General banking

Very important and useful General banking bits

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

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

said to have exercised Right of: Set-off

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

any one.

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

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

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

interest rate. No benefit of senior citizen to be given

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

bank to bank)

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

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

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

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

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

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

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

to account but not against cash

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

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

opening of the account: 21 years

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

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

RBI act e) Banker Books Evidence Act.

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

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

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

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

less.

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

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

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

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

upon currency chests by the Reserve Bank.

20. BC work as : Bank’s Agent

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

Panchayat, other BC.

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

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

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

is required) : 90 days.

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

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

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

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

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

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

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

RBI: 10 years

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

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

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

and above

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

Tax Act.

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

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

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

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

balance: CC/OD with debit balance.

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

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

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

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

attached.

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

amount paid

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

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

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

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

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

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

respective bank.

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

transferee branch? Six Months

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

persons?: Thumb impression requires 2 witnesses.

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

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

which ratio?: Entirely by bank.

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

is paid by the bank and not by depositor.

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

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

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

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

SHOULD ADVISE NEW ADDRESS?: TWO WEEKS

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

two years

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

contributed by partner at the time of joining partnership.

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

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

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

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

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

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

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

62. Max amt for tax saver FD: Rs 150000

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

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

65. Maximum period of NRE deposit: Bank Discretion.

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

500/- & Maximum Rs. 1.50 lacs.

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

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

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

70. No Frills Accounts are opened for: Financial Inclusion

71. No of digits in Aadhar : 12

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

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

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

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

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

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

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

Survivor.

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

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

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

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

80. Super senior citizen after: 80 years of age

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

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

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

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

reason Insufficient Funds: Insufficient Funds

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

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

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

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

Right of Set Off.

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

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

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

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

of: 10 years

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

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

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

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

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

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

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

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

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

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

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

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

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

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

small amount and there are no requirement of minimum balance.

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

(earlier only NRO)

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

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

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

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

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

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

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

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

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

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

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

: Form 15 H

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

Bank Rate.

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

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

due diligence: Due diligence

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

or Form 60 or 61

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

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

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

minor

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

sole proprietorship firm?: Sole Proprietorship firm.

CASE STUDIES ON DOCUMENTARY CREDITS AND UCP600

CASE STUDIES ON DOCUMENTARY CREDITS AND UCP600

CASE STUDY 1

Banks have a practice of calling for the original LC at the time of presentation of documents and

endorse any drawings on its reverse.

LC's may be made available by Acceptance / Defferred Payment / Negotiation and to be freely

available with any bank.

Is it mandatory to endorse the original LC on its reverse?

Analysis

Most LCs contain a clause indicating such a requirement.

The practice is required by SWIFT standards cat.7, for freely negotiable credits, available with any

bank.

Conclusion

What is the problem?

CASE STUDY 2

If a nominated bank does not incur a deffered payment undertaking on presentation of complying

documents and forwards them to the Issuing Bank.

Subsequently can it a purchases a deferred payment undertaking from the issuing bank and seek

protection under UCP600?

Articles 7c. UCP600

CASE STUDY 3

If a LC is confirmed and is available with the Confirming Bank and the beneficiary chooses to

present the document directly to the Issuing Bank and the Issuing Bank wrongfully dishonors.

Should the confirming bank honor the presentation given that the LC has meanwhile expired?

Article 8a. UCP600

CASE STUDY 4

A documentary credit requires all documents must to be issued in English language.

The presentation includes a Certificate of Origin bearing a Stamp / Legalisation done in another

language

Is this a discrepancy?

Issued in?

CASE STUDY 5

As per Article 38 of UCP 600, A LC can be transferred to more than one second beneficiary. This

can be done preferably when the Partial Shipments are allowed under the LC.

If the first Beneficiary is certain that he would be able to comply with article 31(b) of UCP600 (re

partial shipments – submission of multiple BLs on the same voyage), can a LC be transferred to

more than one second beneficiary even if the LC states Partial Shipment is prohibited provided

Article 38.d. UCP600

CASE STUDY 6

If the nominated bank does not accept a bill of exchange drawn on them by the beneficiary, can the

same bill of exchange be presented to the issuing bank or should they present a fresh bill of

exchange drawn on the Issuing Bank

UCP Article 7a (iv)

CASE STUDY 7

Under the documents required a LC calls for a Bill of Lading.

Bill of Lading submitted with the documents is signed by a forwarder as carrier.

Is it a discrepancy?

Article 20 UCP600

CASE STUDY 8

L/C requirement: invoices in 3 fold and Legalized by Chamber of Commerce.

Beneficiary submits invoices with only one legalized and others without being legalized.

Is it a discrepancy?

Article 17e. UCP600

CASE STUDY 9

LC calls for a Beneficiary's certificate stating the expiry date (of the product).

The certificate presented states only the month and the year of expiry.

Is it a discrepancy?

Bankers are expected to have a certain amount of general knowledge and common sense

CASE STUDY 10

The documents required in a transferable LC calls for an Inspection Certificate issued by the First

Beneficiary.

At the request of the First Beneficiary LC is transferred to a Second Beneficiary without calling for

the Inspection Certificate, which the first beneficiary undertakes to submit along with drafts and

invoices to be presented for substitution.

Has the Transferring Bank acted in aprudent manner.

Sub-article 38g of UCP600

CASE STUDY 11

A LC states the last date for shipment as 09 November 2014 and the expiry as 30 November 2014,

is silent on the period of presentation and also states ‘Stale Bills of Lading Acceptable”.

Documents presented on 01 October 2014 with the Bill of Lading dated 01 June 2014 refused by

the Issuing Bank stating Late Presentation (not presented within 21 days after the BL date as per

article 14.c UCP600)..

The negotiating Bank does not agree with the reason for refusal.

Should the Issuing Bank honour?

Rule A19.b ISBP745

Case Study 12

The documentary credit in question issued subject to UCP600 called for shipment from “ANY

NORTH EUROPEAN PORT” and the transport document required in field 46a was: “FULL SET OF

CLEAN ON BOARD BILL OF LADING”.

The Nominated Bank received a bill of lading evidencing shipment from Antwerp, which we found to

be within the scope of North Europe, since the geographical area of North Europe was not defined

in the Credit.

The Issuing Bank refused the documents arguing that Antwerp is not within the geographical area

or range stated in the Credit.

The Issuing Bank further argued that Belgium is in Western Europe and not in Northern Europe and

quoted an internet website (www.mapsofworld.com) where we could easily recheck.

Is the discrepancy cited by the issuing bank valid?

Analysis

UCP 600 sub-article 14 (a) states that a bank must examine a presentation on the basis of the

documents alone.

It is not a matter for the ICC Banking Commission to define or determine geographical areas or

ranges. The requirement in the credit is vague and clearly ambiguous.

In accordance with ISBP 745 Preliminary Considerations paragraph (v), the applicant bears the risk

of any ambiguity in its instructions to issue or amend a credit.

Furthermore, an issuing bank should ensure that any credit or amendment it issues is not

ambiguous or conflicting in its terms and conditions.

It should not be necessary to refer to external resources in order to determine relevant facts.

Conclusion

The applicant and issuing bank must bear the risk of ambiguity for failing to express specifically how

“Any North European Port‟ is to be defined.

In this case, the document is not discrepant.

Case Study 13

Under a credit issued subject to UCP600 by Bank V in country W available by negotiation and

expiring with Bank A in country N, Bank A added its confirmation. Upon presentation of complying

documents Bank A negotiated and discounted. Documents were refused by Bank V for the following

reason: “Health Certificate to be presented in 1 original and 2 copies but only presented in 1 original

plus 1 copy.”

Bank A stated that all required originals and copies were presented to them within the time limits

foreseen by the credit, but admitted to having made an operational mistake by leaving one copy of

the Health Certificate in their file and by only sending 1 original and 1 copy to Bank V.

Bank A requested Bank V to create a second copy on Bank A‟s account, or to instruct Bank A to

courier the missing copy, but Bank V did not provide agreement. In the absence of any instructions,

and after the expiry date of the credit, Bank A couriered the missing copy document to Bank V,

certifying on their letter that it was presented within the time limits of the credit. Bank V still refused

to honour the presentation.

Has the Issuing Bank the right to refuse the documents on the basis of the missing copy of the

Health Certificate, in spite of the fact that the missing copy was sent to them after the expiry date,

but with the declaration of the negotiating bank that the copy was presented within the time limits

foreseen under the LC?

Analysis

The credit was available for negotiation with the Nominated Bank and expired at their counters.

UCP 600 sub-article 6 (d) (ii) states: “The place of the bank with which the credit is available is the

place for presentation. The place for presentation under a credit available with any bank is that of

any bank. A place for presentation other than that of the issuing bank is in addition to the place of

the issuing bank.”

UCP 600 article 6 (e) states: “Except as provided in sub-article 29 (a), a presentation by or on

behalf of the beneficiary must be made on or before the expiry date.”

In accordance with UCP 600 sub-article 7 (c) an Issuing Bank undertakes to reimburse a nominated

Bank that has honoured or negotiated a complying presentation and forwarded the documents to

the Issuing Bank.

The Issuing Bank did not receive all the required documents and subsequently issued a refusal

notice. The Nominated Bank, after an exchange of correspondence with the Issuing Bank,

forwarded the missing copy document to the issuing bank certifying that it had been presented

within the time limits required by the credit.

Conclusion

The initial cited discrepancy is valid. However, upon receipt by the issuing bank of the missing copy

document, and on the basis that it also received a certification from the negotiating bank that the

document was presented within the time limits required by the credit, the issuing bank must

reimburse the confirming bank.

Cade Study 14

Under a credit issued by Bank V in country V available by negotiation and expiring with Bank A in

country N, Bank A added its confirmation. Upon presentation of complying documents Bank A

negotiated and discounted. Documents were refused by Bank V for the following reason: “Health

Certificate to be presented in 1 original and 2 copies but only presented in 1 original plus 1 copy.”

Bank A stated that all required originals and copies were presented to them within the time limits

foreseen by the credit, but admitted to having made an operational mistake by leaving one copy of

the Health Certificate in their file and by only sending 1 original and 1 copy to Bank V.

Bank A requested Bank V to create a second copy on Bank A‟s account, or to instruct Bank A to

courier the missing copy, but bank V did not provide agreement. In the absence of any instructions,

and after the expiry date of the credit, Bank A couriered the missing copy document to Bank V,

certifying on their letter that it was presented within the time limits of the credit. Bank V still refused

to honour the presentation.

Has the Issuing Bank the right to refuse the documents on the basis of the missing copy of the

Health Certificate, in spite of the fact that the missing copy was sent to them after the expiry date,

but with the declaration of the negotiating bank that the copy was presented within the time limits

foreseen under the LC?

Analysis

Although not indicated in the query, it is assumed that the credit was issued subject to UCP 600.

The credit was available for negotiation with the nominated bank and expired at their counters.

UCP 600 sub-article 6 (d) (ii) states: “The place of the bank with which the credit is available is the

place for presentation. The place for presentation under a credit available with any bank is that of

any bank. A place for presentation other than that of the issuing bank is in addition to the place of

the Issuing Bank.”

UCP 600 article 6 (e) states: “Except as provided in sub-article 29 (a), a presentation by or on

behalf of the beneficiary must be made on or before the expiry date.”

In accordance with UCP 600 sub-article 7 (c) an issuing bank undertakes to reimburse a nominated

bank that has honoured or negotiated a complying presentation and forwarded the documents to

the issuing bank.

The issuing bank did not receive all the required documents and subsequently issued a refusal

notice. The nominated bank, after an exchange of correspondence with the issuing bank, forwarded

the missing copy document to the issuing bank certifying that it had been presented within the time

limits required by the credit.

Conclusion

The initial cited discrepancy is valid. However, upon receipt by the issuing bank of the missing copy

document, and on the basis that it also received a certification from the negotiating bank that the

document was presented within the time limits required by the credit, the issuing bank must

reimburse the confirming bank.

Cade Study 15

Bank A (Issuing Bank) in country A issued a standby credit subject to UCP 600 which was advised

to the beneficiary in country B by Bank B (Advising Bank).

The beneficiary presented a demand under the credit which arrived at the counters of the Bank A

before the expiry date of the credit.

Bank A issued a notice of refusal on the third day following presentation stating one discrepancy:

“Original Standby LC Not Presented”.

There was no wording in the credit requiring presentation of the original Standby LC.

1) Is the discrepancy stated by the Bank A correct?

2) Can Bank A raise further discrepancies at a later date in respect of the one presentation made by

the beneficiary under the credit?

Analysis

1) The wording of the credit did not require the presentation of the original credit as part of the

claim. Unless the credit was issued by mail or in paper format, it is doubtful how the originality of the

document could be determined. Accordingly, unless otherwise specifically required within the terms

and conditions of a credit, there is no requirement for the original credit to be included in the

presentation.

2) UCP 600 sub-article 16 (c) states that when a bank decides to refuse or negotiate, it must give a

single notice to that effect to the presenter. UCP 600 clearly does not allow for further discrepancies

to be raised that were apparent at the time of the initial presentation, as is referred to within former

ICC Opinions R196, R328, R271 and TA764rev.

Conclusion

1) The discrepancy is not valid.

2) Additional discrepancies are not to be considered, as banks only have one opportunity to raise

discrepancies for each presentation.

Cade Study 16

Under a documentary credit subject to UCP 600 the beneficiary of the L/C presented, amongst

other documents, a charter party bill of lading (CPBL), made out in accordance with the terms and

conditions of the respective L/C, signed and stamped as shown hereafter:

According to UCP 600 sub-article 22 (a) (i), a CPBL must appear to be signed by any of the

following parties:

· the master,

· the owner,

· the charterer, or

· a named agent for any of the above.

The stamp shows, however, that the master is signing “On behalf of Owners”.

As this is a case not contemplated by UCP 600 sub-article 22 (a) (i) like the signing by a carrier or a

named agent for the carrier as indicated in Official Opinion 470/TA.775rev., we would like to know

the opinion of the ICC Banking Commission to this case, i.e. whether this is an acceptable way of

signing or not: If the answer is that it is not acceptable, whether it would be acceptable, if the name

of the owner(s) would be stated.

Analysis

UCP 600 sub-article 22 (a) (i) states that a CPBL must appear to be signed by:

· the master or a named agent for or on behalf of the master, or

· the owner or a named agent for or on behalf of the owner, or

· the charterer or a named agent for or on behalf of the charterer.

Furthermore, it states: “Any signature by the master, owner, charterer or agent must be identified as

that of the master, owner, charterer or agent.”

ISBP 745 paragraph G4 (b) states: “When the master (captain), owner or charterer signs a charter

party bill of lading, the signature of the master (captain), owner or charterer is to be identified as

“master” (“captain”), “owner” or “charterer”.

ICC Opinion 470/TA.775rev does not apply as it relates to a CPBL issued and signed by a carrier or

its agent.

The signature on the CPBL is identified as that of the master (captain). The master is signing for

and on behalf of the owner.

Conclusion

The document is acceptable.

Cade Study 17

The Documentary Credit issued subject to UCP 600 by an Issuing Bank located in country X on

behalf of an applicant also located in country X and confirmed by a Bank located in country Y

required in field 46a “documents required” amongst other the following document:

Quote Bank guarantee from international first class bank payable in country X equivalent to EUR

xxxxx [the guarantee indicates an amount] valid till xx.xx.xxxx [the guarantee indicates a fix date].

Unquote

The bank guarantee presented to the Confirming Bank is issued by a bank located in country Y and

states that it is subject to the laws of country Y. The wording of the presented guarantee shows the

applicant of the Letter of Credit as beneficiary of the guarantee. The amount and expiry date of the

guarantee are in compliance with the requirements stipulated in the Letter of Credit. The payment

undertaking of the guarantee is worded as follows:

QUOTE

We, xxx [the guarantee indicates the guaranteeing bank], hereby irrevocably undertake to

pay you [the guarantee is addressed and directed to the applicant of the Letter of Credit]

without delay on your first written demand for payment an amount up to xxx [the guarantee

indicates an amount] provided your demand for payment is simultaneously supported by (…)

UNQUOTE

The wording of the guarantee does neither contain an express indication that it is “payable in

country X” nor any express reference to country X being the place of payment.

The Confirming Bank accepted the presented guarantee but the Issuing Bank raised the following

discrepancy: “Bank Guarantee from international bank is not payable in country X.”. Please let us

have your official opinion whether and if so why the issuing bank was entitled to raise the

discrepancy by answering the following questions:

1. Is the guarantee only compliant if it either indicates expressly that it is “payable in country X” or

contains an express reference to country X being the place of payment? Or can it be argued that

the guarantee meets the requirement “payable in country X” because it is issued in favour of a

beneficiary located in country X and as it provides that payment thereunder has to be made to this

beneficiary?

2. Would the requirement “payable in country X” be met if the guarantee is made out as described

above but is not issued by a bank located in country Y but in country X?

3. Does the stipulated requirement “payable in country X” require the document checker to

determine whether the presented guarantee‟s place of payment is country X?

4. Could the confirming bank argue validly that the Letter of Credit does not stipulate that the

requirement “payable in country X” must be met by an express reference or wording in the

guarantee document (e.g. 46a: Bank guarantee from international first class bank indicating that it is

“payable in country X” equivalent to (…)”) and that this requirement may therefore be deemed as

non-documentary and not stated and thus be disregarded according to UCP 600 sub-article 14 (h)

5. Could the confirming bank argue validly that the checking of the document falls with respect to

the requirement “payable in country X” under the auspices of UCP 600 sub-article 14 (f) because

this requirement is worded in way that does not amount to a stipulation of the document‟s data

content ?

Analysis

The credit included, in field 46a of the MT700, a requirement for a guarantee to be issued by an

international first class bank payable in country X (the country of the credit issuing bank). Apart from

amount and expiry date, no other requirements were provided. The credit was confirmed by a bank

in country Y (the country of the credit beneficiary).

The actual guarantee that was presented to the confirming bank was issued by a bank in country Y,

stating that it was subject to the laws of country Y.

The guarantee contained a statement from the guarantee issuing bank that they irrevocably

undertook to pay the guarantee beneficiary (the applicant of the credit) without delay on first written

demand for payment. It did not include an explicit statement or reference that the guarantee was

payable in country X.

Whilst the Confirming Bank accepted the guarantee as a compliant document under the credit, the

Issuing Bank refused on the basis that the guarantee was not payable in country X.

In view of the fact that the beneficiary of the credit was located in country Y, it is not unusual that

they would use a bank in their own country to issue the guarantee, as was the case in this query.

The guarantee had been issued directly in favour of the beneficiary (the credit applicant) in country

X, and not via another bank in country X. It included a condition that payment would be made

against first written demand. It does not state a place for presentation. Because the guarantee did

not state a place for presentation, demands must be presented at the issuing bank. The issuing

bank is located in country Y.

Conclusion

1. The guarantee needed to clearly state that it was payable in country X. In order to achieve this, it

would have needed to be payable at the counters of a bank in country X, and not at the counters of

the guarantee issuing bank in country Y. The fact that the guarantee was issued directly in favour of

the beneficiary (credit applicant) in country X and was payable against first written demand, did not

fulfil this requirement.

2. If the guarantee had been issued by a bank in country X, this would have met the requirements of

the credit.

3. The place of payment of the guarantee was to be stated as “in country X‟ or determinable as

being within country X.

4. The requirement for the guarantee clearly related to a requirement for an actual document.

Consequently, UCP 600 sub-article 14 (h) is not applicable.

5. The condition in the credit “payable in country X‟ is a specific requirement that must be clearly

reflected in the guarantee document if it is to fulfil its function. The discrepancy raised by the issuing

bank is valid.

CASE STUDY 18

The relevant LC conditions:

1) (Under documents required): Full set of clean on-board marine bills of lading consigned to order,

blank endorsed, notify applicant and marked “freight payable as per charter party”

2) (Under other conditions): Charter Party BL acceptable

The presented BL shows:

a) “freight payable as per charter party”

b) signed by XXX Logistics Co Ltd as agent for carrier YYY Shipping Lines Ltd

c) the reverse page shows the shipper’s blank endorsement

d) reverse page also shows typical shipping contract terms & conditions (i.e. not the usual Charter

Party BL terms & conditions)

In short, the BL (front and back), other than the freight statement, does not display anything to

suggest that it is subject to a charter party contract.

Issuing Bank paid but deducted a discrepancy fee for the waived discrepancy of “Charter Party BL

signatory’s capacity not as master, owner, charterer or agent for any of the aforesaid”. Issuing

Bank’s position appears to be that, by virtue of the LC‟s BL freight requirement, the LC is actually

calling for a Charter Party BL. And because the BL does show such freight statement, the BL is to

be treated as being subject to a charter party contract, and therefore the BL must be signed in

accordance with Article 22 (a) (i).

Negotiating Bank of course disagreed and countered that the freight phrase was not enough

evidence that the BL was a Charter Party one. It argued that, save for the freight phrase; its terms &

conditions (on reverse page) were those of a conventional BL. If it is a conventional BL, then issuing

bank’s discrepancy is incorrect. It should be instead: “Conventional BL presented but contains an

indication that it is subject to a charter party”..

ANALYSIS

The credit required a marine bill of lading marked “freight payable as per charter party‟. In this

respect, the credit was badly worded. The presented bill of lading was marked “freight payable as

per charter party”.

ISBP 745 paragraph G2 (b) states: “A transport document, however named, indicating expressions

such as “freight payable as per charter party dated (with or without mentioning a date)”, or “freight

payable as per charter party”, will be an indication that it is subject to a charter party.

ISBP 745 paragraph G1 states: “When there is a requirement in a credit for the presentation of a

charter party bill of lading, or when a credit allows presentation of a charter party bill of lading and a

charter party bill of lading is presented, UCP 600 article 22 is to be applied in the examination of

that document.

Where a credit simply allows for or requires the presentation of a CPBL, a CPBL issued and signed

by a carrier or its agent is discrepant under UCP 600 sub-article 22 (a) (i).

CONCLUSION

The discrepancy raised by the issuing bank, “Charter Party BL signatory‟s capacity not as master,

owner, charterer or agent for any of the aforesaid”, is correct.

CASE STUDY 19

L/C available with Advising Bank by payment, however the Advising Bank did not act under our

nomination and has sent documents presented by the beneficiary to the Issuing Bank without

examining them (in accordance with beneficiary's request). No message was received from the

issuing bank, Advising Bank received a MT910 from their correspondent bank informing us of the

credit entry on our account and containing information in field 72: /EUR100 deducted as discr.fee/.

The documentary credit included the following clause: 'discrepancy fee of EUR 100.00 will be

deducted from the proceeds any drawing if documents are presented with discrepancies'

We have contacted issuing bank arguing that since they had not acted in accordance with UCP 600

sub-article 16 (c) (ii), quoting every single discrepancy they should be precluded from deducting

discrepancy fee.

An answer was received that their action has nothing to do with UCP 600 article 16 and that if we

want to find out about discrepancies we will have to ask for it. It seems that they are acting in line

with the conclusion of a/m Opinion. Nevertheless, we cannot agree with it.

In the opinion of the Issuing Bank and according to UCP600 sub-article 16 (a) an issuing bank

determines if a presentation does not comply. By deducting their discrepancy fee they obviously

wanted to indicate that the presented documents did not comply.

As per article UCP 600 sub-article 16 (b) issuing bank may in its sole judgment approach the

applicant for waiver, but that does not extend period of time mentioned in UCP 600 sub-article 14

(b), nor does it (in our opinion) annul the provisions of UCP 600 sub-articles 16 (c), (d), (e) and (f).

Achieving applicant's acceptance of discrepancies does not justify the action of not listing all

discrepancies, even when sending message indicating acceptance (such as in MT752).

Advising Bank is of the opinion that if Issuing Bank determines that presented documents contain

discrepancies, all discrepancies should be quoted either in separate MT734 or in MT752 within 5

working days. Otherwise they are precluded claiming that documents are discrepant (and

accordingly not allowed to deduct discrepancy fee)

ANALYSIS

A presentation of documents had been paid by the issuing bank deducting their discrepancy fee.

Prior to payment no notice of refusal has been sent nor had any information on discrepancies been

provided by the issuing bank.

When an issuing bank finds discrepancies in documents, it has two options available to it under

article 16: to provide a refusal message to the presenter in terms of sub-articles 16 (c) and (d) or, to

approach the applicant for a waiver without first providing a notice of refusal (sub-article 16 (b)).

When the option of approaching the applicant for a waiver is chosen, and such waiver is given and

accepted by the issuing bank, the practice is for the issuing bank to honour, and such honour will be

less any discrepancy fee that was stated in the credit.

When this course of action is taken, the issuing bank should provide the presenter, as part of their

payment message or in a separate communication, details of the discrepancies that were observed.

The presenter can then choose to dispute the discrepancies, therefore questioning the relevance of

the deduction representing the discrepancy fee. If the issuing bank does not provide such an

indication, the presenter may seek, and the issuing bank must provide, such details. The actions of

the issuing bank, as described in situation D, do not represent preclusion under sub-article 16 (f).

Conclusion:

The Issuing Bank is entitled to a discrepancy fee as outlined in the credit, but it should inform the

presenter of the discrepancies that were found, either in the advice of payment or in a separate

communication.

The issuing bank is not required to send a notice of refusal to the presenter if it elects to contact the

applicant for a waiver and to receive a waiver that is acceptable to it. Sub-article 16 (f) does not

apply in these circumstances.

If the covering schedule listed the discrepancies that the presenter had found, the Issuing Bank

should either advise the presenter that the documents were taken up despite the discrepancies that

had been identified by the presenter, or list the discrepancies for which the issuing bank had sought

waiver from the applicant.

It is only when an issuing bank does not indicate the discrepancies that there should be a need for

the presenter to seek such details. The default position is that an issuing bank, in order to justify a

discrepancy fee, should always indicate the discrepancies by one of the methods described above.

When an issuing bank has approached the applicant for a waiver, and received such waiver and

decided to act upon it, it does not need to send a notice of refusal in accordance with UCP 600 subarticle

16 (c) in order to be entitled to deduct a discrepancy fee when it honours a presentation. In

such circumstances, UCP 600 sub-article 16 (f) does not apply.

When a bank deducts a discrepancy fee on the basis of a “discrepancy fee clause‟ in a credit, it is

good banking practice to inform the presenter of any discrepancies that were found in the

documents, either in the advice of payment or in a separate communication. In the event they fail to

do so, this does not preclude them from providing such information subsequently.

https://iibfadda.blogspot.com/2019/11/caiib-bfm-case-studies.html?m=1

Articles of UCPDC 600

ARTICLES OF UCPDC 600

Article-1 : UCPDC-boo apply to any LC when its text expressly indicates that it is subject to these rules. The rules are binding on all

parties thereto unless expressly modified or excluded by the credit.

Article-2: Definitions : Advising bank, Applicant, Banking day, Beneficiary, Complying presentation, Confirmation, Confirming

bank, Credit, Honour, Issuing bank, Negotiation, Nominated, Presentation, Presenter.

Article-3 Interpretations:

 A credit is irrevocable even if there is no indication to that effect.

 Branches of a bank in different countries are separate banks.

 The expression "on or about" will be interpreted as an event to occur during a period of 5 calendar days before until 5

calendar days after the specified date, both start and end dates included.

 The terms "first half" and "second hal' of a month shall be construed respectively as the 1st to the 15th and the 16th to the

last day of the month, all dates inclusive.

 The terms "beginning", "middle" and "end" of a month shall be construed respectively as the 1st to the loth, the nth to the

loth and the 21st to the last day of the month, all dates inclusive.

Article-4 Credits v. Contracts: A credit is a separate transaction from the sale. Banks are not concerned with or bound by such

contract, even if any reference is included in the LC.

ArticIe-5 Documents v. Goods: Banks deal with documents and not with goods, services or performance to which documents

relate.

Article-6 Availability, Expiry Date and Place for Presentation: A credit must state an expiry date for presentation. An expiry date

for negotiation is deemed expiry date for presentation which must be made on or before the expiry date.

Article-7 Issuing Bank Undertaking: If stipulated documents are presented to the nominated bank or to the issuing bank, the

issuing bank must honour.

Article-8 Confirming Bank Undertaking: The confirming bank must honour the credit. It must reimburse another nominated bank

that has negotiated a complying presentation and forwarded the documents to the confirming bank.

Article-9 Advising of Credits and Amendments: A credit and any amendment may be advised to a beneficiary through an

advising bank. An advising bank advises the credit and any amendment without any undertaking to negotiate. By advising the

credit, the advising bank signifies that it has satisfied itself as to the apparent authenticity of the credit and the advice accurately

reflects the terms and conditions of the credit or amendment received.

Article-io Amendment: A credit can neither be amended nor cancelled without the agreement of the issuing bank, the

confirming bank and the beneficiary. Partial acceptance is not allowed and will be deemed to be notification of rejection of the

amendment.

Article-it Tele transmitted and Pre-Advised LC and Amendments: An authenticated teletransmission will be deemed to be the

operative credit or amendment, and any subsequent mail confirmation shall be disregarded. If it states "full details to follow" the

tele-transmission will not be operative credit or amendment.

Article-12 Nomination: By nominating a bank to accept a draft or incur a deferred payment undertaking, an issuing bank

authorizes that nominated bank to prepay or purchase a draft accepted or a deferred payment undertaking incurred by that

nominated bank.

Article-13 Bank-to-Bank Reimbursement Arrangements.: If a credit states that reimbursement is to be obtained by a nominated

bank, the credit must state if the reimbursement is subject to the ICC rules in effect on the date of issuance of the credit.

Article-14 Standard for Examination of Documents:

(a) A nominated bank and issuing bank shall each have a maximum of 5 banking days following the day of presentation to

determine if the documents are in order.

(b) A presentation must bemade by or on behalf of the beneficiary not later than 21 calendar days after the date of shipment as

described in these rules, but in any event not later than the expiry date of

the credit.

(c) A document may be dated prior to the issuance date of the credit, but must not be dated later than its date of presentation.

Article-15 Complying Presentation: a. When an issuing bank or confirming bank determines that a presentation is complying, it

must honour or negotiate the documents.

Article-16 Discrepant Documents,Waiver and Notice:

a. When a nominated bank determines that a presentation does not comply, it may refuse to honour or negotiate.

b. When an issuing bank determines that a presentation does not comply, it may approach the applicant for a waiver of

discrepancies.

Article-17 Original Documents and Copies: a. At least one original of each document stipulated in the credit must be presented.

Article-18 Commercial Invoice: (a) A commercial invoice, must appear to have been issued by the beneficiary; made out in the

name of the applicant, made out in the same currency as the credit; and need not be signed. (b) The description of the goods,

service or performance in a commercial invoice must correspond with that appearing in the credit.

Article-19 Transport Document Covering at Least Two Different Modes of Transport: The date of issuance of the transport

document will be deemed to be the date of dispatch, taking in charge or shipped on board, and the date of shipment

A transport document indicating that trans-shipment will or may take place is acceptable, even if the credit prohibits transshipment.

Article-2o Bill of Lading: a. A bill of lading, must indicate that the goods have been shipped on board a named vessel at the port

of loading stated in the credit. The date of issuance of the bill of lading will be deemed to be the date of shipment.

Article-21 Non-Negotiable Sea Waybill: It must indicate that the goods have been shipped on board a named vessel at the port

of loading stated in the credit.

Article-22 Charter Party Bill of Lading: It must indicate that the goods have been shipped on board a named vessel at the port of

loading stated in the credit. The date of issuance of the charter party bill of lading will be deemed to be the date of shipment.

Ai-tide-23 Air Transport Document: It must appear to indicate that the goods have been accepted for carriage and indicate

the date of issuance. This date will be deemed to be the date of shipment.

Artiele-24 Road, Rail or Inland Waterway Transport Documents: These must indicate the date of shipment or the date the goods

have been received for shipment, dispatch or carriage at the place stated in the credit. The date of issuance of the transport

document will be deemed to be the date of shipment.

Article-25 Courier Receipt, Post Receipt of Certificate of Posting: A courier receipt evidencing receipt of goods for transport,

must indicate a date of pick-up or of receipt or wording to this effect. This date will be deemed to be the date of shipment.

Article-26 "On Deck", "Shipper's Load and Count", "Said by Shipper to Contain" and Charges Additional to Freight: A transport

document must not indicate that the goods are or will be loaded on deck. A clause on a transport document stating that the

goods may be loaded on deck is acceptable.

Article-27 Clean Transport Document: A clean transport document is one bearing no clause or notation expressly declaring a

defective condition of the goods or their packaging.

Article-28 Insurance Document and Coverage: An insurance document can be an insurance policy, an insurance certificate or a

declaration under an open cover. Cover notes will not be accepted

(b) The date of the insurance document must be no later than the date of shipment, unless it appears from the insurance

document that the cover is effective from a date not later than the date of shipment

(c) The insurance document must be in the same currency as the credit (d) If there is no indication in the LC of the insurance

coverage required, the amount of insurance coverage must be at least no% of the CIF or CIP value of the goods.

Article-29 Extension of Expiry Date or Last Day for Presentation: If the expiry date of a credit or the last day for presentation

falls on a day when the bank to which presentation is to be made is closed, the expiry date or the last day for presentation, as the

case may be, will be extended to the

first following banking day. In such case, a nominated bank must provide a statement on its covering schedule that the

presentation was made within the time limits extended in accordance with article 29. The latest date for shipment will not be

extended as a result of article 29.

Article-30 Tolerance in Credit Amount, Quantity and Unit Prices:

(a) The words "about" or "apprx" used in connection with the amount of LC or the quantity or the unit price stated in the LC are

to be construed as allowing a tolerance not to exceed 10% more or 10% less than the amount, the quantity or the unit price to

which they refer.

(b) A maximum tolerance of 5% more or 5% less than the quantity of the goods is allowed, where the credit does not state

quantity in terms of a stipulated no. of packing units or individual items and the total amount of the drawings does not exceed

the amount of LC.

(c) Even when partial shipments are not allowed, a tolerance not to exceed 5% less than the amount of the credit is allowed,

provided that the quantity of the goods, if stated in the credit, is shipped in full and a unit price, if stated in the credit, is not

reduced or that sub-article 30 (b) is not applicable.

Article-31 Partial Drawings or Shipments: Partial drawings or shipments are allowed.

Article-32 Instalment Drawings or Shipments: If a drawing or shipment by instalments within given periods is stipulated in the

credit and any instalment is not drawn or shipped within the period allowed for that instalment, the credit ceases to be available

for that and any subsequent instalment.

Article-33 Presentation Time: A bank has no obligation to accept a presentation outside of its banking hours.

Article-34 Disclaimer on Effectiveness of Documents: A bank assumes no liability or responsibility for the form, sufficiency,

accuracy, genuineness, falsification or legal effect of any document, or for the general or particular conditions stipulated in a

document or superimposed thereon; nor does it assume any liability or responsibility for the description, quantity, weight, quality,

condition, packing, delivery, value or existence of the goods, services or other performance represented by any document, or for

the goods faith or acts or omissions, solvency, performance or standing of the consignor, the carrier, the forwarder, the consignee

or the insurer of the goods or any other person.

Article-35 Disclaimer on Transmission and Translation: A bank assumes no liability or responsibility for the consequences arising

out of delay, loss in transit, mutilation or other errors arising in the transmission of any messages or delivery of letters or

documents, when such messages, letters or documents are transmitted or sent according to the requirements stated in the

credit, or when the bank may have taken the initiative in the choice of the delivery service in the absence of such instructions in

the credit.

Article-36 Force Majeure: A bank assumes no responsibility for consequences arising out of the interruption of its business by

Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or causes beyond its

control.

Article-37 Disclaimer for Acts of an Instructed Party: A bank utilizing the services of another bank for the purpose of giving effect

to the instructions of the applicant does so for the account and at the risk of the applicant.

Article 38- Transferable Credits: A transferable credit may be made available in whole or in part to 2nd beneficiary at the request

of the first beneficiary. It cannot be transferred at the request of a second beneficiary. The first beneficiary can substitute its own

invoice and draft for those of a second beneficiary for an amount not in excess of LC.

Article-39 Assignment of Proceeds: The beneficiary can assign any proceeds to which it may be or may become entitled under

the credit.

eUCP : Supplement to UCPDC for Electronic Presentation (Version IA)

eUCP has been created to take care of the demand of the market for the presentation of electronic documents or for a mixture of

paper documents and electronic presentation. It provides definitions permitting UCP 60o terminology and providing rules to

allow both sets of rules to work together.

Article el of eUCP narrates the scope of eUCP. eUCP also deals with relationship of eUCP and UCP 600 (e2), definitions (e3),

format (e4), presentation (e5), examination (e6), notice of refusal (e7), originals and copies (e8), date of issuance (e9), transport

(elo), corruption of electronic record after presentation (en) and additional disclaimer of liability for presentation of electronic

records under eUCP (e12).

INTERPRETATIONS USED IN UCPDC-600

 A credit is irrevocable even if there is no indication to that effect.

 On or about — Such expression will be interpreted as a stipulation that an event is to occur during a period of 5 calendar days

before until 5 calendar days after the specified date, both start and end dates included.

 The words `to', 'until', 'from' and 'between' when used to determine a period of shipment include the date mentioned and

the words 'before' and 'after' exclude the date mentioned.

 The words 'from' and 'after' when used to determine a maturity date exclude the datementioned.

 The terms 'first half and 'second half of a month shall be construed respectively as the 1st to the 15th and the 16th to the last

day of the month, all dates inclusive.

 The terms 'beginning', 'middle' and 'end' of a month shall be construed respectively as the ist to 10th, the 11th to the 20th and

the 21St to the last day of the month, all dates inclusive.

 Branches in different countries are considered to be separate banks.

 The date of issuance of the transport documents will be deemed to date of despatch, taking in charge or shipped on board

and the date of shipment. If the transport document indicates, by stamp or notation, a date of despatch taking in charge or

shipped on board, this date will be deemed to the date of shipment.

 Trans-shipmentmeans unloading from onemeans of conveyance and reloading to anothermeans of conveyance (whether or not in

different modes of transport) during the carriage, from the place of dispatch taking in charge or shipment to the place of final

destination stated in the credit.

 A clean transport documents is one bearing no clause of notation expressly declaring a defective condition of the goods or

their packaging.

 If there is no indication in the credit about insurance coverage, amount of insurance coverage must be at least 110% of CIF or

CIP value of the goods.

SNAPSHOT FOR PREPARATION OF FUND FLOW STATEMENT & Fund Flow Statement analysis

SNAPSHOT FOR PREPARATION OF FUND FLOW STATEMENT

Fund Flow Statement is not an integral part of financial statements. The
lenders will have to prepare this statement on their own. The Fund flow Statement
is prepared to check the movement of long term funds between two Balance Sheet
dates and the availability of Long Term Surplus / Deficit, which must be equal to
the difference in Net Working Capital (NWC) during two Balance Sheet dates.
Liabilities are the sources for the business and assets represent the uses of funds
for the business. The funds raised on short term basis i.e. current liabilities are of
short term nature whereas the funds raised on long terms basis i.e. term liabilities
and net worth are of long term nature. Similarly, the funds deployed in the current
assets are considered as short term uses of funds and the funds deployed in fixed
assets, non-current assets and intangibles are considered as long term uses.
While preparing the fund flow statement, the movement of long term sources and
uses is to be calculated i.e. how much net long term funds are generated of
deployed in the business during the year. The very purpose of this exercise is to
know that whether the unit is able to generate sufficient long term funds to meet
out its long term requirement or not. If not then from where the funds have been
arranged to meet out its long term requirement.
The Long Term Sources can be calculated by summing the increases in term
liabilities and net worth i.e. other than current liabilities or decreases in fixed
assets, non-current assets and intangibles i.e. other than current assets. Similarly,
the Long Term Usage can be calculated by summing the decreasesin term liabilities
and net worth i.e. other than current liabilities or increases in fixed assets, noncurrent
assets and intangibles i.e. other than current assets. If the Long Term
Sources is more than the Long Term uses, there will be Long Term Surplus and if
the Long Term Sources is Less than the Long Term uses, there will be Long Term
Deficit.

Net working Capital (NWC) means the difference between current assets and
current liabilities, in other words, the long term funds available to support short
term uses. More the long term funds available to support short term uses, more
the unit will be comfortable in honoring its short term sources. As we have already
discussed that the current liabilities are the short term sources and current assets
are the short term uses, hence the difference between Long Term Sources and
Long Term Uses must be equal to difference between short term sources and short
term uses. Since the fund flow statement is prepared for the movement of figures
between two balance sheet dates, hence only the difference between two balance
sheet date figures should be taken into consideration while preparing fund flow
statement.
The Fund Flow Statement is prepared by using the following steps,
i. Capture all the long term sources from the Operating Statement e.g. Profit
After Tax, Depreciation, Amortizations, Non-Cash Charges etc.

ii. Capture all the long term uses from the Operating Statement e.g. Net Loss,
dividend payments, withdrawals etc.
iii. Capture all the long term sources / uses from the Balance Sheet
a. All the liabilities are sources of fund for the business. There are two
types of liabilities i.e. Current and Non-current. Current liabilities are
short term sources of fund whereas non-current liabilities are long term
sources of fund. Any increase in non-current liabilities (Term Liabilities &
Net Worth) will be the long term source and any decrease in non-current
liabilities will be the long term uses.
b. Similarly, all the assets are uses of funds in the business. There are two
types of assets i.e. Current and Non-current. Current assets are short
term uses of fund whereas non-current assets are long term uses of fund.
Any increase in Fixed Assets (change in gross block is to be considered as
we have already taken the depreciation as long term source from the
operating statement), non-current assets and Intangibles) will be the long
term uses and any decrease in non-current assets will be the long term
sources.
c. While considering the movement in Intangible Assets, it is to be kept in
mind that any reduction on account of amortization is not to be
considered as the same has already been considered from the operating
statement. Hence, movement on account of acquisition / disposal of
intangibles will be considered as long term source / uses.
iv. Now calculate the total long term sources and uses and find out the
difference. If the long term sources are more than long term uses, it will
result in long term surplus and vice versa.

It is expected that the long term funds generated should be sufficient to meet out
the long term requirements of the unit. Apart from meeting the requirement of
long term nature, there should be sufficient long term surplus left to meet out the
net working capital requirement.
Sometimes, it is found in the analysis of fund flow statement that there is long
term deficit. Long term deficit should not be treated as a negative sign always
rather the reasons for deficit are to be analysed critically. The deficit can be
acceptable if the short term funds (surplus liquidity) have been utilized for long
term purposes to meet out the genuine business requirement and the resultant
liquidity of the unit does not suffer adversely, meaning thereof, the current ratio
and the position of absolute net working capital should be in comfortable and
acceptable zone. Normally, it happens with the units, having conservative
approach and do not want to be over leveraged. These units first accumulate the
funds and keep them in the liquid form and whenever the requirement arises, they


use the funds as per the needs of the business. If, the long term deficit is found in
any unit, the reasons for the same are to be analysed in details as this may create
liquidity crunch in the unit. The reasons for long term deficit or reduction in the
Net Working Capital could be as follows,
Losses: Leading to reduction in reserves, which is forming part of Net
Worth, resulting decline in generation of long term funds resulting
decline in NWC.
Conversion: Some of the Current Asset becoming Non-Current (Book
Debts stretched, stocks become obsolete, etc.), resulting increase in
non-current assets i.e. long term uses.
Diversion: Short term funds are used for long term purposes but the
funds remains within the business, resulting decline in the gap between
current assets i.e. short term uses and current liabilities i.e. short term
sources.
Siphoning-off: The funds are used for unrelated activities in other words
the funds taken out from the business, resulting decline in the long term
sources.
In all the above scenarios, the Siphoning off of funds is to be considered as most
dangerous sign because it is very difficult to bring back the funds in the system,
which has already been taken out from the business. In all other scenarios, position
can be improved over time by taking corrective steps.

TT Rates and Bill Rates

TT Rates and Bill Rates:;

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

TT Buying Rate:::

It is required to calculate when our Nostro account is already credited or
being credited without delay e.g. Receipt of DD, MT, TT or collection ofForeign bills. This rate is used for cancellation of Forward Sales Contract.
Calculation
Spot Rate – Exchange Margin

Bill Buying Rate::

Bill Buying Rate Bill Buying rate is applied when bank gives INR to the customer before
receipt of Foreign Exchange in the Nostro account i.e. Nostro account is
credited after the purchase transaction. In such cases.
Examples are:
 Export Bills Purchased/Discounted/Negotiated.
 Cheques/DDs purchased by the bank.
Calculation

Spot Rate + Forward Premium (or deduct forward discount) – Exchange margin.

TT Selling Rate::

TT Selling Rate Any sale transaction where no delay is involved is quoted at TT selling rate.
It is desired in issue of TT, MT or Draft. It is also desired in crystallization of
Export bills and Cancellation of Forward purchase contract.
Calculation
Spot Rate + Exchange Margin

Bill Selling Rate:::

Bill Selling Rate It is applied where handling of documents is involved e.g. Payment against
Import transactions:
Calculation
Spot Rate + Exchange Margin for TT selling + Exchange margin for Bill
Selling

Examples::

Q. 1
Bank received MT of USD 5000 on 15th Sep. The Nostro account was already credited. What
amount will be paid to the customer: Spot Rate 34.25/30. Oct Forward Differential is 22/24.
Exchange margin is .80%
Solution
TT buying Rate will be applied
34.25 - .274 = 33.976 Ans.

Q. 2
On 15th July, Customer presented a sight bill for USD 100000 for Purchase under LC. How
much amount will be credited to the account of the Exporter. Transit period is 20 days and
Exchange margin is 0.15%. The spot rate is 34.75/85. Forward differentials:
Aug: .60/.57 Sep:1.00/.97 Oct: 1.40/1.37
Solution
Bill Buying rate of August will be applied.
Spot Rate----34.75 Less discount .60 = 34.15
Less Exchange Margin O.15% i.e. .0512 =34.0988 Ans.
( Transit period is rounded to next month since currency will be cheaper as it is buy transaction)

Q. 3
Issue of DD on New York for USD 25000. The spot Rate is IUSD = 34.3575/3825 IM forward
rate is 34.7825/8250
Exchange margin: 0.15%

Solution:
TT Selling Rate will Apply
Spot Rate = 34.3825 Add Exchange margin (.15%) i.e. 0.0516
TT Selling Rate = Spot Rate + Exchange Margin = 34.4341 Ans.

Q. 4
On 12th Feb, received Import Bill of USD-10000. The bill has to retired to debit the account of
the customer. Inter-bank spot rate =34.6500/7200. The spot rate for March is 5000/4500. The
exchange margin for TT selling is .15% and Exchange margin for Bill selling is .20%. Quote rate
to be applied.
Solution
Bill Selling Rate will be applied.
Spot Rate + Exchange margin for TT Selling + Exchange margin for Bill selling =
34.7200+.0520+.0695 = 34.8415 Ans.

Treasury Management

TREASURY MANAGEMENT ::

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

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

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

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

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

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

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

Very IMPORTANT QUESTIONS to know

Very IMPORTANT QUESTIONS to know

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

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

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

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

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

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

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

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

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

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

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

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

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

Financial Ratio Analysis ..Very useful to get knowledge

Financial Ratio Analysis

In credit proposals, Ratio analysis plays a significant role in analysing the financial health of units. Structuring the ratios in a proper manner not only results in gauging the performance of the unit, but also in analysing its exact financial needs.

let us understand various Profitability ratios along with rationales.
1. Operating Profit / Net Sales (%):
This ratio gives clue about the profitability of the unit from its core operations.
Rationale: It is to understand whether profitability reported by the unit is on account of its core operations or from non operating income.
2. Profit Before Tax (PBT) / Net Sales (%):
Indicates Profitability levels. It gives an indication regarding percentage of profit reported by the unit out of total income in a particular financial year
Formula for PBT: Net Sales (-) Operating expenses (-) Interest (+) Non operating income (-) Non operating expenditure.
For example, if PBT is Rs 10/- out of net sales of Rs 100/-, then the unit has a profitability of 10% in its business.
Rationale: PBT is arrived after considering Non operating income and Non operating expenditure. It is to understand whether profitability reported by the unit is on account of its core operations or from non core operations.
3. Operating cost to sales:
Operating cost is sum total of expenditure incurred from the stage of raw materials purchased to selling, General and administration expenses.
Rationale: This ratio is important in understanding the total amount of cost involved out of per unit sale. For example, an Operating cost to sales of 0.75 indicates, that the unit is incurring an amount of Rs 75/- in the form of operating costs while generating a revenue of Rs 100/-
4. Long Term Loans /Earning Before Interest, Depreciation, Taxation and Amortization (EBIDTA):
It indicates the comfortable level of EBIDTA to take care of term loan repayment obligations.
Rationale:Lower the ratio, greater is the comfort. If the ratio is low, it indicates that unit is not excessively indebted and is able to fulfil its debt obligations. Conversely, if the ratio is high, it indicates that company is heavily burdened with debt.
5. Interest Coverage Ratio (ICR) = Profit before Depreciation, Interest and Tax (PBDIT) / Interest):
It determines the cushion available in the hands of the unit out of surplus generated from its operations to pay interest on its outstanding debt. This ratio explains the sufficiency of available funds (PBDIT) in the hands of the unit to take care of interest obligations.
Rationale: This signifies that the unit has to generate sufficient income to meet its interest obligations, even when the business prospects are adverse.
A lower ICR indicates that less operating profits are available to meet interest payments and that the unit is more vulnerable to volatile interest rates. Therefore, a higher interest coverage ratio is desirable which indicates stronger financial health.
6. Return on Equity (ROE) %:
ROE is calculated as a ratio of net profit to the equity. It indicates what is the percentage of return, the equity share holders are deriving from their investment made in the business.
Rationale: ROE represents the capacity of the unit to serve its equity holders. Higher the level, higher is the return derived by share holders.
7. Debt Service Coverage Ratio (DSCR):
‘Debt’ means maturing term obligation within a year viz., instalment repayable during a year under all term loans/deferred payment guarantees and ‘service’ means cash accruals consisting of net profit plus depreciation and non-cash expenses written off.
This ratio has to be calculated for the entire tenor of term loan. While calculating DSCR, existing term loan and its repayment should also be considered along with proposed term loan. Apart from this, any other term loan sanctioned by any other financial institution should also be considered.
Gross DSCR = [PAT + Depreciation and other non cash expenses** + Interest on term loan] / [Annual Principal instalments + Interest on term loan]
Net DSCR = [PAT + Depreciation and other non cash expenses**] / [Annual Principal instalments]
** Amortization, unrealized gains, unrealized losses etc.
Average Gross DSCR: It is calculated by dividing sum total of cash + Interest on term loan for the entire period of term loan with sum total of Annual Principal instalments + Interest on term loan for the entire period of term loan.
Rationale: DSCR is most important, as it indicates the ability of an enterprise to meet the liabilities (by way of instalments of Term Loans and Interest) out of cash accruals generated and forms the basis to fix repayment schedule in respect of the Term Loans sanctioned