Amendments made in the Indian Companies Act, 2013:

Amendments made in the Indian Companies Act, 2013:
The amendments to the Companies Act 1956 in 2013 Act have introduced several new concepts and have also tried to streamline many of the requirements by introducing new definitions. After getting approval of both the houses of Parliament, the long awaited Companies Bill 2013 obtained the assent of the President of India on 29 August 2013 and became Companies Act, 2013 (2013 Act). The changes in the 2013 Act have far-reaching implications that are set to significantly change the manner in which corporates operate in India.
Highlights of Companies Act 2013:
1. Immediate Changes in letterhead, bills or other official communications, as if full name, address of its registered office, Corporate Identity Number (21 digit number allotted by Government), Telephone number, fax number, email ID, website address if any.
2. One Person Company (OPC): It's a Private Company having only one Member and at least One Director. No compulsion to hold AGM. Conversion of existing private Companies with paid-up capital up to Rs 50 Lacs and turnover up to Rs 2 Crores into OPC is permitted.
3. Woman Director: Every Listed Company /Public Company with paid up capital of Rs 100 Crores or more / Public Company with turnover of Rs 300 Crores or more shall have at least one Woman Director.
4. Resident Director: Every Company must have a director who stayed in India for a total period of 182 days or more in previous calendar year.
5. Accounting Year: Every company shall follow uniform accounting year i.e. 1 st April -31st March.
6. Loans to director – The Company CANNOT advance any kind of loan / guarantee / security to any director, Director of holding company, his partner, his relative, Firm in which he or his relative is partner, private limited in which he is director or member or any bodies corporate whose 25% or more of total voting power or board of Directors is controlled by him.
7. Articles of Association- In the next General Meeting, it is desirable to adopt Table F as standard set of Articles of Association of the Company with relevant changes to suite the requirements of the company. Further, every copy of Memorandum and Articles issued to members should contain a copy of all resolutions / agreements that are required to be filed with the Registrar.
8. Disqualification of director- All existing directors must have Directors Identification Number (DIN) allotted by central government. Directors who already have DIN need not take any action. Directors not having DIN should initiate the process of getting DIN allotted to him and inform companies. The Company, in turn, has to inform registrar.
9. Financial year- Under the new Act, all companies have to follow a uniform Financial Year i.e. from 1st April to 31st March. Those companies which follow a different financial year have to align their accounting year to 1st April to 31st March within 2 years. It is desirable to do the same as early as possible since most of the compliances are on financial year basis under the new Companies Act.
10. Appointment of Statutory Auditors- Every Listed Company can appoint an individual auditor for 5 years and a firm of auditors for 10 years. This period of 5 / 10 years commences from the date of their appointment. Therefore, those companies have reappointed their statutory auditors for more than 5 / 10 years; have to appoint another auditor in Annual General Meeting for year 2014.

Indian Contract Act, 1872:

Indian Contract Act, 1872:
Banking involves interaction between a banker and customer. A customer of a bank may be a depositor, borrower or any other person merely utilizing one of the various services provided by the banker. The relation between the Banker and the customer will vary according to the transaction carried out. The relationship may be Debtor- Creditor, Creditor- Debtor, Bailor-bailee, etc.
The interaction of a bank with its customer creates certain obligations and gives certain rights to both the bank and the customer. All Agreements are contracts, if they are made by parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared to be void. All Banking transactions are therefore, separate contracts.
Contract of indemnity-
A contract by which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person, is called a contract of indemnity.
There are two parties to the contract of Indemnity-i.e. the indemnifier and the indemnified. This is defined in Section124 of the Indian Contract Act.
Contract of guarantee:
The contract of guarantee is defined in Section126. There are three parties to the contract of guarantee. They are: Surety, Principal debtor and creditor.
A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default.
The person who gives the guarantee is called the surety, the person in respect of whose default the guarantee is given is called the principal debtor and the person to whom the guarantee is given is called the creditor. A guarantee may be either oral or written.
Bailment:
A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the bailor‗. The person to whom they are delivered is called the bailee‗. (Section148).
Pledge:
The bailment of goods as security for payment of a debt or performance of a promise is called pledge. The bailor is in this case called pawnor. The bailee is called pawnee.

Current affair s on 20.04.2019

Today's Headlines from www:

*Economic Times*

📝 Godrej Appliances expects 20% spike in topline on good summer

📝 Housing sales up 5% during Jan-Mar in 9 major cities: PropEquity

📝 RBI’s 3-year bonds see poor demand as market seeks higher yields

📝 Incentivise plants for quick changes in thermal supply: Govt panel

📝 Samsung to back all India-specific 5G use cases

📝 Smaller accountancy firms want India to implement UK regulator report on big four

📝 Airtel Payments Bank partners with Bharti AXA General Insurance for two-wheeler insurance

📝 Lenders invoke IBC norms to keep stressed assets in NCLT

*Business Standard*

📝 R Venkataramanan quits Ratan Tata's investment arm RNT Associates

📝 At 21%, Reliance Industries' petro-retail growth outpaces the industry

📝 Nykaa bets big on fashion, offline stores with eye on Unicorn tag

📝 Kishore Biyani's Foodhall plans to tap 2-hour e-deliveries segment

📝 Bharti Airtel, Vodafone Idea see rise in fixed-line subscribers in February

📝 Allcargo plans to invest Rs 1,000 crore in logistics park development

📝 Jaypee apologises to homebuyers; promises Rs 2,000 cr to finish projects

📝 SpiceJet hires 500 Jet Airways pilots and employees, may induct more

📝 Mirae Asset eyes 40,000 cr AUM in 2019; eyes 74% growth over 2018

📝 CBDT's taxation proposal to hit loss-making foreign companies: Experts

*Financial Express*

📝 Royal Enfield drives into South Korea, opens first store in Seoul

📝 Porsche eyeing cooperation with Chinese technology giants

📝 Central Bank to sell two NPAs worth Rs 251 crore

📝 India still not power-surplus nation; peak deficit at 0.8 percent, energy deficit at 0.6 pc in 2018-19

📝 Reliance Industries to start gas production from KG-D6 block’s R-Cluster in second half of FY21

📝 Jet Airways lenders look to leverage airlines 16 planes, other assets

📝 Unfazed by ban, TikTok parent ByteDance lines up $1 billion investment in India

📝 Uber wins USD 1 billion investment from Toyota, SoftBank fund

*Mint*

📝 March saw income tax department go on an overdrive

📝 Walmart, Amazon kick off government online pilot program

📝 Airtel's ₹25,000-crore rights issue to open on May 3

📝 Pine Labs acquires gift solution firm Qwikcilver for $110 mn

📝 Govt looking at REITS model to monetise land assets of CPSEs, enemy property

📝 Online retail to be $170 billion by 2030: Report

📝 Bank of Baroda, Srei Equipment Finance tie up for infra equipment loans

📝 Leap Green Energy in talks with EIG Partners to raise $200 million.

C Rangarajan committee

C Rangarajan committee
Financial Inclusion
The committee is of the view that “while financial inclusion can be substantially enhanced
by improving the supply side or the delivery systems, it is also important to note that many
regions, segments of the population and sub-sectors of the economy have a limited or
weak demand for financial services.
In order to improve their level of inclusion, demand side efforts need to be taken including
improving human and physical resource endowments, enhancing productivity, mitigating
risk and strengthening market linkages. However, the primary focus is on improving the
delivery systems, both conventional and innovative.
The essence of Financial Inclusion is to ensure that a range of appropriate financial
services is available to every individual of the country. This should include:
1. Regular financial Intermediation such as Banking which includes basic no frills accounts
for sending and receiving money.
2. Saving Products which are suitable to the pattern of cash flow of the poor household.
3. Availability of the Money transfer facilities
4. Availability of small loans and overdrafts for productive , personal and other uses.

Treasury Management – Concepts

Treasury Management – Concepts

Banks not only lend money to customers but also invest in securities such as Bonds and Debentures of Government as well as Corporates. These instruments are easily tradable in the capital and money market. The tradability of securities makes investments an attractive option for banks for deployment of their funds. Further, banks buy securities not only to trade but also to hold them till maturity to take advantage of the attractive returns with relatively lower risk. Banks are allowed to invest in shares of companies. However, the volumes are low due to associated high risk besides regulatory restrictions. The investment portfolio of the banks broadly divided into three groups viz.,
Trading Book - Securities purchased with the intention of selling them within 90 days are held in the trading book. Trading opportunities arise in the market on account of fluctuation in interest rates and arbitrage opportunities.
Available for Sale (AFS) - Securities which are bought with the intention of selling them but not necessarily within 90 days is considered to be AFS securities. They are also part of the trading portfolio of the bank but only the time frame is different. Both the trading and AFS securities have to be "Marked to Market" every quarter while finalization of quarterly results.
Held to Maturity (HTM) - These securities are meant to be held till their date of maturity and the purpose investing in them is to earn reasonable steady income. These securities are carried in the books at cost or purchase price till maturity. Hence, HTM securities need not be "Marked to Market" as the bank is certain of receiving the maturity value on the specified date. Banks are not allowed to shift securities freely from trading and AFS to the HTM book as this may lead to overstating of profit figures. However, banks can opt for shifting only once in a year to adjust their overall portfolio. Banks are permitted to exceed the limit of 25% of total investments under HTM category provided (a) the excess comprises of only of SLR securities and (b) the total SLR securities held in the HTM category is not more than 23% by March 2014.
Call Money Markets:
Call and notice money market refers to the market for short term funds ranging from overnight funds to funds for a maximum tenor of 14 days. Under Call money market, funds are transacted on overnight basis where as in case of notice money market; funds are transacted for the period of 2 days to 14 days.
Coupon Rate:
It is a rate at which interest is paid, and is usually represented as a percentage of the par value of a bond. It refers to the periodic interest payments that are made by the borrower (who is also the issuer of the bond) to the lender (the subscriber of the bond) and the coupons are
stated upfront either directly specifying the number (e.g.8%) or indirectly tying with a benchmark rate (e.g. MIBOR+0.5%).
Zero Coupon Bond / Deep Discount Bond:
The bond is issued at a discount to its face value, at which it will be redeemed. When such a bond is issued for a very long tenor, the issue price is at a steep discount to the redemption value. The effective interest earned by the buyer is the difference between the face value and the discounted price at which the bond is bought. The essential feature of this type of bonds is the absence of intermittent cash flows.
Commercial Paper (CP):
It is a short-term instrument to enable non-banking companies to borrow short-term funds through liquid money market instruments. CPs is therefore part of the working capital limits as set by the maximum permissible bank finance (MPBF). CP issues are regulated by RBI Guidelines issued from time to time stipulating term, eligibility, limits and amount and method of issuance. CP can be issued for maturities between a minimum of 7 days and a maximum up to one year from the date of issue. The maturity date of the CP should not go beyond the date up to which the credit rating of the issuer is valid. CP can be issued in denominations of Rs. 5 lakh and multiples thereof. It is mandatory that CPs should be rated by credit rating agencies. In a bid to make CPs attractive, the RBI has allowed issuers to buyback these instruments through the secondary market before maturity. It attracts stamp duty.
Certificates of Deposits (CDs):
It is a negotiable money market instrument and issued in dematerialized form or as a Usance Promissory Note, for funds, deposited at a bank or other eligible financial institutions to raise short-term resources within the umbrella limit fixed by RBI. CDs may be issued at a discount on face value. CDs differ from term deposit as they involve the creation of paper, and hence have the facility for transfer and multiple ownerships before maturity. Banks use the CDs for borrowing during a credit pickup, to the extent of shortage in incremental deposits.
Minimum amount of a CD should be one lakh and in multiples thereof. The maturity period of CDs should be not less than 7 days and not more than one year. However FIs are allowed to issue CDs not exceeding 3 years from the date of issue. Banks have to maintain the appropriate reserve requirements (CRR/SLR) on the issue price of the CDs. It attracts stamp duty. Banks/FIs cannot grant loans against CDs.
Securitization is an effective tool to reduce the mismatches in the maturities of assets and liabilities. It is a financing technique that involves pooling and re-packing of illiquid financial assets in to marketable securities. There are six players viz., Borrowers, Lending Banker (who becomes an originator for the Securitization transaction), Special Purpose Vehicle

(SPV), Credit Rating Agency, Investors and Service Providers. The process of securitization involves identification of financial assets, rating of these assets by the rating agency, creation of a SPV for handling the securitization transaction, assignment of future receivables in favour of the SPV, issuance of marketable securities based on these underlying financial assets and selling the same to the investors. The service providers recover the amount periodically and remit to the SPV and who in turn pass the benefit to the investors.
Asset and Liability Management:
RBI Guidelines: Of late, it is observed that PSBs have been accepting Bulk Deposits/Certificate of Deposits route to increase balance sheet size at very high interest rates, adversely affecting the profitability besides exposing the banks to ALM Risk. RBI directed banks not to accept Bulk Deposits beyond 10% of the total deposits and the total of Bulk Deposits & Certificates of Deposits should not exceed 15% of total deposits of the bank at any given point of time. An appropriate time-bound strategy for reduction of such existing bulk deposits should be put in place.
Adjusted Net Bank Credit (ANBC):
It denotes Net Bank Credit plus investments made by banks in non-SLR bonds held in HTM category. However, investments made by banks in the Recapitalization Bonds and Inter-bank exposures will not be taken into account for the purpose of priority sector lending targets/sub-targets.
Subordinate Debt:
It is a debt owed to an unsecured creditor that in the event of liquidation can only be paid after the claims of secured creditors have been met. Normally, subordinate debt ranks below other secured loans with regard to claims on assets or earnings.

Current affair s on 15.04.2019

Today's Headlines from www:

*Economic Times*

📝 Democrats demand Trump’s tax returns by April 23

📝 Larsen & Toubro to hire 1,500 people this year

📝 RBI net buyer of dollars for 3rd month in a row, snaps up $825 million

📝 RCom asked to pay infratel Rs 39 crore for early infra site exit

📝 Gas-based plants may get to sell power in spot market

📝 Open for partnerships in electric vehicle space: Ashok Leyland

*Business Standard*

📝 Dozens of Indian start-ups in fray to become unicorns in FY19, say experts

📝 Jet Airways' fuel use drops 75%, may spell slow burn in ATF sales

📝 Tax dept may pitch for lower I-T target when next govt presents Budget

📝 PE/VC investments in AI space grows five-fold to $359 million in FY19

📝 Corporate credit to grow in next few quarters on working capital needs

📝 Creditors recover nearly half of total claims of Rs 1.42 trn, shows data

📝 OLX is undergoing a complete overhaul as part of a global brand reform

📝 Electoral bonds of Rs 10 lakh, Rs 1 cr dominate donations: RTI application

*Financial Express*

📝 India facing shortage of 6 lakh doctors, 20 lakh nurses: Study

📝 Reliance Jio crosses 300 million customers mark in 2.5 years even as Airtel took 19 years to achieve it

📝 Bank of Baroda's merger with Dena Bank, Vijaya Bank likely to complete in two years

📝 ONGC arrests fall in oil output from onshore wells, posts higher growth despite vintage fields

📝 Mortgage Marketplace: Square Capital helps disburse $1 billion of home loans

📝 FPIs pour Rs 11,096 crore in April so far driven by global and domestic factors

📝 Ferns N Petals eyes IPO in 2020 to fund expansion

*Mint*

📝 French ad firm Publicis to buy Alliance Data’s Epsilon unit for $4.4 billion

📝 Govt makes it mandatory for all medical devices to get CDSCO certification

📝 IBA suggests case-by-case method for stressed loans

📝 Logix Group to scale down realty business

📝 Statkraft, Actis eye Equis’ Indian hydroelectric assets

📝 IIFL AMC buys minority stake in Neewee Analytics

📝 India to partner with Japan and UAE to set up two projects in Africa

📝 Tata Projects bullish on oil, gas, nuclear segments, eyes ₹16,000 cr topline

📝 Daikin India aims to be a ₹5,000-crore firm in FY20, looks for 20% growth.

Basel-I, Basel-II and Basel-III:

Basel-I, Basel-II and Basel-III:
These were a set of international banking regulations put forth by the Basel Committee on Bank Supervision,(BCBS) which set out the minimum capital requirements of financial institutions with the goal of minimizing credit risk. Banks that operate internationally are required to maintain a minimum amount (8%) of capital based on a percent of risk-weighted assets. The first accord on capital standards was Basel I. It was issued in 1988 and focused mainly on credit risk by creating a bank asset classification system. One size fits all-Risk weight same for all types of assets:
The banks were to maintain capital (Tier 1 and Tier 2) equal to at least 8% of its risk-weighted assets. For example, if a bank has risk-weighted assets of $100 million, it is required to maintain capital of at least $8 million.
Initially, there was only credit risk and later on market risk was included.
Basel II: Capital standard to further strengthen soundness and stability of international banking system. More emphasis was on operational risk. The definition of regulatory capital remains same but the measurement of risk has been modified for credit risk. Operational risk is given due importance.
Three Pillars under Basel-II:-
i) Minimum Capital Requirement
Capital requirement (called capital charge) is calculated for credit, market and operational risk.
a) Credit Risk – standardized approach based on type of borrower and credit rating.
b) Operational Risk – Basic indicator approach – 15% of average positive annual gross income for 3 years.
c) Market risk – Standard Duration Method.
To migrate to;
i) Credit risk – Internal Risk Based – 31.03.2014
ii) Operational Risk – Standardized approach - 30.09.2010
Advanced measurement - 31.03.2014
iii) Market risk – Internal Model approach – 31.03.2011.
ii) Supervisory Review - To ensure that banks have adequate capital to support all the risk in their business and encourage them to develop and use better risk management techniques in monitoring and managing their risk. The banks to develop internal risk capital assessment and set capital targets commensurate with bank‘s risk profile/ control environment.
iii) Market Discipline: To complement minimum capital requirement and supervisory review through disclosure and transparency – 8% international requirement and 9% as per RBI.

Basel-III is a global regulatory standard on bank capital adequacy, stress testing and liquidity risk agreed upon by the members of the BCBS in 2010-11. Basel III was developed in response to the deficiencies in financial regulation revealed by the late-2000s financial crisis. Basel III strengthens bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage. For instance, the change in the calculation of loan risk in Basel II which some consider a causal factor in the credit bubble prior to the 2007-08 collapse:
In Basel II one of the principal factors of financial risk management was outsourced to companies that were not subject to supervision: credit rating agencies. Ratings of creditworthiness and of bonds, and various other financial instruments were conducted without supervision by official agencies, leading to AAA ratings on mortgage-backed securities, credit default swaps and other instruments that proved in practice to be extremely bad credit risks.
Moreover, bankruptcy in the financial sector in the West due to
i) loose lending standards, ii) poor underwriting of mortgages, iii) unbridled speculation, iv) gross asset liability mismatches and v) inadequate liquidity led to the collapse of even institutions considered ‗too big to fail‘.
The OECD estimates that the implementation of Basel III will decrease annual GDP growth by 0.05 to 0.15 percentage point.
Outside the banking industry itself, criticism was muted. Bank directors would be required to know market liquidity conditions for major asset holdings, to strengthen accountability for any major losses.
Basel III will require banks to hold 4.5% of common equity (up from 2% in Basel II) and 6% of Tier I capital (up from 4% in Basel II) of risk-weighted assets (RWA). Basel III also introduces additional capital buffers, (i) a mandatory capital conservation buffer of 2.5% and (ii) a discretionary countercyclical buffer, which allows national regulators to require up to another 2.5% of capital during periods of high credit growth. In addition, Basel III introduces a minimum 3% leverage ratio and two required liquidity ratios-Liquidity Coverage Ratio requires a bank to hold sufficient high-quality liquid assets to cover its total net cash outflows over 30 days; the Net Stable Funding Ratio requires the available amount of stable funding to exceed the required amount of stable funding over a one-year period of extended stress.
With the single most agenda of never to repeat a crisis of 2008, the BCBS put forward norms aimed at strengthening the balance sheet of banks as under:
 Enhancing the quantum of common equity
 Improving the quality of capital base
 Creation of capital buffers to absorb shocks-2.5% during high growth

 Improving liquidity of assets-LCR and NSFR
 Optimising leverage through leverage ratio
 Creating more space for regulatory supervision under Pillar-II of Basel-II
 Bringing further transparency and market discipline under Pillar-III of Basel-II
• Minimum 4.5% in common equity (as against the current 3.6%) by March 31, 2015.
• create a capital conservation buffer (consisting of common equity) of 2.5% by March 31, 2018.
• maintain countercyclical buffer of 2.5% of RWA
• minimum overall capital adequacy of 11.5% (against the current 9%) by March 31, 2018
• a leverage ratio of 4.5%.
• Banks allowed to add interim profits (subject to conditions) for computation of core capital adequacy
Impact of Basel-III on banks in India
1. Capital Adequacy: The transition to Basel-III would be easier for Indian banks due to our strict regulatory standards.
According to Crisil, the average equity capital ratio and overall capital adequacy ratio of Indian banks are between 9% to 14%, well above the regulatory norm.
2. Cost of lending: Stricter capital requirements lead to lower Return on Equity. Moreover, as capital costs increase, loans tend to be more expensive. In order to offset this, banks would have to reduce deposit rates or augment non-interest income. Still, Basel-III norms give out the message that Indian banks will have to explore ways to conserve capital.
3. Leverage: RBI has set the leverage ratio at 4.5%, higher than the Basel-III norm of 3%.This is to regulate banks having higher trading book and off balance sheet derivative positions. However, for Indian banks, the derivative transactions are not very large and the pressure on maintaining the required leverage ratio would be lower.
4. Liquidity norms: The Basel-IIII guidelines require banks to hold enough unencumbered liquid assets to cover expected net outflows during a 30 day stress period. Since we already maintain 21.50% of NDTL under SLR and another 4.00% under CRR, the burden from LCR stipulation will depend on how much of CRR and SLR can be set off against SLR. Here also Indian banks are better placed.

RATIOS USED FOR CREDIT ASSESSMENT

RATIOS USED FOR CREDIT ASSESSMENT
A. LIQUIDITY RATIO
1. Current Ratio
Formula: Current Assets/Current Liabilities
Current asset and current liabilities are those receivable or payable respectively within a
period of 12 months or one operating cycle.
It is a measure of liquidity of the company. A company with a current ratio less than one
does not have the capital on hand to meet its short-term obligations if they were all due
at once, while a current ratio greater than one indicates that the company should be
able to remain solvent in the short-term.
The ratio in standalone basis will not provide a meaningful interpretation. An in-depth
analysis of the quality of the current assets and liabilities will provide a better picture of
the company’s liquidity position.
For example, a company may have a very high current ratio but their accounts
receivable is low quality. Perhaps they have not been able to collect from their
customers quickly which may be hidden in the current ratio. Further If inventory is
unable to be sold, the current ratio may still look acceptable, but the company may be
headed for default.
A current ratio less than one would not be concerning if the company has a much higher
receivables turnover than payables turnover. For example, retail companies collect very
quickly from consumers but have a long time to pay their suppliers.
2. Liquid ratio / Acid Test ratio / Quick ratio
Formula: (Current Assets – Inventory – Prepaid expenses) / (Current Liabilities –
Bank borrowings)
The ratio indicates the backing available to liquid liabilities in the form of liquid assets.
Liquid assets are those current assets which can be converted to cash without reduction
in value and almost immediately.
B. TURNOVER RATIO
1. Fixed Assets turnover ratio
Formula: Net Sales/Fixed Assets (WDV)
The ratio indicates the capability of organization to achieve sales viz-a-viz the
investment in fixed assets. Higher the ratio, better the efficiency of the organization.

2. Current Assets turnover ratio
Formula: Net Sales/Current Assets
The ratio indicates the capability of organization to achieve sales viz-a-viz the
investment in current assets. Higher the ratio, better the efficiency of the organization.
3. Working capital turnover ratio
Formula: Net Sales/Working capital
The ratio indicates the capability of organization to achieve sales viz-a-viz the
investment in working capital. Higher the ratio, better the efficiency of the organization.
4. Inventory/Stock turnover ratio
Formula: Cost of goods sold/Average inventory
Net sales/Average Inventory
Cost of goods sold/Cost inventory
Net sales/Closing inventory
In normal condition, a higher ratio is desirable. However low level of inventory may also
lead to the company not being able to adhere to delivery schedules. Though low level of
inventory maintenance will reduce the carrying cost and thereby higher profits,
sometimes higher maintenance of inventory may also lead to increase in volume of
sales thereby leading to higher profits.
5. Debtors Turnover ratio
Formula: Net Credit sales/Closing sundry debtors
The average collection period computed as above should be compared with the normal
credit period allowed to customers. If the average collection period is more than the
normal credit period, it may indicate over investment in debtors, over extension of credit
period, liberalization of credit terms and ineffective collection procedure among others.
6. Capital turnover ratio
Formula: Sales/Capital Employed
The ratio indicates the efficiency of the organization in respect of capital utilization.
Higher ratio is desirable.

C. SOLVENCY RATIO
1. Debt Equity ratio
Formula: External/Shareholders funds’
Long term liabilities/Shareholder Funds
If the ratio is higher, it indicates higher external borrowings, and it increases the risk of
investment in such an organization. The best possible to way to increase earnings to
shareholders is to borrow funds from outside because
(i) Cost of equity is high
(ii) Return on investment paid to creditors is a tax-deductible expenditure
2. Proprietary ratio
Formula: Total Assets/ Owners funds
Fixed Assets/Owners funds
Current Assets/Owners funds
The ratio indicates the extent to which the owner’s funds are sunk in different kind of
assets. If owners’ funds exceed fixed asset, it indicates owner’s funds are used to
finance current assets and if vice-versa, it indicates that fixed assets are financed by
long term or short term creditors.
3. Fixed assets/Capital Employed ratio
Formula: (Fixed assets/Capital Employed) X 100
A high ratio indicates a major portion of long term funds is being used for fixed assets
rather than working capital. A high ratio coupled with declining current ratio indicates
urgent need for introduction of long term funds for financing working capital.
4. Interest coverage ratio.
Formula: Profit before Interest and taxes / Interest charges
The ratio indicates protection available to the lenders of long term capital in the form of
funds available to pay interest charges. Though a high ratio is desirable, a very high
ratio indicates under-utilization of borrowing capacity of the organization.

5. Debt service coverage ratio.
The ratio is calculated in two ways, Gross DSCR and Net DSCR
Formula:
Gross DSCR = (Cash accruals + Term loan interest)/ (Term loan installment +
Term loan interest
Net DSCR = Cash accruals / Term loan installment
The ratio indicates the level of serviceability of debt viz-a-viz the cash accruals
generated by the company. The higher the ratio, better the company’s financial position
to service interest and installment.
D. PROFITABILITY RATIO
1. Gross profit ratio
Formula: (Gross profit/Net sales) X 100
By comparing Gross Profit percentage to Net Sales we can arrive at the Gross Profit
Ratio which indicates the manufacturing efficiency as well as the pricing policy of the
concern.
Alternatively, since Gross Profit is equal to Sales minus Cost of Goods Sold, it can also
be interpreted as below:
Alternate formula = [ (Sales – Cost of goods sold)/ Net Sales] x 100
A higher Gross Profit Ratio indicates efficiency in production of the unit.
2. Net Profit ratio
Formula: (Net profit/Net sales) X 100
The ratio indicates that portion of the sales which is available to the owners after the
consideration of all types of expenses and costs, either operating or non-operating,
normal or abnormal. A high ratio is considered desirable.
3. Operating ratio
Formula: {(Manufacturing cost of goods sold + operating expenses) / Net sales}
X100
A high ratio indicates that only a small margin of sales is available to meet expenses in
the form of interest, dividend and other-operating expenses.

E. OVERALL PROFITABILITY RATIO
1. Return on assets (ROA)
Formula: (Net profit/Assets) X 100
It measures the profitability of investments and a higher ratio is desirable. The ratio
does not indicate the profitability of various sources of funds, which finance the total
assets.
2. Return on capital employed (ROCE)
Formula: (Net profit + Interest on long term sources) / Capital employed
The ratio indicates the profitability of capital employed. A higher ratio indicates a better
and profitable use of long term funds of owners and creditors.
3. Return on shareholders’ funds
Formula: (Net profit after taxes + total shareholders’ funds) X 100
The ratio indicates whether the firm has earned sufficient returns for its shareholders or
not. A higher ratio is desirable.
F. MISCELLANEOUS RATIO
1.Capital gearing ratio.
Formula: Fixed Income Bearing securities / Equity capital
A high ration indicates that in the capital structure, fixed income bearing securities are
more in comparison to the equity capital and company will be highly geared which is
considered a highly unstable situation. A high gearing ratio is advantageous from the
equity shareholders’ point of view.
2. Earnings per share (EPS)
Formula: (Net Profit after taxes – Preference dividend) / Number of equity shares
outstanding
The ratio is calculated based on current profit and not based on retained profit. The ratio
only indicates the profits available to shareholders on per share basis and not the
quantum of earnings paid to owners by way of dividend or how much of earnings is
retained in the business.

3. Price earnings ratio (P/E ratio)
Formula: Market price per share / Earning per share
The ratio measures the expectation of the investors and an ideal investor will compare
between the current price and future EPS also.
4. Dividend payment ratio (D/P ratio)
Formula: (Dividend per share / Earning per share) X 100
The ratio indicates the policy of the management to pay cash dividend.
1 - D/P ratio indicates the retained profits in the business available for future expansion.

Damodaran Committee (2011)

Damodaran Committee (2011)
For improvement of customer services in banks
• A guaranteed payment of up to Rs 5 lakh (raised from Rs 1 lakh) under deposit
insurance to an account holder if a bank fails.
• No liability on customer for losses in ATM and online transactions
• Instant blocking of ATM card through SMS for lost/misused cards
• Transition to chip-based card with a photograph
• Automatic update of senior citizen status in core banking solution branch
• Pensioners to be allowed to submit life certificate in any bank branch
• A common toll-free number for all banks, like 100 for police
• A third-party Know Your Customer data bank
• A detailed break-up of service charges for basic services
• Small remittances at reasonable price
• Compensation for delayed return or loss of title deeds in the custody of banks
• Plain vanilla savings account without a minimum balance requirement
• Prepaid instruments worth up to Rs 50,000 for frequent travelers.
• A chief customer service officer for grievance redressal in every bank

CAPACITY BUILDING

CAPACITY BUILDING
The Reserve Bank had constituted a ‘Committee on Capacity Building’ (July 2014)
under the Chairmanship of former Executive Director, Shri G Gopalakrishna, with the
objective of implementing non-legislative recommendations of the Financial Sector
Legislative Reforms Commission (FSLRC), relating to capacity building in banks and
non-banks, streamlining training intervention and suggesting changes thereto in view of
ever increasing challenges in banking and non-banking sector.
One of the recommendation of the committee is pertaining to certification of staff.
Banks should identify specialised areas for certification of the staff manning key
responsibilities. To begin with, the banks should make acquiring of a certificate course
mandatory for the following areas:
• Treasury operations
• Risk management
• Accounting
• Credit management

PROMPT CORRECTIVE ACTION (PCA) RBI

PROMPT CORRECTIVE ACTION (PCA) RBI
➢ PCA framework specifies the trigger points or the level in which the RBI will
intervene with their corrective action.
➢ The various parameters that trigger PCA are
1. Capital to Risk Weighted Assets Ratio (CRAR)
2. Net Non-Performing Assets (NPAs)
3. Return on Assets (ROA)
➢ The PCA framework is applicable only to commercial banks and not extended to
co-operative banks and Non-banking financial companies
➢ Eleven of India’s 21 listed government-owned banks are now under PCA
framework due to large bad loans, weak capital levels and low return of assets.
➢ PCA will contribute to the overall improvement in risk management, asset quality,
profitability, efficiency etc. of the banks.

➢ PCA also focus on profit retention, capital augmentation, provision coverage,
diversification of credit portfolio, rationalization of expansion plan and cost control
➢ Bank of India, Bank of Maharashtra and Oriental Bank of Commerce are now out
of the PCA.

After recent merger of BOB, dena bank and Vijaya bank now only 4 banks under PCA

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS): THE NEW ACCOUNTING SYSTEM

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS): THE NEW
ACCOUNTING SYSTEM
➢ Financial statements prepared using a common set of accounting standards help
investors to understand investment opportunities in a better way.
➢ Ind AS is a set of accounting norms developed by Indian authorities, which
converge with the International Financial Reporting Standards (IFRS).
➢ Convergence to IFRS will not only help the economy, but also further the
acceptance of IFRS as global accounting language which provides single set of
high quality information globally.
➢ Government of India has notified the roadmap for implementation of IFRS (IFRS
9) converged Indian Accounting Standards for banks, replacing IAS 39 and
superseding all previous versions

EASE OF DOING BUSINESS

EASE OF DOING BUSINESS
➢ The ease of doing business index ranks countries against each other based on how
the regulatory and environments are conducive to business operations.
➢ The World Bank’s Doing Business Report 2018 ranked India 77th out of the 190
countries surveyed. This is attributed to the success of the government’s to resolve the
difficult decisions that have translated into remarkable progress.
➢ India is one of the top five reformers, improving its score in six out of ten criteria
used by the World Bank for measuring the ease of doing business.
➢ The Doing Business Report 2018 appreciated the government for taking several
measures to boost its ranking.
i) Recapitalizing the public sector banks with an infusion of $32 billion.
ii) Introduced 37 reforms in areas such as insolvency resolution, protecting the interest of
minority shareholders, and simplifying the process of taxes
iii) Introduction of the Bankruptcy and Insolvency code (Amendment) Bill 2017. The act
makes it easier to exit or attempt a revival of a business, thereby improving the nonperforming
assets (NPAs) for the financial sector.

Current affair s on 14.04.2019

Today's Headlines from www:

*Economic Times*

📝 Warren Buffett's rooting for Elon Musk, says Tesla CEO has 'room for improvement'

📝 In 5 years, MSME loans jump 2.5 times, NPAs move up too

📝 Investors Clinic sells properties worth Rs 500 crore during Mar 24-31 sale festival

📝 India, ASEAN vow to step up ties in maritime sector, boost connectivity

📝 NCLT stays order to withdraw Sterling SEZ’s insolvency resolution process

📝 Malaysia's Axiata group renounces shares entitlement

📝 Reliance Retail has major plans in store for kiranas

*Business Standard*

📝 Rate change in multiples of 25 bps not sacrosanct: RBI governor

📝 Jet Airways likely to get Rs 1,000-crore emergency fund on Monday

📝 Centre may get stricter to check overcharging of medicines by pharma cos

📝 Hotstar reaches 300 million monthly active users, four years after launch

📝 Aggregate MSME lending grew at 19.3% in the past five years: CIBIL report

📝 Scrapping India's trade privileges could hit US consumers, say senators

📝 JPMorgan takes $2-billion revenue lead over 'broken' Wells Fargo

📝 Dr Reddy's Laboratories acquires a portfolio of 42 ANDAs in US

*Financial Express*

📝 Uber’s ousted CEO Travis Kalanick set to get richer by $8.6 billion from IPO

📝 Jeff Bezos says size of failures at Amazon will be bigger along with growth

📝 5G for banking! RBI preparing to adopt fifth generation technology

📝 $2 trillion wipeout waiting to happen behind debt markets rally, say experts

📝 Jet Airways employees hold protest over salary delay

*Mint*

📝 Chintels to invest ₹300 crore in housing project on Dwarka Expressway

📝 Uber is said to ready its pitch as the Amazon of transportation

📝 IMF warns policymakers to ‘do no harm’ as world economy wobbles

📝 Sebi seeks details from Kotak AMC, HDFC AMC over FMP woes

📝 SFIO arrests former IL&FS MD & CEO Ramesh Bawa

📝 Johnson & Johnson wins USFDA approval for bladder cancer drug

📝 World economic growth to revive later this year: G-20 chiefs.

Current affair s on 13.04.2019

Today's Headlines from www:

*Economic Times*

📝 Uday Kotak flags widening trust deficit between govt & industry

📝 CMFRI, ISRO sign MoU for mapping smaller wetlands

📝 Forex reserve swells by $1.87 billion to $413.8 billion

📝 Thermax buys out entire stake of JV partners in TSPX

📝 India banks' loans jump 13.2 pct y/y in two weeks to March 29: RBI

📝 In a first, nine private sector specialists selected as joint secretaries in govt departments

📝 Ayushman Bharat package rates revision on radar

*Business Standard*

📝 Uber hints at serious cash burn to step up market share in India

📝 Infosys Q4 profit rises 10.5% to Rs 4,078 crore, meets Street estimates

📝 TCS net profit up 17.7% to Rs 8,126 crore in Q4, crosses $20-bn revenue

📝 Naresh Goyal submits EoI as crisis-hit Jet Airways stares at closure

📝 Govt's infrastructure push sees a demand shift in the cement sector

📝 At 2.86%, CPI inflation at 5-month high in March on high food prices

📝 Chevron Corp plans to buy Anadarko for $33 billion in shale, LNG push

📝 NTPC tempers growth in coal-fired capacities, meets under 25% of FY19 goal

*Financial Express*

📝 PayU buys payment security firm Wibmo for $70 million

📝 Auto sales on track: 3-wheelers buck the trend with 24% growth in FY 19

📝 Kotak Bank cuts interest rate on select saving accounts

📝 Average corp bond spread falls to lowest since December 2018

📝 Bhushan Power insolvency: NCLT to conclude BPSL hearing by April 15

📝 Banks need to upgrade their PoS as 2G phases out: Telecom dept official

📝 Vedanta Resources raises USD one billion via bonds

*Mint*

📝 CERC approves higher tariff for Adani Power's 2 GW capacities at Mundra plant

📝 India's 2018/19 Iran oil imports up 5% despite US sanctions

📝 SpiceJet shares zoom 8.5% on plans to induct 16 Boeing 737-800 NG aircraft

📝 India becomes net steel importer in 2018-19, first time in three years

📝 Tripoto raises ₹25 crore funding from Orchid India, others

📝 More bank mergers can spur efficiency, RBI researchers say

📝 Open offer for NIIT Tech to begin from 31 May

📝 DoT seeks bank guarantee of ₹8,500 crore to approve Airtel-Tata Tele merger.

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.

Risk management caiib dec 2018 recollected

Caiib Risk management recollected


Chief risk officer duty,reporting,appointmemt
Leverage ratio numerical
Operational risk
Pcr
Firb credit risk
Rsca operstional risk
Pilar 3 disclosure norms period
Rwas calculation

Numerical from BVP was also there,
Ques Obejective from PD ,EAD ,LGD
Market credit and operational risk theory based,


Which method we use for calculation of capital for credit operational and market risk
Case beta factor for agency services,
Icaap come under which piller,
CRO function
Reputation risk systematic risk come under

Current affair s on 12.04.2019

Today's Headlines from www:

*Economic Times*

📝 Angel tax: 277 startups get breather from I-T dept

📝 IHCL signs formal agreement with NDMC for Taj Mansingh

📝 RBI rate cut to benefit securitised home-loan books: Moody's

📝 RBI injected Rs 2.98 lakh crore liquidity in 2018-19

📝 Jeff Bezos dares retail rivals to raise minimum wage in investor letter

📝 Bangalore Airpot raises Rs 10,200 crore from SBI, Axis

📝 Blue Star to double capacity to 1 million from 2022

*Business Standard*

📝 Etihad submits EoI for crisis-hit Jet Airways, Naresh Goyal may follow suit

📝 Developers find relief in commercial properties as residential realty lags

📝 Cash-strapped BSNL likely to receive 4G spectrum in revival package

📝 India brings down trade deficit with China by $10 billion in 2019

📝 Banks close FY19 with 13.24% credit growth, deposits up 10.03%

📝 Unemployment in 11 states exceeds national average, shows NSSO report

📝 Provident, pension funds have Rs 9,134-cr exposure to IL&FS group companies

*Financial Express*

📝 Indian firms' foreign investment rises 18% to $2.69 billion in March

📝 Airbnb checks into OYO with $75-million investment

📝 CleverTap bets big on product innovation, raises $26 million in series B funding

📝 SBI puts Rs 8,453-crore bad loans up for sale in Q4

📝 Non-food credit grows 13.75%, deposits up 10%

📝 IDBI Bank lowers lending rates by 5 basis points

📝

*Mint*

📝 Sycamore Partners under scrutiny after pocketing $1 billion from Staples deal

📝 CureFit plans incubator program for startups in healthy foods space

📝 ReNew Power, NTPC eye PTC India's wind power business

📝 Tata Sons, Singapore Airlines pump in ₹900 crore into Vistara

📝 Amazon, Microsoft chosen to compete for Pentagon cloud computing contract

📝 Reinsurance brokers permitted to open foreign currency accounts: RBI

📝 Tribeca, Logix Group tie up to develop mixed-used real estate project in Noida

📝 Sugar exports surge to 17.44 lakh tonnes this year so far: Industry data

📝 Sebi comes up with revised system audit guidelines for MFs, AMCs.

Current affairs on 11.04.2019

Today's Headlines from www:

Economic Times

📝 HFCs holding rate cuts over high bond yields, cash crunch

📝 India’s steel consumption to cross psychological 100-million tonne mark in 2019

📝 Hong Kong beats Japan as world's third-largest stock market

📝 Hotel Leela given one month to settle JM Financial ARC’s dues

📝 Co-working space provider Workafella to launch its largest centre in Chennai

📝 Tata Motors global sales dip 5 pc in March

📝 ATS to complete three Noida projects of Logix Group, to deliver 4,500 flats

📝 Axiata Group may skip Voda Idea rights issue, lower stake

Business Standard

📝 I-T crackdown: Over 100,000, mostly HNIs, come under lens for AY12-13

📝 Wipro board to consider equity share buyback proposal on April 16

📝 Carmakers hit the slow lane in FY19; market share gains remained elusive

📝 Telecom dept sets up insolvency panel to tackle issues faced by telcos

📝 IMF flags concern over India's high stock of bad bank loans

📝 Mutual funds close FY19 with 11.41% rise in AUM at Rs 23.8 trillion

📝 Govt extends last date for filing GSTR-1 for March till April 13

📝 Renewable energy sector attracts FDI worth $7.48 billion since April 2000

📝 Irdai directs insurers to share status of claims with policyholders

Financial Express

📝 Public sector banks to get more govt capital in H1FY20

📝 Shopclues approaches Snapdeal for buyout as losses mount

📝 Google flips the switch on its next big money maker: Maps

📝 NBFCs paying more in raising funds via NCDs

📝 Delhi HC allows 14 carmakers to move NCLAT against CCI Rs 2,544-crore fine

📝 IDBI Bank to hire around 950 after LIC takeover

📝 Jet Airways stake sale: Banks extend deadline to submit bids to April 12

📝 Jio, Vodafone Idea, Airtel pay spectrum dues of over Rs 10,000 crore in April; Anil Ambani’s RCom yet to pay

Mint

📝 Malaysia's QSR Brands puts $500 million IPO on hold

📝 RentoMojo in talks to raise $40 million from GMO, others

📝 JSW Steel sells $500 million debt to overseas investors

📝 PFRDA set to frame FDI norms in pension fund sector

📝 Airtel to have European vendors for 4G calling service

📝 Vendors ask for allowing ITC under GST for supplies made to railways

📝 Scientists unveil first image ever made of a black hole

📝 Sequoia India leads $26 million funding round in CleverTap

📝 TCS, Google join hands to build industry-specific cloud solutions.

BASEL-III:

BASEL-III:
Originally set in 1974, the most recent set of norms, called Basel III. These are common set of global standards to be implemented by banks across countries. In India, lenders have to adhere to these regulations from 2019. After the 2008 financial crisis, need arose to strengthen the banking system further so that they could meet further risks. To meet these dangers, banks were asked to maintain a certain minimum level of capital and not lend all the money they receive from deposits. This acts as a buffer during hard times.
The Basel III norms also consider liquidity risk. The capital norms recommend Capital Adequacy ratio (CAR) be increased to 8 per cent internationally, while in India it is 9 per cent. CAR is a ratio of a bank‘s capital to its risk. This capital is further classified into two – Tier 1 (the main portion of the banks‘ capital, usually in the form of equity shares) and Tier 2 capital.
Domestic Systemically Important Banks (D-SIBs):
D-SIB means that the bank is too big to fail. According to the RBI, some banks become systemically important due to their size, cross-jurisdictional activities, complexity and lack of substitute and interconnection. Banks whose assets exceed 2% of GDP are considered part of this group. The RBI stated that should such a bank fail, there would be significant disruption to the essential services they provide to the banking system and the overall economy.
The too-big-to-fail tag also indicates that in case of distress, the government is expected to support these banks. Due to this perception, these banks enjoy certain advantages in funding.It also means that these banks have a different set of policy measures regarding systemic risks and moral hazard issues.
As per the framework, from 2015, every August, the central bank has to disclose names of banks designated as D-SIB. It classifies the banks under five buckets depending on order of importance. ICICI Bank and HDFC Bank are in bucket one while SBI falls in bucket three. Based on the bucket in which a D-SIB is, an additional common equity requirement applies. Banks in bucket one need to maintain a 0.15% incremental tier-I capital from April 2018. Banks in bucket three have to maintain an additional 0.45%.
"Too big to fail" describes the concept whereby a business has become so large that a government will provide assistance to prevent its failure because not doing so would have a disastrous ripple effect throughout the economy.
Capital Adequacy Ratio (CAR):
Capital Adequacy Ratio (CAR) is also known as Capital to Risk (Weighted) Assets Ratio (CRAR) is the ratio of a bank‘s capital to its risk. Central Bank regulates bank‘s CAR to ensure that it can absorb a reasonable amount of loss and complies with statutory Capital requirements.
It is a measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures.
This ratio is used to protect depositors and promote stability and efficiency of financial systems around the world.
Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors.
CAR = Tier I Capital + Tier II Capital / Risk Weighted Assets
TIER 1 CAPITAL = (paid up capital + statutory reserves + disclosed free reserves) - (equity investments in subsidiary + intangible assets + current & brought-forward losses)
TIER 2 CAPITAL = A) Undisclosed Reserves + B) General Loss reserves + C) hybrid debt capital instruments and subordinated debts
The Basel III norms stipulated a capital to risk weighted assets of 8%. However, as per RBI norms, Indian scheduled commercial banks are required to maintain a CAR of 9% while Indian public sector banks are emphasized to maintain a CAR of 12%.

Credit Risk:
Credit risk refers to the risk that a borrower may not repay a loan and that the lender may lose the principal of the loan or the interest associated with it or both.
This can occur on account of poor financial condition of the borrower, and it represents a risk for the lender.
Credit risks are calculated based on the borrowers' overall ability to repay. To assess credit risk on a consumer loan, lenders look at the five C's: an applicant's credit history, his capacity to repay, his capital, the loan's conditions and associated collateral
Operational Risk:
Operational risk is the prospect of loss resulting from inadequate or failed procedures, systems or policies.
 Employee errors
 Systems failures
 Fraud or other criminal activity
 Any event that disrupts business processes
This definition includes legal risk but excludes strategic and reputational risk.
Operational risk can play a key role in developing overarching (comprehensive) risk management programs that include business continuity and disaster recovery planning, and information security and compliance measures.
A first step in developing an operational risk management strategy can be creating a risk map -- a plan that identifies, assesses, communicates and mitigates risk.
Market Risk:
Market risk is the risk of losses in positions arising from movements in market prices.
There is no unique classification as each classification may refer to different aspects of market risk. Nevertheless, the most commonly used types of market risk are
 Equity Risk: The risk that stock or stock indices prices or their implied volatility will change.
 Interest rate Risk: The risk that interest rates or their implied volatility will change.
 Currency Risk: The risk that foreign exchange rates or their implied volatility will change.
 Commodity Risk: The risk that commodity prices (e.g. corn, crude oil) or their implied volatility will change.
Liquidity Risk:
Liquidity risk is the risk that a company or bank may be unable to meet short term financial demands. This usually occurs due to the inability to convert a security or hard asset to cash without a loss of capital and/or income in the process.
Liquidity risk generally arises when a business or individual with immediate cash needs, holds a valuable asset that it cannot trade or sell at market value due to a lack of buyers, or due to an inefficient market where it is difficult to bring buyers and sellers together.
Reputational Risk:
Reputational risk is the risk of damage to a bank‘s image and public standing that occurs due to some dubious actions taken by the bank. Sometimes reputational risk can be due to perception or negative publicity against the bank and without any solid evidence of wrongdoing. Reputational risk leads to the public‘s loss of confidence in a bank.
The bank‘s failure to honor commitments to the government, regulators, and the public at large lowers a bank‘s reputation. It can arise from any type of situation relating to mismanagement of the bank‘s affairs or non-observance of the codes of conduct under corporate governance.
Risks emerging from suppression of facts and manipulation of records and accounts are also instances of reputational risk. Bad customer service, inappropriate staff behavior, and delay in decisions create a bad bank image among the public and hamper business development.
RCSA:
RCSA (Risk Control Self-Assessment) is an empowering method/process by which management and staff of all levels collectively identify and evaluate risks and associated controls. It is a technique that adds value by increasing an operating unit‘s involvement in designing and maintaining control and risk systems as well as identifying risk exposures and determining corrective action. It aims to integrate risk management practices and culture into the way staff undertake their jobs, and business units achieve their objectives. It provides a framework and tools for management and employees to:
 Identify and prioritize their business objectives
 Assess and manage high risk areas of business processes
 Self-evaluate the adequacy of controls
 Develop risk treatment action plans
 Ensure that the identification, recognition and evaluation of business objectives and risks are consistent across all levels of the organization
Paripassu Charge:
A ‗Paripassu‘ charge gives lenders a right to the property on which a charge is created in proportion to the amount lent to the debtor. Let us assume two banks ‗X‘ and ‗Y‘ have lent to a company with the outstanding at Rs 70 lakh and Rs 30 lakh respectively and have‗paripassu‘ charge over the assets hypothecated. In case of liquidation of that company, the lenders ‗X‘ and ‗Y‘ will share the proceeds from liquidation in proportion to the outstanding loan amount, that is, 70:30
Reverse Mortgage and how does it work:
A reverse mortgage is a loan extended to senior citizens against the security of a house property owned by them. The loan is given in lump sum or in installments and it provides important cash flow to the senior citizens who require money during their old age. They continue to be the owners of the house and occupy it. The loan obligation is deferred till the death of the homeowner. The legal heirs of senior citizens can repay the loan amount after the death of the borrower and the bank will release the security on the house property.