TIPS & TECHNIQUES OF GROUP DISCUSSION

TIPS & TECHNIQUES OF GROUP DISCUSSION
Group Discussion Tips (GD) A group discussion (GD) is a simulated exercise. The note attempts to present a few tips on GD and how to handle them to ensure a positive outcome. Here's how most group discussions work: Normally groups of 8-10 candidates are formed into a leaderless group, and are given a specific situation to analyze and discuss within a given time limit. The group may be given a case study and asked to come out with a solution for a problem. The group may be given a topic and asked to discuss on the same. A panel will observe the proceedings and evaluate the members of the group. GD forms the primary stage of contact between the interviewer and interviewee. In this methodology, the group of candidates (may be in between 6 to 10 depends on the bank) given a topic or a situation, given a few minutes to think about the same, and then asked to discuss among themselves for about 10 minutes. The objective of GD is to judge the listening skills, attitude and confidence levels besides gauge analytical, leadership and decision making skills. Normally, the successful persons are one who communicate and interact with the group members with ease and clarity. The candidates need to inculcate the following traits for better results. 1. Listen carefully - Listen to the topic carefully and understand it. Be alert and vigilant. Sometimes, the topic may be really simple but the manner in which it is presented to you can be baffling. Make a rough sketch of the points that you would like to speak. Try and listen to the participants, respect their viewpoint too. This will also show that you are vigilant and are an active participant in the discussion. 2. Initiation – Take lead to initiate the Group Discussion, if you are happened to be the first speaker. But keep in mind that should have reasonable understanding of the topic. Speaking without proper subject knowledge may give poor impression. 3. Communication - Be well versed with topic and communication. You should have a good vocabulary and a good command over language. Rehearse well. 4. Simple & Sensible - Speak clearly and use simple and understandable words while speaking. Express your feelings calmly and politely. Be precise. Do not speak just to increase your speaking time. Even if you speak less but ensure that your thoughts are sensible and relevant. 5. Body Language: Besides what you are saying, remember that the panellists are observing your body language as well. Body gestures are very important because your body language says a lot about you. In a GD, sit straight; avoid leaning back on to the chair or knocking the table with a pen or your fingers. Do not look at the evaluators only. Keep eye contact with every team member while speaking. 6. Be accommodative - Speak less and listen more! Pay attention while others are speaking. Do not interrupt anyone in-between while speaking. If you do not agree with the other’s point of view, do not raise your tone in objection. Listen to his point of view and instead of dismissing it upfront, try and draw a common ground. Deviating from the main topic or passing strong statements like ‘I agree or disagree’ should be avoided. Your strategy should be to test the waters and make a generic statement relevant to the topic. 7.Formal dressing – Last but not the least, the dressing should be appropriate to the occasion and avoid fancy and funny dressing Top 10 basic group discussion tips Top basic Group Discussion tips include tips to Prepare For Group Discussions before and during the Group Discussion round and important Do’s and Don’ts. Below are shared the Group Discussion Tips to hone your Group Discussion skills: Do’s
1. Rich Content with good subject knowledge Having good subject knowledge and rich content is the first and foremost GD tip to enter the Group Discussion Round. Following are the key steps to improve your Group discussion skills in regard to GD content preparation: You should prepare on variety of topics as rich and right subject knowledge will be
required during GD round. You should have subject knowledge and be well aware of the latest happenings around you, not just in India but around the world as well. Subject knowledge is a pre-requisite while you are preparing for a group discussion because you will then have the power to steer the conversation to whichever direction you want to. If you can memorize some relevant data, it will be an added advantage. If you are a good reader and read on variety of topics, it will help you in group discussion round. There is no need for last minute preparation. You should read over a period of time. Reading not only adds to your knowledge database, but enhances your vocabulary skills as well. Always choose the magazines that are content rich and not just full of advertisements. Often magazines have columns which are promoting a particular institute etc. Avoid such magazines, do some research and buy the best that will be beneficial for you. 2. Be a Leader There is no doubt that to emerge a winner in GD round you should speak after getting a grasp on the given topic. But it also gives you opportunity to take lead. So be a leader to begin the Group Discussion. Key tips are: Usually when the moderator announces the GD topic, for a minute there is silence all round. If possible, gather your thoughts in a few seconds and start the Group discussion with positive impact and be a leader. If you find that it is taking time to gather ideas, let others begin, and then enter the GD round by agreeing/disagreeing with previous speakers. Beginning the Group Discussion gives the opportunity to make an impact but if you are not able to make your point well, it will create negative effect. Therefore, it is not necessary to speak first but it is necessary that when you speak you are heard and are able to make your point well.If you are able to speak out the name of your previous speaker and then present your views, it will mark a good impact. 3. Be relevant When you speak you should speak to the point without any ambiguity of thought Express your ideas at length. If you simply follow the other speaker or his ideas, remember your elimination is imminent Wherever possible, emphasize your point with facts and figures 4. Be a good Listener Learn to be a good listener. Listening Skills are Essential for GD round, so carefully listen to what others have to say. Just speaking throughout the discussion doesn’t make you better. You should learn to give others a chance to speak. Try and listen to others.If the speaker is making an eye-contact with you remember to acknowledge him by nodding your head, so that the speaker is aware that his listeners are listening to him and paying full attention. This will also show that you are vigilant and are an active participant in the discussion. Unless you listen well, it will not be possible for you to add value to your content and communication Listening offers you the opportunity to summarise the Group Discussion on each and every aspect. 5. Improve your Communication Skills You may have good and rich content with lot of ideas but if you are not able to communicate well your thoughts and opinions, all is useless. The need is now to improve your communication skills with following GD tips: Be well versed in your communication skills. You should have a good vocabulary and a decent command over English. Much before your actual group discussion, rehearse well. You can sit with a group of friends and choose a topic and indulge in a friendly GD. Not only will this increase your knowledge, you will be a better speaker by the time it is time for your GD. In case you are not sure about something, you can use phrases such as: “I think” or “Probably/Approximately” or “If I remember correctly” 6. Body gestures: Very important tool for Group Discussion The panelists observe the way you sit and react in the course of the discussion. Body gestures are very important, because your body language says a lot about you. In a GD, sit straight, avoid leaning back on to the chair or knocking the table with pen or your fingers. Also, do not get distracted easily. Nervous body movements, folding your hands across your chest, having skeptical expression, constantly moving, evading eye movements are the indicators of a negative personality and should be avoided at all costs. Don’ts 7. No Aggressive Move It is expected during the Group Discussion that you are firm on your ideas and are audible enough to make an impact on the group. But being aggressive, shouting and not allowing others in the group to speak, is not appreciated. So be careful and don’t be a bully.

8. Don’t Crisscross on your Ideas Don’t crisscross your ideas. The topics given in Group Discussion are debatable, you might like to speak for or against the topic and while speaking don’t forget that you may be crossing your own lines. It gives a bad impact and you are judged a person who has no stand for his own thought. 9. Don’t be a part of fish market As a team player, your ability to lead and play in team is measured in the GD. During the Group Discussion there are many instances where you will find every one is saying something and no one is heard. It is better to be quiet for a while and then after gathering your thoughts, raise your voice initially and make your point. 10. Don’t give up: Make multiple entries Don’t be content with one round of one minute or half a minute speaking in the group. Focus on key points, form the ideas and opinions to enter again based on the views presented by others to further strengthen your view point. The Group Discussion round passes through highs and lows. So it is a good opportunity to re-enter the Group Discussion after gathering more ideas coming out of others’ view and make an entry when the noise level is low in Group Discussion. Group Discussion(GD) - Skills Evaluated Group discussion is an important dimension of the selection process. Any organization requires students to work with others for effective functioning. In today's context, the educational institutes and organizations are interested in team players rather than individual contributors. During the Group Discussion, the panel essentially evaluates the candidate's potential to be a leader and also his/her ability to work in teams. Remember that organizations are typically on the look out for candidates who will inspire to lead and succeed and for that you need to be a good team player. Here is a sample list of skills assessed during a group discussion: Leadership skills: Ability to take leadership roles and ability to lead, inspire and carry the team along to help them achieve group's objectives.Example: To be able to initiate the group discussion, or to be able to guide the group especially when the discussion begins losing relevance or try to encourage all members to participate in the discussion. Communication skills: The participating candidates will be assessed in terms of clarity of thought, expression and aptness of language. One key aspect is listening. It indicates a willingness to accommodate others views. Example: To be able to use simple language and explain concepts clearly so that it is easily understood by all. You actually get negative marks for using esoteric jargons in an attempt to show-off your knowledge. Interpersonal skills:This is reflected in the ability of the individual to interact with other members of the group in a brief situation. Emotional maturity and balance promotes good interpersonal relationships. The person has to be more people centric and less self-centered. Listening skill is an important requisite. Example: To remain cool even when someone provokes you with a personal comment, ability to remain objective, ability to empathize, non-threatening and more of a team player. Persuasive skills: Ability to analyze and persuade others to see the problem from multiple perspectives without hurting the group members. Example: While appreciating someone else's point of view, you should be able to effectively communicate your view without overtly hurting the other person. Problem solving skills:Ability to come out with divergent and offbeat solutions and use one's own creativity.Example: While thinking of solutions, don't be afraid to think of novel solutions. This is a high- risk high-return strategy. Conceptualizing skills :The ability to grasp the situation, take it from the day to day mundane problem level and apply it to a macro level.Example: At the end of the discussion, you could probably summarize the findings in a few sentences that present the overall perspective. Group Discussion(GD) - Common Mistakes Wise men learn from others mistakes, while the less fortunate, from their own. Here's a list of the most common mistakes made during group discussions:
Emotional outburst : Simran was offended when one of the male participants in a group discussion made a statement on women generally being submissive while explaining his point of view. When Simran finally got an opportunity to speak, instead of focusing on the topic, she vented her anger by accusing the other candidate for being a male chauvinist and went on to defend women in general. What Simran essentially did was to Deviate from the subject Treat the discussion as a forum to air her own views. Lose objectivity and make personal attacks. Her behaviour would have been perceived as immature and de-motivating to the rest of the team. TIPS FOR PARTICIPATING IN GROUP DISCUSSION Group Discussion is relavely a new concept introduced by our bank to assess the potenal of the employee. Following potenal competencies shall be assessed by the group discussion : 1. Managerial Competencies - Planning, Organizing, Decision making, Risk taking, Delegaon & Control 2. Client Management - Customer Orientaon, Quality Consciousness Markeng & Profit orientaon 3. People Related - Leadership, Team Building and Communicaon Skills 4. Personal Competencies - Iniaves, Resilience (Self renewing capability) Organizaonal Sensivity HOW GROUP DISCUSSION IS CONDUCTED? 1. Each group consists of minimum 8-12 parcipants but it can go more than 20 also. 2. Parcipants taking part in group discussion are seated in a semi-circular seang arrangement. 3. There will be 4 observers (one Observer may be as Guest Observer) who will keenly observe and rate the parcipants on pre-idenfied parameters. 4. Group discussion will be held as below : A Topic is given with 8-10 aributes, it can be more than 20 parcipants which are to be priorized individually at the first instance; Then group has to discuss and priories and try to arrive at a consensus. Time allowed for this exercise is about 20-30 minutes. Parcipant's performance will be observed and recorded by the Observers Tips on Subject You should be well aware of the latest happenings around you, not only pertains to our Bank but also banking industry as a whole. To be in a better position, make sure that you have in-depth knowledge on the topic. Often, the GD topics are generic banking topics with contemporary flavours. There are topics which re-appear with minor variations. Be aware of such topics well in advance so that you have ample time to prepare for the same. The indicative topics are Stressed Assets, Strategies to augment profit, Alternate Delivery Channels, Digital Payments, Challenges before Public Sector Banks, Opportunities in Gen-Y Banking, Risk Management, HR issues in Banking, Life Cycle Product approach, Consolidation of Banks, Branch Profit Planning, etc., often appear as GD topics. Make sure you know these topics well and can come up with some unique, insightful points along with dates, stating facts. Subject knowledge is a pre-requisite while you are preparing for a group discussion because you will then have the power to steer the conversation to whichever direction you want to. If you can memorise some relevant data, it will be an added advantage. Indeed, initiation of discussion is an advantage and closing it too also adds brownie points. If you can grab the opportunity to close the discussion, then you should summarise it. If the group has not reached a conclusion try concluding it. Accomplishing in a group discussion is like driving a car and should aware when to apply brakes or accelerate depends on the conversation to turn onto your side

Managing Stress

MANAGING STRESS ::

Adult life seems to be full of fun and unlimited possibilities. You can go wherever you want, do whatever you want, and never think about consequences. But when you grow up, you understand that there is nothing fun about being an adult. You have thousands of responsibilities, hundreds of daily tasks to accomplish, and the consequences are the only thing you can think about. You may live in the state of permanent stress. You have no right for a mistake. You have no time for having rest. You can’t tell someone that you cannot handle your problems. You need to be strong, you need to work hard, and you need to find a solution to every problem that appears.

Stress in Modern Life

With every year, the level of stress increases. Unfortunately, no one is surprised today when a 30-years old person has a stroke. The situation becomes worse: even children suffer from stress. They have sleep disorders, problems with concentration and nutrition, and they do not even understand that the reason for this lies in the habits of their parents and surrounding society. It seems that for the next generation stress will be the next cancer.

Still, today we can handle the stress. It requires time, attention, and effort, but the results – strong mental and physical health – are totally worth it. There are several approaches to stress management. These approaches can be divided into two large groups: something that you can do to decrease stress level at the current moment and methods that you need to introduce into your life and make them your habits.

Change Your Life to Get Rid of Stress

Of course, you cannot eliminate stress from your life for good. For our bodies, a stressful situation is everything that makes us feel uncomfortable. Your stress management will be more effective if you build stamina and make your

body and mind strong. Thus, you can prevent the negative effects of stress.

Everyone will experience stress in different aspects of their lives; it may be at work, with their family, or with their health. However, whatever might be the cause of your stressful day, it creates the same effect on your body, mood, and even on other people.

Life is full of hassles, demands, and if people don’t meet expectations or deadlines, the tendency is that our mind will be exposed to chaotic thinking and tiredness. This is how stress come out that can generally invade and ruin the enjoyment of your life. For many people, stress is a normal part of life that usually appears in everyday situations. Stress isn’t always bad; however, dealing with stress is usually not good. Mild stress can help you deal with pressure and motivate you to do your best and finish your work before the deadline.

Stress is a normal physical response to events that make you feel threatened, upset, and anxious. It may seem that there’s nothing you can do about stress. However, difficulties in dealing with this emotion may result in risk and danger to your health, physically and mentally.

Anyone experiencing stressful situation may be at risk of losing control of their emotions, which sometimes could ruin your ability to make decisions rationally. How to know if the anxiety is too much in dealing with your stress? How important is it to gain a deeper understanding about stress and what are the necessary things to do when dealing with such emotion? Feelings such as worry, and anxiety are just some of the common results of stress. Being stressed is sometimes healthy in order for a person to be alert and act. However, there are certain points in human life, where people cannot manage dealing with their stress.

Stress management effectively starts with identifying the sources of stress in your life. At first, it may not be easy as you may tend to overlook your own stressful feelings and behaviour. However, providing a solution to a problem always starts with identifying the problem or cause. The best

remedy for stress is self-examination and taking significant actions that can definitely help you lessen your worries and fears. Examples include taking a break for a few minutes to practice some deep-breathing exercises, relaxation, and entertaining yourself like going for a walk or going shopping. These are just a few examples that can usually help people ease their stressful day. In addition, if you cannot remove the stress, remove yourself. If you are not getting along with your company, it is important to slip away and find a new sanctuary to work in.

There are several negative effects of stress on your health such as an upset stomach, recurring colds, headaches and insomnia. If you are having difficulty dealing with stress, it would also be best to seek professional help from a doctor or therapist.

TIPS FOR REDUCING THE STRESS

Below are a few tips on what we can do to reduce stress in our life.

1. Healthy Nutrition

We are what we eat. If your daily meals consist of fries and other fast food, you have severe problems with nutrition. A person needs to consume not only enough calories (fast food has too many of them, causing obesity) but also enough elements and vitamins. When you consume good food, your body receives enough energy to be productive all day long and build the important connections between your blood, cells, and the nervous system.

2. Regular sports

If you suffer from stress regularly, you need to change your daily activities. The best way to get rid of stress (and prevent it) is regular sports classes. It does not matter what type of class you choose, swimming, gym or yoga, you just need to make your body move. While moving, our endocrine system starts to produce hormones helping to lower the impact of stress. Besides, if you feel stressed right here and now, you

can also use sports as the way to manage stress.

3. Meditation

If you are looking for simple ways to fight stress, then regulating your breathing can help. Our breath is a natural and most important function of life and carries vital life energy. It is a known fact that if we stop breathing for long enough, then we die. Despite this fact, most of us take our breathing for granted and rarely stop to think about it. Find out how breathing properly can help to relieve symptoms of stress and calm and relax your mind.

When we are stressed, our body responds in preparation for "fight or flight" and we suffer various symptoms such as sweating, increased pulse rate, racing heart, and fast, shallow breathing. In earlier times this was necessary for our survival when hunting or protecting ourselves. However today it is usually only our perception of danger or negative thoughts that produce this reaction, so the body has few ways to deal with the effects.

Regular attacks of stress and anxiety start to turn our fast, shallow breathing into a habit. They may decrease our ability to breathe properly and could leave us with breathing difficulties such as asthma. Often in today's society, we do little aerobic exercise and therefore we rarely breathe deeply. Our breathing simply becomes shallower than it needs to be as a matter of habit.

Just as stress and other states of mind affect our breathing, the way that we breathe affects our state of mind. When we breathe, we are taking in oxygen through the lungs to the brain and the cells in the body. Shallow breathing can affect the amount of oxygen circulating in the body. This makes us feel sluggish. The way we breathe also affects the amount of energy in our bodies. When our breathing is irregular and erratic, we are likely to feel lacking in energy.

Of course, it is not just the body that is affected by the way that we breathe but the mind also. For centuries disciplines such as yoga and meditation have involved using the breath as part of their

techniques. Use of the breath is an important part of performing yoga postures. Breathing meditation is common to calm the mind as part of preparative practices for meditation. Breathing meditation consists of watching the breath as we breathe in and out whilst trying to ignore all other distractions to the best of our ability. Concentrating on the breath has long been known to quiet and calm the mind.

In the same way as used in meditation, breathing exercises can be used to fight stress and quiet the mind and body. These are great because they are simple and free, and you can do them anywhere. Simply concentrating on our breathing whilst drawing deeper, slower breaths can help us to relieve stress and relax our minds. Breathe deeply through your nose and feel your diaphragm move. Watch the breath coming in and going out. Try to ignore all other distractions.

When you breathe, allow yourself to enjoy the experience of being a living being. Mostly we forget to do this and move through life very unconsciously. When we can quiet our minds, we can find peace and receive insights and access to our subconscious. Only when we become conscious of how we breathe, can we start to correct this.

So, to fight stress and find more energy, try watching your breath to make sure you are breathing efficiently. Get into the habit of taking deeper breaths. Improve your breathing through breathing exercises and regular aerobic exercise. Breathing properly will help you to cope with stress and improve your well-being.

Ability to calm down your mind and keep your emotions under control is precious. Regular meditations help to find out methods to remain calm and preserve a clear mind in different life situations. Meditation is the habit that will change your life even more dramatically than quitting smoking or drinking alcohol. First of all, it will help you release your hidden potential. You will be able to find answers to the questions that have been bothering you for a long time. You will be able to understand what exactly you want. You will learn how to listen to yourself and how to use this knowledge in your further life.

4. Sleep at Night

Night sleep is a key element of your strategy to prevent negative effects of the stress. At night, our bodies produce the most important hormones that help us beat stress. If you sleep in the daytime, your body cannot sufficiently perform its functions. Besides, you need to sleep at least 6 hours to give yourself time to have a rest and relax.

5. Positive Thinking

Stress ruins our mental health. To prevent that, you need to teach your mind to be strong and believe in the best outcomes. Positive thinking is an easy and effective way to enhance your mental health and make it ready to beat any complication or challenge. If you feel that you can no longer take your emotions under control, give yourself a break. Try to get rid of all negative thoughts and start thinking about positive moments. Imagine that you are sitting on the shore of the ocean, observing the waves and listening to nature. Or remember your childhood when mom’s smile made you the happiest person in the world.

6. Be Pro-Active

Lazy people suffer from stress more frequently than those who have an active life. If you have something to do, you do not have time to make up problems and think about them. Each time you notice that stress level is rising, start doing something that requires effort and concentration from you. For some people, the best solution for stress is to work with their hands. Other people prefer to delve into studying or investigation. Try different methods to understand what works perfectly for you.

Another approach that will help you beat the stress is to learn something new. However, you need to be careful with this approach. First of all, the theme should be interesting, and

secondly, you should not get irritated when you cannot cope with some new tasks

7. Do What You Like

It has been noticed that students who admire writing do not suffer from writing an essay. They do it easily in comparison to the students who do not love what they do. If you notice that everything in your life creates additional stress, change what you do. If you admire writing but work as an accountant (and you actually hate your job), quit it and give a try to writing different types of thesis statements for a magazine. If you cannot quit the job, introduce your hobbies to your life and make them more important than the things you do not like at all. Of course, it is difficult to change your approach to life in a couple of days. But you need to work on it to get rid of the stress and make your life more comfortable.

Stress should not be your friend. It should not guide you through your life and spoil its best moments. You need to take your life under control and make it better. Develop a habit to fight against stress and find the ways to eliminate it from your life. These 7 tactics will help you choose the right way to beat this problem and enhance the quality of your life.

Mortgage

Mortgage

1. Mortgage is defined in Section 58 of the Transfer of Property Act.

2. Mortgage is the transfer of interest in a specific immovable property, for the purpose of securing an existing or future debt or

for the performance of an engagement which may give rise to a pecuniary liability. The person creating the mortgage is called as

the mortgagor and the person in whose favour mortgage is created (bank) is called as the mortgagee.

3. Immovable property, means land and things attached or permanently fastened to the earth.

4. Types of Mortgage: There are six types of mortgages namely (i) Simple Mortgage (ii) Mortgage by Conditional Sale (iii)

Usufructuary Mortgage (iv) English Mortgage (v) Mortgage by Deposit of title Deeds (Equitable Mortgage) and (vi). Anamalous

Mortgage. Of these, all • mortgages except Equitable Mortgage require registration with the Registrar of Assurances.

5. Registered Mortgage: In the case of registered mortgage (also called legal mortgage) first a mortgage deed is written which is

stamped as per Stamp Act of the concerned state. The deed is then executed in the presence of two witnesses. Thereafter, in

terms of the Indian Registration Act 1908, it is to be registered with the Registrar of Assurances (Sub Registrar) within 4 months of

the execution.

6. Simple Mortgage: In simple mortgage the mortgagor makes himself personally liable to pay the debt and agrees that in the

event of failing to pay according to his contract, mortgagee can get the property sold through the intervention of the court. If after

sale of property some debt is still outstanding, the borrower shall be- personally liable for the outstanding amount. Neither the

possession nor ownership of the property is transferred to the mortgagee. The mortgagee cannot exercise the right of foreclosure.

7. Mortgage by Conditional Sale: The mortgagor ostensibly sells the property to the mortgagee upon the condition that if the

debt is paid in time the property will be transferred back to him and in case of nonpayment within the specified time the

transaction would become a real sale. There is no personal liability of the mortgagor. In case of default, the mortgagee can exercise

his right of foreclosure through court.

8. Usufructuary Mortgage: In this mortgage, possession of the property is transferred to the mortgagee. The mortgage money is

recovered through income of the mortgaged property. There is no personal liability of mortgagor.

9. English Mortgage: As in the case of simple mortgage, the mortgagor undertakes personal liability to pay the debt. He transfers

the ownership of mortgaged property to the mortgagee upon a condition that property must be transferred back to him on

payment of debt. Mortgagee can sell the mortgaged property even without the intervention of court.

Equitable Mortgage

1. Equitable Mortgage is called as Mortgage by Deposit of Title Deeds.

2. It can be created by mere deposit of title deeds of property with intention to borrow.

3 a.Title deeds should be deposited at Mumbai, Kolkata, Chennai ( Presidency Towns) or any other town notified by the State

Government in this regard. It is not necessary that the title deeds should be deposited with the branch or at the place where the

loan is being raised.

3 b.These can be deposited anywhere in India at a notified place.

it is not necessary that it should be within bank branch premises. Mortgagor can deliver the title deeds to an authorized

representative of the bank at mortgagor's residence or other place provided it is in a Notified Centre.

4. The property to be mortgaged may be located anywhere in India (For example, for property located in Delhi, title deeds can be

deposited at Chennai.

5. Equitable Mortgage does not require registration with Registrar of Assurances. But in case of a limited company, charge in

yespect of equitable mortgage under Section 125 of the Companies Act, 1956 must be registered with Registrar of Companies.

6. A title deed can be a sale deed, lease deed, partition deed, gift deed, deed of assignment, deed of relinquishment, or such

other documents. Agreement to sale is not a title deed.

7. Normally a bank should insist for original title deeds but in exceptional cases equitable mortgage can be. created even by

certified copy of the title deeds.

8. Property located in cantonment areas should not be accepted for equitable mortgage, without clearance from cantonment

authorities.

10.The bank should not part with the title deeds even for a short duration at the request of the mortgagor because if some other

creditor is induced to finance on the basis of title deeds, the bank may Lose priority over the mortgaged property.

11. No registration with Registrar of Assurance is required. For a company, registration with ROC within 30 days is required u/s

87 of Companies Act 2013. Under SARFAESI Act, registration with CERSAI.

12.Deposit can take place within Municipal limits of Presidency Towns (Kolkata, Chennai or Mumbai) or State Govt. Notified Towns.

It is not necessary that the place for deposit of title.deeds, should be bank branch premises

Legal Opinion and Search Report: Before accepting mortgage of immovable property, legal opinion should be

obtained that the property is fit for mortgage and search should be conducted in the records of Registrar /Sub

Registrar for at least 12 years to ensure that the property is free from prior encumbrance.

Priority of Mortgage: The priority of the mortgage is considered from the date of execution of the mortgage deed (in the case of

registered mortgage) or from the date of creation of mortgage by deposit of title deeds and not with reference to the type of

mortgage or date of registration.

Right of Redemption: Right of the mortgagor to get back his mortgaged property on repayment of the loan, is called as the right of

redemption. This is available in all types of mortgages.

Right of foreclosure: The right of the mortgagee to deny the mortgagor of the property to exercise his right of redemption i.e.

debarring the mortgagor for ever to get back the mortgaged property is called as the right of foreclosure. This right is available to

the mortgagee in case of mortgage by conditional sale.

Trade finance

Trade finance

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

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

WHAT ARE THE RISKS?

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

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

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

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

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

TYPES OF TRADE FINANCE PRODUCTS

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

                       

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

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

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

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

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

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

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

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

· Export

· Import

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MSME

MSME FOR BANKERS (EXAM DATED 27.04.2019)

1. MSME represent ------- policies of Government of India which emphasized to use foreign exchange for imports etc (Ans: Socio Economic)

2. Objectives of MSME identification which among is not an objective (Page 4 of Text Book)

3. Limitations of MSME. Identify which among is correct (Page 4 of Text Book)

4. The MSME is made important subject in development in (Ans: Worldwide including countries like USA, Japan)

5. The classification of industries is based on different factors. Which among the following is wrong (Ans: Loan Amount)

6. Explanation of export oriented Unit (Ans: Industry that undertakes to export 30% of annual production at the end of third year)

7. Which among the following is not falls in Small Business (Ans: Wholesale Trade)

8. For the transport operator is categorized as MSE, if total vehicle owned does not exceed (Ans: 10)

9. The de reservation of items as per Sec 29 B of Industries act 1951. Find out wrong features (Page 10 of Text Book)

10. Micro Enterprises Manufacturing & service investment criteria (Ans. 25 Lacs & 10 lacs)

11. Which among the following is the example of indirect finance (Ans: MFI lending to co-operatives of producers)

12. Which among the following is not a feature of Sole Proprietary firm (Ans: Income is distinguished for taxation)

13. Mr. Ram a minor turned major on 01.02.2016, who was admitted to a partnership firm during his minority. What is the maximum time before which he can repudiate his liability (Ans: 6 months from date )

14. Which among the following is not a feature of partnership firm (Ans: A partnership firm can be a partner in another firm)

15. Which among the following is a feature of partnership firm (Ans: A partnership firm not require compulsory registration of deed)

16. The usage of common seal is explained in which document. (Ans: Articles of Association)

17. Maximum number of share holders in Private Limited Company is (Ans: 200)

18. Which among the following is not a feature of Public Limited Company (Ans: The shares are freely not transferrable)

19. For getting environmental clearance for the setting up of an enterprises one must (Ans: Obtain clearance from the pollution board)

20. If the ownership of any enterprise is individually or jointly hold by women above 51%, the same is termed as (Ans: Woman Enterprises)

21. The gender discrimination in Market is by (Ans: Differential wage for the same work)

22. Which among the following is not a classification of categories of Women Entrepreneurs (Ans: Literate and illiterate women)

23. Exclusive scheme to provide equity support to women entrepreneurs (Ans: Mahila Udhyam Nidhi)

24. Which among the following is not a supportive measures for Women’s economic activities (Ans: Refer Page ; 24 in text book)

25. MSME DO is earlier known as (Ans; Small industries Development Organization)

26. The development of MSME is a (Ans: State Subject )

27. An industrial undertaking, a company with interests in industry can invest up to _____ in a MSE unit (Ans; 24%)

28. Similarity features identification between LLP & a Private Limited Company (Ans: Refer Page ; 45 in text book)

29. TReDS full form (Ans: Trade Receivables Discounting system )

30. Which among the features pertains to Priority Sector Lending Certificates

31. CERSAI is formed as per the (Ans: SARFAESIA act of 2002)

32. Calculation for maximum CGTMSE coverage available for unit with Rs 30.00 Lacs fund based & 15 Lacs non fund based limit.

33. The current liability is 50000. The current ratio is 2.5. calculate Current asset

34. The CLSS scheme gives subsidy of ( 15% or 0.15)

35. Which among the given option is not a rating agency (Ans; NSIC)

36. Which among the following is give overall guidelines of SIDO (Ans; Directorate of industries)

37. Features of HUDCO. Select the one wrongly explained (Ans: Refer Page ; 61 in text book)

38. Activities of TCO. Which among is correct combination (Ans: Refer Page ; 62 in text book)

39. Which among the following is features of KVIC (Ans: Refer Page ; 63 in text book)

40. The credit limit up to 5 Lacs to be disposed in maximum of (Ans; 2 Weeks)

41. Which among the following is wrongly stated regarding the functions of SIDBI (Ans: Refer Page ; 70 in text book)

42. Major problems faced by MSME in the given option (Ans: Refer Page ; 92 in text book)

43. Which among the following is not a feature for commercial banks or promoting the MSE advance portfolio (Ans: Low NPA)

44. Identify which are the following is bill financing

45. Which among the following is example of post shipment finance (Ans: Refer Page ; 109 in text book)

46. RED Clause LC Feature (Ans: Refer Page ; 111 in text book)

47. Specialized MSME branch (Ans: if advance is 60% MSE portfolio)

48. BCSBI guidelines for MSE regarding acknowledgement of application & issuance of rejection letter with reason

49. Which among the given option is not associated with 5 Cs of the borrower (Ans: CIBIL score )

50. Identify and add the total assets from the given balance sheet component

51. What is the implication and effect in increase of Sundry Debtors or creditors (Ans; Refer Page ; 124 in text book)

52. Maximum Limit of loan that can be sanctioned under Turnover method (Ans: Rs 500.00 Lacs)

53. Factors affecting/determine the working capital limit (Ans: Refer Page ; 138 in text book)

54. Calculation using II method of lending (Ans; Refer Page ; 143 in text book)

55. Overview of Risk features , by way of match the following (Ans: Refer Page ; 145 in text book)

56. Features and requirement of credit rating (Ans: Refer Page ; 148 in text book)

57. Economic benefits of MSME. Identify the features (Ans: Refer Page ; 165 in text book)

58. The common parlance and practices of BDS is (Ans: Operational)

59. Identify the support by BDS (Ans: Refer Page ; 170 in text book)

60. Nature of deficiencies and remedial measures in cluster development (Ans; Refer Page ; 198 in text book)

61. Growth phase of MSE cluster features

62. Role of CDE in the cluster (Ans; Refer Page ; 209 in text book)

63. Why agricultural land is not taken as collateral security for securing the loan

64. Delayed payment of the bill raised by the MSE entrepreneur is compensated by (Ans: 3 times of bank rate announced by RBI)

65. RBI definition of Sick unit

66. Identify which among the following is external cause of sickness (Ans: Power Shortage)

67. When long term source is used for short term uses, the same is amounts to (Ans; Diversion of funds)

68. Feature of an enterprises tending towards sickness (Ans: Refer Page ; 242 in text book)

69. Symptoms of incipient sickness in activity (Ans; Refer Page ; 243 in text book)

70. Explanation of SICK GREY AREA

71. Hand holding stage features (Ans: Refer Page ; 253 in text book)

72. The account of NPA with dues of Rs 2.00 lacs, who will finalize the viability (Ans: Branch manager)

73. Viability criteria (Ans: Refer Page ; 256 in text book)

74. Primary purpose of secured creditors with NPA asset is (Ans; To sell off for the purpose of loan)

75. The 13(2) notice to be given as per SARFAESIA for how many days (Ans: 60 days )

76. Asset Reconstruction companies are registered with (Ans: RBI)

77. The reason for the existence of MFI (Ans: Refer Page ; 273 in text book)

78. Multiple lending and over indebtedness of MFI (Ans: Refer Page ; 276 in text book)

79. Primary Objectives of Mudra Bank (Ans: Refer Page ; 279 in text book)

80. Primary security & Collateral security features

81. Customer DNA means

82. Insolvency & Bankruptcy difference between two

83. Features of Bank’s Board Bureau

84. Impact of WTO agreements in domestic industry (Ans: Refer Page ; 305 in text book)

85. Which sector among the given option is contributing to exports (Ans: Textile)

86. Calculation of Plant & machineries value from given options (Ans: Not to include Jigs, generator sets etc)

87. Which among the following is not a participant of importance/much role in an LC? (Ans: Beneficiaries’ Bank)

88. Explanation of LC, which among the given options is correct

89. Which among is pre shipment finance?

90. Which among the following is not correct for loan sanction in MSME segment (Ans: Compulsory to give collateral free loan till 100 lacs)

THE FATF RECOMMENDATIONS:: Total 40

THE FATF RECOMMENDATIONS:: Total 40

A – AML/CFT POLICIES AND COORDINATION

1 - Assessing risks & applying a risk-based approach *
2 - National cooperation and coordination

B – MONEY LAUNDERING AND CONFISCATION

3 Money laundering offence *
4 Confiscation and provisional measures *

C – TERRORIST FINANCING AND FINANCING OF PROLIFERATION

5 Terrorist financing offence *
6 Targeted financial sanctions related to terrorism & terrorist financing *
7 Targeted financial sanctions related to proliferation *
8 Non-profit organisations *

D – PREVENTIVE MEASURES

9 Financial institution secrecy laws
Customer due diligence and record keeping
10 Customer due diligence *
11 Record keeping
Additional measures for specific customers and activities
12 Politically exposed persons *
13 Correspondent banking *
14 Money or value transfer services *
15 New technologies
16 Wire transfers *

Reliance, Controls and Financial Groups

17 Reliance on third parties *
18 Internal controls and foreign branches and subsidiaries *
19 Higher-risk countries *
Reporting of suspicious transactions
20 Reporting of suspicious transactions *
21 Tipping-off and confidentiality

Designated non-financial Businesses and Professions (DNFBPs)

22 DNFBPs: Customer due diligence *
23 DNFBPs: Other measures *

THE FATF RECOMMENDATIONS
INTERNATIONAL STANDARDS ON COMBATING MONEY LAUNDERING AND THE FINANCING OF TERRORISM & PROLIFERATION
 2012 OECD/FATF 5

E – TRANSPARENCY AND BENEFICIAL OWNERSHIP
OF LEGAL PERSONS AND ARRANGEMENTS

24 Transparency and beneficial ownership of legal persons *
25 Transparency and beneficial ownership of legal arrangements *

F – POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES
AND OTHER INSTITUTIONAL MEASURES
Regulation and Supervision

26 Regulation and supervision of financial institutions *
27 Powers of supervisors
28 Regulation and supervision of DNFBPs
Operational and Law Enforcement
29 Financial intelligence units *
30 Responsibilities of law enforcement and investigative authorities *
31 Powers of law enforcement and investigative authorities
32 Cash couriers *
General Requirements
33 Statistics
34 Guidance and feedback

Sanctions

35 Sanctions

G – INTERNATIONAL COOPERATION

36 International instruments
37 Mutual legal assistance
38 Mutual legal assistance: freezing and confiscation *
39 Extradition
40 Other forms of international cooperation

Caiib ABM recollected questions 2019

Re-collected questions posted by our members Caiib ABM recollected questions 2019

--------------------------------------------

1. Case Study on Demand Supply curves with graph

2. Match the following about Horn effect, leniency error, central tendency error etc

a. The halo effect — a tendency to allow one trait or characteristic of an employee to influence the assessment. The halo is to rate an employee consistently high or low.

b. The leniency or strictness tendency of the superior interferes with the appraisal and accordingly the assessment gets influenced. The superior is unable to come out of these tendencies.

c. The central tendency problem refers to assigning average ratings to all the employees without properly evaluating each aspect of appraisal carefully and fearlessly.

d. Similar error is the tendency of comparing the employee with oneself on various traits and parameters. Those who show the similar characteristics are normally rated high.

3. Simple Question on Y = a +bx

4. Halo effect means positive attitude rating

5. Inflation change calculation

6. Leniency error

7. Type of inflation

8. Bond problem

9. Ratio analysis

10. Linear program 5 marks

11. Probability 5 marks - Z values given

12. Sampling related 5 marks

13. Money Supply/ Demand curve related 5 marks

14. Narrow Money, Broad Money related case study

15. Credit Monitoring questions

16. Debtors turnover ration

17. STOCK TURNOVER RATIO

18. CURRENT RATIO

19. QUICK RATIO

20. FV formula

21. Calculating LC 5 mark case study

22. LEI - The Legal Entity Identifier (LEI) code is conceived as a key measure to improve the quality and accuracy of financial data systems for better risk management post the Global Financial Crisis. LEI is a 20-digit unique code to identify parties to financial transactions worldwide.

23. HRIS

24. Role erosion and role ambiguity

25. Net fiscal deficit

26. Green GDP

27. Real gross income

28. Standard estimate error

29. Regression/Coefficient

30. Interpretation of confidence interval

31. Simplex method

32. What is called broad money

33. In which phase price of commodity is lowest? Boom/Recession/Depression/Recovery

34. Question on cluster sampling

35. GDP deflator

36. Who said what definition of economics

37. Working capital

38. Business cycle

39. Linear programming, HR theories, sampling

40. What is 3Vs

41. Sample proportion calculate

42. Marshall definition

43. Credit delivery

44. Case study on money measurements

45. Motivation theories with their founders

46. Covariance was given and SD was given....we had to find correlation

47. Johari window 1qs

48. SMA1

49. Zero coupon bond

50. Mixed economy

51. Performance appraisal systems

52. NPV

53. Microeconomics

54. Compensation

55. National domestic product

56. Left brain

57. B Type personality

58. COGS = Opening Stock + Purchases during the period − Closing Stock

59. Around 10 questions on Standard Deviation

60. Bell curve

61. Interpretation of confidence interval

Match the following was atleast 5

Numerical are easy

Many case study or questions from HR module

LC problems calculations

Letter of credit problems steps

For Assessing LC Limit we have to take care of following thing .

1.what will be annual purchases.

2.Wht is EOQ-economic order quantity which is calculated by source of supply,means of transport and any discount.

3.Lead time- the time taken in recving the goods after LC opened

4.Transit time if any

5.Usance time- the time to make the payment at any future date accepted by buyer.

Nw he we calculate we hv to convert annual purchases in to months

Then decide whether LC is DA or DP

Da Lc- the LC for which payment is made by the buyer at any future date after its acceptance by him .this is also called usance LC

dP Lc- LC for which the payment is made on production of documents no further time is given.this is also called sight Lc

So It's clear if we talk about dP Lc- we don't count usance time while calcuting total time/LC cycle so it will be Lead time+transit time

If talk Da Lc- it will be Lead time+transit time +usance time

Hw LC limit is calculated on that basis

Monthly purchases*total timing

Total timing will depend on what LC is opened whether do or da

We assume that

-annual consumption of material to b purchased under LC .........C RS.

-Lead time ...L(months)

-transit time...T(months)

-usance period....U(minths/)

Purchase cycle=L+t+u ie.P(months)

LC limit=P*C/12

Why C/12 bcz C is annual purchasing we hv to convert it in months basis while calculating LC limit

TT Rates and Bill rates

TT Rates and Bill Rates

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

TT Buying Rate
It is required to calculate when our Nostro account is already credited or
being credited without delay e.g. Receipt of DD, MT, TT or collection of
Foreign bills. This rate is used for cancellation of Forward Sales Contract.
Calculation
Spot Rate – Exchange Margin
Bill Buying Rate Bill Buying rate is applied when bank gives INR to the customer before
receipt of Foreign Exchange in the Nostro account i.e. Nostro account is
credited after the purchase transaction. In such cases.
Examples are:
 Export Bills Purchased/Discounted/Negotiated.
 Cheques/DDs purchased by the bank.
Calculation
Spot Rate + Forward Premium (or deduct forward discount) – Exchange
margin.
TT Selling Rate Any sale transaction where no delay is involved is quoted at TT selling rate.
It is desired in issue of TT, MT or Draft. It is also desired in crystallization of
Export bills and Cancellation of Forward purchase contract.
Calculation
Spot Rate + Exchange Margin
Bill Selling Rate It is applied where handling of documents is involved e.g. Payment against
Import transactions:
Calculation
Spot Rate + Exchange Margin for TT selling + Exchange margin for Bill
Selling

Recent amendments in SARFAESI act

Recent Amendments in SARFAESI Act

On 24th day of January 2020 the Chapter IV –A of the SARFAESI Act, 2002 has come into force. Chapter IV A of the SARFAESI Act, 2002 inter alia contains the following important provisions.​

Notification of Chapter IV –A of the SARFAESI ACT​

i. Section 26 B: Attachment orders issued by any Government authority for​

recovery of Govt. dues may be filed with CERSAI.​

ii. Section 26 C: Security interest or attachment orders filed with CERSAIshall have priority over any subsequent security interest created uponsuch property​

iii. Section 26 C: Filing of security interest with CERSAI shall be deemed to​

constitute a Public notice from the date & time of filing with CERSAI.​

iv. Section 26 D: Secured Creditors shall be entitled to enforce securitiesunder SARFAESI Act only if the security interest is filed with CERSAI.​

v. Section 26E: After registration of security interest with CERSAI bySecured Creditors, their dues will be paid in priority over Govt. dues​

Implications for the Bank​

Bank can successfully desist the claims if any madeby the Tax Authorities, both State and Central Government Authorities on the assetsover which security interest has been created in favour of the Bank in pendingSARFAESI proceedings initiated by our Bank. Authorities cannot claim any priority over the amounts recovered by bank by sale of secured properties of the borrower/guarantor under SARFAESI Actprovided charge (mortgage & Hypothecation) created over the said properties in favourof the Bank is filed/registered before CERSAI. Further, the said provision of SARFAESIAct has overriding effect over all other enactments. Branches to ensure that mortgageand hypothecation created in its favour by way of security interest by the borrower(s) /guarantors should be filed before CERSAI

Treasury management

TREASURY MANAGEMENT ::

1. RBI pays interest on the cash balances in excess of which of the following to bank, of their
NDTL?
a) 2%
b) 3%
c) 5%
d) 6%
ans: b
2. while the exposure limits are generally left to the banks discretion. RBI has imposed
which ceiling of total business in a year with individual brokers.
a) 2%
b) 5%
c) 10%
d) 15%
ans : b
3. Ability of a business concern to borrow or build up assets on the basis of a given capital
is called.
a) debt service coverage ratio
b) good will
c) reputation
d) Leverage
ans: D
4. Protection of risk in a transaction usually through derevatives product is called.
a) insurance
b) swap
c) hedge
d) arbitrage
ans: c
5. For the organization point of view treasury is considered to be
a) Investment centre
b) Fund management department
c) service centre
d) commercial bank
e) Non of these

ans: c
6. A treasury transaction with a customer is known as…..
a) Marchant banking business
b) Trading business
c) investment business
d) commercial banking
e) Retail banking
Ans: a
7. Which act relating to foreign exchange has replace earlier one?
a) Foreign Exchange Management Act
b) Foreign Exchange Regulation Act
c) Both the above
d) none of these
ans :a
8. RBI has permitted banks to borrow and invest through their overseas correspondents
in foreign currency subject to which of the following ceilings.
a 25% of there Tier-I Capital
b 25% of there Tier-I Capital or USD 10 million
c 25% of there Tier-I Capital or USD 10 million whichever Is higher.
d 25% of there Tier-I Capital or USD 10 million whichever Is lower
ans-: c
9. The treasury is run by a few specialist staff engaged in high value transaction per trn size
generally not being below:
a Rs 10 million
b Rs 20 “
c Rs 50 “
d None of these
Ans : c
10 Treasury has open position which is also known as
a Trading position
b Open position
c Proprietary position
d) a & C both
e) a
ans : d

11. Security dealars deals with of the following market.
A primary mkt
B secondary mkt
C Open mkt
D OTC
E all of these
Ans: b
12. What is the minimum marketable investment in treasury…….
A Rs 5 crore
B Rs 10 “
C Rs 20 “
D Rs 50 “
E non of these
Ans ; A
13. which of the following is not a free currency in the foreign exchange market ?
A USD
B Rupee
C EUR
D All of these
Ans : b
14. which of following statement is not correct relating to TOD and TOM
A Rates are generally quoted at discount to the spot rate
B Rates are less favorable to the buyer of the currency
C Rates are generally quated at a premium to the spot rate
D Non of these
Ans : c
15 The interest rate differential is added to the spote rate of
A Low interest yielding currency
B high interest yielding currency
C Both
D non of these
Ans A
16. Buying of USD (with Rupees) in the market and selling same in forward market or vice
versa is called
A spot trn

B Forward tsn
C swap tsn
D convertible tsn
Ans: c
17 Call money refers to placement of fund……..
A same day
B overnight
C next day
D Two days
E Non of these
Ans: b
18. Notice money refers to placement of funds for period not exceeding……
A over night
B two days
C 7 days
D 10 days
E 14 days
Ans : e
19. Term money refers to placement of funds for period not exceeding…
A 01 yr
B 02 yr
C 03 yr
D 05 yr
 Ans ;A
20. Treasury Bills are issued by whom
A RBI
B State PSUs
C GOI
D IMF
E IRDA
Ans :C
21 treasury bill is issued for 91 days to 364 days by GOI 91 days t bill is auction on
weekly basis for amount Rs………….crore.
A 100

B 200
C 500
D 1000
Ans : c read qtn carefully total three qtns aare there..
22. 364 t bill is auction on fourthnightly basis for amt of RS ……….crore by GOI
A 500
B 1000
C 1500
D 2000
Ans : c
23. A commercial paper carried credit risk , issued for period of 14 days to 01 yr for
minimum amt of 05 lakh and face value of Rs 100 only by………………….and it
should be in D mat form. ( Read QTN care fully)
A RBI
B corporate
C commercial bank
D central govt
Ans : b
24. ECB( external commercial borrowings) indian companies can borrow ................without
approval of RBI
a. usd 500 mn up to minimum period of 5 yrs
b. usd 20 mn upto minimum period of 3 yrs
c. both a and b are correct
d. without RBI approval they cannot borrow at all
ans C
.page no 333 bfm
25individuals are now permitted to remit overseas freely without rbi approval upto
a. 100000 usd/year
b. 200000 usd/yr
c. 300000 usd/yr
d. not possible without rbi approval
 ans : b page 334 b pe
26. certificate of deposit is a negotiable debt instrument has maturity period of 07 to 1 yr
and minimum amt is Rs 01 lakh basically issued by……….
A RBI
B Banks
C Treasury
D Corporate
E None

Ans : b
27 the difference between buying and selling rate is called
a) spread
b) profit
c) a only
d) a& b
Ans:d
28 placement of funds for overnight is called
a) notice money
b) call money
c) term money
d) all the above
Ans : b
29. Treasury discount bills of exchange, of short term nature with a tenure of
A 1 to 3 month
B 3 to 6 m
C 6 to 9 m
D 9 to 12 m
Ans : b
30. govt security are issued by..
A central finance ministry
B ministry of commerce
C central govt
D RBI
Ans : d
31. The basis point value is associated with
A risk pricing
B risk measurement
C risk mitigation
D risk control
 Ans: b
32. Deventures are governed by
A Law of contract
B Company Law
C Negotiable instrument
D non of these
Ans: b
33. all exposure limit are reviewed ….
A once in a qtr
B once in half yr
C once in a yr
D no limit
Ans: c

34 interest cost of funds locked in a trading position is called
A swap
B pre-settlement
C carry
D speculation
E options
Ans:c
35. A situation where the depoiter of abank lose confidence in the bank and withdraw therir
balances immediately, is called
A liquidation of the bank
B falilue of bank
C run on the bank
D out of the money
Ans: c
36. The capacity of abank oa business organization to absorb losses on account of market
risk.
 A risk absorption capacity
B risk aversion capacity
C risk taking capacity
D risk appetite
Ans:d

Caiib BFM recollected on June 2019

Re-collected questions posted by our members Caiib BFM recollected on June 2019
--------------------------------------------

Theory based paper (60-70% theory)
1. Case study maculay and modified duration 5 marks
2. Case study on time buckets 5 marks
3. Case study on DA DL RSA RSL 5 marks
4. Case study on LC 5 marks (Applicant, confirming bank, Expiry date bill lading, whether partial shipment or not)
5. Case study on forex 5 marks
6. Case study on NRI NRO FCNR 5 Marks
7. Case study on forex exchange-purchase/cancellation/rebook of order.
8. Case study on bucket model of volatile and core type funds-interest sensitive asset-non interest sensitive asset
9. Numerical from examples of chapter 1 of Forex
10. Numerical from interest rate Sensitive assets & liabilities
11. Bond calculation 5 mark
12. ALM bucket allocation 5 marks
13. Two hands case study
14. Treasury office functioning case study (Back office mid office function)
15. Structured derivatives 5 Mark
16. Problems on TT buying, Selling

1. Direct rates which currency with respect to USD?
2. Ripple effect which risk?
3. Country risk is type of which risk?
4. Case study on LC-correspondent banking.
5. RTGS Plus?
6. Case study on UCPDC
7. LCR which currency?
8. Case study on LCR
9. Identification of type of LC from options.
10. Case study on derivative deal.
11. Function of ECGC
12. Risk management control steps.
13. YTM
14. Meaning of 'Mark to Market'?
15. Banking Book and Trading Book
16. Dimond dollar account
17. Under AMA approach estimated level of operational risk calculated on the basis of?
18. Calculation of Basis Point Value
19. Defination of VaR
20. Stress Testing
21. Defination body Term Money
22. Reduction of SLR-effect?
23. Special Non Resident Rupee (SNRR) account
24. Part of SLR
25. SWIFT
26. Stop loss trigger/ profit trigger case study
27. Forward contract- OTC or exchange traded?
28. Tier 1 capital comprises of?
29. Liquidity Risk
30. Extended loan for economic development- which type of loan?
31. Risk and Basel many questions asked
32. bucket SB & CA
33. NRE
34. FCNR A/c
35. Liquid assets
36. What is SNRR AC?
37. In which ratio off balance item and on balance item considered?
38. Treasury products
39. Transfer pricing
40. ALM many questions
.............................................


Case study on Macaulay duration

Face Value of Security Rs. 100
coupon rate 8% biannually
Maturity 4 year
YTM 10%

Calculate

01. Maculay Duration in half yearly
02. Maculay duration in years
03. Modified duration
.............................................


Calculation of Economic Value of Equity
Net Worth = 1350.00
Risk Sensitive Asset (RSA) = 18251.00
Risk Sensitive Liability (RSL) = 18590.00
Weight Modified Duration of Asset (DA) = 1.96
Weight Modified Duration of Liability (DL) = 1.25

01. What is Weight (W)?

a. 1
b. 1.02
c. 1.33
d. 1.66

Ans - b

Solution:
Calculate weight (W) = RSL/RSA
=18590/18251
=1.018
=1.02
.............................................

02. What is DGAP?

a. 0.33
b. 0.48
c. 0.69
d. 0.81

Ans - c

Solution
DGAP (modified duration gap) = DA - (W*DL)
= 1.96 - (1.02*1.25)
= 1.96 - 1.1275
= 0.685
= 0.69
.............................................

03. What is Leverage Ratio?

a. 12.33
b. 13.22
c. 13.52
d. 13.66

Ans - c

Solution
Leverage ratio= RSA/ Networth
= 18251/1350
= 13.52
.............................................

04. What is Modified Duration of Equity?

a. 6.33
b. 7.33
c. 8.33
d. 9.33

Ans - d

Solution:
Modified duration of equity (MD) = DGAP * leverage ratio
= 0.69 * 13.52
= 9.3288
= 9.33 years
.............................................

05. If there is 200 bp change in Rate what is drop in Equity Value?

a. 18.66
b. 20.33
c. 22.66
d. 24.33

Ans - a

Solution
Equity value=Change in rate (BP)*MD
=200*9.33/100
=18.6576
=18.66%
.............................................

PBIDTA

PBIDTA:

It is Earning before Interest, Depreciation, Taxation and Amortization. It gives an idea
regarding availability of cash with the unit for payment of debt.
The variables used in calculation of EBIDTA could be different for two similar types of
units because of variance in debts (affecting interest portion), investment in fixed
assets (affecting depreciation) and the level of intangibles (affecting amortization),
resulting change in PBT and accordingly tax expenses.
Formula for PBIDTA: PAT + Interest expenses + Deprecation + Income Tax +
Amortization

Rationale: For comparing the profitability of two units, this is an important and reliable
item. This is useful to compare margin generating capacities between similar type of
units

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.

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.

Working capital

CONCEPT OF WORKING CAPITAL :

                       Working Capital is defined as the excess of current assets over current liabilities. It is the same as net current
assets. It represents the investment of a company's funds in assets which are expected to be realised within a relatively short period of time. It is not
an investment in an asset with a long life but, as the name implies, represents funds which are continually in use and are turned over many times in a
year. It is capital used to finance production, to support levels of stock and to provide credit for customers. The three main current assets are stock,
debtors and cash. They can be funded by short-term finance, i.e. current liabilities, or by medium and long-term finance in case of permanent
current assets or core current assets.
Components of Working Capital :The firm's Working Capital may be viewed as being comprised of two components:
1. Permanent working capital: These funds represent the current assets required on a continuing basis over the entire year. it represents the
amount of cash, receivables and inventory maintained as a minimum, to carry on operations at any time, as a safety measure.
2.Variable working capital: These funds represent additional assets required at different times during the operating year. Added inventory must
be maintained to support the peak selling periods. Receivables increase and must be financed following periods of high sales. Extra cash may be
needed to pay for increased supplies preceding high activity.
Working Capital Cycle :Working Capital cycle is the length of time that elapses between the company's outlay on raw materials, Wages and other
expenditures and the inflow.of cash from the sale of the goods. The length of the cycle depends upon(I) stock of raw material required to be held.
(ii) The work in process which depends on the process involved in manufacturing or processing the raw material.
(iii) Credit required to be provided to the purchasers.
Longer the working capital cycle, the more is the working capital requirement i.e. need for maintaining the current assets.
Working capital & Net working Capital Working capital (or gross working capital) refers to the amount of total current assets.
Liquid surplus or net working capital refers to the surplus of long term sources over long term uses as per RBI prescription (also
calculated by banks as difference between current assets and current liabilities). It is desirable, that the net working capital
should be positive which would signify liquidity and availability of. Adequate working funds. If in a particular case, the net working
capital is negative, the difference will be called the working capital deficit.
The working capital can also be classified as:
a Permanent working capital which is minimum amount of current assets necessary for carrying out operations for a
period.
b Fluctuating working capital : Additional assets required at different times during an operating period due to cyclic factors.
c Seasonal working capital means requirement for additional current assets due to seasonal nature of the industry.
d Adhoc working capital : Additional funds for meeting the needs arising out of special circumstances e.g. execution of special order,
delay in receipt of payment of receivables.
e Working capital term loan : A long term loan given to meet the working capital margin needs of a borrower. The concept was
introduced by. Tandon Committee.
f Working capital gap = total current assets less other current liabilities. It is financed by net working capital and bank finance for
working capital (called MPBF).
SUMMARY - WORKING CAPITAL TERMS
Particulars Classification
Working capital Current assets such as cash, stocks, book-debts, other current assets
Net capital working Current assets — current liabilities OR Long term sources — long term uses
Working gap capital Current assets — current liabilities (other than bank borrowing — i.e. OCL)
Working limits capital Bank facilities needed to purchase current assets. These facilities are cash credit,
overdraft, bills purchase/discounting, pre-shipment or post-shipment loans etc.
Factors which determine the working capital The following factors determine the overall working capital levels of the
industrial units: Policies for production, Manufacturing process, Credit Policy of the unit, Pace of turnover , Seasonality
Process for assessment of working capital requirements Generally there are three methods followed by banks for assessing working
capital of a firm i.e. (i) traditional method suggested under Tandon Committee, (ii) turnover method suggested by Nayak Committee
and (iii) cash budget method followed in case of seasonal industries.
Methods of Assessing Bank Finance
Holding Norms based Method of Assessment of Bank Finance Various steps used in the
process include following
(a) Deciding on the level of turnover: : in case of existing units, past performance can help in ascertaining projected turnover. In
case of new enterprise, it is based on production capacity, proposed market share, availability of raw materials, industry norms etc.
(b) Assessment of Gross working capital: This is sum total of various components of working capital
(i) inventory: For assessment of stock levels of raw material, work in process and finished goods, information like lead
time, minimum order quantity, location and number of suppliers, percentage of imported material, manufacturing process etc are
considered. Industry norms may be helpful in this regard.
(ii) Receivables/bills: it can be assessed easily. It is governed by market practice relating to a particular business.
(iii) Other Current assets: A reasonable estimate of other current assets like cash level, advance to suppliers, advance tax
payment etc is calculated. Sources of Meeting Working Capital Requirement
(i) Own sources: This represents available net working capital. Further, as the estimate of limits is based on the projected balance sheet at the
end of the current accounting year, some internal accruals are also taken into account. Bank may stipulate additional NWC if available NWC and
anticipated internal accruals are not enough to maintain desired current ratio.
(ii) Suppliers's credit based on market practice
(iii) Other current liabilities like salary payable, advance from customers etc.
(iv) Bank Finance
Cash Budget Method
In any economic activity there will be outflows to meet the expenses of production and inflows from the sale of output. Any firm requires
working capital from the bank to meet the gap between these inflows and outflows. Therefore, under this method, cash flows are projected on
monthly or quarterly basis to ascertain the deficit. Bank finance will be equal to cash deficit. This method is used while financing seasonal
industries like tea, sugar, service oriented industries like software, Non banking finance companies, construction contracts.
Turnover Method:
 This method was suggested by Nayak Committee. This method is to be applied in the case of working capital limits up to Rs 5 crore in the case of
Small Manufacturing enterprises and up to Rs 2 crore in other cases. This method is simple in nature. According to this method, working capital
requirement is equal to 25% of the accepted projected annual sales; bank finance is 20% of the projected annual sales or 80% of the
working capital requirements and margin is 5% of the projected annual sales or 20% of the working capital requirements. For
example, if the current sales are Rs 400 lac, projected growth is 25%, then projected annual sale will be Rs 500 lac. Accordingly, working
capital requirement will be Rs 125 lac, bank finance Rs 100 lac and borrower's margin Rs 25 lac. However, actual drawing power will be allowed as per
security available. if net working capital available with the borrower (i.e. borrower's margin) is more than 5% of the projected annual sale, the limits
can be adjusted accordingly.
The requirement as per this method is minimum assuming working capital cycle of the unit at 3 months. If working capital cycle is more, Bank may
consider higher requirement depending on the business of the borrower.
Turnover Method (Nayak Committee) It is used where the aggregate fund-based working capital credit limits are upto Rs. 500 lac from the
banking system. Working capital : Minimum 25% of the projected turnover (or 3 months's sale).
Working capital limits : Minimum of 20% of projected annual turnover after satisfying about reasonableness of the projected annual turnover.
Borrowers' margin : 5% of projected turnover. If it is higher than 5%, the bank limits can be fixed at a lower level than 20%.
The margin proportionately increases with increase in period of operating cycle (ratio of margin to bank finance should be 1:4.
Calculation of working capital
Estimated sale turnover (projected sale) Rs.80 lac
Minimum Working Capital @ 25% estimated sales (which represents 03 months' sales) Rs.20 lac
Contribution of borrower @ 5% Rs.4 lac
Minimum Bank credit for working capital @ 20% of projected sales Rs.16 lac
Traditional method
As per traditional method (Tandon Committee), the level of working capital is determined both by the length of the
operating cycle and the size of the sales. The method is applicable to working capital limits above Rs.5 lac. In a circular dated
04.11.97, RBI withdrew the mandatory application of this method and allowed banks to use their own method.
The total of anticipated level of current assets calculated on the basis of estimated sales and by applying the norms for inventory and
receivables, is the level of working capital. The amount of bank limit, can be determined as under :
a: Assess the level of net working capital
(surplus of long term sources over long term uses) available, which normally should not be less than 25% of total current assets.
Work out bank finance to be sanctioned being gap of total current assets less NWC and other current liabilities.