BALANCE SHEET ANALYSIS (SOME IMPORTANT QUESTIONS)

BALANCE SHEET ANALYSIS

SOME IMPORTANT QUESTIONS

 1.Current Assets Vs Current Liabilities Current Assets are the assets of the company which can be converted into cash within 12 months which include inventories, raw material, work-in-progress, finished goods, cash and bank balances. Current Liabilities are the amounts that are to be payable to trade creditors as well as repayment of interest and installments of bank loans within 12 months. The difference between current assets and current liabilities gives the working capital of the company.

 2. What are the Contingent Liabilities include claims against a company not acknowledged by it as debt. It could be taxes, penalties or conversion of non-fund commitment into a funded liability at a later date.

3. Name the important financial ratios which are vital to gauge the financial health of the organization. Liquidity Ratios, Leverage/Solvency Ratios, Activity Ratios and Profitability Ratios.

 4. What is the importance of Liquidity Ratios? Liquidity Ratios (Current and Quick ratio) helps to find out the ability of the business concern to pay the short term liability of its liquidity. Any adverse position in liquidity leads to sudden fall of the unit. Ideal Current & Quck Ratio is 2:1 & 1:1 respectively. Acceptable Ratio as per our Loan Policy guidelines is 1.33:1 for the limits enjoying above `6.00 crores and 1.15:1 for the business concerns availing limits of below `6.00 crores. Any deviation below the required ratio requires ratification of Higher Authority. Current Ratio is always to be read along with Quick Ratio. A fall in the Quick Ratio in comparison to the Current Ratio indicates high inventory holdings.

5. Which ratio is to be taken into consideration for sanction of term loans? Debt Service Coverage Ratio (DSCR), it helps to know the capacity of the firm to repay the Long Term Loan Instalment and Interest. Ideal DSCR is 2:1. The higher the DSCR, higher may be the EMI amount and lower may be the number of EMIs. However, banks may also consider DSCR 1.20:1 where fixed income generation is assured, such as Rent Receivables etc.

 6. What is Gearing Ratio? Gearing Ratio (GR) represent a group of financial ratios that compare some form of owner's equity (capital) to debt, or funds borrowed by the company. Gearing ratio is a measure of financial leverage that demonstrates the degree to which a firm's operations are funded by equity capital versus debt financing. This ratio is required to assess the eligibility for non-funded limits. The formula is Total outside liabilities+proposed nonfund based limits / Tangible Networth – Non Current Asset. The ideal ratio should be below 10


 Profitability Concepts

 1 What is the relevance of profits Augment economic capital, Helps retained earnings to increase capital base, Improves Investors confidence, Index of efficient use of funds Makes a viable organization

 2 What is profit and profitability Profit represents an absolute figure Profitability is measured by Ratios and shows operational efficiency

3 Name few profitability ratio ROA,NIM,ROE, Book value,

4 What is ROA, how it is measured and what is the ideal ROA ROA is Return on Asset and is the ratio of net profit to total assets. The standard measure of ROA globally is 1%

5 What is NIM, how it is arrived and what is desirable NIM NIM is Net Interest Margin and is the ratio of net interest income to average earning assets. The desired NIM is above 3%
6 What is ROE ROE is Return on Equity / Net worth. It is ratio of Net profit to Average Net worth (Capital + Reserve- intangible assets)

7 What is Book Value and how it is arrived It is net worth divided by No. of shares. Market price of share generally factors book value.

 8 What is EPS EPS is Earning Per Share. It is the ratio of net profit to No. of shares

9 What is CRAR, what it indicates Capital to Risk Weighted Asset Ratio. The total capital, consist of Tier I & Tier II Capital as a ratio of Risk Weighted Assets. It indicates the soundness and risk bearing ability of a Bank.

10 What do you understand by Yield on Advances Interest Income on advances divided by average advances indicates average yield on advances. This ratio enables cost benefit assessment from various loan products.

11 What is yield on Investments Interest and dividend income on investment divided by average investments indicate yield on investments.

12 What is the cost of deposit Interest paid on deposit divided by average deposits is called cost of deposit. It consists of Current, SB and Term Deposit.

13 Which are the operational efficiency ratios, Cost – Income ratio and Burden ratio is called as operational efficiency ratio.

14 What is Cost Income ratio Non-Interest Expenditure divided by Net Total Income

15. Credit Risk Mitigation : Ans : Techniques used to mitigate the credit risks through exposure being collateralised in whole or in part with cash or securities or guaranteed by a third party.

 16. Non Performing Assets (NPA) : Ans : An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank.

17. Net NPA : What is our Net Npa percentage in last B/Sheet. ? Ans : Gross NPA – (balance in Interest Suspense account + DICGC/ECGC claims received and held pending adjustment + Part payment received and kept in suspense account + Total provisions held). It is 6.37 %

18. Please tell about “ Off Balance Sheet Exposure” Ans: Off-Balance Sheet exposures refer to the business activities of a bank that generally do not
nvolve booking assets (loans) and taking deposits. Off-balance sheet activities normally generate fees, but produce liabilities or assets that are deferred or contingent and thus, do not appear on the institution's balance sheet until and unless that become actual assets or liabilities.

19.What do you mean by “ Operating profit before provisions” Ans: Net of total income and total operating expenses.

20.What is “Net operating profit” Ans: Operating profit before provision minus provision for loan losses, depreciation in investments, write off and other provisions.

21.What do you mean by “PBT” Ans: Profit before tax (Net operating profit +/- realized gains/losses on sale of assets)

22.Whado you mean by “Profit after tax (PAT)” Ans: Profit after tax – dividend paid/proposed.

23.What is Net Non-Interest Income Ans: The differential (surplus or deficit) between non-interest income and non-interest expenses as a percentage to average total assets.

24.Net Interest Income (NII) Ans: NII is the difference between the interest income and the interest expenses.

25.What is NIM ? NIM (domestic)
Net interest margin is the net interest income divided by average interest earning assets.

26.Credit Risk Mitigation
Ans: Techniques used to mitigate the credit risks through exposure being collateralised in whole or in part withcash or securities or guaranteed by a third party. Operating profit before provisions Ans: Net of total income and total operating expenses. Net operating profit Ans: Operating profit before provision minus provision for loan losses, depreciation in investments, write off and other provisions. Profit before tax (PBT) Ans: (Net operating profit +/- realized gains/losses on sale of assets) Profit after tax (PAT) Ans: Profit after tax – dividend paid/proposed. Retained earnings Ans: Profit after tax – dividend paid/proposed.

Very IMPORTANT QUESTIONS to know

Very IMPORTANT QUESTIONS to know

 1.Lien Vs Negative Lien Lien is the right of a creditor in possession of goods, securities or any other assets belonging to the debtor to retain them until the debt is repaid, provided that there is no contract express or implied, to the contrary. Negative Lien is an undertaking by the borrower not to create any charge on his assets without the consent of the bank. It does not confer any right on the bank.

2. Pledge Vs Hypothecation Under pledge the ownership remains with the borrower but the possession passes on to the bank whereas in case of hypothecation, both ownership and possession remains with the borrower. While under pledge the bank can sell the asset without going to court, under hypothecation it can be done only through the legal process.

 3.Supplier Finance Vs Dealer Finance Extending credit facility to the suppliers of the Corporate for the supplies made is called as ‘Supplier Finance’ where as credit facility provided to the dealers for the goods delivered by the corporate is known as ‘Dealer Finance’.

4. What is EPC and BOT? Government entrusts the projects to the private players where they undertake Engineering, Procurement and Construction (EPC) activities. They have no role in the ownership of the roads, toll collection and maintenance of the roads. These activities will be taken care by the government. Under BOT (Build, Operate and Transfer) model, the cost of the project is to be borne by the private players and in turn they collect toll revenue or annuity fee from the government at agreed terms.

5. Tell about Infrastructure Investment Trusts (InvITs).It is an instrument available to infrastructure companies to raise funds from High Networth Investors to unlock capital from older assets, de-leverage balance sheets and receive upfront cash to deploy in upcoming projects. The minimum investment in the primary offer (IPO) and secondary market is `10 lakh `5 lakh respectively. Recently SEBI relaxed the norms to allow InvITs to raise funds by issuing debt securities which include Debentures and Bonds but excludes bonds issued by Government,Security Receipts and Securitized Debt instruments.

6. How Financial Guarantee differs from Performance Guarantee? Financial Guarantee is a direct credit substitute wherein a bank irrevocably undertakes to guarantee the payment of a contractual financial obligation where as Performance Guarantee is essentially deal with transactions related to contingencies that involve an irrevocable undertaking to pay to third party in the event the counterparty fails to fulfill or perform a contractual obligation. Financial guarantee essentially carry credit risk where as in case of performance guarantee the risk of loss depends on the event (internal / external factors) need not necessarily be related to the creditworthiness of the counterparty involved.

7. State the salient features of Revolving Credit. It is a letter of credit where the amount is revived or reinstated without requiring specific amendment to the credit. Once drawing is made, the credit reverts to its original amount for re-use by beneficiary. There are two types of revolving credit viz., credit gets reinstated immediately after a drawing is made and credit reverts to original amount only after it is confirmed by the Issuing Bank.

 8. What is Joint Lending Arrangement (JLA)? The scheme shall be applicable to all lending arrangements, with a single borrower with aggregate credit limits (both fund & non-fund) of `150 crore and above involving more than one bank. Borrowers having multiple banking arrangements below `150 crore may also be encouraged to come under JLA, so that the wholesome view of the assessment of credit requirement as well as the entire operations of the customers can be taken by banks. The Bank from which the borrower has sought the maximum credit will be the designated Lead Bank for the JLA. The Lead bank will be responsible for preparation of appraisal note, its circulation, and arrangements for convening meetings, documentation, etc.

9. Briefly state about Consortium of Banks. All banks come together and collaborate with each other in assessing the credit requirements of the borrower duly sharing the credit facilities as well as sharing securities with “Pari Pasu” charge. Normally, the bank which has larger exposure act as leader who conduct meetings, assess the credit requirements of the borrower and share all the information with member banks from time to time. The minimum threshold limit for participating bank now stipulated is 10% of the total exposure. The lead bank will review financial covenants of the borrower in quarterly consortium meetings on the basis of progress report submitted by the borrower.

10. State the important features of new “Credit Delivery System”? Borrowers having aggregate fund based working capital limit of `150 crore and above from the banking system, a minimum level of ‘loan component’ of 60 percent in the form of Working Capital Demand Loan (WCDL) with effective from 1st April 2019. Drawings in excess of the minimum ‘loan component’ threshold may be allowed in the form of cash credit facility. The undrawn portion of cash credit / overdraft limits sanctioned shall attract a credit conversion factor of 20 percent. These measures are aimed to enhance credit discipline among large borrowers and to prevent perpetual rollovers, which is the need of the hour.

11. Norms for takeover of loan accounts from other banks. The take over of accounts should be as per approved Board policy of the bank and the account should be a Standard Asset with Positive Networth & Profit record. P&C Report is mandatory preferably before sanction, if not, at least before disbursement. Banks should ensure that TOL/TNW shall not exceed 4:1 and the collateral coverage should be minimum 125% for working capital limits and 100% for term loans and the external rating shall not be more than 6 months old. Enhancement of limits beyond 50% not allowed

12.Tell about Multiple Banking?
Under Multiple Banking, borrower avails credit facilities across banks. Each bank undertakes their own assessment of risk, decide the mix of credit facilities and stipulate their own terms and conditions. Each of the banks takes the security and gets the charges registered with the ROC in theirfavour.

13. What are the approved Credit Information Reports (CIR) that banks will accept for the purpose of sanction of credit limits? CIR received from Credit Information Bureau India Limited (CIBIL) and EQUIFAX companies are treated as valid scores. The minimum acceptable scores for CIBIL and EQUIFAX are 700 and 730 respectively

Important terms

What is Card Skimming: It is the process of using an electronic device known as skimmer, to record account data encoded on the magnetic strip on a card without owner’s knowledge. The fraudsters use other techniques such as cameras, shoulder surfing, copying etc., to record PIN information. The potential centers for card skimming are restaurants, ATMs, Kiosks. Phishing Vs Pharming Vs Vishing : Phishing refers to an untrustworthy entity impersonating as “trustworthy entity” through e-mail and gathers sensitive information such as PAN, Credit Card Numbers, Login ID and Passwords. Pharming is another way to manipulate users on the Internet by redirecting them to false websites with a view to trapping them. Vishing is another type of social engineering mode over phone to gather sensitive / confidential information such as Account Number, Card Number, Expiry date, Date of birth, PIN, CVV, OTP, Login Password, Transaction Password etc. What is eBkray:: It is an online platform to increase the transperancy in auctioning of assets attached by banks. The platform is equipped with property serach features and navigational links to all Public Sector Bank e-auction sites, provides single-window access to information on properties up for e-auction as well as facility for comparision of similar properties. The site also contains photographs and videos of uploaded properties.

Current affairs on 28 March 2020

Today's Headlines from www:

*Economic Times*

📝 Give food, shelter, basic amenities to migrant labourers: Centre to States

📝 Auto component industry facing production loss of Rs 1000-1200 crore per day in lockdown

📝 SC allows automakers to sell 10% of unsold BSIV stock

📝 FMCG production yet to return to normal; retailers say stock depleting fast

📝 Peak power demand down 26 pc to 120 GW in a week

📝 Vedanta Limited announces change in company's top management

📝 Govt ensures uninterrupted supply of oxygen to hospitals

📝 DSP, SBI SmallCap to start accepting lumpsum investments

📝 Rupee pares initial gains, settles 27 paise higher at 74.89 against US dollar

*Business Standard*

📝 Covid-19 relief: RBI cuts repo 75 bps; defers term-loan EMIs for 3 months

📝 SBI cuts lending rate by 75 bps as RBI introduces liquidity package

📝 Tata Motors to carve out PV biz as separate entity, to see change of guard

📝 Moody's slashes India's GDP growth rate to three-decade low of 2.5%

📝 Indian start-up QNu Labs debuts on global quantum computing stage

📝 IT firms stare at increasing client issues over coronavirus pandemic

📝 Sebi eases operational procedure for public issue, share acquisition

📝 Buyers confined indoors, realtors switch online to conduct businesses

📝 Forex reserves fall by $12 bn to $499 bn; rupee hits all-time low: RBI data

📝 Govt approves additional Rs 5,751 cr to 8 states as calamity relief

*Financial Express*

📝 SAIL proposes to increase capacity to 49.6 mtpa by 2030

📝 NMDC facing 50% cost overrun for a 52-month delay in Nagarnar plant completion

📝 Dr Reddy’s Laboratories gets nod for borrowing plan of up Rs 2,000 crore

📝 Online sales come to a halt amid coronavirus lockdown

📝 Coal India continues operations, records about 3 million tonnes production on Thursday

📝 RBSA estimates valuation of LIC in Rs 9.90-11.50L crore range

📝 FM Sitharaman asks banks for ‘quick transmission’ of slashed interest rate

📝 RBI refrains from giving growth, inflation outlooks; says current GDP projections at risk

*Mint*

📝 Donald Trump signs $2 trillion coronavirus bill, largest ever US stimulus

📝 Govt exempts procurement agencies, mandis, farming operations from lockdown

📝 Regulator allows banks to trade in offshore rupee derivative market

📝 Food tech entrepreneurs pitch cloud kitchens to feed the poor amid lockdown

📝 Brent oil dives over 7% despite stimulus efforts; calls mount for new OPEC+ deal

📝 World has entered a recession as bad or worse than financial crisis: IMF chief

📝 Gap in monitoring as 15 lakh passengers entered India in 2 months: Centre

📝 Government misses disinvestment target for FY20 by Rs14,701 crore

📝 Coffee Day gets Rs. 1800 crore from Blackstone for IT park deal.

MCQ ON RISK MANAGEMENT

MCQ ON RISK MANAGEMENT 1. Risk is defined as uncertainties resulting in: a) Adverse outcome, adverse in relation to planned objectives or expectations b) Adverse variation of profitability or outright losses (financial risk) c) Both (a) & (b) d) None of these 2. Financial Risk is defined as a) Uncertainties in cash flow b) Variations in net cash flow c) Uncertainties resulting in outright losses d) Uncertainties resulting in adverse variation of profitability e) Both (c) & (d) 3. Uncertainties in cash inflows and / or outflows create uncertainties in: a) net cash flow b) profits c) Both (a) & (b) d) none of these 4_ Which of the following is not correct? a) Lower risk implies lower variability in net cash flow b) Higher variability in net cash flow may result in higher profits or higher losses c) Higher risk would imply higher upside and downside potential d) Zero risk would imply no variation in net cash flow e) None of these 5. Return on zero risk investment would be ----as compared to other opportunities available in the market ; a) high ,b) low c) medium d) higher or low depending upon type of investment Strategic risk is a type of : a) exchange risk b) liquidity risk c) interest rate risk d) operational risk e) none of these 6. Investment in RBI bonds at 6.5% interest rate with a maturity of 5 years is investment. a) zero risk b) lower risk c) medium risk d) high risk 7. The capital requirement of a business would be lower when there is : a) lower variation in net cash flow b) lower risk c) lower possibility of loss d) all of these e) none of these 8. The key driver in managing a business is seeking enhancement in a) Return on investment b) Risk Management capability c) risk adjusted return on capital d) all of these e) None of these 9. Risk adjusted return on investment is: a) Netting risk in a business or investment against the return from this b) Managing risk on investments c) Managing-return on investment through risk management d) Adjusting return on investment against the risk 11.An investment will be more preferred and higher will be the reward to investors when: a) RAROC is higher b) RAROC is lower c) RAROC is one d) none of these 12.The banking book is generally not exposed to : a) liquidity risk b) interest rate risk c) credit risk d) operational risk e) None of these 13.Which of the following is / are characteristics of the assets held in Trading Book? a) They are normally not held until maturity b) They are normally held until maturity and accrual system of accounting is applied c) Mark to market system is followed d) Both (a) & (c) e) Both (b) & (c) 14.Trading book is mainly exposed to a) Market Risk b) Market Liquidity Risk c) Credit Risk d) Operational Risk e) All of these 15.The transactions relating to guarantees, letters of credit, committed or back up credit lines form part of a) Banking Book b) Trading Book, c) Off Balance Sheet Exposures d) All of these 16.The liquidity risk of banks arises from : a) Funding of long term assets by short term liabilities b) Funding of short term assets by long term liabilities c) Funding of long term liabilities by short term assets d) None of these 17. Funding liquidity risk is defined as: a) Excess of liabilities over assets b) Excess of long term liabilities over long term assets c) Excess of short term liabilities over short term assets d) Inability to obtain funds to meet cash flow obligations 18. Liquidity risk in banks manifest in different dimensions. Which of the a) Funding risk arises from the need to replace net outflows withdrawal / non renewal of deposits b) Time risk arises from the need to compensate for non receipt funds e.g. NPA c) Call risk arises due to crystallization of contingent liabilities d) Both (a) & (b) e) None of these 19.Where an asset maturing in two years at a fixed by a liability risk will be: a) Basis risk b) Yield curve riskc) Gap risk d) embedded option Risk 20.The risk of adverse variance of the mark to market value of change in market prices of interest rate instruments, equities, is called: a) Price Risk b) Market Risk c) Translation Risk d) Both a & b 21.ln the financial market bond prices and yields are a) inversely related b) directly related , c) inversely or directly related depending on type of bond d) none of these 22.When a bank is unable to conclude a large transaction in a particular instrument near the current market price, it is called as a) Market risk b) Market Liquidity risk c) Default risk d) counter party risk 23.Potential of a bank borrower or counterparty to fail to meet its obligations according to agreed terms is called: a) credit risk b) default risk c) market liquidity d) market risk e) either (a) or (b) 24.The risk related to non performance of the trading partners due to counter party's refusal and or inability to perform is called ------risk : a) Liquidity, b) Operational , c) Counter Party , d) None 25. Country risk is an example of a) Market risk b) Credit risk c) Operational risk d) Liquidity risk The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events is called as risk a) legal b) compliance c) Fraud d) Operational 26. Which of the following is not a operational risk? a) Compliance risk b) Transaction risk c) Legal Risk d) Counter party risk e) System risk 27. Strategic Risk and Reputation Risk fall in the category of a) Market risk b) credit risk c) Operational risk d) none of these Risk arising from fraud, failed business processes and inability to maintain business continuity : a) Transaction risk b) compliance risk c) credit risk d) none of these 28. Risk of legal or regulatory sanction, financial loss or reputation loss that a bank may suffer as a result of its failure to comply with any or all of the applicable laws, regulations etc. is called as: a) Transaction risk b) Compliance risk, c) legal risk d) Systems risk 31.Risk arising from adverse business decisions, improper implementation of decisions, or lack of responsiveness to industry changes is called: a) Reputation risk b) Strategic risk c) Operational risk d) Management risk 32. Reputation Risk which arises from negative public opinion may result in: a) exposing an institution to litigation b) financial loss c) decline in customer base d) all of these e) none of these 33.Risk associated with a portfolio is always less than the weighted average of risks of individual items in the portfolio due to a) Diversification of risks b) The fact that all accounts in a portfolio will not behave in unidirectional manner c) The fact that risks in all the accounts in a portfolio will not materialize simultaneously, d) Both (a) & (b) only e) All of these 34.Aggregated risk of the organizations as a whole is called: a) Transaction risk b) Portfolio risk c) Total risk d) None of these ANSWER : TEST YOUR SELF – RISK AND BANKING BUSINESS 1 A 2 E 3 C 4 E 5 B 6 E 7 A 8 D 9 C 10 A 11 A 12 E 13 D 14 E 15 C 16 A 17 D 18 E 19 C 20 D 21 A 22 B 23 E 24 C 25 B 26 D 27 D 28 D 29 A 30 B 31 B 32 D 33 E 34 B MCQ ON RISK MANAGEMENT 1. Risk is defined as uncertainties resulting in: a) Adverse outcome, adverse in relation to planned objectives or expectations b) Adverse variation of profitability or outright losses (financial risk) c) Both (a) & (b) d) None of these 2. Financial Risk is defined as a) Uncertainties in cash flow b) Variations in net cash flow c) Uncertainties resulting in outright losses d) Uncertainties resulting in adverse variation of profitability e) Both (c) & (d) 3. Uncertainties in cash inflows and / or outflows create uncertainties in: a) net cash flow b) profits c) Both (a) & (b) d) none of these 4_ Which of the following is not correct? a) Lower risk implies lower variability in net cash flow b) Higher variability in net cash flow may result in higher profits or higher losses c) Higher risk would imply higher upside and downside potential d) Zero risk would imply no variation in net cash flow e) None of these 5. Return on zero risk investment would be ----as compared to other opportunities available in the market ; a) high ,b) low c) medium d) higher or low depending upon type of investment Strategic risk is a type of : a) exchange risk b) liquidity risk c) interest rate risk d) operational risk e) none of these 6. Investment in RBI bonds at 6.5% interest rate with a maturity of 5 years is investment. a) zero risk b) lower risk c) medium risk d) high risk 7. The capital requirement of a business would be lower when there is : a) lower variation in net cash flow b) lower risk c) lower possibility of loss d) all of these e) none of these 8. The key driver in managing a business is seeking enhancement in a) Return on investment b) Risk Management capability c) risk adjusted return on capital d) all of these e) None of these 9. Risk adjusted return on investment is: a) Netting risk in a business or investment against the return from this b) Managing risk on investments c) Managing-return on investment through risk management d) Adjusting return on investment against the risk 11.An investment will be more preferred and higher will be the reward to investors when: a) RAROC is higher b) RAROC is lower c) RAROC is one d) none of these 12.The banking book is generally not exposed to : a) liquidity risk b) interest rate risk c) credit risk d) operational risk e) None of these 13.Which of the following is / are characteristics of the assets held in Trading Book? a) They are normally not held until maturity b) They are normally held until maturity and accrual system of accounting is applied c) Mark to market system is followed d) Both (a) & (c) e) Both (b) & (c) 14.Trading book is mainly exposed to a) Market Risk b) Market Liquidity Risk c) Credit Risk d) Operational Risk e) All of these 15.The transactions relating to guarantees, letters of credit, committed or back up credit lines form part of a) Banking Book b) Trading Book, c) Off Balance Sheet Exposures d) All of these 16.The liquidity risk of banks arises from : a) Funding of long term assets by short term liabilities b) Funding of short term assets by long term liabilities c) Funding of long term liabilities by short term assets d) None of these 17. Funding liquidity risk is defined as: a) Excess of liabilities over assets b) Excess of long term liabilities over long term assets c) Excess of short term liabilities over short term assets d) Inability to obtain funds to meet cash flow obligations 18. Liquidity risk in banks manifest in different dimensions. Which of the a) Funding risk arises from the need to replace net outflows withdrawal / non renewal of deposits b) Time risk arises from the need to compensate for non receipt funds e.g. NPA c) Call risk arises due to crystallization of contingent liabilities d) Both (a) & (b) e) None of these 19.Where an asset maturing in two years at a fixed by a liability risk will be: a) Basis risk b) Yield curve riskc) Gap risk d) embedded option Risk 20.The risk of adverse variance of the mark to market value of change in market prices of interest rate instruments, equities, is called: a) Price Risk b) Market Risk c) Translation Risk d) Both a & b 21.ln the financial market bond prices and yields are a) inversely related b) directly related , c) inversely or directly related depending on type of bond d) none of these 22.When a bank is unable to conclude a large transaction in a particular instrument near the current market price, it is called as a) Market risk b) Market Liquidity risk c) Default risk d) counter party risk 23.Potential of a bank borrower or counterparty to fail to meet its obligations according to agreed terms is called: a) credit risk b) default risk c) market liquidity d) market risk e) either (a) or (b) 24.The risk related to non performance of the trading partners due to counter party's refusal and or inability to perform is called ------risk : a) Liquidity, b) Operational , c) Counter Party , d) None 25. Country risk is an example of a) Market risk b) Credit risk c) Operational risk d) Liquidity risk The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events is called as risk a) legal b) compliance c) Fraud d) Operational 26. Which of the following is not a operational risk? a) Compliance risk b) Transaction risk c) Legal Risk d) Counter party risk e) System risk 27. Strategic Risk and Reputation Risk fall in the category of a) Market risk b) credit risk c) Operational risk d) none of these Risk arising from fraud, failed business processes and inability to maintain business continuity : a) Transaction risk b) compliance risk c) credit risk d) none of these 28. Risk of legal or regulatory sanction, financial loss or reputation loss that a bank may suffer as a result of its failure to comply with any or all of the applicable laws, regulations etc. is called as: a) Transaction risk b) Compliance risk, c) legal risk d) Systems risk 31.Risk arising from adverse business decisions, improper implementation of decisions, or lack of responsiveness to industry changes is called: a) Reputation risk b) Strategic risk c) Operational risk d) Management risk 32. Reputation Risk which arises from negative public opinion may result in: a) exposing an institution to litigation b) financial loss c) decline in customer base d) all of these e) none of these 33.Risk associated with a portfolio is always less than the weighted average of risks of individual items in the portfolio due to a) Diversification of risks b) The fact that all accounts in a portfolio will not behave in unidirectional manner c) The fact that risks in all the accounts in a portfolio will not materialize simultaneously, d) Both (a) & (b) only e) All of these 34.Aggregated risk of the organizations as a whole is called: a) Transaction risk b) Portfolio risk c) Total risk d) None of these ANSWER : TEST YOUR SELF – RISK AND BANKING BUSINESS 1 A 2 E 3 C 4 E 5 B 6 E 7 A 8 D 9 C 10 A 11 A 12 E 13 D 14 E 15 C 16 A 17 D 18 E 19 C 20 D 21 A 22 B 23 E 24 C 25 B 26 D 27 D 28 D 29 A 30 B 31 B 32 D 33 E 34 B

Certified treasury professional exam on 28.12.19

Certified treasury professional exam  28.12.19
1)question on price yield curve like nature of curve,meaning of intersection of curve with price axis, etc 5 question
2)option question... Like in the money, at the money, out of money, time Valueof option, intrinsic, call put questions on option based on strike and spot price
3)forward rate agreement.. Numerical 5 marks as per mac mill an book with some changes
4)repo question numerical like forward leg ready leg numerical as per mc millian book
5)bond question npv of coupons and principal related questions 5 marks
6)commercial paper theory questions 5 marks like who can issue, whether cp gives coupon, net worth for issuing cp etc.. Read Mac millian book ,all questions answerable
7)question on forex tt rate bill rate based on nature of transactions which rate to be selected.. 5 questions
8)numecrical on yield calculations and prices calculations for t bills.. Numerical similar to what has been given in appendix at back of Macmillan book 5 question
9)theoretical question were also conceptual.. Question related to bond option derivative swap
Overall questions were medium level of toughness for those who have not worked in this area
These questions I can recollect
Best of luck to those who wish to appear for CTP exam.

Numerical based on FRA, CURRENCY EXCHANGE, REPO TRANSCATION, BOND/YTM, YIELDS ON T-BILL, CURRENT YIELD
A 5 MARKS EASY SET OF QUESTION FROM COMMERCIAL PAPER

Other Theory questions from Bond theorem, Delta, gama etc.
35-40 marks numerical is there.

Very important and useful General banking bits

Very important and useful General banking bits


1. A customer Mr Sharma had credit balance 40,000 in his saving ac and also had an OD ac with

overdue Debit balance of 20,000.Bank debits his saving account and adjusts OD ac. The bank is

said to have exercised Right of: Set-off

2. A Minor has extended Guarantee to a loan. It can be ratified by whom? It cannot be ratified by

any one.

3. A savings account becomes inoperative when it not operated for: 2 years

4. A term deposit of a HUF has become due. At the time of renewal, the Karta of HUF informs that

he has become Senior Citizen. What rate of interest will be given on term deposit? : Normal

interest rate. No benefit of senior citizen to be given

5. Additional interest is paid to senior citizens on which time FD: All fixed deposits (may vary from

bank to bank)

6. After Nomination in an account, what is the status of the nominee?: Trustee of legal heirs

7. An account of a customer can be closed in normal course on the request of the customer.

What are the other methods for closing account of a customer – (a) By negotiation; (b) As per

provisions of law; (c) After notice to customer in respect of undesirable accounts: Ans is C

8. An Illiterate person is generally not allowed to open which account – saving, term deposit,

recurring deposit, small account, Current Account: Current account.

9. As per RBI guidelines, Demand draft of Rs 50,000 and above should be issued against : by debit

to account but not against cash

10. As per RBI guidelines, minimum amount of deposit to open BSBDA account is: NIL

11. As per Sukanya Samridhi Account (SSA) the tenure of deposit is for years from the date of

opening of the account: 21 years

12. Bank is not required to produce original book of records but true copy can be submitted when

court has demanded as per which act? a) Civil procedure code b) Registration act c) B.R. Act d)

RBI act e) Banker Books Evidence Act.

13. Banker Customer relationship for deposits is ____: Debtor – Creditor.

14. Banker customer relationship in Safe Custody: Bailee Bailor.

15. Banker customer relationship in standing instruction: Agent – Principal

16. Bankers prefer Saving Deposits than Term deposits. Why?: Because cost of deposits for SB is

less.

17. Banks can decide interest rates of NRI, NRO or Term Deposits: Yes

18. Banks can raise what type of deposits?: Term and Demand Deposits

19. Banks should have the responsibility of currency management entrusted to a nodal official of the

rank not less than that of a General Manager and will be accountable for the obligations cast

upon currency chests by the Reserve Bank.

20. BC work as : Bank’s Agent

21. Business Correspondent can be identified by whom?: BDO,Post Master, Head of Village

Panchayat, other BC.

22. Business correspondents for banking for : serving weaker sections of society

23. Call money deposit is part of the sector : Organised sector

24. Complaints under Consumer forum should be dealt with within (Where no testing of commodities

is required) : 90 days.

25. Customer OD A/c has overdrawn Rs 2000/-. Saving A/c has balance Rs 3000. The bank adjusts

the OD A/c by which right: Set off.

26. DD of Rs.50000/- in cash : not allowed

27. Death claim settlement in how many days?: 15 days

28. Deposits held in Joint accounts; b) Corporate Deposits; c)

Inter-Bank deposit; d) Deposits of HUFs: Ans is Inter-Bank deposits.

29. Deposits which are not claimed for__years are required to be transferred by banks to

RBI: 10 years

30. DICGC cover is available in which of the following cases a) Credit balance in Cash Credit Account

b) Overdue Deposit c) Deposit of Government Department?: A & B

31. Differential rate of interest can be paid on fixed deposit if single deposit is for: Rs.1.00 crore

and above

32. Direct Tax Code will replace which of the following – Income Tax Act, Corporate Tax Act: Income

Tax Act.

33. Encashment of FOR with interest - payment can be made in cash if it is less than Rs 20000

34. Financial Inclusion means: providing banking services at affordable cost to the poor/distressed.

35. FULL FORM OF CASA? : CURRENT ACCOUNT & SAVING ACCOUNT

36. Garnishee order is not applicable to: a) Savings b) Current c) FD d) CC/OD with debit

balance: CC/OD with debit balance.

37. Govt. has decided to demonetize all the coins of paise 25 and below w.e.f. 30-6-2011.

38. How much amount can be deposited in a small account in a financial year?: Rs one lac

39. How much amount can be withdrawn from a small account in a month?: Rs 10,000

40. If in Garnishee Order no amount is mentioned, what should the bank do? Full amount to be

attached.

41. If payment of Rs 20000/- is made in cash in case of FDR what is the penalty: equal to the

amount paid

42. Illiterate account holder, how many witness for nomination: two

43. In Basic Savings Bank Deposit Account in all their accounts taken together and the total credit in

all the accounts taken together is not expected to exceed _____ in a year has been simplified to

enable those belonging to low income groups without documents of identity and proof of

residence to open banks accounts: 1,00,000/-.

44. In case Fixed Deposits account the rate of interest fixed by whom: Board of Directors of

respective bank.

45. In case of a/c transfer, with in how many days the address proof has to be submitted in the

transferee branch? Six Months

46. In case of an illiterate customer, process of nomination requires witnesses by how many

persons?: Thumb impression requires 2 witnesses.

47. In case of Deposit Insurance whether it mandatory or not: It is Mandatory for all banks.

48. In case of Deposit Insurance, Insurance premium is paid to DICGC by bank and depositor in

which ratio?: Entirely by bank.

49. In case of insurance of deposits by DICGC, premium is paid by: Bank. 100% of the premium

is paid by the bank and not by depositor.

50. In case of insurance of deposits by DICGC, what is the premium sharing ratio between bank and

depositor?: 100% of insurance premium is paid by the bank.

51. In case of Minor what is wrong? Minor can make himself liable for his actions.

52. IN CASE OF TRANSFER OF ACCOUNT, WITHIN HOW MANY DAYS, THE ACCOUNT HOLDER

SHOULD ADVISE NEW ADDRESS?: TWO WEEKS

53. In how many years of no transaction does a saving and current account become inoperative? :

two years

54. In Limited liability Partnership what is the liability of partner?: Amount agreed to be

contributed by partner at the time of joining partnership.

55. In saving accounts, interest is calculated on the basis of: daily product basis.

56. In Senior Citizen Saving Scheme account, who can be joint account holder?:Spouse



57. In small accounts as per RBI- No min. balance, nil/minimal charges etc

58. In small accounts monthly withdrawals to be upto- Rs.10000/-

59. Insurance of deposit is done by DICGC up to: Rs 1 lac per depositor per bank.

60. Interest rate on Saving Deposit is decided by : Banks individually

61. Interest rate on Savings accounts: Not regulated by RBI

62. Max amt for tax saver FD: Rs 150000

63. Maximum amount of deposit in Tax Saving Scheme of the bank can be: Rs 1,50,000

64. Maximum deposit for allocating a locker: 3 year advance rent plus locker breaking charges

65. Maximum period of NRE deposit: Bank Discretion.

66. Minimum and Maximum amount that can be deposited in PPF account is _____: Minimum Rs.

500/- & Maximum Rs. 1.50 lacs.

67. Minimum Lock in period for Tax saver FDR: 5 Years

68. Minimum Maturity Period for Certificate of Deposit is : 7 days

69. Missing person treated as having expired if missing for: 7 years

70. No Frills Accounts are opened for: Financial Inclusion

71. No of digits in Aadhar : 12

72. Non Resident (External) fixed deposit is normally accepted for a period of (a) 1 year to 3 year

(b) 1year to 5 year (c) 1 year to 4 year (d) 1 year to 7 year (e) 6 months to 3 year: 1 year to 3

year (As per RBI it is minimum 1 year and maximum bank discretion)

73. OD in PMJDY account upto: Rs. 5,000/-.

74. On a cheque presented for payment, amount is written in words but all other items are written in

Regional Language. What should the bank do?: Pay the cheque

75. Pensioner account can be opened jointly with? Spouse as Either of Survivor or Former or

Survivor.

76. Rate of Interest in Sukanya Samridhi Account for 2015-16: 9.20% & 8.6% FOR 2016-17

77. Relation between bank and judgment debtor: debtor & creditor.

78. Safe custody of Articles comes under which Act: Indian Contract Act.

79. Star series note can be issued in denomination of Rs 100 also. (earlier only Rs 10, 20 & 50)

80. Super senior citizen after: 80 years of age

81. The balance in the account is Rs 15000. A cheque of Rs 30000 was sent for collection. Before it

is realized a cheque for Rs 20000 has been presented for payment. What should the bank do –

(a) Return with reason effects not yet cleared. Present again; (b) Pay the cheque; (c) Return

with reason exceeds arrangement; (d) Return with reason Refer to Drawer; (e) Return with

reason Insufficient Funds: Insufficient Funds

82. The minimum & maximum period of certificate of deposit is : 7 days, 12 months

83. There is a credit balance in the saving account and there is a overdraft in the current account

amounting to Rs 555. Both accounts are in the same name. Bank wants to adjust credit balance

of saving bank account towards payment of overdraft. As per which right, bank can do this?:

Right of Set Off.

84. Under Sukanya Samridhi Account (SSA) the maximum period upto which the deposits can be

made is for ___ years from the date of opening of the account: 14 years

85. Under Sukanya Samridhi Account (SSA) the minimum amount of deposit is Rs 1,000 and Under

Sukanya Samridhi Account (SSA), the bank account will be opened for a girl child upto the age

of: 10 years

86. Under Sukanya Samridhi Account (SSA), the current rate of interest on deposits is which is the

highest amongst all other Govt. Saving Schemes: 9.20% & 8.6% FOR 2016-17

87. What are the Service charges for using ATMs of other banks for balance enquiries: Rs.20 for

Financial & Rs. 10 for Non- Financial upto 5 transactions ( 3 at Metros)

88. What documents are required for opening a small account?: Self attested photo and address

89. What is the bankers-customer relationship in case of deposits? Debtor – Creditor

90. What is the distance criteria for office of Business Correspondent?: The distance between the

place of business of a retail outlet/sub-agent of BC and the base branch should ordinarily not

exceed 30 kms in rural, semi-urban and urban areas and 5 kms in metropolitan centers.

91. What is the maximum amount of loan that can be granted against FCNR deposit? No limit.

92. What is the periodicity of review of risk classification of customers?: Every six months

93. What is the rate of interest payable on an overdue FD for overdue period if customer demands

payment and does not renew the same?: Saving Bank Rate

94. What is the special feature of Basic banking Account? Account can be opened with nil or very

small amount and there are no requirement of minimum balance.

95. What type of account can be opened in the name of NRI jointly with residents? NRO /NRE/FCNR



(earlier only NRO)

96. What type of activity can be performed by Business Correspondent - (a) processing and

submission of applications to banks; (b) disbursal of small value credit, (c) recovery of principal /

collection of interest (iv) collection of small value deposits: All of these

97. When a person wants to open an account with a bank but does not have proof of identification

and address, what type of account can be opened?: Small account

98. When Letter of Administration issued: When the person dies without leaving the Will- Intestate.

99. Whether “WILL” has to be registered? Not required.

100. Which form is used for cancellation of nomination in deposit accounts?: DA -2

101. Which is not a proof of Identity?: Ration card.

102. Which is the most important document for opening a Trust Account?: Trust Deed

103. Which of the following forms will be used for allowing exemption to a depositor aged 61 years

: Form 15 H

104. Which of these rates are periodically reviewed by RBI?: Repo rate, Bank rate, but not Savings

Bank Rate.

105. While opening account, a bank, in addition to observing various provisions of Indian Contract

Act should also – exercise utmost care and attention; look at profitability from account; exercise

due diligence: Due diligence

106. While opening the account with a bank, prospective customer is required to submit – PAN No

or Form 60 or 61

107. Who are eligible for preferential rate of interest under NRE deposits: a) Staff b) Senior citizen

c) Staff cum Senior Citizen d) none of these?: None of these

108. Who can do nomination in the account of a Minor?: Can be done by guardian not by

minor

109. Who of the following can exercise nomination – HUF, limited company, trust, Partnership firm,

sole proprietorship firm?: Sole Proprietorship firm.

STAY SAFE ! STAY HEALTHY

*Good Morning All,*

Since, COMPLETE LOCK DOWN HAS BEEN ANNOUNCED IN ENTIRE INDIA TILL 14th APRIL, 2020;; If you are *Thinking* what to do in these 21 days ; when you are at Home, then , please *Read This*

1: *Deep Clean Your House* - Clean your Kitchen and every Corner of your Rooms with ‘Sea Salt Water’ or ‘Chlorine Water’.

2: *Declutter* - Seperate all Old Stuff and Clothes that you have not used since 4-5 years and Donate it.

3: *Stand in Sun for 30 minutes* - Most of us in Cities have Vitamin D deficiency as we don't get sunlight.

4:  *Exercise at Home for Minimum 30 Minutes daily.* Do Yoga or Routine Exercise as per your Convenience.

5: *Meditate for Minimum 30 Minutes twice Daily*- Do SIMRAN - Do Path Pooja and pray for Sarbat Da Bhalla !

6: *Eat Less* - Do 1 full day of Fasting to detox your Body. Eat Healthy Home Made Food & Fruits.

7: *See NEWS only 3 times a day* - Negative thinking brings more Negative Situation. So, please stay Positive. You are Alive & We will Win this fight. Read Books. Watch Entertainment Channels.

8: Play *Chess, Carrom Board, Ludo, Cards, Uno etc.* with your Mom, Dad, Partner and Kids. Do Gossips with Family Members. Educate your kids and teach them Moral Values   of Life.

9: *Rearrange all Important Documents* - Property Papers, Certificates, Bank Papers, All Cards, Light & Water Bills etc. OR Manage all of your prolonged pending works.

10: *Clean your Phone / Laptop / Mailbox*: Backup all your Digital Data and delete all unwanted Photos, Videos, Apps, Mails etc..

11: *Be Yourself* : Spend 30 minutes "All Alone" remembering the Happy Past Moments of Your Life, Realising The Mistakes You Made in Past, Planning How To Become a Better Human Being in Present and Future.

12. My sincere request/suggestion to them is to prepare for JAIIB and CAIIB in these holidays and clear it easily. This is the best opportunity for us , else bankers will never get any chance.
If you have completed JAIIB or CAIIB please do study for any certification courses .
Certified credit PROFESSIONALS , treasury , forex operations !!!
Will definitely be useful for you and your career.
Consider it .
Make use of time wisely. Plan accordingly.
Get your increment by completing such exams.
Even if u are forced to work half day, come home and study for those exams.
Boost your knowledge .
Knowledge is power.🙂

STAY SAFE !
STAY HEALTHY !

Very Important::Assessment of Working Capital Limit TL and NFB Limits

Very Important::Assessment of Working Capital Limit TL and NFB Limits

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

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

Risk Management and credit rating

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

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

Trade finance

Trade finance

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

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

WHAT ARE THE RISKS?

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

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

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

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

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

TYPES OF TRADE FINANCE PRODUCTS

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

                       

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

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

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

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

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

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

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

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

·         Export

·         Import

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Legal Entity Identifier

LEGAL ENTITY IDENTIFIER

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

LEI:

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

New All IIBF Certifications PDFs in single link 2020-2021

All IIBF Certification PDFs in single link 2020-2021

Read corresponding  IIBF books .. Macmillan / Taxmann.

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Certified credit officer/Professionals 2020

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CAIIB ABM 2020

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MSME 2020

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Forex operations recollected questions on 23.02.2020

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

Recollected questions on IT security 19.01.2020

Recollected questions on IT security
19.01.2020


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

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

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