Difference LC and BG

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

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

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

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

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

DIFFERENT KINDS OF RISKS RELATED TO FOREX TRANSACTIONS

DIFFERENT KINDS OF RISKS RELATED TO FOREX TRANSACTIONS

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

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

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

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

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

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

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

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

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

reduction in prices by other country exporters etc.

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

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

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

have to cover the position immediately.

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

liabilities plus and the outstanding contracts to sell that currency.

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

outstanding contracts to sell).

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

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

Overbought or oversold position : It is called open position

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

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

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

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

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

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

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

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

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

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

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

the bank in the earlier time zone.

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

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

(RTGS) basis.

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

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

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

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

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

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

normal risk related to lending or investment.

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

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

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

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

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

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

able to perform its part.

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

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

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

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

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

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

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

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

potential profit or losses based on interest rate projections.

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

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

differential. These differentials are the function of interest rates.

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

swaps, forward rate agreements.

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

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

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

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

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

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

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

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

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

a big problem for many businesses.

Non-Applicability of SARFAESI ACT

Non-Applicability of Sarfeasi ACT in certain cases:

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

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

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

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

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

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

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

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

9. Agriculture Loans

Very important - SARFAESI Act - 2002

SECURITISATION & RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF

SECURED ASSETS ORDINANCE 2002 - SARFAESI Act - 2002

1. Is it necessary to classify the account as NPA for initiating action under the Act? YES

2. The above Act is applicable in respect of debts due to Nationalised Banks only

3. The Provisions of the Act are applicable in respect of All NPA a/cs with liability above Rs. 1 lac

4. Enforcement is not possible under this Act in respect of Time barred debts, where the present

liability is less than 20% of principal + int. &where the secured asset is an Agricultural Land

5. Whether limitation is suspended or saved while proceeding under the act? No

6. Movables seized under this Act have to be got valued by Valuer in the panel approved by the

Board of the Bank

CYBER CRIME TERMINOLOGY

CYBER CRIME  TERMINOLOGY

 Adware – Adware is software designed to force pre-chosen ads to display on your system. Some adware is designed to be malicious and will pop up ads with such speed and frequency that they seem to be taking over everything, slowing down your system and tying up all of your system resources. When adware is coupled with spyware, it can be a frustrating ride, to say the least.

Back Door – A back door is a point of entry that circumvents normal security and can be used by a cracker to access a network or computer system. Usually back doors are created by system developers as shortcuts to speed access through security during the development stage and then are overlooked and never properly removed during final implementation. Sometimes crackers will create their own back door to a system by using a virus or a Trojan to set it up, thereby allowing them future access at their leisure.

Black Hat – Just like in the old westerns, these are the bad guys. A black hat is a cracker. To add insult to injury, black hats may also share information about the “break in” with other black hat crackers so they can exploit the same vulnerabilities before the victim becomes aware and takes appropriate measures.

Bot – A bot is a software “robot” that performs an extensive set of automated tasks on its own. Search engines like Google use bots, also known as spiders, to crawl through websites in order to scan through all of your pages. In these cases bots are not meant to interfere with a user, but are employed in an effort to index sites for the purpose of ranking them accordingly for appropriate returns on search queries. But when black hats use a bot, they can perform an extensive set of destructive tasks, as well as introduce many forms of malware to your system or network. They can also be used by black hats to coordinate attacks by controlling botnets.

India Post Payments Bank (IPPB)

All about India Post Payments Bank (IPPB)

The India Post Payments Bank (IPPB)[ inaugurated on the 1st of September 2018 has been incorporated as a public sector company under the Department of Posts with 100% GOI equity and is governed by the Reserve Bank of India. 650 branches of the bank along with 3250 customer access points are operational across the country from September, 2018. The network presence will be extended to 1.55 lakhs by December 2018.


IPPB is offering demand deposits such as savings and current accounts up to a balance of Rs 1 Lac, digitally enabled payments and remittance services of all kinds between entities and individuals and also provide access to third-party financial services such as insurance, mutual funds, pension, credit products, forex, and more, in partnership with insurance companies, mutual fund houses, pension providers, banks, international money transfer organisations, direct benefit transfer, etc.

10 key highlights that will help you decode all about IPPB:

1. The institute will operate like a banking organisation, but with smaller scale operations. Most banking operations like accepting deposits shall be done, but they cannot give loans or issue credit cards.

2. As per guidelines laid out by the Reserve Bank of India, it can accept deposits of up to Rs 1 lakh per customer, offer payments and remittance services, mobile payments/transfers/purchases and other banking services like ATM/debit cards, net banking and third-party fund transfers.

3. The bank will offer 4 percent interest rate on savings accounts. It has also tied up with PNB and Bajaj Allianz Life Insurance for products such as loans as well as insurance.

4. These facilities can be accessed through 650 branches and 3,250 access points.

5. Around 1.30 lakh access points will be located in rural areas, which the government hopes to fulfil its financial inclusion goal. The IPPB also has a nod to link around 17-crore postal savings bank (PSB) accounts with its own set-up.

6. Deposits in any account that exceed Rs 1 lakh will be automatically converted into post office savings account

7. Use of technology: The payments bank will be using Aadhaar to open accounts, while a QR card and biometrics will drive authentication, transactions, and payments. Postmen will be armed with biometric devices as well.

8. Ownership of the bank is solely with the government and is functioning under Department of Posts. It will offer products and services through channels such as counter services, micro ATMs, apps, messages and interactive voice response.

9. According to RBI, the objectives of setting up of payments banks will be to further financial inclusion by providing (i) small savings accounts and (ii) payments/remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other user.

10. In a bid to take on competing entities such as Airtel and Paytm Payments Bank, the Cabinet gave a nod to 80 percent hike in spending on IPPB to Rs 1,435 crore. This, it said, will arm it with additional ammo to compete in the market.

All the best for your exam

Luck is a funny thing because sometimes it can be good and sometimes it can be bad. So take matters in your own hand, study hard and stop relying on something so fickle. All the best.

The best way to motivate yourself is to stop stressing about what’ll happen when things go wrong and start thinking about how awesome life will be when they go right. Good luck.

wish you success in your exams messages

If you believe in yourself you do not have to fear any challenge. I wish you all the success for your exam!

You prepared well, You know it all right, Just relax over the night. Morning will come and so will the test Don’t you worry; you just need a little rest. Best of luck for exam!

Some important abbrevetions

some important abbrevetions::

SWIFT: Society for worldwide Interbank Financial Telecommunication
SFMS: Structured Financial Messaging System
OLTAS: Online Tax Accounting System
CBS: Centralized/ core Banking Solution
PIN: Personal Identification Number
LAN: Local Area Network (used in the same building)
MAN: Metropolitan Area Network (used in the same city)
WAN: Wide Area Network (used in different locations)
IDRBT: Institute for development & Research in Banking Technology
Banknet: Payment System Network established by RBI
NICNFT: National Informatics Centre Network (currency chest operation)
WWW: World Wide Web
HTTP: Hyper Text Transfer Protocol
URL: Uniform Resource Locator
VSAT: Very Small Aperture terminal
Firewall: Software programme that restricts unauthorized access to data and acts as a security to private network

SMERA

MSME::

SMALL AND MEDIUM ENTERPRISES RATING AGENCY (SMERA)

SME Rating Agency of India Ltd (SMERA) is a third party rating agency exclusively set up
for micro, smal l, and medium enterprises in India for ratings on credit worthiness.
SMERA is promoted by SIDBI and Dun & Bradstreet along with various government,
public and private sector banks. It provides ratings which enable MSME units to raise

bank loans at competitive rates of interest. SMERA's ratings are an independent thirdparty
assessment of the overall status of the MSMEs as performing entities. The ratings
comprise a composite appraisal indicator and a size indicator. Its ratings enhance the
market standing of the MSMEs among their trading partners and customers. In addition,
the agency factors in industry dynamics in its ratings through a system of comparison of
strengths and weaknesses of the MSME with other companies in the same line of
business. It is also risk profiling the clusters through special studies and these would fill
the information gap between the lender and the sector. Banks offer concessions in pricing
(0.25%-0.50%) for credit to MSMEs rated by SMERA.

PMEGP

MSME::

Prime Minister’s Employment Generation Programme (PMEGP) is a credit linked subsidy programme administered by the Ministry of Micro, Small and Medium Enterprises, Government of India. Khadi & Village Industries Commission (KVIC), is the nodal agency at national level for implementation of the scheme. At state level the scheme is implemented through KVIC, KVIB and District Industries center.

Eligibility
Objective
To generate employment opportunities in rural as well as urban areas through setting up of self employment ventures.
To provide continuous and sustainable employment to a large segment of traditional and prospective artisans and unemployed youth, so as to help arrest migration of rural youth to urban areas.
Scope

HOUSING FOR ALL BY 2022

 MSME::

HOUSING FOR ALL BY 2022

Urbanization is one of the important realities of recent decades in India. Its urban system consists of 7933 cities and towns of different population sizes, and a population of 377.16 million (Census 2011) which is the second largest in the world. India entered into a different demographic trajectory with the net increment to urban population exceeding the net increment to rural population. The United Nations (2014) estimates that much of the population increase in India between 2015 and 2030 will take place in urban areas during which it will add 164 million people to its urban base. The scale of the projected urban population increase is extraordinary, offering both an opportunity as well as a challenge for it to mobilize its resources and capacity to manage the transition.

MSME

MSME :: ( Most imp Exam point of view)

1. A Small Manufacturing Enterprise unit is considered as Sick Industrial Unit: when account remains sub
standard for more than six months or there is erosion in the net worth due to accumulated cash losses to
the extent of 50% or more of its net worth during the previous accounting year and the unit has been in
commercial production for at least two years
2. A small scale unit (manufacturing) can be treated as micro unit if the original investment in plant and
machinery does not exceed : Rs.25 lac
3. A unit in service enterprise is considered as medium if the investment in equipment is: more than Rs 2
crore but up to Rs 5 crore.
4. A Unit will be called as Small Service Enterprise if investment in equipments is up to: Rs 2 crore.
5. Amount of maximum loan given to micro and small enterprises that is covered under-CGFTMSEscheme
: Rs.200 lac
6. As per Micro, small and medium enterprise development Act 2006, a small manufacturing enterprise is
one in which original investment in plant and machinery is: more than Rs 25 lakh and up to Rs 5 crore.
7. As per RBI guidelines, banks are required to provide__% of advance to small enterprises to units in
which original investment in plant & machinery does not exceed Rs 10 lac in the case of manufacturing
units and does not exceed Rs 4 lac in equipment in the case of service enterprises: 40%
8. As per RBI guidelines, Loans to Agro and food processing Units are eligible to be classified under
Agriculture Ancillary Activity under Agril. Finance Priority Per borrower Rs. 100.00 crores.
9. Bank limit for working capital based on turn over method: 20% of the projected sales turnover
10. Banks are required to make 40% of advance to Micro and Small enterprises to manufacturing units
with investment up to Rs 10 lakhs and/or service enterprises with investment in equipment up to: No
criteria (earlier Rs 4 lakh) and now Micro has to reach 7.00% by March 2016 & 7.5% by March
2017 of ANBC/ceobe which ever is higher.
11. Banks will not obtain collateral security in respect of loans to micro and small enterprises which are
covered by Credit Guarantee Scheme for Micro and Small enterprises?: Rs 1 crore
12. CGTMSE fee: For North East & women; Loan up to Rs 5 lakh – 0.75% p.a.; Loan more than
Rs 5 lakh – 0.85% p.a.
13. Composite loan limit for Small Manufacturing enterprises: Rs.1.00 crore
14. For being defined as Medium enterprise, the original investment in plant & machinery should be: More
than Rs 5 crore and up to Rs 10 crore.
15. For being eligible to be classified as small (service) enterprise, the original investment in equipment
should not exceed: Rs 2 crore.
16. Full form of CGTSME: Credit Guarantee Fund Trust for Micro & Small Enterprises.
17. If a small enterprise in manufacturing has a good track record, collateral security can be waived up
to: 25.00 lacs
18. If an MSME units holds a margin of Rs.20 lac and its projected sales are Rs.400 lac, its working
capital limit will be : Rs.80 lacs
19. In case of advance granted to Micro and small enterprises, banks will not obtain collateral security up
to: Rs 10 lakh
20. In case of advance to Micro and Small manufacturing enterprises, working capital limit by a bank as
per turnover method is calculated as: 20% of projected annual turnover.
21. In case of loan guaranteed under CGTMSE, what is the extent of cover for loan upto 50 lac granted to
a women?: 80% of amount in default.
22. In case of loan to micro and small enterprises guaranteed by CGTMSE, no collateral security is
required for loans up to: Rs 100 lac.
23. Khadi Village Industry part of MSE; irrespective of investment in P&M.
24. Maximum Guarantee coverage for loans guaranteed by CGTMSE if loan up to Rs 5 lakh: 85% of the
amount in default with a maximum of Rs 425000.
25. Micro, Small and Medium Enterprises is under which Ministry: Ministry of Micro Small & Medium
Enterprises.
26. SMERA stands for: Small & Medium Enterprises Rating Agency.
27. The definition of Micro and Small enterprise in the manufacturing Sector is based on investment in :
Plant and Machinery.
28. Under CGFT scheme for MSE, for loans up to Rs 50 lac, 80% coverage is not available for: SC/ST

29. What is the maximum amount of loan covered guarantee scheme of CGTMSE for loans made to micro
and small enterprise: Rs.00.00 Lac

30. What is the rate of guarantee fees charged under CGSMSE for loan of more than Rs 5 lac to a
women?: 0.85% p.a. of limit sanctioned.
31. Advantages of Cluster based finance to MSMEs: Risk mitigation.

MSME

 MSME::

What are Debt Recovery Tribunals (DRTs)?

Debt Recovery Tribunals were established to facilitate the debt recovery involving banks and other financial institutions with their customers. DRTs were set up after the passing of Recovery of Debts due to Banks and Financial Institutions Act (RDBBFI), 1993. Appeals against orders passed by DRTs lie before Debts Recovery Appellate Tribunal (DRAT). DRTs can take cases from banks for disputed loans above Rs 10 Lakhs. At present, there are 33 DRTs and 5 DRATs functioning at various parts of the country. In 2014, the government has created six new DRTs to speed up loan related dispute settlement.

Compared to the ordinary court procedures, DRTs were able to handle large number of cases with low delay during the initial phases. Though the DRTs have made impact on recovery front, several issues related to their performance in the background of rising volume of NPAs have appeared in later period. Inadequate infrastructure coupled with insufficient number of DRTs has made them incompetent to handle the rising volume of disputes.

MSME recollected questions

MSME recollected questions
1. Micro, small & medium sector
2. Priority sector classification (esp foreign banks less than 20 branches etc)
3. One sum on calculation of NWC
4. CLUSTER development features
5. TIFAC full form, CODISSIA located at?
6. Mahila schemes implemented by SIDBI
7. Which are NOT included under plant & machinery
8. HUF, LLP questions on minor admissibility
9. Common seal compulsory for companies/LLP
10. GRAY sick area
11. Ots implemented by? - individual banks
12. Highest investment by overseas investors is under which sectors
13. Study report Of DIC recommendations
14. Federation of msme for West Bengal state? ITCOT located in which state? MSME council located? Msme as per constitution is state/central/concurrent subject?

Banking Codes and Standards Board of India (BCSBI)::

Banking Codes and Standards Board of India (BCSBI)::

In November 2003, Reserve Bank of India (RBI) constituted the Committee on Procedures and Performance Audit of Public Services under the Chairmanship of Shri S.S.Tarapore (former Deputy Governor) to address the issues relating to availability of adequate banking services to the common person. The mandate to the Committee included identification of factors that inhibited the attainment of best customer services and suggesting steps to improve the quality of banking services to individual customers. The Committee felt that in an effort to continuously upgrade the package of services that banks offered to their customers, there was a need for benchmarking of such services. After an in-depth study at the grass-roots level, the Committee concluded that there was an institutional gap for measuring the performance of banks against a bench mark reflecting the best practices (Code and Standards). Therefore, the Committee recommended setting up of the Banking Codes and Standards Board of I ndia (BCSBI). BCSBI was set up to ensure that the common person as a consumer of financial services from the banking Industry is in no way at a disadvantageous position and really gets what he/she has been promised.


The Scheme of Banking Ombudsman, which has been functioning for quite some time, does not look into systemic issues with a view to enforcing a prescribed quality of service. Ideally, such a function should be performed by a Self-Regulatory Organisation (SRO) but in view of the existing framework of the banking sector in India, it was felt that an independent, autonomous Board will be best suited for the function. Therefore, Dr. Y.V. Reddy, Governor, Reserve Bank of India, in his Monetary Policy Statement (April 2005) announced setting up of the Banking Codes and Standards Board of India in order to ensure that a comprehensive code of conduct for fair treatment of customers was evolved and adhered to.

The Banking Codes and Standards Board of India was registered as a society under the Societies Registration Act, 1860 in February 2006. It functions as an independent and autonomous body. Membership of BCSBI is voluntary and open to scheduled banks. Initially the membership of BCSBI was open to scheduled commercial banks and has now been extended to include Regional Rural Banks and select Urban Co-operative Banks.

The general superintendence, direction and control of the affairs and funds of the Society is vested in the Governing Council (constituted by RBI) consisting of members drawn from different disciplines such as banking, economics, service etc. The first Governing Council relinquished office in December 2011 after which a new Governing Council was constituted.

BCSBI

BCSBI ::

Lending::

Each bank has its own Loan policy, approved by its Board, based on the guidelines

issued by the Reserve Bank of India. Banks are expected to base their lending

decisions on a careful and prudent assessment of the financial position and repaying

capacity of the applicant, besides other important criteria.

What information is a bank required to give when one approaches them for a

loan?

Banks, along with the loan application form are required to provide full

information about the interest rates applicable, whether floating or fixed as

also fees and charges payable for processing, penal rate of interest for delayed

payments, conversion charges for switching loans from fixed to floating rates

and vice-versa, existence of any interest reset clause, time by which a decision

on the application will be conveyed to the applicant and any other matters

which will affect your interest as a borrower.

BCSBI recollected question and Exam Tips:

BCSBI recollected question and Exam Tips:

Very basic questions from IIBF prescribed book
Kindly visit BCSBI site for Latest Update’s
QUESTIONS ASKED IN TODAYS BCSBI.. ( based on memory) PART 2
1. Case studies based on nominee
2. two nominees applicable in which clause.. E OR S.. or F OR S
3.BSCBI is compulsry for banks to follow or not
4. educational. loan for 25 lakhs with 10 percnt margin... how much you insist for collateral
5. same. partners for different companies... wthr right of sett off can be applied or not for one of the firms debts
6. questions on HUF KARTA
7.BANKS CHALLENGE IN IMPLEMENTING DIGITAL TECHNOLOGY
8.banks time for calling customers over phone
9. mobile phone ettiquete
10.norms.for customers to approach BCSBI for guidance for geting loan.. a the limit of the loan
11.questions on customer orientation
12. under which sectn of NI act cheques has to be paid by the bank.... to be continued

RISK MANAGEMENT

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

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.

KYC AML

KYC AML::

1. KYC, AML & CFT guidelines are issued under act.
a) KYC Act b) PMLA 2002 c) BR Act d) NI Act
2. FATF (Financial Action Task Force on Money Laundering) also known as GAFI
(Groupe d'action financiere) has its head quarters at
a) New Delhi b) London c) Paris d) Geneva
3. Section 12 of PMLA places the following obligations on the Bank except
a) Maintaining a record of prescribed transactions & preserving records there of.
b) Furnishing information of prescribed transactions to the specified authority.
c) Verifying and maintaining records of the identity of its clients and identifying the
beneficial owners, if any, of such clients
d) None of the above
4. Under KYC/AML/CFT/Fraud prevention measures, observance of KYC compliance and
fraud prevention day is observed on..
a) 1st August b) 5th August
c) 1st September d) 5th September
5. The Anti Money Laundering Cell of the Bank has been established at
a) Jaipur b) Nagpur c) Bhubaneswar d) New Delhi
6. In case the PoS transaction amount is Rs. and above, the merchant is required
to obtain the copy of PAN in case of domestic card transaction.
a) 20000 b) 150000 c) 100000 d) 50000
7. Smurfing, Layering and Integration are three types of
a) Money laundering Activity b) Money tracking Activity
c) Source tracking Activity d) User tracking Activity