CAIIB – RETAIL BANKING

CAIIB – RETAIL BANKING
Income Tax Slabs & Rates for Assessment
Domestic Company
Income Tax : 30% of taxable income.
Surcharge : The amount of income tax as computed in accordance with above rates, and after
being reduced by the amount of tax rebate shall be increased by a surcharge
At the rate of 7% of such income tax, provided that the taxable income exceeds Rs. 1 crore.
(Marginal Relief in Surcharge, if applicable)
At the rate of 12% of such income tax, provided that the taxable income exceeds Rs. 10
crores.
Education Cess : 3% of the total of Income Tax and Surcharge.
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Company other than a Domestic Company
Income Tax :
@ 50% of on so much of the taxable income as consist of (a) royalties received from
Government or an Indian concern in pursuance of an agreement made by it with the
Government or the Indian concern after the 31st day of March, 1961 but before the 1st day
of April, 1976; or (b) fees for rendering technical services received from Government or an
Indian concern in pursuance of an agreement made by it with the Government or the Indian
concern after the 29th day of February, 1964 but before the 1st day of April, 1976, and where
such agreement has, in either case, been approved by the Central Government.
@ 40% of the balance
Surcharge :
The amount of income tax as computed in accordance with above rates, and after being
reduced by the amount of tax rebate shall be increased by a surcharge as under
At the rate of 2% of such income tax, provided that the taxable income exceeds Rs. 1 crore.
(Marginal Relief in Surcharge, if applicable)
At the rate of 5% of such income tax, provided that the taxable income exceeds Rs. 10
crores.
Education Cess : 3% of the total of Income Tax and Surcharge.
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Guide to Section 80 Deductions (For FY 2014-15 (with changes
listed for FY 2015-16)
Deductions on Section 80C, 80CCC & 80CCD
Section 80C
The deduction under section 80C is allowed from your Gross Total Income. These are
available to an Individual or a HUF. The deduction is allowed for various investments,
expenses and payments.
Total Deduction under section 80C, 80CCC and 80CCD(1) together cannot exceed Rs
1,50,000 for the financial year 2014-15 (assessment year 2015-16). The limit for financial
year 2015-16 is also Rs 1,50,000.
For investment in one or more of the following :
Life Insurance Premium For individual, policy must be in self or spouse's or any child's name
in case of individuals and on life of any HUF member in case of HUF.
Sum paid under contract for deferred annuity for individual, on life of self, spouse or any
child .
Sum deducted from salary payable to Govt. Servant for securing deferred annuity for selfspouse
or child Payment limited to 20% of salary.
Contributions by an individual made under Employees' Provident Fund Scheme
Contribution made by a Resident Individual in PPF account. The account can be in the name
of self/spouse, any child & for HUF, it can be in the name of any member of the family.
Contribution by employee to a Recognised Provident Fund.
Contribution by an employee to an approved superannuation fund
Deposit in Sukanya Samriddhi Account as natural / legal guardian of girl child.
Subscription to notified savings certificates [National Savings Certificates]
Contribution for participation in unit-linked Insurance Plan of UTI
Contribution to notified unit-linked insurance plan of LIC Mutual Fund [Dhanaraksha 1989]
Subscription to notified deposit scheme or notified pension fund set up by National Housing
Bank [Home Loan Account Scheme/National Housing Banks (Tax Saving) Term Deposit
Scheme, 2008]
Tuition fees (excluding development fees, donations, etc.) paid by an individual to any
university, college, school or other educational institution situated in India, for full time
education of any 2 of his/her children
Certain payments for purchase/construction of residential house property
Subscription to notified schemes of (a) public sector companies engaged in providing longterm
finance for purchase/construction of houses in India for residential purposes/(b)
authority constituted under any law for satisfying need for housing accommodation or for
planning, development or improvement of cities, towns and villages, or for both
Sum paid towards notified annuity plan of LIC (New Jeevan Dhara/New Jeevan Dhara-I/New
Jeevan Akshay/New Jeevan Akshay-I/New Jeevan Akshay-II/Jeewan Akshay-III plan of LIC)
or other insurer
Subscription to any units of any notified [u/s 10(23D)] Mutual Fund or the UTI (Equity Linked
Saving Scheme, 2005)
Contribution by an individual to any pension fund set up by any mutual fund which is
referred to in section 10(23D) or by the UTI (UTI Retirement Benefit Pension Fund)
Subscription to equity shares or debentures forming part of any approved eligible issue of
capital made by a public company or public financial institutions
Subscription to any units of any approved mutual fund referred to in section 10(23D),
provided amount of subscription to such units is subscribed only in 'eligible issue of capital'
referred to above.
Term deposits for a fixed period of not less than 5 years with a scheduled bank, and which is
in accordance with a scheme framed and notified.
Subscription to notified bonds issued by the NABARD.
Deposit in an account under the Senior Citizen Savings Scheme Rules, 2004 (subject to
certain conditions)
5-year term deposit in an account under the Post Office Time Deposit Rules, 1981 (subject to
certain conditions)
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Section 80CCC: Deduction in respect of Premium Paid for Annuity Plan of LIC or Other
Insurer
This section provides deduction to an Individual for any amount paid or deposited in any
annuity plan of LIC or any other insurer for receiving pension from a fund referred to in
Section 10(23AAB).
In case the annuity is surrendered before the date of its maturity, the surrender value is
taxable in the year of receipt.
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Section 80CCD: Deduction in respect of Contribution to Pension Account
For FY 2014-15 (assessment year 2015-16)
Total Deduction under Section 80C, 80CCC and 80CCD(1) cannot exceed Rs 1,50,000.
For FY 2015-16 (assessment year 2016-17)
A new section 80CCD(1B) has been introduced to provide for additional deduction for
amount contributed to NPS of up to Rs 50,000.
Therefore for financial year 2015-16, Total Deduction under Section 80C, 80CCC, 80CCD(1)
and 80 CCD(1B) cannot exceed Rs 2,00,000.
From assessment year 2012-13, employer's contribution under section 80CCD(2) towards
NPS is outside the monetary ceiling mentioned above.
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Deductions on Savings Bank Account
Section 80 TTA: Deduction from gross total income with respect to any Income by way of
Interest on Savings account
Deduction from gross total income of an individual or HUF, up to a maximum of Rs. 10,000/-,
in respect of interest on deposits in savings account with a bank, co-operative society or post
office. Section 80TTA deduction is not available on interest income from fixed deposits.
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Section 80GG: Deduction with respect to House Rent Paid
• This deduction is available for rent paid when HRA is not received. Assessee or his spouse
or minor child should not own residential accommodation at the place of employment.
• Assessee should not be in receipt of house rent allowance.
• He should not have self occupied residential premises in any other place.
Deduction available is the least of
1. Rent paid minus 10% of total income
2. Rs. 2000/- per month
3. 25% of total income
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Section 80E: Deduction with respect to Interest on Loan for Higher Studies
Deduction in respect of interest on loan taken for pursuing higher education. This loan is
taken for higher education for the assessee, spouse or children or for a student for whom
the assessee is a legal guardian.
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Section 80EE: Deductions on Home Loan Interest for First Time Home Owners
This section provided deduction on the Home Loan Interest paid and is valid for financial
years 2013-14 & 2014-15 (Assessment year 2014-15 and 2015-16) only. The deduction
under this section is available only to Individuals for first house purchased where the value of
the house is Rs 40lakhs or less and loan taken for the house is Rs 25lakhs or less. And the
Loan has been sanctioned between 01.04.2013 to 31.03.2014. The total deduction allowed
under this section is Rs 1,00,000.
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Section 80CCG: Rajiv Gandhi Equity Saving Scheme (RGESS)
The Rajiv Gandhi Equity Saving Scheme (RGESS) was launched after the 2012 Budget.
Investors whose gross total income is less than Rs. 12 lakhs can invest in this scheme. Upon
fulfillment of conditions laid down in the section, the deduction is lower of - 50% of amount
invested in equity shares or Rs 25,000.
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Section 80D: Deduction in respect of Medical Insurance
For financial year 2014-15 - Deduction is available up to Rs. 15,000/- to an assessee for
insurance of self, spouse and dependent children. If individual or spouse is more than 60
years old the deduction available is Rs 20,000. An additional deduction for insurance of
parents (father or mother or both) is available to the extent of Rs. 15,000/- if less than 60
years old and Rs 20,000 if parents are more than 60 years old. Therefore, the maximum
deduction available under this section is to the extent of Rs. 40,000/-. (From AY 2013-14,
within the existing limit a deduction of up to Rs. 5,000 for preventive health check-up is
available).
For financial year 2015-16 – Deduction is raised from Rs 15,000 to Rs 25,000. The deduction
for senior citizens is raised from Rs 20,000 to Rs 30,000. For uninsured super senior citizens
(more than 80 years old) medical expenditure incurred up to Rs 30,000 shall be allowed as a
deduction under section 80D. However, total deduction for health insurance premium and
medical expenses for parents shall be limited to Rs 30,000.
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Section 80DD: Deduction in respect of Rehabilitation of Handicapped Dependent Relative
Deduction is available on:
1. expenditure incurred on medical treatment, (including nursing), training and rehabilitation
of handicapped dependent relative
2. Payment or deposit to specified scheme for maintenance of dependent handicapped
relative.
Where disability is 40% or more but less than 80% - fixed deduction of Rs 50,000. Where
there is severe disability (disability is 80% or more) – fixed deduction of Rs 1,00,000.A
certificate of disability is required from prescribed medical authority.
Note: A person with 'severe disability' means a person with 80% or more of one or more
disabilities as outlined in section 56(4) of the 'Persons with disabilities (Equal opportunities,
protection of rights and full participation)' Act.
For financial year 2015-16 – The deduction limit of Rs 50,000 has been raised to Rs 75,000
and Rs 1,00,000 has been raised to Rs 1,25,000.
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Section 80DDB: Deduction in respect of Medical Expenditure on Self or Dependent Relative
A deduction to the extent of Rs. 40,000/- or the amount actually paid, whichever is less is
available for expenditure actually incurred by resident assessee on himself or dependent
relative for medical treatment of specified disease or ailment. The diseases have been
specified in Rule 11DD. A certificate in form 10 I is to be furnished by the assessee from any
Registered Doctor.
In case of senior citizen the deduction can be claimed up to Rs 60,000 or amount actually
paid, whichever is less.
For financial year 2015-16 – for very senior citizens Rs 80,000 is the maximum deduction
that can be claimed.
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Section 80U: Deduction with respect to Person suffering from Physical Disability
Deduction of Rs. 50,000/- to an individual who suffers from a physical disability (including
blindness) or mental retardation. Further, if the individual is a person with severe disability,
deduction of Rs. 100,000/- shall be available u/s 80U. Certificate should be obtained from a
Govt. Doctor. The relevant rule is Rule 11D.
For financial year 2015-16 – The deduction limit of Rs 50,000 has been raised to Rs 75,000
and Rs 1,00,000 has been raised to Rs 1,25,000.
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Section 80G: Deduction for donations towards Social Causes
The various donations specified in Sec. 80G are eligible for deduction up to either 100% or
50% with or without restriction as provided in Sec. 80G. 80G deduction not applicable in
case donation is done in form of cash for amount over Rs 10,000.
Donations with 100% deduction without any qualifying limit:
• National Defence Fund set up by the Central Government
• Prime Minister's National Relief Fund
• National Foundation for Communal Harmony
• An approved university/educational institution of National eminence
• Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of
that district
• Fund set up by a State Government for the medical relief to the poor
• National Illness Assistance Fund
• National Blood Transfusion Council or to any State Blood Transfusion Council
• National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and
Multiple Disabilities
• National Sports Fund
• National Cultural Fund
• Fund for Technology Development and Application
• National Children's Fund
• Chief Minister's Relief Fund or Lieutenant Governor's Relief Fund with respect to any State
or Union Territory
• the Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force
Central Welfare Fund, Andhra Pradesh Chief Minister's Cyclone Relief Fund, 1996
• The Maharashtra Chief Minister's Relief Fund during October 1, 1993 and October 6,1993
• Chief Minister's Earthquake Relief Fund, Maharashtra
• Any fund set up by the State Government of Gujarat exclusively for providing relief to the
victims of earthquake in Gujarat
• Any trust, institution or fund to which Section 80G(5C) applies for providing relief to the
victims of earthquake in Gujarat (contribution made during January 26, 2001 and September
30, 2001) or
• Prime Minister's Armenia Earthquake Relief Fund
• Africa (Public Contributions — India) Fund
• Swachh Bharat Kosh (applicable from financial year 2014-15)
• Clean Ganga Fund (applicable from financial year 2014-15)
• National Fund for Control of Drug Abuse (applicable from financial year 2015-16)
Donations with 50% deduction without any qualifying limit.
• Jawaharlal Nehru Memorial Fund
• Prime Minister's Drought Relief Fund
• Indira Gandhi Memorial Trust
• The Rajiv Gandhi Foundation
Donations to the following are eligible for 100% deduction subject to 10% of adjusted gross
total income
• Government or any approved local authority, institution or association to be utilised for the
purpose of promoting family planning
• Donation by a Company to the Indian Olympic Association or to any other notified
association or institution established in India for the development of infrastructure for sports
and games in India or the sponsorship of sports and games in India.
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Donations to the following are eligible for 50% deduction subject to 10% of adjusted gross
total income
• Any other fund or any institution which satisfies conditions mentioned in Section 80G(5)
• Government or any local authority to be utilised for any charitable purpose other than the
purpose of promoting family planning
• Any authority constituted in India for the purpose of dealing with and satisfying the need
for housing accommodation or for the purpose of planning, development or improvement of
cities, towns, villages or both
• Any corporation referred in Section 10(26BB) for promoting interest of minority community
• For repairs or renovation of any notified temple, mosque, gurudwara, church or other
place.
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Section 80GGB: Deduction in respect of contributions given by companies to Political Parties
Deduction is allowed to an Indian company for amount contributed by it to any political party
or an electoral trust. Deduction is allowed for contribution done by any way other than cash.
Political party means any political party registered under section 29A of the Representation of
the People Act. Contribution is defined as per section 293A of the Companies Act, 1956.
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Section 80GGC: Deduction in respect of contributions given by any person to Political Parties
Deduction is allowed to an assessee for any amount contributed to any political party or an
electoral trust. Deduction is allowed for contribution done by any way other than cash.
Political party means any political party registered under section 29A of the Representation of
the People Act.
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Section 80RRB: Deduction with respect to any Income by way of Royalty of a Patent
Deduction in respect of any income by way of royalty is respect of a patent registered on or
after 01.04.2003 under the Patents Act 1970 shall be available up to Rs. 3 lacs or the income
received, whichever is less. The assessee must be an individual resident of India who is a
patentee. The assessee must furnish a certificate in the prescribed form duly signed by the
prescribed authority.
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CAIIB – RB (RETAIL BANKIAG)

CAIIB - Retail Banking - Mod - A : Retail Banking
Unit - 1 : Retail Banking - Introduction
"Retail Banking is a banking service that is geared primarily toward individual consumers.
Unlike wholesale banking, retail banking focuses strictly on consumer markets.
Although retail banking is, for the most part, mass-market driven, many retail banking products
may also extend to small and medium sized businesses.
Pure retail banking is generally conceived to be the provision of mass market banking services to
private individuals.
Attractive interest spreads since spreads are wide, since customers are too fragmented to bargain
effectively; Credit risk tends to be well diversified, as loan amounts are relatively small.
There is less volatility in demand and credit cycle than from large corporates.
Higher delinquencies especially in unsecured retail loans and credit card receivables.
In some banks retail banking was christened as consumer banking as the focus was towards
individual consumers.
Capgemini. ING and the European Financial Management & Marketing Association (EFMA)
have studied the global Retail Banking market with the aim of providing insights to financial
services community through the World Retail Banking Report(WRBR).
The pricing indices were developed based on three usage patterns viz., less active, active and
very active users.
Introduction of the telegraph in the early 1850s which made the process of communication and
information exchange faster and reduced the price differentials between stock markets.
Banking services follow the standard industrial development pattern in which prices decline with
maturity.
The share of interest income had almost remained steady at about 84% and the share of non
interest income also is almost stable at around 16%.This indicates that there were no serious
efforts by banks to increase the non interest income through fee based product and third party
distribution models.
Retail Banking as a concept in India has been initiated by the PSBs and nurtured by the foreign
banks and new generation private sector banks.
It grew by a compounded annual growth rate of 30.5% between 1999 and 2004 and expected to
grow at above 30% in 2010
The penetration level of retail banking in India is still very low as compared to the other Asian
countries like China, Malaysia, Thailand etc..
The retail banking objectives of any bank would mainly focus on the following:
1. Generating superior returns on assets.
2. Acquiring sufficient funding
3. Enhancing risk management
4. Understanding customers and regaining their trust.
5. Coping with increased demands regarding product transparency and overall service levels.
6. Achieving multi channel excellence with fully integrated banking channels.
7. Moving toward higher levels of industrialization
Unit - 2 : Retail Banking - Role within the Bank Operations
The business models for retail banking show interesting revelations across types of banks. The
models adopted by banks vary among the public sector, private sector and foreign banks. The
main approaches are as follows:
(a) Strategic Business Unit (SBU) Approach,
(b) Departmental Approach,
(c) Integrated Approach (part of the overall business plan).
Public Sector Banks in India generally have adopted the Departmental Approach as their retail
banking business model.
The business model for retail banking is built as a part of the overall business plan and not done
as a separate departmental activity, leave alone SBU.
In new generation private sector banks, the business model is very clear. They had set up
Strategic Business Units (SBU) to have clear focus and business objectives.
The demarcation as a SBU is more a Management By Objectives (MBO) process wherein the
business model is dealt as a modular strategy for achieving targeted profits with a provision to
knockdown the module, if the retail plans are not translated as per the objectives.
Banks generally structure their retail banking models mainly on a positioning platform.
Foreign banks generally do not go by positioning objectives but purely on business objectives.
Unit - 3 : Applicability of Retail Banking Concepts and Distinction Between Retail and
Corporate/Wholesale Banking
The most common strategies are end to end outsourcing, predominant outsourcing, partial
outsourcing and in house sourcing.
Regulatory prescriptions are one of the major determinants of outsourcing or lack of it in these
banks.

CAIIB – RETAIL BANKING (SHORT NOTES)

CAIIB-RETAIL BANKING-Re-Collected Questions from Previous
Exams - June 2014
1. Calculate Min. Amt. Due for dues of credit card
Finance Charges - Applicable in the event of the card member deposits part of the Total
Payment or the Minimum Amount Due. The amount attracts finance charges on entire
outstanding including fresh purchases and other bank charges till the date of full and
final payment.
Finance charges are calculated on a daily basis at the end of every day based on the
current outstanding balance of the customer.
Illustration:
• Balance outstanding as on the statement date - Rs.20000
• Balance is not paid on the due date.
• Interest - 3.5% per month
• Daily Interest Charge for the above balance is
= 20000 x (3.5% x 12 months)/365 = Rs.23.01
• Total interest payable by the next statement cycle (after 30 days)
= Rs.23.01 x 30 = Rs.690.41 + Service Tax
(ii) Minimum Amount Due - Minimum Amount Due (MAD) is calculated by adding New
Debits for the month, previously unpaid payments and other charges. Minimum amount
also includes the amount by which the card holder exceeded the card limit.
Minimum Amount Due every month shall be higher of the following:
(a) 5% of the statement outstanding or
(b) Sum total of all installments billed, interest, fees, other charges, amount that is over
limit and 1 % of the principal or
(c) Rs.250/-. In case of default or if the statement balance is less than Rs.250/-. the
entire outstanding amount has to be paid.
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2. Documents/Eligibility for Home Loans/other loans - Unit 7 (Go thru book for details)
3. Maslow Theory -....need arises at which level- pg 43 (Go thru book for details)
4. Product Life Cycle - pg 51 (Go thru book for details)
(i) Introduction
(ii) Growth
(iii) Maturity
(iv) Staleness or saturation
(v) Decline
5. Stages in new product development - pg 60 (Go thru book for details)
(i) Generating new product ideas
(ii) Idea screening
(iii) Concept Testing
(iv) Business analysis and Market analysis
(v) Actual product development, test marketing and commercialisation
6. DSA & CRM related ques - pg 149 & 155 (Go thru book for details)
7. Wealth Management - pg 184 & 223 (Go thru Last Minute Revision Page and book for
details)
8. Calculation of EMI - pg 207 (Go thru Last Minute Revision Page and book for details)
9. In PROPAGATE model, what does E stands for ? - pg 218
Banks selling mutual fund schemes should clearly understand the implications mentioned
in the following model called as PROPAGATE
Model for distribution. PROPAGATE model refers to :
P - Product
R - Risk
O - Opportunities (Returns)
P - People
A - Appetite
G - Geography (Place)
A - Attributes
T - Training
E - Education
10. Al types of Mortgage related ques - pg 248 (Go thru Last Minute Revision Page and
book for details)
11. Numerical from Capital Gain - pg 288 (Go thru Last Minute Revision Page and book
for details)
12. Depreciation from WDV Method - pg 304 (Go thru Last Minute Revision Page and
book for details)
13. Age related ques from Reverse Mortgage - pg 308 (Go thru Last Minute Revision
Page and book for details)
14. Which method of Valuation is preferred for agri/urban land? Pg 298 (Go thru Last
Minute Revision Page and book for details)
15. Classification of Business Process Structure in Retail Banking -pg 27 & 28
(i) Horizontally Organised Model
(ii) Vertically Organised Model
(iii) Predominantly Vertically Organised Model
(iv) Predominantly Horizontally Organised Model
CAIIB-RETAIL BANKING-Re-Collected Questions from Previous
Exams - June 2015
I got all these questions collected from our members. I could not go through
and post the answers. I request members to update themselves with the
answers from book, net or other sources. And if possible post the answers for
whichever questions you can get, on our FB group which will mutuaslly help
everyone.
One question from fd above 1 crore
How many neft settlements in a day?
Tax benefit in Home loan
Credit card cycle
NEFT/RTGS max n min limit
Basic diff.b/w rtgs n neft
Benefit of pvt. Banking
Wealth mgmt for corporates
Education loan repayment/defaults
EMI
Income tax
Rule 72
Essence of crm
Bharat bill paymnt systm
Priority of charge in mortgage
Brown label atm
Purpose of securitisation
Conditions for pension fund mgmt
Mutual fund conditions for bank
Approval for insurance
Propagate model
7Ps
ATM transactions in metro cities
SARFAESI
DRT
internet banking
Mobile banking
Full form of CDO
Product meaning??
Airline company used which model..SBU..INTEGRATED MODEL???
RUPAY card is issued by NPCI
Case study related to Internet banking 5 questions
Case study related to credit card charges and other
Register mortgage date and deposit of title deed
Implementation model related
WRBR.. Full form??
Date of execution of documents.. 4 months
Augmented product...
Expected product...
Under NEFT, number of settlement on week days are..12
RTGS minimum and maximum amout...
Disadvantages of Retail banking...
Mobile banking maximum amout per txn and monthly threshold related 5 questions
IFSC CODE TOTAL ALPHA..and numerics
SFMS
1) Internet Banking- strategy adaptation
2) Depreciation by both methods
3) Capital gain
4) Annuity
5) FSI Calculations
1. 2 Case studies on priority charge on mortgage
2. Problem on depreciation(By WDV)... eg. Wht will be the book value after 3 years?
3. Calculating future value
4. Diff between NEFT and RTGS
5. Questions on DSA
6. Case study on tax exemptions ( both interest and principal repayment)?
7. Prob on Depriciation by straight through method?
8. Wht does securitisation means?
9. Risk involved with DSA?
10. Questions on Potential product PROPAGATE?
11. EMI Calculation
12. Questions on vertical, horizantal model
13. How Many NEFT settlement on weekdays and saturday
14. How many characters in UTR?
15. Question on WRBR
16. Case study on education loan... all the fig are given ( eg. Hostel fee, tution fee, other
expenses and bank margin).... we have to calculate max permissible bank loan
17. One critical case study on credit card... credit card limt, free int period, int rate, over
limit penalty, due date and purchase date are given...
We have to calculate int chraged
a. if the customer pays the amt due after 18 days from due date
b. If he pays half amt before due date then calculate int charged for remaining amt on a
particular date?
C. If the amt crosses the limit then calculate the amt he has to pay
18. If we allow overdraft in CC a/c and the customer does not repay it, then can we
approach DRT ? There are four options and we have to choose the correct one
CAIIB-RETAIL BANKING-LAST MINUTE REVISION-CASE STUDIES
EMI CALCULATION FORMULA
EMI= P x r x (1 + r)^n / ((1+r)^n -1)
Here
p = principal amount (loan taken)
r = interest rate per month (ex: if interest rate per annum is 10% then 10/(12*100))
n= tenure in months
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EMI examples,
If the Loan taken = 1,00,000 at the rate of 12% interest for the period of 2 Years. Then,
EMI will be,
p = Loan taken = 1,00,000
r = interest rate per month = 1% = 0.01
n= tenure in months = 2 Years = 24 months
EMI
= 100000*0.01*(1+0.01)^24 /((1+0.01)^24 -1)
= Rs. 4707
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If the Loan taken Rs 1 Lakh at 11 percent per annum, repayable in 15 years, the EMI will
be :
Here,
p = Loan taken = 1,00,000
r = interest rate per month = 0.11/12 = 0.00916
n = tenure in months = 15 Years = 180 months
EMI
= (100000 x .00916) x ((1+.00916)^180 ) / ([(1+.00916)^180] – 1)
= 916 X (5.161846 / 4.161846)
= Rs. 1,136
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Calculate the EMI for a loan of Rs. 10,00,000 @ interest rate of 9 per cent p.a. for 15
years.
p = Loan taken = Rs. 10,00,000
r = interest rate per month = 0.09/12 = 0.0075
n = tenure in months = 15 years = 180 months
EMI
= ((10,00,000 x 0.0075) x (10.0075)^180) / ([(1+0.0075)^180]-1 )
= Rs. 10,142.67
CAIIB-RETAIL BANKING-LAST MINUTE REVISION-CASE STUDIES
Formula to Calculate the Periodic Payments under Reverse Mortgage - RML
The formula to calculate the periodic payments, as available in the website of NHB, is as
under:
Installment Amount = (PV*LTVR*I)/ ((1+I)n-1)
Where, PV = Property Value;
LTVR = LTV Ratio;
n = No. of Installment Payments;
I = the value of I will depend on Disbursement Frequency selected.
Example
Value of the property - Rs. 50,00,000
Loan Amount - 90%
Loan Tenor - 15 years
Rate of interest - 10.50%
Monthly installment - Rs. 10,368
Quarterly installment - Rs. 31,638
Yearly installment - Rs. 1,36,116
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Reverse Mortgage (RML) Numerical Questions :
Value of the property - Rs. 50,00,000
Loan Amount - 80%
Loan Tenor - 15 years
Rate of interest - 10%
Calculate Monthly Installment
Here,
PV = 5000000
LTVR = 80/100 = 0.8
n = 15 * 12 = 180
I = 10/(12*100) = 10/1200 = 0.008333
= (5000000*0.8*0.008333)/((1+0.008333)^180-1)
= Rs. 9651
So, the Monthly installment = Rs. 9651
...............................................
Reverse Mortgage (RML) Numerical Questions to Calculate Quarterly installment:
Value of the property - Rs. 50,00,000
Loan Amount - 80%
Loan Tenor - 15 years
Rate of interest - 10%
Calculate Quarterly installment
Here,
PV = 5000000
LTVR = 80/100 = 0.8
n = 15 * 4 = 60
I = 10/(4*100) = 10/400 = 0.025
= (5000000*0.8*0.025)/((1+0.025)^60-1)
= Rs. 9651
So, the Quarterly installment = Rs. 29,414
...............................................
Reverse Mortgage (RML) Numerical Questions to Calculate Annual Installment:
Value of the property - Rs. 50,00,000
Loan Amount - 80%
Loan Tenor - 15 years
Rate of interest - 10%
Calculate Annual Installment
Here,
PV = 5000000
LTVR = 80/100 = 0.8
n = 15 = 180
I = 10/100) = 0.1
= (5000000*0.8*0.1)/((1+0.1)^15-1)
= Rs. 125895
So, the Annual installment = Rs. 1,25,895
CAIIB-RETAIL BANKING-LAST MINUTE REVISION-CASE STUDIES
A company wants to set up a sinking fund for the repayment of a loan of Rs. 10 Crores
at the end of four years. It makes equal deposits at the end of each month into a fund
that earns interest at 12% per year compounded monthly. Determine the size of each
deposit.
Also construct a sinking fund schedule(the first three months only).
Solution :
Loan is 10 Crores to be repaid at the end of 4 years.
Monthly deposits are made.
Interest rate is 12% per year compounded monthly.
This is a Payment for a Future Value type problem.
PAYMENT FOR A FUTURE VALUE EQUATION
PMT(FV) = ( FV / (((1+i)^n - 1) / i) )
PMT = Payment per Time Period
FV = Future Value
i = Interest Rate per Time Period
n = Number of Time Periods
FV = Rs. 10,00,00,000
i = 0.12 / 12 = 0.01
n = 12*4 = 48
Intermediate calculations would be:
(1.01)^48 - 1 = 1.612226078 - 1 = 0.612226078
So,
PMT = 10,00,00,000 / (0.612226078/.01) which would become:
PMT = Rs. 16,33,383.54
Also, sinking fund schedule for the first three months are :
End of month 1 = Rs. 16,33,383.54
End of month 2 = Rs. 16,33,383.54 * (1+i) = 16,49,717.378 + p = 32,83,100.92
End of month 3 = Rs. 32,83,100.92 * (1+i) = 33,15,931.929 + p = 49,49,315.47
This may not be so much important for the exam point of view. Still, no harm in getting
familiarised.
........................................................
A company wants to set up a sinking fund for the repayment of a loan of Rs. 10 Crores
at the end of four years. It makes equal deposits at the end of each month into a fund
that earns interest at 12% per year compounded monthly. Determine the size of each
deposit.
Solution :
Loan is 10 Crores to be repaid at the end of 4 years.
Monthly deposits are made.
Interest rate is 12% per year compounded monthly.
This is a Payment for a Future Value type problem.
PAYMENT FOR A FUTURE VALUE EQUATION
PMT(FV) = ( FV / (((1+i)^n - 1) / i) )
PMT = Payment per Time Period
FV = Future Value
i = Interest Rate per Time Period
n = Number of Time Periods
FV = Rs. 10,00,00,000
i = 0.12 / 12 = 0.01
n = 12*4 = 48
Intermediate calculations would be:
(1.01)^48 - 1 = 1.612226078 - 1 = 0.612226078
So,
PMT = 10,00,00,000 / (0.612226078/.01) which would become:
PMT = Rs. 16,33,383.54
CAIIB-RETAIL BANKING-LAST MINUTE REVISION-CASE STUDIES
Case Studies on Capital Gains
-----------------------------------
Purchase Price - Rs. 1000000
Year of Purchase - 1995
Sale Price - Rs. 2500000
Year of Sale - 2008
Cost Inflation Index (CII) - Purchase - 281
Cost Inflation Index (CII) - Sale - 582
Calculate
Indexed Purchase Price
Capital Gain
Tax with Indexation (20%)
Tax without Indexation (10%)
capital gain =sale price-(purchase price*(cii sale/cii price))
=2500000-(1000000*(582/281))
=428825.7
Tax without indexation=1500000 × .10
Tax with indexation=428826.6 × .20
...............................................
Long Term Capital Gain
Cost of purchasing a property in April 2007 - Rs 35,00,000
Cost of selling the property in May 2011 - Rs 50,00,000
Inflation Index- 2007-2008 - 551
2011-2012 - 785
Indexed Purchase Cost - 35,00,000 x 785/551= Rs 49,86,388
Long Term Capital Gains = 50,00,000-49,86,388 = Rs 13612*
Tax on LTCG= 13612 x 20%= Rs 2722
Education Cess= 2722 x 3% = Rs 82
Total Tax on LTCG = Rs 2804
*The non-indexed gain would have been Rs 15 lakh
Thus, the indexation benefit reduces the tax liability substantially which otherwise would
have been a huge payout for any investor.
...............................................
This is how short-term capital gains are calculated:
Cost of Equity Mutual Funds units bought in 2011 - Rs 100,000
Price of same units sold after 6 months - Rs 120,000
Short Term Capital Gains - Rs 20,000
Tax Applicable - 20,000 x 15%= Rs 3000
Education Cess - 3000 x 3%=Rs 90
Total Tax payable = Rs 3090
CAIIB-RETAIL BANKING-LAST MINUTE REVISION-CASE STUDIES
An individual took a loan of Rs. 10.00 Lakhs for purchasing a plot of land during F.Y.
2014-15 & has paid around Rs. 1,10,000 towards Interest & around Rs. 57,000 towards
principal during F.Y. 2015-16. He has not made any other contribution under Sections
80C, 80CCC, or 80CCD. He will be able to claim deduction of Rs.......... towards principal.
a. Rs. 1,50,000
b. Rs. 1,10,000
c. Rs. 57,000
d. Rs. 0
Ans - d
No tax benefit is available for purchasing of plot of land.
Ref - Page No 274, 2nd paragraph.
...............................................
Avichal Publishers buy a machine for Rs 20000. The rate of depreciation is 10%. Find the
depreciated value of the machine after 3 years. Also find the amount of depreciation.
What is the average rate of depreciation?
Solution
Original value of machine = Rs 20000,
Rate of depreciation, i = 10%
Hence the book value after 3 years = 20000
= 20000 (0·9)^3
= 20000 (0·729)
= Rs. 14580
Amount of depreciation in 3 years = Rs 20000 - Rs 14580 = Rs 5420
Average rate of depreciation in 3 years
= (5420/20000) x (100/3) = 9·033%
...............................................
Mr X purchased a house property for Rs. 1,00,000 on 31st July 2001. He constructed 1st
Floor in March 2003 for Rs. 1,10,000. The house property was sold for Rs. 5,00,000 on
1st April 2005. The expenses incurred on transfer of asset is Rs. 10,000. Find the capital
gain.
[2000-01-index is 406 and 02-03 index is 447 and 05-06 Index is 497]
(a)2,40,238 (b)2,45,382 (c)2,45,283 (d)2,45,832
500000-10000-(100000x497/406)-(110000x497/447)=24528
Taxable long term capital gain = sales consideration-selling expenses-(indexd cost of
acquisition and improvement)-(Ded under 54 54B D G GA F EC)
...............................................
A capital equipment costing Rs. 200000 today has Rs. 50000 salvage value at the end of
5 yrs. If straight line depreciation method is used, what is the book value of the
equipment at the end of 2 years?
Straight line depreciation for each year = (200000 - 50000)/5 = 30000
So for two years total depreciation = 30000*2=60000
The book value of the equipment at the end of 2 years
= 200000 - 60000
= 140000
CAIIB-RETAIL BANKING-LAST MINUTE REVISION-CASE STUDIES
Mr. Raj has bought :
2000 units of a stock at Rs. 20 on 1 Jan 2013,
2000 more units at Rs. 30 on 1 May 2013
2000 more units at Rs. 40 on 1 December 2013
and sold
5000 units at Rs. 50 on 30 December 2014,
Should he go ahead with Indexed Capital Gains Tax or Non Indexed Capital Gains Tax to
save some Tax.
CII for 2012-13 = 852
CII for 2013-14 = 939
CII for 2014-15 = 1024
a. Indexed Capital Gains Tax
b. Non Indexed Capital Gains Tax
c. Both are same
d. None of the above
Ans - b
Solution :
Each purchase/sale transaction is matched on a First-In-First-Out basis.
All the units sold have been held for over one year, so long term capital gains tax
applies.
So here, out of the 5000 units sold, we have three separate pieces to be considered.
The First 2000 are matched to the first 2000 bought, appropriately indexed, gains
calculated and tax calculated.
Here you get two years of Indexation (2012-13 and 2014-15)
Indexed Purchase Price = 40,000 * (1024/852) = 48,075
Capital Gain = 100000 – 48075 = 51925
The non-indexed gain is Rs. (100000 - 40000) = Rs. 60000
Indexed Capital Gain: Rs. 51925
Non Indexed Capital Gain: Rs. 60000
The First 2000 are matched to the first 2000 bought, appropriately indexed, gains
calculated and tax calculated.
Here you get two years of Indexation (2013-14 and 2014-15)
Indexed Purchase Price = 60,000 * (1024/939) = 65431
Capital Gain = 100000 – 65431 = 34569
The non-indexed gain is Rs. (100000 - 60000) = Rs. 40000
Indexed Capital Gain: Rs. 34569
Non Indexed Capital Gain: Rs. 40000
The next 1000 units are sold at Rs. 50 and bought at Rs. 40, appropriately indexed,
gains calculated and tax calculated.
Here you get two years of Indexation (2013-14 and 2014-15)
Indexed Purchase Price = 40,000 * (1024/939) = 43620
Capital Gain = 50000 – 43620 = 6380
The non-indexed gain is Rs. (50000 - 40000) = Rs. 10000
Indexed Capital Gain: Rs. 6380
Non Indexed Capital Gain: Rs. 10000
So let’s add them all up.
Indexed
Total Capital Gain = 51925 + 34569 + 6380 = 92874
Capital Gains Tax Appl (%) = 20%
Capital Gains Tax = 18575
Non-Indexed
Total Capital Gain = 60000 + 40000 + 10000 = 110000
Capital Gains Tax Appl (%) = 10%
Capital Gains Tax = 11000
He should go ahead to choose the non-indexed option to save some tax of Rs. (18575 -
11000) = Rs. 7575/-.
CAIIB-RETAIL BANKING-LAST MINUTE REVISION-CASE STUDIES
Case Studies on EMI
--------------------------
Mr. Naveen borrowed an amount of Rs. 50000 for 8 years @ 18% roi. What shall be
monthly payment?
Explanation :
Here,
P = 50000
R = 18% = 18 % ÷ 12 = 0.015 monthly
T = 8 yrs = 96 months
EMI = P * R * [(1+R)^T/(1+R)^T-1)]
EMI = 50000 * 0.015 * 1.01596 ÷ (1.01596 – 1)
= 986
.............................................
A person raised a house loan of Rs. 10 lac @ 12% roi repayable in 10 years. Calculate
EMI.
Explanation :
Here,
P = 1000000
R = 12% monthly = 0.01% p.a.
T = 10 Y = 120 months
EMI = P * R * [(1+R)^T/(1+R)^T-1)]
So,
EMI = 1000000*0.01*(1+0.01)^120 ÷ {(1+0.01)^120 – 1}
= 14347
.............................................
If the sanctioned loan amount is Rs. 100000 at 12% interest for 2 years, calculate the
EMI.
Solution :
EMI= P x r x (1 + r)^n / ((1+r)^n -1)
Here p = principal amount (loan taken)
r = interest rate per month (ex: if interest rate per annum is 10% then 10/(12*100))
n= tenure in months
EMI = 100000*0.01*(1+0.01)^24 /((1+0.01)^24 -1) = 4707
Where,
p = loan taken = 1,00,000
r = interest rate per month = 1% = 0.01
n = tenure in months = 2 Years = 24 months
.............................................
Ajit wants to receive Rs. 40000 p.a. for 20 years by investing @ 5%. How much he will
have to invest now?
Explanation :
Here,
P = 40000
R = 5% p.a.
T = 20 yrs
PV = P / R * [(1+R)^T - 1]/(1+R)^T
PV = (40000 ÷ 0.05) * {(1.0520 – 1) ÷ 1.0520}
= 498489
CAIIB-RETAIL BANKING-LAST MINUTE REVISION-CASE STUDIES
Case Studies on Sinking Fund
------------------------------------
ABC company just issued 50 Lakhs Rs. 100-par bonds payable carrying 8% coupon rate
and maturing in 15 years. The bond indenture requires the company to set up a sinking
up to pay off the bond at the maturity date. Semi-annual payments are to be made to
the fund which is expected to earn 5% per annum. Find the amount of required periodic
contributions.
Solution
The future value required to be accumulated equals 50 Crores (50,00,000 × 100)
Since the payments are semi-annual, the periodic interest rate = 5% ÷ 2 = 2.5%
Number of periods = 2 × 15 = 30
Periodic Contribution to Sinking Fund
PMT(FV) = ( FV / (((1+i)^n - 1) / i) )
PMT = Payment per Time Period
FV = Future Value
i = Interest Rate per Time Period
n = Number of Time Periods
= (50,00,00,000 / (((1+0.025)^30 - 1) / 0.025)
= (50,00,00,000 / ((2.097567579 - 1) / 0.025)
= (50,00,00,000 / (1.097567579 / 0.025)
= (50,00,00,000 / 43.90270316)
= 1,13,88,820
So, ABC company must deposit Rs. 1,13,88,820 at the end of each 6 months for 15
years in order to accumulate enough money to pay off the bonds when they are due.
........................................................
A newly constructed building stands on a plot costing Rs. 100000.
The construction cost of building is Rs. 2000000 and the estimated life of building is 66
years.
The investor wants a 5% return on land cost and 8% return on the construction cost.
Calculate the annual rent to be charged if annual repairs cost 0.5% of cost of
construction and other outgoings equal 30% of gross rent.
The co-efficient for sinking fund at 3% for 66 years may be taken as 0.005.
Return on land cost = 5% of 100000 = 5000
Return on construction cost = 6% of 2000000 = 120000
Total Income desired = Rs. 125000 (a)
Let gross annual rental be 'r'
Outgoings:
Annual repairs = 0.5% of 2000000 = 10000
Other outgoings = 30% of r or 0.30 r
Amount towards sinking fund = 0.005 x 2000000 = 10000
Hence, net income = r - 0.30 r - 20000 (b)
Equating (a) and (b),
0.70r - 20000 = 125000
0.70r = 125000 - 20000
0.70r = 105000
r = 105000/0.70
= 12500
Hence, rent per month = Rs. 12500
CAIIB-RETAIL BANKING-LAST MINUTE REVISION-CASE STUDIES
Find out the encumbrance factor and value of the usable FSI from following particulars
of the property :
Land area - 533 Sq Sq m
Total built-up area - 205 Sq m
Permissible FSI - 1
Rate of construction cost - Rs. 5000 per Sq m
Rate of land cost - Rs. 2000 per Sq m
Desired rate of return - 9%
Usable carpet area - 155 Sq m
Monthly Rent on carpet area basis - Rs. 50 per Sq m
Usual outgoings - 1/6 of yield
Solution
Cost of construction = 205 x 5000 = 1025000
Cost of FSI used = 205 x 2000 = 410000
Total cost = 1435000
Desired Yield @ 9% = 1435000 x 0.09 =129150
Estimated Yield = 50 x 155 x 12 = 93000
Usual outgoings = 1/6 of yield = 93000/6 = 15500
Net annual yield = 77500
Hence, encumbrance factor = 77500/93000 = 0.833
Usable FSI = 533 - 205 = 328 Sq m
Value of usable FSI = 328 x 0.833 x 2000 = 546448
.............................................
Suppose that during the rent of a property the owner earns the income of 60000 on a
quarterly basis.
Set the value of this liability at the current moment;
in other words, determine the price of this property, if it was sold at the present moment
at the interest rate:
1) of 8% converted on a quarterly basis?
2) of 8% converted on an annual basis?
We have that
1) R = 60000;
i = 0.02;
A = 60000 / 0.02
= 3000000:
Thus, the market value of this property is 3000000.
2) In the case we have a complex annuity,
thus: R = 60000, i = 0.08, c = 0.25 Then
p = 1.08^0.25 - 1 = 0.0194265
A = 60000/0.0194265 = 3088557
In this case the value of this property is 3088557.
.............................................
The device, the cost of which is 120000, must be replaced after six years.
It is known that after six years the used equipment could be sold for 20000.
Set the value of the property at the present moment (capitalize the costs) if the interest
rate is 10%, which is converted once a
year?
We have that OV = 120000, the replacement costs R = 120000 - 20000 = 100000,
In addition,
i = 0.15;
c = 1/(1/6) = 6 and
p = 1.1^6 - 1 = 0.7716
Then
K = 120000 + (100000/0.7716)
= 249607.4
CAIIB-RETAIL BANKING-LAST MINUTE REVISION
How to compute long & short-term capital gains (update yourselves with latest
changes)
There are various asset classes such as equity, debt, gold and real estate in which you
invest according to the time horizon of your financial goals and risk appetite. The gains
from these investments are termed as capital gains and are taxed differently.
Since any tax liability impacts your returns from the investment, it's important to have
awareness on the net gains you will receive.
The capital gains from the above-mentioned asset classes are classified as long-term or
short-term gains, based on the holding period of investment. For example, in real estate,
if you have held the asset for more than 3 years, it is treated as long term.
Contrary to this, in equities investment for more than a year is treated as long term.
Long-term capital gains are usually taxed at a lower rate than regular income, which is
done to encourage entrepreneurship and also investment in the economy.
Here are some calculations to show how long-term and short-term capital gains are
derived and how can they help you in reducing your taxability:
1. Long-Term Capital Gains: A long-term capital gain arises when you hold any asset
for a defined period. This period ranges from one year to three years across different
asset classes. The table in the attached file shows the holding period for long-term gains
in various asset classes and the applicable tax rate.
*Education Cess of 3% is applicable on all tax rates
As can be inferred from the data, equities enjoy zero taxability on long-term capital gains
while in real estate or physical gold investment you have to pay a flat rate. "Due to these
variations, the post-tax returns from these asset classes can vary substantially. There are
provisions in income tax to reduce long-term capital gains (LTCG) through indexation or
save LTCG tax by investing the gain in other alternatives,"
Thus, apart from reducing your tax liability through the indexation benefit, the tax on
long-term capital gains can also be saved by investing these gains in specified securities
for a certain period of time.
Indexation Benefit: Inflation constantly erodes the real value of money through the rise
in prices. Due to this even if your investments have risen four times during a particular
period, the purchasing power of money might have went down by, say, 50% from the
time of your investment. "To reduce the impact of inflation on your investment,
indexation benefit is provided in calculating long-term capital gains. Through this benefit
you can adjust your capital gains from inflation by applying an appropriate factor from
cost inflation index to the original units,"
Here is how indexation benefits works:
Cost of purchasing a property in April 2007 - Rs 35,00,000
Cost of selling the property in May 2011 - Rs 50,00,000
Inflation Index- 2007-2008 - 551
2011-2012 - 785
Indexed Purchase Cost - 35,00,000 x 785/551= Rs 49,86,388
Long Term Capital Gains = 50,00,000-49,86,388 = Rs 13612*
Tax on LTCG= 13612 x 20%= Rs 2722
Education Cess= 2722 x 3% = Rs 82
Total Tax on LTCG = Rs 2804
*The non-indexed gain would have been Rs 15 lakh
Thus, the indexation benefit reduces the tax liability substantially which otherwise would
have been a huge payout for any investor.
2. Short-Term Capital Gains: Investment in any asset class, if held for a very short
period, is taxed as short-term capital gains. Except equity, short-term gains from other
assets are included in the investor's income and are taxed as per the slab rate. The data
in the attached file highlights the taxation structure in case of short-term capital gains.
*Education cess of 3% is applicable on all tax rates
This is how short-term capital gains are calculated:
Cost of Equity Mutual Funds units bought in 2011 - Rs 100,000
Price of same units sold after 6 months - Rs 120,000
Short Term Capital Gains - Rs 20,000
Tax Applicable - 20,000 x 15%= Rs 3000
Education Cess - 3000 x 3%=Rs 90
Total Tax payable = Rs 3090
It is clear, thus, that with complex capital gains tax structure, it's wise to first make
yourself aware of the net returns, i.e. post-tax returns, you will earn, whenever you
intend to make any investment. This will help you in analyzing the amount of wealth you
will create after paying your tax liabilities.
CAIIB-RETAIL BANKING-LAST MINUTE REVISION-CASE STUDIES
Difference between Written Down Value Method (WDV) and Straight Line
Method (SLN)
In Written Down Value (WDV) method depreciation is charged on the reuced price.
Example: Asset purchased for Rs. 100.00: Depreciation rate 10%. First year its value will
be reduced to 90.00 (100-10% of 100) and in second year depreciation will be Rs. 9.00 i
e 10% of 90. Similarly third year it will be Rs. 8.10. This way the value of asset never
comes at Zero.
In Straight Line Method (SLN) life of a asset is known then for the duration of life, every
year an equal sum is taken as depreciation. Example Asset purchased for Rs. 100.00,
Life ascertained 8 years and then every year a sum of Rs. 12.50 is charged to
Depreciation and after 8th year its book value will be zero.
WDV method is strongly recommended.
In Written Down Value Method, the rate of depreciation is predetermined. This is done
by deducting the amount of depreciation charged before from the balance of cost of
asset (Cost of Asset-Estimated Scrap Value). In simple words, in the first year the
amount of depreciation charged is high and it gradually starts decreasing during the
subsequent years.
The main benefit of this method is that it recognises this fact that in the initial phase of
an asset, costs of maintenance, repairs etc. are less which goes on increasing with the
progressing life of the asset. Thus, by charging higher amount of depreciation in the
initial years and gradually decreasing the amount of depreciation counterbalance both
the lower amount of repairs and maintenance cost in the initial years and the gradual
increase later on. It can be noted here that the written down value can never be zero.
CAIIB-RETAIL BANKING-LAST MINUTE REVISION
Formula to Calculate the Periodic Payments under RML
----------------------------------------------------------------
The formula to calculate the periodic payments, as available in the website of NHB, is as
under:
Installment Amount = (PV*LTVR*I)/ ((1+I)n-1) Where,
PV = Property Value;
LTVR = LTV Ratio;
n = No. of Installment Payments;
I = the value of I will depend on Disbursement Frequency selected.
A Hypothetical Example
Value of the property Rs. 50,00,000 Rs 50,00,000
Loan Amount 80% 90%
Loan Tenor 15 years 15 years
Rate of interest 10% 10.50%
Monthly installment Rs. 9651. Rs 10,368
Quarterly installment Rs. 29,414. Rs 31,638
Yearly installment Rs. 1,25, 895 Rs 1,36,116
.............................................
Sinking Fund
----------------
The sinking fund factor is the amount that accumulates to Re. 1 if invested at specified
rate of interest for certain number of years.
It can be obtained from Valuation Tables.
The factor for redemption of Re 1 at the end of 25 years @ 5% compound interest is
0.021 from the table (see Appendix given in book).
Thus the sinking fund for redeeming original capital of Rs. 15 lacs will be 15,00,000 x
0.021 = 315000.
…………………………………………………………………………………………

CAIIB – BFM (BANK FINANCIAL MANAGEMENT)

CAIIB - Bank Financial Management - Mod - A : International Banking
EXCHANGE RATES AND FOREX BUSINESS
1. Foreign Exchange: Conversion of currencies from the currency of invoice to the home
currency of the exporters is called as Foreign Exchange.
2. Foreign Exchange Management Act (FEMA),1999 defines Foreign Exchange as o “ All
deposits, credits and balances payable in foreign currency and any drafts, traveler’s Cheques,
LCs and Bills of Exchange, expressed or drawn in Indian Currency and payable in any foreign
currency.”
Any instrument payable at the option of the drawee or holder, thereof or any other party thereto,
either in Indian Currency or in foreign currency, or partly in one and partly in the other.
3. A Foreign Exchange transaction is a contract to exchange funds in one currency for funds in
another currency at an agreed rate and arranged basis.
4. Exchange Rate means the price or the ratio or the value at which one currency is exchanged
for another currency.
5. Foreign Exchange markets participants are
# Central Banks
# Commercial Banks
# Investment Funds/Banks
# Forex Brokers
# Corporations
# Individuals
6. The Forex Markets are highly dynamic, that on an average the exchange rates of major
currencies fluctuate every 4 Seconds, which effectively means it registers 21,600 changes in a
day (15X60X24)
7. Forex markets usually operate from “Monday to Friday” globally, except for the Middle East
or other Islamic Countries which function on Saturday and Sunday with restrictions, to cater to
the local needs, but are closed on Friday.
8. The bulk of the Forex markets are OTC (Over the Counter).
9. Factors Determining Exchange Rates:
a) Fundamental Reasons
# Balance of Payment
# Economic Growth rate
# Fiscal policy
# Monetary Policy
# Interest Rates
# Political Issues
b) Technical Reasons
- Government Control can lead to unrealistic value.
- Free flow of Capital from lower interest rate to higher interest rates
c) Speculative - higher the speculation higher the volatility in rates
10. Due to vastness of the market, operating in different time zones, most of the Forex deals in
general are done on SPOT basis.
11. The delivery of FX deals can be settled in one or more of the following ways:
# Ready or Cash
# TOM
# Spot
# Forward
# Spot and Forward
12. Ready or Cash: Settlement of funds takes place on the same day (date of Deal)
13. TOM: Settlement of funds takes place on the next working day of the deal. If the settlement
day Is holiday in any of the 2 countries, the settlement date will be next working day in both the
countries.
14. Spot : Settlement of funds takes place on the second working day after/following the date of
Contract/deal. If the settlement day is holiday in any of the 2 countries, the settlement date will
be next working day in both the countries.
15. Forward: Delivery of funds takes place on any day after SPOT date.
16. Spot and Forward Rates: On the other hand, when the delivery of the currencies is to take
place at a date beyond the Spot date, it is Forward Transaction and rate applied is called Forward
Rate.
17. Forward Rates are derived from Spot Rates and are function of the spot rates and forward
premium or discount of the currency, being quoted.
18. Forward Rate = Spot Rte + Premium or – Discount
19. If the value of the currency is more than being quoted for Spot, then it is said to be at a
premium.
20. If the currency is cheaper at a later date than Spot, then it is called at a Discount.
21. The forward premium and discount are generally based on the interest rate differentials of
the two currencies involved.
Basics of Forex Derivates
1. Derivatives are the instruments to the exposure for neutralize or alter to acceptable levels, the
uncertainty profile of the exposure. E.g: Forward contracts, options, swaps, forward rate
agreements and futures.
2. A risk can be defined as an unplanned event with financial consequences resulting in loss or
reduced earnings.
3. Some of the very common risks faced in forex operations
i. Exchange Risk
ii. Settlement Risk/ Temporal Risk/ Herstatt Risk (Named after the 1974 failure of the Bankhaus
Herstatt in Germany)
iii. Liquidity Risk
iv. Country Risk
v. Sovereign risk
vi. Intrest Rate Risk
vii. Operational Risk
4. Movement in exchange rates may result in loss for the dealer’s open position.
5. In case of excess of assets over the liabilities, the dealer will have long position
6. Country risk is a dynamic risk and can be controlled by fixing country limit.
7. Sovereign risk can be managed by suitable disclaimer clauses in the documentation and
also by subjecting such sovereign entities to third jurisdiction.
8. Operational risk can be controlled by putting in place state of art system, specified
contingencies.
9. RBI has issued Internal Control Guidelines (ICG) for Foreign Exchange Business.
10. Various Dealing Limits are as follows:
a. Overnight Limit: Maximum amount of open position or exposure, a bank can keep overnight,
when markets in its time zone are closed.
b. Daylight Limit: Maximum amount of open position or exposure, the bank can expose itself at
any time during the day, to meet customers’ needs or
for its trading operations
c. Gap Limits: Maximum inter period/month exposures which a bank can keep, are called gap
limits
d. Counter Party Limit: Maximum amount that a bank can expose itself to a particular counter
party.
e. Country Risk: Maximum exposure on a single country
f. Dealer Limits: Maximum amount a dealer can keep exposure during the operating hours.
g. Stop-Loss Limit: Maximum movement of rate against the position held, so as to trigger the
limit or say maximum loss limit for adverse movement of rates.
h. Settlement Loss Limit: Maximum amount of exposure to any entity, maturing on a single
day.
i. Deal Size Limit: Highest amount for which a deal can be entered. The limits are fixed to
restrict the operational risk on large deals.
11. CCIL (Clearing Corporation of India Ltd) takes over the Settlement Risk, for which it
creates a large pool of resources, called settlement Guarantee Fund, which is used to cover
outstanding of any participant.
12. The Clearing Corporation of India Ltd. (CCIL) was set up in April, 2001 for providing
exclusive clearing and settlement for transactions in Money, GSecs and Foreign Exchange.
February 15, 2002 Negotiated Dealing System (NDS)
November 2002 settlement of Forex transactions
January 2003 Collateralized Borrowing and Lending Obligation (CBLO), a money market
product
based on Gilts as collaterals
August 7, 2003. Forex trading platform “FX-CLEAR”
April 6, 2005. settlement of cross-currency deals through the CLS Bank
13. Six 'core promoters' for CCIL - State Bank of India (SBI), Industrial Development Bank of
India (IDBI), ICICI Ltd., LIC (Life Insurance Corporation of India), Bank of Baroda, and HDFC
Bank.
14. Derivatives: A security whose price is dependent upon or derived from one or more
underlying assets. The derivative itself is merely a contract between two or more parties. Its
value is determined by fluctuations in the underlying asset. The most common underlying assets
include stocks, bonds, commodities, currencies, interest rates and market indexes. Most
derivatives are characterized by high leverage.
15. In early 1970s, the Chicago Mercantile Exchange introduced world’s first Exchange
traded currency future contract.
Correspondent Banking and NRI Accounts
1. Corresponding Banking is the relationship between two banks which have mutual accounts
with each other, r one of them having account with the other.
2. Functions of Corresponding Banks:
A. Account Services
i. Clearing House Functions
ii. Collections
iii. Payments
iv. Overdraft and loan facility
v. Investment Services
B. Other Services
i. Letter of Credit Advising
ii. LC confirmation
iii. Bankers Acceptance
iv. Issuance of Guarantees – Bid-bond, Performance
v. Foreign Exchange services, including derivative products
vi. Custodial Services etc.
3. Types of Bank Accounts: The foreign account maintained by a Bank, with another bank is
classified as Nostro, Vostro, and Loro Accounts.
4. Nostro Account: “Our Account with you”. DLB maintains an US $ account with Bank of
Wachovia, New York is Nostro Account in the books of DLB, Mumbai.
5. Vostro Account: “Your account with us”. Say American Express Bank maintain a Indian
Rupee account with SBI is Vostro Account in the books of American Express bank
6. Loro Account: It refers to accounts of other banks i.e. His account with them. E.g. Citi Bank
referring to Rupee account of American Express Bank, with SBI Mumbai or some other bank
referring to the USD account of SBI, Mumbai with Citi Bank, New York.
7. Mirror Account: While a Bank maintains Nostro Account with a foreign Bank, (Mostly in
foreign currency), it has to keep an account of the same in its books. The mirror account is
maintained in two currencies, one in foreign currency and one in Home currency.
8. Electronic Modes of transmission/ payment gateways
SWIFT, CHIPS, CHAPPS, RTGS, NEFT
9. SWIFT: Society for Worldwide Interbank Financial Telecommunications.
10. SWIFT has introduced new system of authentication of messages between banks by use of
Relationship Management Application (RMA) also called as SWIFT BIC i.e.Bank
Identification Code.
11. CHIPS: (Clearing House Interbank Payment System) is a major payment system in USA
since 1970. It is established by New York Clearing House. Present membership is 48. CHIPS are
operative only in New York.
12. FEDWIRE: This is payment system of Federal Reserve Bank, operated all over the US since
1918. Used for domestic payments.
13. All US banks maintain accounts with Federal Reserve Bank and are allotted an “ABA
number” to identify senders and receivers of payment
What Does ABA Transit Number Mean?
A unique number assigned by the American Bankers Association (ABA) that identifies a specific
federal or state chartered bank or savings institution. In order to qualify for an ABA transit
number, the financial institution must be eligible to hold an account at a Federal Reserve Bank.
ABA transit numbers are also known as ABA routing numbers, and are used to identify which
bank will facilitate the payment of the check.
14. CHAPS: Clearing House Automated Payments system is British Equivalent to CHIPS,
handling receipts and payments in LONDON
15. TARGET: Trans-European Automated Real Time Gross Settlement Express Transfer
System is a EURO payment system working in Europe. And facilitates fund transfers in Euro
Zone.
16. RTGS + and EBA: RTGS+ is Euro German Based hybrid Clearing System. RTGS+ has 60
participants.

Regular Study - Bank Financial Management

Regular Study - Basic Accounting Terms
The understanding of the subject becomes easy when one has the knowledge of a few
important terms of accounting. Let us go through some of them.
Transactions
Transactions are those activities of a business, which involve transfer of money or goods or
services between two persons or two accounts. For example, purchase of goods, sale of
goods, borrowing from bank, lending of money, salaries paid, rent paid, commission
received and dividend received. Transactions are of two types, namely, cash and credit
transactions.
Cash Transaction is one where cash receipt or payment is involved in the transaction. For
example, When You buys goods from a seller paying the price of goods by cash
immediately, it is a cash transaction.
Credit Transaction is one where cash is not involved immediately but will be paid or
received later. In the above example, if You, do not pay cash immediately but promises to
pay later, it is credit transaction.
Proprietor
A person who owns a business is called its proprietor. He contributes capital to the business
with the intention of earning profit.
Capital
It is the amount invested by the proprietor/s in the business. This amount is increased by the
amount of profits earned and the amount of additional capital introduced. It is decreased by
the amount of losses incurred and the amounts withdrawn. For example, if Mr. Ram starts
business with Rs.10,00,000, his capital would be Rs.10,00,000.
Assets
Assets are the properties of every description belonging to the business. Cash in hand, plant
and machinery, furniture and fittings, bank balance, debtors, bills receivable, stock of
goods, investments, Goodwill are examples for assets. Assets can be classified into tangible
and intangible.
Tangible Assets: These assets are those having physical existence. It can be seen and
touched. For example, plant & machinery, cash, etc.
Intangible Assets: Intangible assets are those assets having no physical existence but their
possession gives rise to some rights and benefits to the owner. It cannot be seen and
touched. Goodwill, patents, trademarks are some of the examples.
Liabilities
Liabilities refer to the financial obligations of a business. These denote the amounts which a
business owes to others, e.g., loans from banks or other persons, creditors for goods
supplied, bills payable, outstanding expenses, bank overdraft etc.
Drawings
It is the amount of cash or value of goods withdrawn from the business by the proprietor for
his personal use. It is deducted from the capital.
Debtors
A person (individual or firm) who receives a benefit without giving money or money’s
worth immediately, but liable to pay in future or in due course of time is a debtor. The
debtors are shown as an asset in the balance sheet. For example, Mr. Ravi bought goods on
credit from Mr. Ram for Rs.10,000. Mr. Ravi is a debtor to Mr. Ram till he pays the value
of the goods.
Creditors
A person who gives a benefit without receiving money or money’s worth immediately but
to claim in future, is a creditor. The creditors are shown as a liability in the balance sheet. In
the above example Mr. Ram is a creditor to Mr. Ravi till he receive the value of the goods.
Purchases
Purchases refers to the amount of goods bought by a business for resale or for use in the
production. Goods purchased for cash are called cash purchases. If it is purchased on
credit, it is called as credit purchases. Total purchases include both cash and credit
purchases.
Purchases Return or Returns Outward
When goods are returned to the suppliers due to defective quality or not as per the terms of
purchase, it is called as purchases return. To find net purchases, purchases return is
deducted from the total purchases.
Sales
Sales refers to the amount of goods sold that are already bought or manufactured by the
business. When goods are sold for cash, they are cash sales but if goods are sold and
payment is not received at the time of sale, it is credit sales. Total sales includes both cash
and credit sales.
Sales Return or Returns Inward
When goods are returned from the customers due to defective quality or not as per the terms
of sale, it is called sales return or returns inward. To find out net sales, sales return is
deducted from total sales.
Stock
Stock includes goods unsold on a particular date. Stock may be opening and closing stock.
The term opening stock means goods unsold in the beginning of the accounting period.
Whereas the term closing stock includes goods unsold at the end of the accounting period.
For example, if 5,000 units purchased @ Rs. 30 per unit remain unsold, the closing stock is
Rs. 1,50,000. This will be opening stock of the subsequent year.
Revenue
Revenue means the amount receivable or realised from sale of goods and earnings from
interest, dividend, commission, etc.
Expense
It is the amount spent in order to produce and sell the goods and services. For example,
purchase of raw materials, payment of salaries, wages, etc.
Income
Income is the difference between revenue and expense.
Voucher
It is a written document in support of a transaction. It is a proof that a particular transaction
has taken place for the value stated in the voucher. It may be in the form of cash receipt,
invoice, cash memo, bank pay-in-slip etc. Voucher is necessary to audit the accounts.
Invoice

CAIIB – BFM (BANK FINANCIAL MANAMENT)

CAIIB-BFM-CASE STUDIES
Important Formulas
------------------------
Some of these Formulas may not be applicable for BFM, but I request all of you to go
through all of them to understand the concepts clear for both ABM and BFM.
1. Raw material Turnover Ratio = Cost of RM used / Average stock of R M
2. SIP Turnover = Cost of Goods manufactured / Average stock of SIP
3. Debt Collection period = No. days or months or Weeks in a year/Debt Turnover Ratio.
4. Average Payment Period = No. days or months or Weeks in a year/Creditors Turnover
Ratio.
5. Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory.
6. Debtors Turnover Ratio = Net Credit Sales / Average Debtors.
7. Creditors Turnover Ratio = Net Credit Purchases / Average Credits.
8. Defensive Interval Ratio = Liquid Assets / Projected Daily Cash Requirement
9. Projected daily cash requirement = Projected operating cash expenses / 365.
10. Debt Equity Ratio = Long Term Debt / Equity.
11. Debt Equity Ratio = Total outside Liability / Tangible Net Worth.
12. Debt to Total Capital Ratio = Total Debts or Total Assets/(Permanent Capital + Current
Liabilities)
13. Interest Coverage Ratio = EBIT / Interest.
14. Dividend Coverage Ratio = N. P. after Interest & Tax / Preferential dividend
15. Gross Profit Margin = Gross Profit / Net Sales * 100
16. Net Profit Margin = Net Profit / Net Sales * 100
17. Cost of Goods Sold Ratio = Cost of Goods Sold / Net Sales * 100.
18. Operating Profit Ratio = Earnings Before Interest Tax / Net Sales * 100
19. Expenses Ratio or Operating Ratio = Expenses / Net Sales * 100
20. Net Profit Ratio = Net Profit After interest and Tax / Net Sales * 100
21. Operating Expenses Ratio = (Administrative + Selling expenses) / Net Sales * 100
22. Administrative Expenses Ratio =(Administrative Expenses / Net Sales ) * 100
23. Selling Expenses Ratio =(Selling Expenses / Net Sales ) * 100
24. Financial Expenses Ratio = ( Financial Expenses / Net Sales ) * 100
25. Return on Assets = Net Profit After Tax / Total Assets.
26. Total Assets = Net Fixed Assets + Net Working Capital.
27. Net Fixed Assets = Total Fixed Assets – Accumulated Depreciation.
28. Net Working Capital = ( CA –CL ) – ( Intangible Assets + Fictitious Assets + Idle Stock
+ Bad Debts )
29. Return on Capital Employed = Net Profit Before Interest and Tax / Average Capital
Employed.
30. Average Capital employed = Equity Capital + Long Term Funds provided by Owners &
Creditors at the beginning & at the end of the accounting period divided by two.
31. Return on Ordinary Share Holders Equity = (NPAT – Preferential Dividends) / Average
Ordinary Share Holders Equity or Net Worth.
32. Earnings Per Share = Net Profit After Taxes and Preferential dividends / Number of
Equity Share.
33. Dividend per Share = Net Profit After Taxes and distributable dividend / Number of
Equity Shares.
34. Dividend Pay Out Ratio = Dividend per Equity Share / Earnings per Equity Share.
35. Dividend Pay Out Ratio = Dividend paid to Equity Share holders / Net Profit available
for Equity Share Holders.
36. Price Earning Ratio = Market Price per equity Share / Earning per Share.
37. Total Asset Turnover = Cost of Goods Sold / Average Total Assets.
38. Fixed Asset Turnover = Cost of Goods Sold / Average Fixed Assets.
39. Capital Turnover = Cost of Goods Sold / Average Capital employed.
40. Current Asset Turnover = Cost of Goods Sold / Average Current Assets.
41. Working Capital Turnover = Cost of Goods Sold / Net Working Capital.
42. Return on Net Worth = ( Net Profit / Net Worth ) * 100
43. DSCR = Profit after Tax & Depreciation + Int. on T L & Differed Credit + Lease
Rentals if any divided by Repayment of Interest & Installments on T L & Differed Credits +
Lease Rentals if any.
44. Factory Cost = Prime cost + Production Overheads.
45. Cost of Goods Sold = Factory Cost + Selling, distribution & administrative overheads
46. Contribution = Sales – Marginal Costs.
47. Percentage of contribution to sales = ( Contribution / Sales ) * 100
48. Break Even Analysis = F / ( 1 – VC / S )
F = Fixed costs, VC = Total variable operating costs & S = Total sales revenue
49. Break Even Margin or Margin of Safety = Sales – Break Even Point / Sales.
50. Cash Break Even = F – N / P – R or F – N / 1 – ( VC / S )
51. BEP = Fixed Costs / Contribution per unit.
52. Sales volume requires = Fixed cost + Required profit / Contribution per unit.
53. BEP in Sales = ( Fixed Costs / Contribution per unit ) * Price per unit.
54. Contribution Sales Ratio = ( Contribution per unit / Sale price per unit ) * 100
55. Level of sales to result in target profit after Tax = (Target Profit) / (1 – Tax rate /
Contribution per unit)
56. Level of sales to result in target profit = (Fixed Cost + Target profit) * sales price per
unit Contribution per unit.
57. Net Present Value = - Co + C1 / (1 + r)
58. Future expected value of a present cash flow = Cash Flow ( 1 + r ) ^ t
59. Present value of a simple future cash flow = Cash Flow / (1 + r) ^ t
60. The Discount Factor = 1 / (1 + r) ^ t
61. Notation used internationally for PV of an annuity is PV ( A, r, n )
62. Notation used internationally for FV of an annuity is FV ( A, r, n )
63. The effective annual rate = ( 1 + r ) ^ t – 1 or (1 + (r / N) ) – 1 )
N = Number of times compounding in a year
64. PV of end of period Annuity = A { (1- (1 / (1+r) ^ n) / r
65. CR = CA : CL
66. Net Worth = CA - CL
67. DER = TL/TNW or debt/equity or TL/equity
68. Price Elasticity of Supply = (% change in quantity supplied/(% change in price)
69. PV = P / R * [(1+R)^T - 1]/(1+R)^T
70. PV = P / (1+R)^T
71. FV = P * (1 + R)^T
72. FV = P*(1-R)^T
73. FV = P / R * [(1+R)^T - 1]
74. FV = P / R * [(1+R)^T - 1] * (1+R)
75. EMI = P * R * [(1+R)^T/(1+R)^T-1)]
76. FV of annuity = A/r ×{(1+r)^n-1}
77. Bond Price = (1/(1+R)^t)((coupon*((1+R)^t-1)/R)+Face Value)
CAIIB-BFM-CASE STUDIES
Balance sheet of a bank provides the following information:
Fixed Assets - 1000cr
Investment in central Govt Securities - Rs 10000cr
In standard loan accounts
Housing Loans - RS 6000cr (Secured, below Rs 10 lac)
the Retail loan - Rs 4000cr
Other loans - Rs 8000cr
sub-standard secured loans - Rs 1000cr
sub-standard unsecured loans - Rs 500cr
Doubtful loans (D-1, secured) - Rs 800cr
Doubtful loans (D-1, unsecured) - Rs 600cr
Doubtful loans (D-2, secured) - Rs 500cr
Doubtful loans (D-2, unsecured) - Rs 1000cr
Doubtful loans (D-3, secured) - Rs 1000cr
Doubtful loans (D-3, unsecured) - Rs 600cr
Loss Assets - 50cr and
other assets - Rs 500cr.
Answer the following questions, based on this information, by using standard Approach for
credit risk.
1. What is the amount of RWAs for investment in govt securities?
a. Rs 5000cr
b. Rs 3500cr
c. Rs 2500cr
d. Nil
2. What is the amount of RWAs for sub-standard unsecured accounts?
a. Rs 500cr
b. Rs 7500cr
c. Rs 1000cr
d. Rs 1500cr
3. What is the amount of RWAs for doubtful (D-1, unSecured) accounts?
a. Rs 300cr
b. Rs 500cr
c. Rs 800cr
d. Rs 900cr
4. What is the amount of RWAs for doubtful (D-2, unSecured) accounts?
a. Rs 300cr
b. Rs 500cr
c. Rs 800cr
d. Rs 900cr
5. What is the amount of RWAs for doubtful (D-3, unSecured) accounts?
a. Rs 300cr
b. Rs 500cr
c. Rs 800cr
d. Rs 900cr
6. What is the amount of RWAs for retail loans?
a. 3000cr
b. 4000cr
c. 5000cr
d. 6000cr
7. What is the amount of RWAs for housing loans?
a. 3000cr
b. 4000cr
c. 5000cr
d. 6000cr
Solution :
1. d
RW against Govt Securities = 0 %
So, RWA
= 10000 x 0%
= 0 Cr
2. a

CAIIB – ABM (ADVANCE BANK MANAGEMENT)

CAIIB - Advanced Bank Management - Mod - A : Economic Analysis
FUNDAMENTALS OF ECONOMICS
------------------------------------------
1) Economics is “The science which studies human behavior as a relationship between ends and
scarce means which have alternative uses. “
2) The essence of Economics is to acknowledge the reality of scarcity and then figure out how to
organize society in a way which produces the most efficient use of resources.
3) Adam Smith is the Father of Modern Economics.
4) An Enquiry into the Nature and Causes of the Wealth of Nations (published in 1776) is
written by Adam Smith.
5) Economics is the study of how wealth is produced and consumed.
6) Smith’s definition is known as Wealth Definition. It gave more importance to wealth than to
man for whose use wealth is produced.
7) Welfare Definition is coined by Prof. Alfred Marshal. He described Economics as a science
of human welfare.
8) Scarcity Definition is coined by Prof. Lionel Robbins.
9) Prof. Lionel Robbins defines Economics as study of “means” and “Ends”.
a. Man has unlimited wants
b. The means to satisfy human wants are limited
c. Resources are not only limited but have alternative uses
d. Man has to make a choice.
10) Adam Smith is considered to be the Founder of the field Micro Economics.
11) Micro Economics is concerned with the behaviour of individual entities such as markets,
firms, and households.
12) Macro Economics is a branch of Economics that deals with the performance, structure and
behaviour of a national or regional economy as a whole and concerned with the overall
performance of the Economy.
13) Founder of the field of Macro Economics is John Maynard Kenes.
14) John Maynard Kenes wrote the book “General Theory of Employment, Interest and
Money”.
15) An analysis of causes of Business cycles is developed by Mr. Kenes.
16) A market Economy/ Capitalistic Economy is one in which individuals and private firms
make the major decisions about production and consumption. E.g.: United Kingdom.
17) A Command Economy/Socialistic Economy is one in which the government makes all
important decisions about production and distribution.
18) Mixed Economy is where public sector, private sector and joint sector coexist and
complement each other. E.g.: India
19) Laissez – faire Economy is the extreme case of a Market Economy.
Unit – 2 : SUPPLY & DEMAND
1) Theory of Supply and Demand shows how consumer preferences determine consumer
demand for commodities, while business costs determine the supply of commodities.
2) The relationship that exists between price and quantity bought is called as the Demand
Schedule or the Demand Curve. The quantity demanded increases with the fall in price.
3) Quantity and Price are inversely related.
4) The graphical representation of the demand schedule is called as the Demand Curve.
5) Law of Downward – sloping demand: When the Price of a commodity is raised (and other
things being constant), buyers tend to buy less of the commodity. Similarly, when the price is
lowered, other things being constant, quantity demanded increases.
6) Market Demand curve obey the Law of Downward- Slopping demand
7) A Down ward slopping Demand Curve relates Quantity Demanded to Price
8) Factors influences the Demand Curve
- Average levels of income - The size of market/population
- The prices and availability of related goods - Tastes or Preferences - Special Influences
9) The Supply Schedule relates the quantity supplied of a good to its market price, other things
being constant.
10) Shifts in Supply Means when changes in factors other than goods own price affect the
quantity supplied.
11) The Supply Schedule (or Supply Curve) for a commodity shows the relationship between its
market price and the amount of that commodity those producers is willing to produce and
sell, other things being constant.
12) Forces behind the supply Curve:
- Cost of Production - Prices of inputs and technological advances - Government
Policy
- Prices of related goods - Special Factors like weather influence on farming and agroindustry
13) Supply increases (or Decreases) when the amount supplied increases (or Decreases) at each
market price.
14) Supply and demand interacts to produce equilibrium price and quantity or market
equilibrium.
15) The Market Equilibrium comes at that price and quantity where the forces of supply and
demand are in balance.
16) At the Equilibrium price, the amount that buyers want to buy is just equal to the amount
that sellers want to sell.
17) A Market equilibrium comes at the price at which quantity demanded equals quantity
supplied.
18) The Equilibrium Price is also called as the Market Clearing Price.
Unit – 3 : MONEY SUPPLY & INFLATION
1) Money is anything which performs the following four functions:
- Medium of Exchange - A measure of value
- A store of value over time - Standard for deferred payments
2) Medium of Exchange: Individual goods and services and other physical assets, are “priced”
in terms of money and are exchanged using money.
3) A Measure of Value: Money is used to measure and record the value of goods or services.
4) A Store of value over time: Money can be held over a period of time and used to finance
future payments.
5) Standard for Deferred Payments: Money is used as an agreed measure of future receipts
and payments in contracts.
6) Money supply refers to the stock of money in circulation in the economy at a given point of
time. This is partly exogenous (Decided by the Govt and the RBI) and partly endogenous.
7) There are four common measures of Money supply, commonly used in India:
- Narrow Money (M1)= Currency with Public Demand Deposits with Banking System +
‘Other” Deposits with the RBI
- M2 = M1+ Savings deposits of Post Office Savings Banks
- M3 = M1+ Time Deposits with the Banking System
- M4 = M3+ All Deposits with post office savings banks ( Excluding NSCs)
8) Currency with Public = Currency in circulation - Cash held by banks.

CAIIB ABM CASE STUDIES

CAIIB – ABM (ADVANSE BANK MANAGEMENT)
CAIIB-ABM-IMPORTANT FORMULA
Important Formula
------------------------
Some of these Formula may not be applicable for ABM, but I request all of you to go
through all of them to understand the concepts clear for both ABM and BFM.
1. Raw material Turnover Ratio = Cost of RM used / Average stock of R M
2. SIP Turnover = Cost of Goods manufactured / Average stock of SIP
3. Debt Collection period = No. days or months or Weeks in a year/Debt Turnover Ratio.
4. Average Payment Period = No. days or months or Weeks in a year/Creditors Turnover
Ratio.
5. Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory.
6. Debtors Turnover Ratio = Net Credit Sales / Average Debtors.
7. Creditors Turnover Ratio = Net Credit Purchases / Average Credits.
8. Defensive Interval Ratio = Liquid Assets / Projected Daily Cash Requirement
9. Projected daily cash requirement = Projected operating cash expenses / 365.
10. Debt Equity Ratio = Long Term Debt / Equity.
11. Debt Equity Ratio = Total outside Liability / Tangible Net Worth.
12. Debt to Total Capital Ratio = Total Debts or Total Assets/(Permanent Capital + Current
Liabilities)
13. Interest Coverage Ratio = EBIT / Interest.
14. Dividend Coverage Ratio = N. P. after Interest & Tax / Preferential dividend
15. Gross Profit Margin = Gross Profit / Net Sales * 100
16. Net Profit Margin = Net Profit / Net Sales * 100
17. Cost of Goods Sold Ratio = Cost of Goods Sold / Net Sales * 100.
18. Operating Profit Ratio = Earnings Before Interest Tax / Net Sales * 100
19. Expenses Ratio or Operating Ratio = Expenses / Net Sales * 100
20. Net Profit Ratio = Net Profit After interest and Tax / Net Sales * 100
21. Operating Expenses Ratio = (Administrative + Selling expenses) / Net Sales * 100
22. Administrative Expenses Ratio =(Administrative Expenses / Net Sales ) * 100
23. Selling Expenses Ratio =(Selling Expenses / Net Sales ) * 100
24. Financial Expenses Ratio = ( Financial Expenses / Net Sales ) * 100
25. Return on Assets = Net Profit After Tax / Total Assets.
26. Total Assets = Net Fixed Assets + Net Working Capital.
27. Net Fixed Assets = Total Fixed Assets – Accumulated Depreciation.
28. Net Working Capital = ( CA –CL ) – ( Intangible Assets + Fictitious Assets + Idle Stock
+ Bad Debts )
29. Return on Capital Employed = Net Profit Before Interest and Tax / Average Capital
Employed.
30. Average Capital employed = Equity Capital + Long Term Funds provided by Owners &
Creditors at the beginning & at the end of the accounting period divided by two.
31. Return on Ordinary Share Holders Equity = (NPAT – Preferential Dividends) / Average
Ordinary Share Holders Equity or Net Worth.
32. Earnings Per Share = Net Profit After Taxes and Preferential dividends / Number of
Equity Share.
33. Dividend per Share = Net Profit After Taxes and distributable dividend / Number of
Equity Shares.
34. Dividend Pay Out Ratio = Dividend per Equity Share / Earnings per Equity Share.
35. Dividend Pay Out Ratio = Dividend paid to Equity Share holders / Net Profit available
for Equity Share Holders.
36. Price Earning Ratio = Market Price per equity Share / Earning per Share.
37. Total Asset Turnover = Cost of Goods Sold / Average Total Assets.
38. Fixed Asset Turnover = Cost of Goods Sold / Average Fixed Assets.
39. Capital Turnover = Cost of Goods Sold / Average Capital employed.
40. Current Asset Turnover = Cost of Goods Sold / Average Current Assets.
41. Working Capital Turnover = Cost of Goods Sold / Net Working Capital.
42. Return on Net Worth = ( Net Profit / Net Worth ) * 100
43. DSCR = Profit after Tax & Depreciation + Int. on T L & Differed Credit + Lease
Rentals if any divided by Repayment of Interest & Installments on T L & Differed Credits +
Lease Rentals if any.
44. Factory Cost = Prime cost + Production Overheads.
45. Cost of Goods Sold = Factory Cost + Selling, distribution & administrative overheads
46. Contribution = Sales – Marginal Costs.
47. Percentage of contribution to sales = ( Contribution / Sales ) * 100
48. Break Even Analysis = F / ( 1 – VC / S )
F = Fixed costs, VC = Total variable operating costs & S = Total sales revenue
49. Break Even Margin or Margin of Safety = Sales – Break Even Point / Sales.
50. Cash Break Even = F – N / P – R or F – N / 1 – ( VC / S )
51. BEP = Fixed Costs / Contribution per unit.
52. Sales volume requires = Fixed cost + Required profit / Contribution per unit.
53. BEP in Sales = ( Fixed Costs / Contribution per unit ) * Price per unit.
54. Contribution Sales Ratio = ( Contribution per unit / Sale price per unit ) * 100
55. Level of sales to result in target profit after Tax = (Target Profit) / (1 – Tax rate /
Contribution per unit)
56. Level of sales to result in target profit = (Fixed Cost + Target profit) * sales price per
unit Contribution per unit.
57. Net Present Value = - Co + C1 / (1 + r)
58. Future expected value of a present cash flow = Cash Flow ( 1 + r ) ^ t
59. Present value of a simple future cash flow = Cash Flow / (1 + r) ^ t
60. The Discount Factor = 1 / (1 + r) ^ t
61. Notation used internationally for PV of an annuity is PV ( A, r, n )
62. Notation used internationally for FV of an annuity is FV ( A, r, n )
63. The effective annual rate = ( 1 + r ) ^ t – 1 or (1 + (r / N) ) – 1 )
N = Number of times compounding in a year
64. PV of end of period Annuity = A { (1- (1 / (1+r) ^ n) / r
65. CR = CA : CL
66. Net Worth = CA - CL
67. DER = TL/TNW or debt/equity or TL/equity
68. Price Elasticity of Supply = (% change in quantity supplied/(% change in price)
69. PV = P / R * [(1+R)^T - 1]/(1+R)^T
70. PV = P / (1+R)^T
71. FV = P * (1 + R)^T
72. FV = P*(1-R)^T
73. FV = P / R * [(1+R)^T - 1]
74. FV = P / R * [(1+R)^T - 1] * (1+R)
75. EMI = P * R * [(1+R)^T/(1+R)^T-1)]
76. FV of annuity = A/r ×{(1+r)^n-1}
77. Bond Price = (1/(1+R)^t)((coupon*((1+R)^t-1)/R)+Face Value)
CAIIB - ABM- CASE STUDIES / NUMERICAL QUESTIONS
A bond has been issued with a face value of Rs. 1000 at 8% Coupon for 3 years. The
required rate of return is 7%. What is the value of the bond?
Explanation :
Here,
FV = 1000
Coupon Rate (CR) = 0.08
t = 3 yr
R (YTM) = 0.07
Coupon = FV × CR = 80
Bond Price = (1/(1+R)^t)((coupon*((1+R)^t-1)/R)+Face Value)
So, Value of bond = 1026.25
(Since Coupon rate > YTM, so Bond’s Value > FV)

JAIIB-AFB-CASE STUDIES/NUMERICAL QUESTIONS

JAIIB – AFB (ACCOUNTING & FINANCE FOR BANKERS)

You are given a balance sheet of a business firm with following particulars. Work out the
ratios given at the end......
Liabilities 1st yr 2nd yr
Capital 40 40
Reserves 15 20
Debentures 70 60
Other Current Liabilities 18 24
Bank Working Capital Limits 37 36
Total Liabilities 180 180
Assets 1st yr 2nd yr
Fixed Assets 32 33
Advance for fixed assets 5 -
Security Deposits 4 6
Stocks 66 81
Book Debts 49 30
Sundry Debtors 16 24
Preliminary Expenses 8 6
Total Assets 180 180
Sales 312 390
Profits 8 9
Depreciation 3 3
1. The short term sources of funds and short term uses of funds during the first year
was......
a. 55 and 131
b. 37 and 131
c. 55 and 105
d. 37 and 105
Ans - a
.............................................
2. The long term sources of funds and long term use of funds during the 2nd year
was......
a. 120 and 45
b. 100 and 45
c. 120 and 39
d. 112 and 39
Ans - d
.............................................
3. The short term sources of funds during the 2nd year, compared to the 1st year
have......
a. shown increase
b. shown decline
c. shown no change
d. none of the above
Ans - a
.............................................
4. The long term of use of funds during the 2nd year, compared to the 1st year has ......
a. shown increase
b. shown decline
c. shown no change
d. none of the above
Ans - b
.............................................
5. Current Ratio and Quick Ratio for the 2nd year are respectively......
a. 2.20:1 and 0.8:1
b. 2.42:1 and 0.9:1
c. 2.25:1 and 0.9:1
d. 2.22:1 and 0.8:1
Ans - c
.............................................
6. What is the Debt-equity ratio for the 1st and 2nd year?
a. 1.11:1 and 1.49:1
b. 1.49:1 and 1.11:1
c. 1.32:1 and 1.11:1
d. 1.98:1 and 1.73:1
Ans - d
.............................................
7. Cash accrual for 1st and 2nd year respectively is......
a. 8 and 9
b. 9 and 8
c. 11 and 12
d. 12 and 11
Ans - c
.............................................
8. Net Working Capital of 2nd year, over the 1st year has shown......
a. no change
b. deterioration
c. increase
d. decline and improvement
Ans - b
.............................................
9. Net profit to sales ratio for the 1st year has been......
a. 2.3%
b. 2.5%
c. 2.9%
d. 3.4%
Ans - b
.............................................
JAIIB-AFB-CASE STUDIES/NUMERICAL QUESTIONS
Cost of asset = 1,00,000
Estimated residual value = 10,000
Estimated useful life of asset = 5 years
Find the book value at the end of 2nd year using double declining balance method.
a. 24000
b. 36000
c. 40000
d. 64000
Ans - b
Explanation
Depreciation rate = (1/useful life) x 200%
= 1/5 x 200% = 20% x 2 = 40%
(*) depreciation stops when book value = residual value
[Year 1]
Depreciation amount for year 1
= beginning book value x depreciation rate
= 1,00,000 x 40% = 40,000
Accumulated depreciation at the end of year 1 = 40,000
Book value at the end of year 1
= 1,00,000 - 40,000 = 60,000
[Year 2]
Depreciation amount for year 2
= beginning book value x depreciation rate
= 60,000 x 40% = 24,000
Accumulated depreciation at the end of year 2
= 40,000 + 24,000 = 64,000
Book value at the end of year 2
= 1,00,000 - 64,000 = 36,000
[Year 3]
Depreciation amount for year 3
= beginning book value x depreciation rate
= 36,000 x 40% = 14,400
Accumulated depreciation at the end of year 3
= 40,000 + 24,000 + 14,400 = 78,400
Book value at the end of year 3
= 1,00,000 - 78,400 = 21,600
[Year 4]
Depreciation amount for year 4
= beginning book value x depreciation rate
= 21,600 x 40% = 8,640
Accumulated depreciation at the end of year 4
= 40,000 + 24,000 + 14,000 + 8,640 = 87,040
Book value at the end of year 4
= 1,00,000 - 87,040 = 12,960
[Year 5]
Depreciation amount for year 5
= beginning book value x depreciation rate
= 12,960 x 40% = 5,184
[NOTE]
For year 5, depreciation amount will not be 5,184.
If 5,184 is depreciated,
--> book value = 12,960 - 5,184 = 7,776
--> book value < residual value
Depreciation stops when book value = residual value
--> depreciation amount for year 5 = 2,960
--> book value = 12,960 - 2,960 = $10,000
.............................................
JAIIB-AFB-CASE STUDIES/NUMERICAL QUESTIONS
Cost of asset = 8,00,000
Estimated residual value = 10% of the cost
Estimated useful life of asset = 5 years
Find the book value at the end of 1st year using double declining balance method.
a. 240000
b. 320000
c. 480000
d. 660000
Ans - c
Explanation
Depreciation rate = (1/useful life) x 200%
= 1/5 x 200% = 20% x 2 = 40%
[Year 1]
Depreciation amount for year 1
= beginning book value x depreciation rate
8,00,000 x 40% = 3,20,000
Accumulated depreciation at the end of year 1 = 3,20,000
Book value at the end of year 1
8,00,000 - 3,20,000 = 4,80,000
.............................................
Cost of asset = 8,00,000
Estimated residual value = 10% of the cost
Estimated useful life of asset = 5 years
Find the accumulated depreciation for the 2nd year using double declining balance
method.
a. 312000
b. 424000
c. 512000
d. 604000
Ans - c
Explanation
Depreciation rate = (1/useful life) x 200%
= 1/5 x 200% = 20% x 2 = 40%
[Year 1]
Depreciation amount for year 1
= beginning book value x depreciation rate
8,00,000 x 40% = 3,20,000
Accumulated depreciation at the end of year 1 = 3,20,000
Book value at the end of year 1
8,00,000 - 3,20,000 = 4,80,000
[Year 2]
Depreciation amount for year 2
= beginning book value x depreciation rate
4,80,000 x 40% = 1,92,000
Accumulated depreciation at the end of year 2
3,20,000 + 1,92,000 = 5,12,000
.............................................
Cost of asset = 8,00,000
Estimated residual value = 10% of the cost
Estimated useful life of asset = 5 years
Find the book value at the end of 1st year using double declining balance method.
a. 240000
b. 320000
c. 480000
d. 660000
Ans - c
Explanation
Depreciation rate = (1/useful life) x 200%
= 1/5 x 200% = 20% x 2 = 40%
[Year 1]
Depreciation amount for year 1
= beginning book value x depreciation rate
8,00,000 x 40% = 3,20,000
Accumulated depreciation at the end of year 1 = 3,20,000
Book value at the end of year 1
8,00,000 - 3,20,000 = 4,80,000
[Year 2]
Depreciation amount for year 2
= beginning book value x depreciation rate
4,80,000 x 40% = 1,92,000
Accumulated depreciation at the end of year 2
3,20,000 + 1,92,000 = 5,12,000
Book value at the end of year 2
8,00,000 - 5,12,000 = 2,88,000
2,88,000 x 40% = 1,15,200
5,12,000 + 1,15,200 = 6,27,200
8,00,000 - 6,27,000 = 1,72,800
1,72,800 x 40% = 69,120
6,27,200 + 69,120 = 6,96,320
8,00,000 - 6,96,320 = 1,03,680
1,03,680 - 80,000 = 23,680
6,96,320 + 23,680 = 7,20,000
8,00,000 - 7,20,000 = 80,000
.............................................
JAIIB-AFB-CASE STUDIES/NUMERICAL QUESTIONS
Sahil took a loan for 6 years at the rate of 5% per annum on Simple Interest, If the total
interest paid was Rs. 1230, the principal was
A. 4100
B. 4200
C. 4300
D. 4400
Ans - A
Explanation:
S.I.=P*R*T/100
=>P=S.I.*100/R/T
By applying above formula we can easily solve this question, as we are already having
the simple interest.
P = 1230*100/6/5
= 4100
.............................................
There was simple interest of Rs. 4016.25 on a principal amount at the rate of 9%p.a. in
5 years. Find the principal amount
A. Rs 7925
B. Rs 8925
C. Rs 7926
D. Rs 7925
Ans - B
Explanation:
S.I.=P*R*T/100
=>P=S.I.*100/R/T
P = 4016.25*100/9/5
= 8925
.............................................
Effective annual rate of interest corresponding to nominal rate of 6% per annum
compounded half yearly will be
A. 6.09%
B. 6.10%
C. 6.12%
D. 6.14%
Ans - A
Explanation:
Let the amount Rs 100 for 1 year when compounded half yearly, n = 2, Rate = 6/2 =
3%
Amount=100(1+3/100)^2=106.09
Effective rate = (106.09 - 100)% = 6.09%
.............................................
A sum of money invested at compound interest to Rs. 800 in 3 years and to Rs 840 in 4
years. The rate on interest per annum is.
A. 4%
B. 5%
C. 6%
D. 7%
Ans - B
Explanation:
S.I. on Rs 800 for 1 year = 40
Rate = (100*40)/(800*1) = 5%
.............................................
Find the rate at Simple interest, at which a sum becomes four times of itself in 15 years.
A. 10%
B. 20%
C. 30%
D. 40%
Ans - B
Explanation:
Let sum be x and rate be r%
then, (x*r*15)/100 = 3x [important to note here is that simple interest will be 3x not 4x,
beause 3x+x = 4x]
=> r = 20%
.............................................
At 5% per annum simple interest, Rahul borrowed Rs. 500. What amount will he pay to
clear the debt after 4 years ?
A. 750
B. 700
C. 650
D. 600
Ans - D
Explanation:
We need to calculate the total amount to be paid by him after 4 years, So it will be
Principal + simple interest. So,
=>500+500*5*4/100
=>Rs.600
.............................................
A sum of money amounts to Rs 9800 after 5 years and Rs 12005 after 8 years at the
same rate of simple interest. The rate of interest per annum is ......
a. 9%
b. 10%
c. 11%
d. 12%
Ans - d
Explanation:
We can get SI of 3 years = 12005 - 9800 = 2205
SI for 5 years = (2205/3)*5 = 3675 [so that we can get principal amount after deducting
SI]
Principal = 12005 - 3675 = 6125
So Rate = (100*3675)/(6125*5) = 12%
.............................................
JAIIB-AFB-CASE STUDIES/NUMERICAL QUESTIONS
A man saves Rs 200 at the end of each year and lends the money at 5% compound
interest. How much will it become at the end of 3 years?
a. Rs 660
b. Rs 662
c. Rs 664
d. Rs 666
Ans- b
Explanation:
= [200(2120×2120×2120)+200(2120×2120)+200(2120)]
= 662