchange margin is .80%
Solution
TT buying Rate will be applied
34.25 - .274 = 33.976 Ans.

Q. 2
On 15th July, Customer presented a sight bill for USD 100000 for Purchase under LC. How
much amount will be credited to the account of the Exporter. Transit period is 20 days and
Exchange margin is 0.15%. The spot rate is 34.75/85. Forward differentials:
Aug: .60/.57 Sep:1.00/.97 Oct: 1.40/1.37
Solution
Bill Buying rate of August will be applied.
Spot Rate----34.75 Less discount .60 = 34.15
Less Exchange Margin O.15% i.e. .0512 =34.0988 Ans.
( Transit period is rounded to next month since currency will be cheaper as it is buy transaction)

Q. 3
Issue of DD on New York for USD 25000. The spot Rate is IUSD = 34.3575/3825 IM forward
rate is 34.7825/8250
Exchange margin: 0.15%

Solution:
TT Selling Rate will Apply
Spot Rate = 34.3825 Add Exchange margin (.15%) i.e. 0.0516
TT Selling Rate = Spot Rate + Exchange Margin = 34.4341 Ans.

Q. 4
On 12th Feb, received Import Bill of USD-10000. The bill has to retired to debit the account of
the customer. Inter-bank spot rate =34.6500/7200. The spot rate for March is 5000/4500. The
exchange margin for TT selling is .15% and Exchange margin for Bill selling is .20%. Quote rate
to be applied.
Solution
Bill Selling Rate will be applied.
Spot Rate + Exchange margin for TT Selling + Exchange margin for Bill selling =
34.7200+.0520+.0695 = 34.8415 Ans.

Important for bankers

IMPORTANT BANKING TERMS

Repo Rate
Repo rate is the rate at which our banks borrow rupees from RBI. Whenever the banks have any shortage of funds they can borrow it from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive.

Reverse Repo Rate
This is exact opposite of Repo rate. Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. RBI uses this tool when it feels there is too much money floating in the banking system. Banks are always happy to lend money to RBI since their money is in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to these attractive interest rates.

CRR Rate
Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.

SLR Rate
SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. Approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit.

Bank Rate
Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by central banks to control the money supply.

Inflation
Inflation is as an increase in the price of bunch of Goods and services that projects the Indian economy. An increase in inflation figures occurs when there is an increase in the average level of prices in Goods and services. Inflation happens when there are fewer Goods and more buyers; this will result in increase in the price of Goods, since there is more demand and less supply of the goods.

Deflation
Deflation is the continuous decrease in prices of goods and services. Deflation occurs when the inflation rate becomes negative (below zero) and stays there for a longer period.

Stagflation
Stagflation is a state of economy in which economic activity is slowing down but wages and prices continue to rise. The term is a blend of words stagnation and inflation. Recession A true economic recession can only be confirmed if GDP (Gross Domestic Product) growth is negative for a period of two or more consecutive quarters.

PLR
The Prime Interest Rate is the interest rate charged by banks to their most creditworthy customers (usually the most prominent and stable business customers). The rate is almost always the same amongst major banks. Adjustments to the prime rate are made by banks at the same time; although, the prime rate does not adjust on any regular basis. The Prime Rate is usually adjusted at the same time and in correlation to the adjustments of the Fed Funds Rate. The rates reported below are based upon the prime rates on the first day of each respective month. Some banks use the name "Reference Rate" or "Base Lending Rate" to refer to their Prime Lending Rate.
Deposit Rate
Interest Rates paid by a depository institution on the cash on deposit.

FII
FII (Foreign Institutional Investor) used to denote an investor, mostly in the form of an institution. An institution established outside India, which proposes to invest in Indian market, in other words buying Indian stocks. FII's generally buy in large volumes which has an impact on the stock markets. Institutional Investors includes pension funds, mutual funds, Insurance Companies, Banks, etc.

FDI
FDI (Foreign Direct Investment) occurs with the purchase of the “physical assets or a significant amount of ownership (stock) of a company in another country in order to gain a measure of management control” (Or) A foreign company having a stake in Indian Company.

IPO
IPO is Initial Public Offering. This is the first offering of shares to the general public from a company wishes to list on the stock exchanges.
Disinvestment
The Selling of the government stake in public sector undertaking.

Fiscal Deficit
It is the difference between the government’s total receipts (excluding borrowings) and total expenditure.

Revenue deficit
It defines that, where the net amount received (by taxes & other forms) fails to meet the predicted net amount to be received by the government.

GDP
Gross National Product is measured as GDP plus income of residents from investments made abroad minus income earned by foreigners in domestic market.
National Income
National Income is the money value of all goods and services produced in a country during the year.
Per Capita Income
The national income of a country or region divided by its population. Per capita income is often used to measure a country's standard of living.
Vote on Account
A vote-on account is basically a statement, where the government presents an estimate of a sum required to meet the expenditure that it incurs during the first three to four months of an election financial year until a new government is in place, to keep the machinery running.
Difference between Vote on Account and Interim Budget
Vote-on-account deals only with the expenditure side of the government's budget, an interim Budget is a complete set of accounts, including both expenditure and receipts.

SDR
The SDR (Special Drawing Rights) is an artificial currency created by the IMF in 1969. SDR’s are allocated to member countries and can be fully converted into international currencies so they serve as a supplement to the official foreign reserves of member countries. Its value is based on a basket of key international currencies (U.S. dollar, euro, yen and pound sterling).

SEZ
SEZ means Special Economic Zone is the one of the part of government’s policies in India. A special Economic zone is a geographical region that economic laws which are more liberal than the usual economic laws in the country. The basic motto behind this is to increase foreign investment, development of infrastructure, job opportunities and increase the income level of the people

Monetary policy
A Monetary policy is the process by which the government, central bank, of a country controls (i) the supply of money, (ii) availability of money, and (iii) cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economy.
Fiscal Policy
Fiscal policy is the use of government spending and revenue collection to influence the economy. These policies affect tax rates, interest rates and government spending, in an effort to control the economy. Fiscal policy is an additional method to determine public revenue and public expenditure.
Core Banking Solutions (CBS)
Core banking is a general term used to describe the services provided by a group of networked bank branches. Bank customers may access their funds and other simple transactions from any of the member branch offices. It will cut down time, working simultaneously on different issues and increasing efficiency. The platform where communication technology and information technology are merged to suit core needs of banking is known as Core Banking Solutions.
Liquidity Adjustment Facility (LAF):
A tool used in monetary policy that allows banks to borrow money through repurchase agreements. This arrangement allows banks to respond to liquidity pressures and is used by governments to assure basic stability in the financial markets.
RTGS System
The acronym 'RTGS' stands for Real Time Gross Settlement. RTGS system is a funds transfer mechanism where transfer of money takes place from one bank to another on a 'real time' and on 'gross' basis. This is the fastest possible money transfer system through the banking channel. Settlement in 'real time' means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. 'Gross settlement' means the transaction is settled on one to one basis without bunching with any other transaction.
Bancassurance
It is the term used to describe the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products

Wholesale Price Index
The Wholesale Price Index (WPI) is the index used to measure the changes in the average price level of goods traded in wholesale market. A total of 435 commodity prices make up the index. It is available on a weekly basis. It is generally taken as an indicator of the inflation rate in the Indian economy. The Indian Wholesale Price Index (WPI) was first published in 1902, and was used by policy makers until it was replaced by the Producer Price Index (PPI) in 1978.
Consumer price Index (CPI)
It is a measure estimating the average price of consumer goods and services purchased by households.
Venture Capital
Venture capital is money provided by an outside investor to finance a new, growing, or troubled business. The venture capitalist provides the funding knowing that there’s a significant risk associated with the company’s future profits and cash flow. Capital is invested in exchange for an equity stake in the business rather than given as a loan, and the investor hopes the investment will yield a better-than-average return.
Treasury Bills
Treasury Bills (T-Bills) are short term, Rupee denominated obligations issued by the Reserve Bank of India (RBI) on behalf of the Government of India. They are thus useful in managing short-term liquidity. At present, The Government of India issues three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day. There are no treasury bills issued by State Governments.
Foreign exchange reserves
Foreign exchange reserves (also called Forex reserves) in a strict sense are only the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold and IMF reserve positions.
Open Market operations (OMO)
Buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system by RBI. Open market operations are the principal tools of monetary policy.
Micro Credit
It is a term used to extend small loans to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families.

Liquidity Adjustment Facility (LAF)
A tool used in monetary policy that allows banks to borrow money through repurchase agreements. This arrangement allows banks to respond to liquidity pressures and is used by governments to assure basic stability in the financial markets.
E-Governance
E-Governance is the public sector’s use of information and communication technologies with the aim of improving information and service delivery, encouraging citizen participation in the decision-making process and making government more accountable, transparent and effective.
Right to information Act
The Right to Information act is a law enacted by the Parliament of India giving citizens of India access to records of the Central Government and State governments. The Act applies to all States and Union Territories of India, except the State of Jammu and Kashmir - which is covered under a State-level law. This law was passed by Parliament on 15 June 2005 and came fully into force on 13 October 2005.
Credit Rating Agencies in India
The credit rating agencies in India mainly include ICRA and CRISIL. ICRA was formerly referred to the Investment Information and Credit Rating Agency of India Limited. Their main function is to grade the different sector and companies in terms of performance and offer solutions for up gradation. The credit rating agencies in India mainly include ICRA and CRISIL (Credit Rating Information Services of India Limited)
Cheque
Cheque is a negotiable instrument instructing a Bank to pay a specific amount from a specified account held in the maker/depositor's name with that Bank. A bill of exchange had drawn a specified banker and payable on demand. “A written order directs a bank to pay money”.
Demand Draft
A demand draft is an instrument used for effecting transfer of money. It is a Negotiable Instrument. Cheque and Demand-Draft both are used for Transfer of money. You can 100% trust a DD. It is a banker's check. A check may be dishonored for lack of funds a DD cannot. Cheque is written by an individual and Demand draft is issued by a bank. People believe banks more than individuals.

SEBI
Securities and exchange Broad of India (SEBI) is the regulator for the Securities Market in India. Originally set up by the Government of India in 1988, it acquired statutory form in 1992 with SEBI Act 1992 being passed by the Indian Parliament.
Mutual funds
Mutual funds are investment companies that pool money from investors at large and offer to sell and buy back its shares on a continuous basis and use the capital thus raised to invest in securities of different companies. The mutual fund will have a fund manager that trades the pooled money on a regular basis. The net proceeds or losses are then typically distributed to the investors annually.
Asset Management Companies
A company that invests its clients' pooled fund into securities that match its declared financial objectives. Asset management companies provide investors with more diversification and investing options than they would have by themselves. Mutual funds, hedge funds and pension plans are all run by asset management companies. These companies earn income by charging service fees to their clients.
Non-performing assets
Non-performing assets, also called non-performing loans, are loans, made by a bank or finance company, on which repayments or interest payments are not being made on time. A debt obligation where the borrower has not paid any previously agreed upon interest and principal repayments to the designated lender for an extended period of time. The nonperforming asset is therefore not yielding any income to the lender in the form of principal and interest payments.
Recession
A true economic recession can only be confirmed if GDP (Gross Domestic Product) growth is negative for a period of two or more consecutive quarters.

ABCD of MSmE

ABCD OF MSME :::: Excellent Content plz read everybody..

1.Keynote address delivered by Shri S. S. Mundra, Deputy Governor, Reserve Bank of India at the 2nd CII
National Conference on MSME Funding held in New Delhi on August 23, 2016 ).
Thank you for inviting me to deliver the keynote address at this second edition of the Conference on
MSME Funding. I compliment the CII for having chosen a very relevant theme for the Conference
‘Propelling MSME Growth through Enhanced Financial Access and Support’. The theme lays emphasis on
two crucial pillars that are pertinent for the sector i.e. enhancing financial access and ensuring adequate
support to enable MSMEs to attain faster growth.
2.It is universally recognized that small businesses are the best vehicles for generate jobs. A IFC
/Mckinsey Study has estimated worldwide MSME population at 420 to 510 million, of which 360 to 440
million alone, are in emerging markets. The report also estimates that the formal SMEs contribute up to
45 percent of total employment and up to 33 percent of national income (GDP) in emerging economies
and these numbers could be significantly higher when informal SMEs are included. The Asia SME Finance
Monitor 2014 published by the Asian Development Bank has estimated that 96% of all enterprises in the
Asian region fall under the MSME category, absorb close to 2/3rd of the working force and contribute to
about 42 % of GDP.
3. According to MSME Ministry’s Annual Report for 2015-16, MSME sector in India today is a network of 51
million enterprises providing employment to 117.1 million persons and contributing 37.5 per cent of
India’s GDP2
. The development of this sector is, therefore, crucial in generating significant levels of
employment across the country, more so since we have a large young and educated population which is
on lookout for employment.
MSME – Significance beyond job creation
4. While job creation is certainly critical, small businesses play a far greater role than just providing
employment. Let me state two key contributions of MSME sector here.
5.One, the MSME sector is a nursery for entrepreneurship and a school for innovation. Countless medium
and large corporates in India have evolved out of being micro and small sometime in not so distant past. I
am sure many in the audience here, who own fairly large businesses today, would have cut their teeth in
business through the route of micro and small enterprises.
6. Secondly, MSME sector is crucial for the success of the national agenda of Financial Inclusion. Let me
explain. Normally, when we talk about financial inclusion, we do so largely from the perspective of an
individual or at best a household. However, to my mind, universal financial inclusion cannot be considered
to have been achieved unless it is ensured that the micro and small businesses are financially included.
Credits to these small family run or individual run entities from the formal financial channels would make
these businesses sustainable and help them move out of poverty and propel them to a better quality of
life.
7. The surmise that I am trying to drive at is that if this is the sector that is the bulwark for such criticaldevelopmental paradigms, there are compelling enough reasons for all stakeholders- be they the
Associations, the Financial Institutions, the regulators or the Government, to put all their might together
in a convergent fashion so that the right environment is created to propel growth of MSMEs in our
country.
8. For achieving this objective, there is a need to create an ecosystem which can facilitate handholding
and nurturing of MSME units particularly at the nascent stages. Also, there is a need to eliminate a host of
impediments – of permits, of inspections, of red tape and provide a set of enablers – skill development,
infrastructure, markets, technology etc. However, of all the enablers, probably none is more important
than Credit. The IFC/Mckinsey has estimated the credit gap for formal and informal MSMEs worldwide at
around $ 3.9 trillion globally, of which $2.1 to 2.6 trillion is in emerging markets.
The ABCD of Credit
9. As I said, credit is perhaps the most critical component for MSME entrepreneurs. Provision for Credit is
essentially dependent on four pivotal issues which I would call ‘ABCD’ of credit. Let me take you through
each of them and also explain what we are doing to iron out these issues.
a) The Á of Credit –Access/Availability
10. The 4th All India survey of MSMEs states that close to 90 per cent of MSMEs are dependent on
informal sources, which by any standards is a worrisome figure. Since that survey, some headway must
have been made in improving MSMEs’ access to formal financial channels; however, it still remains a
challenge. The public sector banks today have close to 3000 specialized branches which specialize in
lending to MSME units. Private sector banks have built up products and processes, which enable quick
disbursal of loans. Most banks have switched over to centralized credit sanctioning, which enables better
turnaround time. Many others have increased the credit limits to the field level functionaries. While these
steps have improved access, there is still a huge unmet demand for credit for MSMEs. (There is a total
finance requirement of INR 32.5 trillion ($650 billion) in the MSME sector, which comprises of INR 26
trillion ($ 520 Billion) of debt demand and INR 6.5 trillion ($130 Billion) of equity demand).As per
provisional data for period ended March 2016, total outstanding loan of the banking system to MSME
sector stood at around 11.1 trillion rupees in 20.6 million loan accounts. Contrast this to the estimated
need of INR 26 trillion and number of MSMEs at 51 million.
11. An important piece of the problem is adequacy of banking outlets. Small entrepreneurs are spread
across remote locations in the country where physical bank branches are not available. Also, the banking
correspondent mechanism is yet to mature to a level where they can play a key role in credit disbursal.
Second and perhaps a more import dimension is availability of credit at a time when it is required by the
entrepreneur. Ability of small entrepreneurs to withstand life cycle shocks is extremely limited and hence
availability of timely credit becomes critical for their survival. The formal financial system, due to a variety
of reasons, which may include cumbersome procedures, lack of understanding of the business model,
inability of the entrepreneur to meet the requirements of the banks etc., is unable to meet this immediate
need of the entrepreneur.
b) ‘B’- Banks and Business
12. ‘B’ in the ‘ABCD’ paradigm of credit fundamentally refers to the information asymmetry between the
two Bs – Banks and Business.
The United States Agency for International Development (2009) defines a financially literate SME
owner/manager as “someone who knows what are the most suitable financing and financial management
options for his/her business at the various growth stages of his/her business; knows where to obtain the
most suitable products and services; and interacts with confidence with the suppliers of these products
and services. He/she is familiar with the legal and regulatory framework and his/her rights and recourse
options.”
13.I don’t think that majority of the MSME entrepreneurs in the country today meet the criterion.
Financial literacy in the context of a MSME focuses on an individual’s ability to translate financial literacy
concepts to business needs. Financial literacy is essential for effective money management and low levels
of financial literacy hinder the understanding of available financial products and services. MSE
entrepreneurs are also constrained by lack of operational skills, accounting and finance acumen, business
planning etc. which underscores a need for facilitation by banks/other agencies.
14. However, it is not a one way street. Large-scale retirements in banks in recent years have also
adversely impacted the collective skill-sets available at the field level in understanding, appraising and
monitoring the MSME loan portfolio. The poor underwriting skills leads to avoidable under or ovefinancing, which can have a telling effect on the health of the MSME units, particularly in adverse life cycle
situations.
c) ‘C’- Collateral Requirements
15. The formal financial institutions particularly banks consider lending to MSMEs as highly risky since the
entrepreneurs often do not possess adequate collateral to support the credit. Very often, the loans are
rejected, despite the project prima facie, being feasible. While there are several dispensations to tide over
the problem, the credit culture has not matured enough to a level existing in developed economies where
lending is done against the assets of the firm including its movable assets. This also necessitates that we
build up strong financial infrastructure, which would support the banks in lending to these sectors without
worries and using all types of assets available to secure the loan. It is also pertinent for banks to realise
that though the loan to the individual entities in the sector may be riskier on a solo basis, overall on a
portfolio level, these are less vulnerable than loans to corporate.
d) ‘D’- Documentation
16. Many of the MSMEs, particularly the Micro units, do not have adequate documentation to match the
rigours of a formal financial system. Absence of documentation drives the small entrepreneurs to informal
sources that are willing to provide credit with minimum documentation. Further, a vast majority of the
MSMEs are informal, which brings down the credit score of the entrepreneur and hinders the ability of the
formal financial system to lend to them. Banks, on their part will need to leverage on modern technology
algorithms and Big data so that they can differentiate between a good borrower and a not so good one
even in the absence of conventional documentation.
17. Having analysed various impediments in finance to the sector let me dwell on some of the steps
taken by RBI, Government of India and other Apex institutions in bridging these gaps.
(i) Access/ Availability
RBI has initiated several measures to improve the availability of banking services, especially in the rural
and far-flung areas where access to formal finance is arduous.
18. New institutions: As you are aware, two new universal banks have started operations while in-
principle approval has been granted to 10 entities to set up Small Finance Banks that would primarily
focus on lending to unserved and underserved sections including small business units, small and marginal
farmers, micro and small industries and unorganized
sector entities. These small finance banks have been mandated to extend 75 per cent of its Adjusted Net
Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL) by the Reserve
Bank. At least 50 per cent of its loan portfolio should constitute loans and advances of up to Rs. 25 lakh.
Many of the SFBs have prior experience of working with small businesses as MFIs/NBFCs and we believe
that they will be able to bring in technology backed innovative last mile practices to serve their
customers.
19. Increased branch penetration/ Specialized branches: RBI has advised banks to set up ‘brick and
mortar’ branches in villages with population of more than 5000 in a phased manner. Coupled with a more
mature Banking Correspondent mechanism, this would give considerable fillip in meeting the banking
needs of the MSMEs particularly in rural areas. Besides, creating presence of physical branch, there is
also a need to have large number of bank officials with appropriate skill sets and knowledge to handle
the life cycle needs of the small businesses. Already, Public Sector banks have established specialized
MSME branches in every district to cater to the needs of the small businesses. We are already working
towards improving the skill sets and entrepreneurial sensitivity of the field level functionaries.
20. P2P lending: New players have entered the MSME lending landscape in form of P2P companies. These
entities use an online platform to match lenders with borrowers to provide unsecured loans and mostly for
receivables financing. P2P lending has great potential as an alternative form of low-cost finance as it can
reach to the needy where formal sources are unable to reach or unwilling to lend. RBI has been mindful of
a need to regulate these entities without stifling their ability to innovate and is currently in the process of
issuing final guidelines on P2P lending.
21. Policy intervention for Life Cycle Issues: We have advised the banks to keep a provision for
additional credit limits (Standby Credit Facility for term loans and an additional provision within the overall
working capital limits) in order to provide timely financial support to Micro and Small enterprises facing
financial difficulties during their lifecycle. Banks have also been advised to carry out mid-term review of
regular working capital limits and fix up timelines for credit decisions. I am happy to say that most banks
have put in place similar provisions in the last one year or so.
22. Co-origination of loans: While several steps have been taken to address the problems related toaccessibility, there are certain structural problems which would take their own sweet time in getting
sorted out. One of this is the issue of reaching the last mile. Much as we have encouraged the banks to
establish brick and mortar branches across remote villages, we must be conscious that they would always
be driven by viability assessments/
cost considerations. One possible solution for this problem could be convergence of efforts between banks
on one hand and the NBFCs, MFIs on the other, who have ‘feet on the ground’ in such locations, better
understanding of the local conditions and business viability, better knowledge about the credit worthiness
of individuals, their repayment capabilities etc. Could we envisage a framework for co-origination of
loans by banks and the NBFCs/MFIs with risk participation? While it would ensure skin in the game
for both parties, it would benefit the entrepreneurs in terms of cost of credit, which on account of blending
could be substantially lower. This could probably be the most ideal structure to serve the micro
enterprises who are the most deprived in terms of availability of credit.
(ii) Banks and Business
23. Let me now turn my focus to steps for bridging the information asymmetry between the banks
and the businesses. As I mentioned earlier, this is not a one-way street. Not only are the small
entrepreneurs often ignorant about banking products and practices, several bankers have little
understanding of the lifecycle credit needs of small businesses. Towards covering this base, RBI has
started a capacity building initiative called the National Mission for Capacity Building of Bankers for
financing MSME Sector (NAMCABS) in a mission mode. The field level functionaries must appreciate the
importance of two critical pillars of financing MSME sector viz., timeliness and adequacy of credit. I am
happy to state that close to 3300 officials of the banks have undergone this programme in the last one
year.
24. Credit Counsellors : For bridging the information asymmetry on the MSME borrowers side, RBI is
initiating a process for putting in place a framework for accreditation of credit counsellors who are
expected to serve as facilitators and enablers for micro and small entrepreneurs. Since MSMEs are
typically enterprises with little credit histories and with inadequate expertise in preparing financial
statements, credit counsellors will assist the borrowers in preparing their project reports and also help
banks make better informed credit decisions.
25. Revival and Rehabilitation of MSMEs: Another key step in the direction of supporting the firms in
distress is the issuance of guidelines on the Framework on Revival and Rehabilitation of MSMEs, which
provides an institutionalized framework for rehabilitation of enterprises which are potentially viable, but
are under temporary duress. The Framework provides for a structured mechanism, which could be
triggered either by the banker or by the entrepreneur at the first signs of stress. The problem resolution is
scaled up to a committee with a time bound schedule. I see this as a very powerful tool and urge upon
the bankers to get this process rolling at the earliest.
(iii) The difficult ‘C’s -Credit and Collateral
26. The issue of finding the right balance in securing a loan without pushing the borrower to informal
sector has been a bugbear for the banking system. This is sought to be addressed through creation and
development of right institutional structures. Let me delve upon some of these efforts:
27. Movable Asset Registry: Movable assets, as opposed to fixed assets such as land or buildings, often
account for most of the capital stock of private firms and comprise an especially large share for micro,
small and medium-size enterprises. Hence, movable assets are the main type of securities that firms can
pledge to obtain bank financing. I am happy to state that CERSAI, in active coordination with Government
of India and Reserve Bank has established the movable asset registry, which when mature would have a
multiplier effect in lending to the sector.
28. TReDS: In order to solve the problem of delayed payment to MSMEs, RBI has licensed three entities
for operating the Trade Receivables Discounting System (TReDS). The system would facilitate the
financing of trade receivables of MSME enterprises from corporate and other buyers, including
government departments and public sector undertakings (PSUs) through multiple financiers. The
objective is to create Electronic Bill Factoring Exchanges which could electronically accept and settle
bills so that MSMEs could encash their receivables without delay. It is expected that the TReDS will
commence operations within this current fiscal. It would be important that the use of TReDS is
made mandatory for, to begin with corporate and PSUs and later for the Government
departments. I would urge the Chambers and the MSME Ministry to proactively examine this
aspect as success of TReDS initiative can be a game changer for the sector.
29. Utility of the Credit Guarantee Scheme: Realizing the problems of small borrowers in posting
collaterals, RBI has asked the banks not to insist on collateral in case of loans up to Rs 10 lakh extendedto units in the MSE sector. Also, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
has been set up to encourage the Member Lending Institutions to extend credit based on the viability of
the proposal rather than insisting on security or surety. Based on practical experience however, I tend to
believe that these provisions have not led to desired outcomes. Let me elaborate.
On one hand, the guideline on collateral-free loans has led banks to at times devise ways of denying
credit to the MSMEs borrowers, while on the other extreme, the provision for credit guarantee has
potential to cause deterioration in quality of credit appraisal and due diligence, consequently straining
the resources of the CGTMSE. Clearly, both outcomes are undesirable. I would rather advocate that
borrower is compensated by way of a better pricing in loan for the availability of collateral. Further, I
would also like to see the CGTMSE to evolve a framework for making the pricing risk-based rather than
having a uniform risk premium related to the past performance and quality of individual portfolios.
Eventually, this activity should also move to an open market system.
(iv)The Cumbersome ‘D’- Documentation
31. The absence of credit history and the need for documentation often pushes the micro
entrepreneur away from conventional banking channels to the more informal sectors. This has to be
addressed through a constant process of simplification of procedures and more importantly by leveraging
technology.
32. Udyami Mitra portal set up by SIDBI leverages IT architecture of Stand-Up Mitra portal and
aims at instilling ease of access to MSMEs’ financial and non-financial service needs. The Portal, as a
virtual market place endeavours to provide 'End to End' solutions not only for credit delivery but also for
the host of credit-plus services by way of hand holding support, application tracking, multiple interface
with stakeholders (i.e. banks, service providers, applicants).We could see development of more such
technological interfaces in the coming days making it easier for MSME entrepreneurs to borrow from the
banking system. RBI is committed to support such initiatives with appropriate safeguards and consumer
protection measures.
33. Role of Associations: The entrepreneur and Industry bodies have a significant role to play in
linking, maintaining and sustaining the borrower-banker relationship. This could be in handholding,
enabling and capacity building of the new entrepreneurs. As you are aware, the BCSBI has formulated a
Code of Bank's Commitment to Micro and Small Enterprises for voluntary adherence by the banks. The
industry associations must also spread awareness about various facilities available/guidelines issued by
the regulators to bridge the information asymmetry.
Conclusion
34. Let me conclude by going back to the theme of propelling growth of MSMEs. In using the term
‘propel’ you have underlined the sense of urgency that is required in this area. Our demographics compel
us to push forward this agenda and make quantum jumps so that entrepreneur can start and drive
businesses without worrying about finance. We are committed to this paradigm shift and the slew of
measures that are being taken by the RBI