Treasury products

Treasury Products

Treasury products Treasury refers to the products available in the financial market for raising and deploying funds for (a) investment and (b) trading in foreign exchange and securities market Products available in Forex Market:

The forex is a virtual market without physical boundaries_ The information dissemination is very fast through electronic media such as Reuters, Money Line, Bloomberg etc. The foreign exchange markets, as such, are as near-perfect with an efficient price discovery system_ The products are explained as under:

I. Spot trades

 Forward

 Swap

 Investment of foreign exchange surpluses

 Loans and advances

 Rediscounting of bills

 Spot trade : The spot trading in foreign currencies refers to a situation where the settlement takes place up to T+2 days i.e. maximum on the 3rd day. The settlement may take place on same day (ready rate) or on T 1 day i.e. by the next day (TOM rate). The ready rate and TOM rate are less favourable to the buyer and more favourable to seller_ Example : X sells certain foreign currency to Popular Bank on Feb I I, the settlement will take place on the same day. Bank will make payment by applying ready rate. If the settlement is to take place on Feb 12, the bank will apply TOM rate. If it takes place on Feb 13, Tf rate would be applied_

2_ Forward The forward in foreign currencies refers to a situation where the settlement takes place in future i.e. after T+2 days, on a pre-fixed rate and on a pre-fixed date, which are decided on the date of contract. Forward may be at a discount (where future rate of forex. is lower compared to present/spot rate) or at a premium (where future rate of forex. is higher). Example US $ is quoted at Rs.39.20 on Dec 12 (which is its spot rate). It is quoted at Rs.39.40 for delivery in January (which is forward rate). Here the forward is at a premium_ Had the January rate been lower than Rs.39.20, the forward would have been at a discount.

Forward rates are arrived at on the basis of interest rate differentials of two currencies (which are added or deducted from spot exchange rate). For example, for US S and UK Pound Sterling, the difference between the spot rate and forward rate represents the difference in interest rates in USA and UK. The interest rate differential is added to the spot rate for low-interest yielding currency (representing forward premium) and vice versa.

 Swap : Swap represents a combination of spot and forward transactions. Buying one currency in the spot market and selling the same currency for the same quantity in the forward market, constitutes a swap. Though swap is used for funding of requirements but at times there is some element of arbitrage.

Example XYZ Limited an exporter have with them $ 200000 today but they do not need foreign currency today. However, they will require the same amount of foreign currency at the end of the month from now. If the company sells the currency today in spot and buys the same amount 2 months' forward, today itself, it would be a swap transaction. By doing so, they will be able to hedge forex fluctuation risk.

 Investment in forex surplus : The forex surplus arcing from (a) profits on treasury operations (b) profits from overseas branch operations (c) forex borrowings in overseas market (d) foreign currency convertible rupee deposits, are left at the disposal of the

Treasury.

Banks are allowed to invest these surpluses in global money markets or short term securities.

 Inter bank loans: These loans arc of short term nature up to one year and many times, overnight lending to domestic or global banks.

 Short term investments: Banks invest in Treasury bills or gilt edged securities issued by the foreign govt. and other debt instruments.

 Balance in NOSTRO accounts: Banks also keep balances in these accounts, which do not earn interest. Some correspondent banks, however, offer the facility to invest automatically once the balance exceeds the floor limits.

5. Loans and advances : Though Treasury does not undertake the loan granting function, but consent of Treasury is obtained by the credit appraisal department and disbursement function regarding availability of foreign exchange funds or credit lines, prior to sanction of such loans by the Credit Function.

6. Rediscounting of bills : Rediscounting is an inter-bank advance and Treasury provides refinance for the foreign currency bills purchased or discounted by other banks. These are normally of a short term period ranging from 15 days to one year.




Iibfadda.blogspot.com 

FATF recommendations

THE FATF RECOMMENDATIONS:: Total 40

A – AML/CFT POLICIES AND COORDINATION

1 - Assessing risks & applying a risk-based approach *

2 - National cooperation and coordination

B – MONEY LAUNDERING AND CONFISCATION

3 Money laundering offence *

4 Confiscation and provisional measures *

C – TERRORIST FINANCING AND FINANCING OF PROLIFERATION

5 Terrorist financing offence *

6 Targeted financial sanctions related to terrorism & terrorist financing *

7 Targeted financial sanctions related to proliferation *

8 Non-profit organisations *

D – PREVENTIVE MEASURES

9 Financial institution secrecy laws

Customer due diligence and record keeping

10 Customer due diligence *

11 Record keeping

Additional measures for specific customers and activities

12 Politically exposed persons *

13 Correspondent banking *

14 Money or value transfer services *

15 New technologies

16 Wire transfers *

Reliance, Controls and Financial Groups

17 Reliance on third parties *

18 Internal controls and foreign branches and subsidiaries *

19 Higher-risk countries *

Reporting of suspicious transactions

20 Reporting of suspicious transactions *

21 Tipping-off and confidentiality

Designated non-financial Businesses and Professions (DNFBPs)

22 DNFBPs: Customer due diligence *

23 DNFBPs: Other measures *

THE FATF RECOMMENDATIONS

INTERNATIONAL STANDARDS ON COMBATING MONEY LAUNDERING AND THE FINANCING OF TERRORISM & PROLIFERATION

 2012 OECD/FATF 5

E – TRANSPARENCY AND BENEFICIAL OWNERSHIP

OF LEGAL PERSONS AND ARRANGEMENTS

24 Transparency and beneficial ownership of legal persons *

25 Transparency and beneficial ownership of legal arrangements *

F – POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES

AND OTHER INSTITUTIONAL MEASURES

Regulation and Supervision

26 Regulation and supervision of financial institutions *

27 Powers of supervisors

28 Regulation and supervision of DNFBPs

Operational and Law Enforcement

29 Financial intelligence units *

30 Responsibilities of law enforcement and investigative authorities *

31 Powers of law enforcement and investigative authorities

32 Cash couriers *

General Requirements

33 Statistics

34 Guidance and feedback

Sanctions

35 Sanctions

G – INTERNATIONAL COOPERATION

36 International instruments

37 Mutual legal assistance

38 Mutual legal assistance: freezing and confiscation *

39 Extradition

40 Other forms of international cooperation

Target JAIIB

Target JAIIB and Its strategy

If you have just joined the banking Industry, you must have applied for JAIIB or if not yet, you’ll be applying soon. And one thing everyone wants to know is how to pass JAIIB in first attempt. The obvious reason for clearing JAIIB i.e., Junior Associate of Indian Institute of Bankers is to get an extra increment. So sooner you pass the JAIIB exam, earlier you get an extra increment. If you have joined as Scale – I Officer (P.O.), your initial basic salary would be Rs.23700 and if you clear JAIIB, you get one increment and your basic salary increase by Rs.970. So, if you miss it first time, your increment gets delayed by 6 months. That means loss of Rs.5820+DA. So it becomes important to clear the JAIIB in first attempt itself.

JAIIB exam is held twice a year (June and December) and around 1.50 lacs candidates appear for the exam. Only 22-25% candidates are able to clear the exam each time. So, does it mean that JAIIB is difficult to crack? What should be the strategy to clear the JAIIB in first attempt itself? How one should prepare for JAIIB.

Passing marks for JAIIB are 50% aggregate and 45% in each subject. If aggregate marks are less than 50% or marks in a particular paper are less than 45% but you score 50% or more in any subject, you do not qualify the exam but you need not give that particular paper in next attempt, in which you score 50% or more. The best part of JAIIB exam is that result of each paper is shown to you immediately after you submit your online exam.

Simple steps to prepare for the JAIIB exam

Take off the burden from your mind, you are required to score only 50%, which is not very difficult. And the good thing is that there is no negative marking.

Here is a simple step by step guide which will help the bankers to be prepared for JAIIB.

If you come from finance or commerce background and have studied B.Com, MBA (Finance) etc., it is relatively easy to crack the JAIIB. Because you would have studied atleast 60% of the topics covered in JAIIB. If you are not from commerce or finance background, you need to make little extra efforts

Preparation strategy for JAIIB examination:

JAIIB exam needs some dedicated preparation to crack the exam, especially for the non commerce graduates. Many young bankers prepare for the exam only during the last week; Then they write one paper after getting low marks, they simply give up the attempt. Some take two days leave before the exam and prepare for it eventually they fail because of shortage of four or five marks. These strategies may work for few talent bankers but not for all. After our busy working hours, daily we have to spend some time for preparation of the exam. Since most of us are very new to the banking industry and its concepts, we need regular revisions to familiarise with the concepts.So all it needs a self disciplined and determined mind to prepare for the exam.

Allocation of Study time:

Daily we need to spend at least 1 1/2 to 2 hours a day for preparation of the JAIIB exam. Cramming before the exam night or before two days won’t help for understanding the information. It may help for few direct questions but it won’t be useful for complex questions. Also we wont have enough time to complete the sy1llabus and will lead to anxiety & stress. Sacrificing our sleep before the exam night will also make us counterproductive so it better to study every day.

Importance of Studying daily:

Studying daily and revising regularly helps to familiarise with concepts. It also helps us to understand the information. Having a study routine is not only helpful for exam but also improves our reading habit which every banker needs, as our industry is very dynamic. In our hectic banking hours finding time for continuously 2 hrs a day is very hard. But having small sessions of 30 to 40 minutes thrice in a day is easy to find. In the era of smart phones, we can study anything at anywhere so when you find a spare time please use it.

Study Material:

For preparation, I strictly recommend the three comprehensive courseware developed by IIBF, published by MacMillan for each paper. These books are not only helpful for the exam but also for our Banking career. If you really want to pursue your career as banker then these books are must and fundamental. They act like a reference manual for us. So my humble request to all, please don’t prepare only for clearing the exam; Kindly prepare with the motive of improving knowledge in the banking field. Because the knowledge gathered during our JAIIB exam will also aid us during our day-to-day banking life.

Apart from the MacMillan books, the books and work books prepared by JAIIB coaching centres such as N S Noor, Deewan Banking Academy etc,. are also available in the market. Mostly they are good but not comprehensive and may not have clear explanation for some topics. All the books are about same cost, so I recommend the Macmillan books

They are many free study material is available in the facebook groups and in websites also. If possible get that too for your reference but my best suggestion is to buy Macmillan books. The amount spent is more than worthy, the book will be useful for our banking career.

For Latest developments & Current affairs related to Banking Industry:

Apart from the above syllabus we need to refer the following for full preparation of the JAIIB exam.

1. Current developments in Master Circulars/ Master revisions issued by RBI

2. Websites of RBI, SEBI, BIS, IRDAI, FEDAI for reference and development in concerned subjects

3. IIBF Vision and Bank Quest published by IIBF for the members it is free and sent to email id.

4. Financial newspapers/publication can also be referred for current affairs.

5. New Government Schemes related to banking sector.

Nature of Questions:

Depending upon the complexity of the question, the marks of the question varies.

0.50 mark – Direct question which requires one word answers. Answer this questions with 100% accuracy. Most of these questions are from definitions, types or classification, abbreviation, simple explanations etc,. So at least read and go through all the topics in Macmillan Book twice.

Planning a study schedule:

Now we have allocated our time and purchased & collected the necessary materials for preparation of JAIIB exam. Now, “What is next??;” Having a strategy/plan/routine schedule for preparation of JAIIB Exam. Strategic planning is important for any activity because it provides a sense of direction and evaluation of progress in our efforts towards goal. A goal without a plan is just a wish, so please make a plan and try to stick to it.

We have already seen the JAIIB syllabus here. In order to pass the JAIIB exam all we need to do is to get 50% of marks in each paper within four consecutive attempts. So we don’t need to study all modules deeper and do research on each topic. If we cover 75% of the syllabus for each paper is enough to get more than 50%.

The strategy and study plan I discuss below are just an example for understanding, viewers and readers are instructed to prepare their own schedule based on their level of knowledge and skills in each subjects.

Overlapped Topics:

Some topics of a paper is also a covered in other papers and questions can be asked in any of the paper. For example AML/KYC is also common for Accounting & Finance and Legal & Regulatory aspects of Banking. Since questions can be asked in any of three exams from this topics, prepare for the paper which has most topics & sub-topics in that particular subject. Also revise the same when you need to prepare for the overlapped topic.

Study Plan: Principles & Practices of Banking:

In my view this is the easiest subject to pass when compared to other papers. Because in this paper, all the topic are conceptual and mostly related to our day-to-day banking activities. Hence most of the topics (not all) are already familiar to us.

Module A: Indian Financial System

Read and understand all the topics and sub topics without any omission.

If possible take notes in the form of snippets this will help for revision of the topic. Since we all new to banking terms repeated revisions are required for this module.

We can expect 20 to 25 marks in this unit.

Question from current development is asked from this unit.

Prepare to score all the marks from this module.

Module B: Functions of Banks

This unit is also important and all the topics should be thoroughly studied.

We can expect 20 to 25 marks from this unit.

This unit is also needed repeated revision so taking notes while studying is recommended.

Question from current development is asked from this unit.

This is also the our scoring section, prepare in a way to get all the marks from this module.

Module C: Banking Technology

If your are techie, take full 6 hrs and study thoroughly.

For techies, this unit helps to surpass the minimum marks comfortably.

Others prepare in a way to answer the direct question from this module.

From this unit we can expect 15 to 20 marks.

We can expect question from latest development in Banking related to IT.

Module D: Support Services & Marketing of Banking Services/Products

If you are BBA or MBA and studied marketing related concepts in your graduation then take full 6 hrs and thoroughly study the unit.

Others prepare to answer for direct questions.

We can expect 10 to 15 marks from this unit.

Study Plan: Accounting & Finance for Bankers:

Many bankers treat the Accounting & Finance paper as tough. The main reason is cramming of information won’t work here like other papers. Since here we have to study, understand and apply the concepts, we need to study regularly and practice. So a good study routine is must and here all the modules are important for exam purpose as well as for our knowledge. So there is no skipping of modules in this paper and give importance to all topics.

Module A: Business Mathematics and Finance

This is a must read and must know module for all bankers. So don’t even skip a small topic.

Since these module is mathematical in nature, write down all the formulas and go thorough it daily.

Practice yourself with formulas by assuming different values from the exercise and solved examples.

Don’t ever fail to take notes and snippets for formula’s explanation & applicability.

We can expect 25 or more marks in this unit.

Understanding of calculation and concepts is must so that we can answer confidently if the questions are twisted.

Module B: Principles of Book Keeping and Accountancy

This unit is also important and all the topics should be thoroughly studied because if we are in bank we should know the accountancy.

We can expect 20 to 25 marks from this unit.

Understand the concept is key for this paper. Don’t mug-up; if you cannot understand a topic just ask your B.Com friend. Or ask him to simply explain the basics of accountancy.

This unit is also needed repeated revision so taking notes while studying is highly recommended.

This is also the our scoring section, prepare in a way to get all the marks from this module.

Module C: Final Accounts

This unit is the most important and very useful for our day-to-day activities.

This unit is conceptual as well mathematical.

So take notes for formulas and revise it.

B.Com friend is the best mentor for this module.

From this unit we can expect 20 to 25 marks.

Module D: Banking Operations and Accounting Functions

This unit is comparatively less important but good preparation of this unit will help to score the pass mark.

This unit will have many overlapped topics

Prepare to answer for direct questions.

We can expect 15 to 20 marks from this unit.

Question from latest development can be asked in this module.

Study Plan: Legal & Regulatory Aspects of Banking:

Many people underestimate the legal paper and say this exam is very easy to clear. This is purely a law oriented paper, so many of the legal terms used in the topics are new to us. In order to familiarise and to understand those topics, we have to spend more time for this paper. Also good memorization skill is required to remember the numbers & data. All the modules are about equally important, hence don’t skip a topic.

Module A: Regulation and Compliance

This is a less important but easier module compared to other modules of the paper.

This module is full of theory related to Banking Regulation and its compliance.

Don’t ever fail to take notes and snippets for explanation & applicability.

We can expect 15 to 20 marks in this unit.

Question from latest development can be asked in this unit.

Module B: Legal aspects of Banking Operations

This module is a foundation and must study.

Understand the concepts and definitions for legal terms

Take notes, Take notes, Take notes and revise it until having a clear picture about the topic.

This is a scoring module so prepare well.

20-30 marks can be expected from this unit.

Module C: Banking related laws

A toughest module and it is a must study for all

Repeated revision is required to remember the numbers & data.

This unit will consume more time and make us feel bore. So study the topics in different sessions of 30 mins.

We can expect 25 to 30 marks from this unit, so it is a mark scoring unit.

Question can be asked from current developments or amendments so update accordingly.

Module D: Commercial Laws with reference to banking operations

This module is conceptual and also requires memorization too.

Some of the topics are common with Module D of Paper 2: Accounting & Finance.

This also a scoring module we can expect 20 – 25 marks from this unit.

On the actual test day

Choose the easy questions first as they will give you an estimate of the score. Then come back to the questions which were missed. Also, there is no negative marking, so attempt all questions. If you stuck in a question, leave that by marking and go ahead.

We hope this will help you out to pass the JAIIB in first attempt. If you have any queries/ suggestions, please write in comment box below.

Conclusion:

The time period mentioned above are for studying those topics at least one time and indicative for understanding. It will vary depending upon personal capacity, skill and knowledge in the subjects. So prepare your own study schedule and stick with it. Remember a determined and self disciplined mind is key to the success. So whatever the strategy you follow for JAIIB examination make sure you are sticking with your plan and be true to yourself.

https://iibfadda.blogspot.com/2018/08/target-jaiib-and-its-strategy.html

Very Nice article on The importance of a vibrant MSME sector

 Very Nice article on The importance of a vibrant MSME sector



The importance of a vibrant MSME sector in the context of the aggregate economy can’t

be over-estimated as it accounts for:

• Roughly one-third of aggregate economy gross value added

• Approximately one-third of manufacturing output in the country

• 45% of all Indian exports

• Three-fourths of all establishments in the country

• Provide employment to around 131.2 million people



However, the MSME sector has not received the due attention it deserves from the financial system on account of the various

challenges inherent in servicing this segment. Like we demonstrated earlier, lending to MSMEs should allow the banks to ameliorate the

deleterious impact of the secular trend of Disintermediation and the cyclical challenges of rising NPAs due to an over-extended largesize

corporate sector.

Thus, it would be fair to surmise that a business realignment towards MSME lending is the antidote to the ills afflicting the Indian banking

system currently. This is one of the rare instances where the commercial imperative of higher growth and profitability is aligned with the

societal imperative of financial inclusion.

The rest of this report deals with the key issues impacting the supply and demand of credit to the MSME segment. Effort has been made

to diagnose the key financial and operational challenges involved in servicing this segment. Finally, the key thrust of this report is to

illustrate the similarities between the business models for the retail and the MSME segment and the relevance of applying the key

success strategies especially the adoption of a credit scoring fueled information lending model in achieving robust and sustainable risk

adjusted growth.

MSME FINANCING – SUPPLY, DEMAND & GAP ANALYSIS

Source: RBI & TransUnion CIBIL Calculations

Overall bank credit to the Micro & Small Enterprises (MSE) has increased at a CAGR of 15.2% from INR 2.5 trillion in FY08 to INR 9.0

trillion FY17. This is marginally ahead of the 13.4% and 13.9% growth exhibited by the Nominal GDP and the Non-food Credit

respectively over the same time period. Thus, MSE credit penetration (as measured by proportion to GDP) has increased from around

5.2% in FY08 to a high of 6.4% in FY15.

Ongoing deceleration in economic activity and the emergence of the NPA overhang in the past couple of years has meant that credit

growth to the MSE sector has slowed down considerably. This has manifested itself in share of MSE Lending coming down as a

proportion of the GDP as well as a proportion of the total non-food credit.

Most SMEs in India face poor access to finance within a financial system dominated by banks. The following points will conclusively

highlight the scale of funding challenges faced by the Indian MSME sector:

• MSME bank credit to GDP ratio for India was at around 6.2% in FY 15 – less than one-sixth of the levels seen in countries like Korea

and China. It is around one-fourth of countries like Thailand and Malaysia and is even lower than Bangladesh.

• As per IFC, the total financing demand of the Indian MSME sector is around INR 32.5 trillion – comprised of entrepreneur’s contribution

of INR 4.6 trillion and estimated external finance demand of INR 27.9 trillion.

• Considering that the MSMEs have access to formal finance of around INR 10 trillion, the sector is grappling with a formal credit gap of

around INR 17.9 trillion. The enormity of the financial challenge is clear from the fact that the credit gap is close to twice the actual

outstanding amount of formal credit extended to the sector.



From a sectoral perspective, the credit gap for the manufacturing sector (73% of aggregate credit gap) is much higher than services

sector due to the capital intensive nature of the manufacturing enterprises. This trend is exacerbated by the fact the bank lending to the

Services sector has expanded at the expense of Manufacturing. Share of Services sector in aggregate MSE lending has increased from

47% in FY08 to 59% in FY17.



• As per the sixth economic census, roughly 78% of all enterprises in India are self-financed and have no access to financing from

formal sources.

MSME FINANCING – KEY CHALLENGES



Inadequate access to financing by the MSMEs is a function of the inherent limitations of the current business models of the financial

institutions. The underlying heterogeneity, pervasive geographical presence of the MSME sector and the utilization of physical bank

branches for bulk of the loan origination means that entrepreneurs in remote locations lack access to finance. Even though Banks have

tried to ease this issue through the usage of the Banking Correspondents model, access remains a key challenge – especially for

entrepreneurs based out of low-income or geographically far-flung areas.





The current business model is also characterized by manual check-list based risk assessment at the origination stage. MSMEs are also

bedeviled by the insistence of the banks on following a cumbersome and inflexible documentation procedure that is difficult for new

borrowers. The net result is a significant increase in turnaround times. Currently, the sector is characterized by turnaround times (for

loans < INR 1 Million) ranging from 17 days for the NBFC sector to 30 days for PSU Banks.

Such high level of turnaround time means that the formal financial sector is unable to provide timely credit to entrepreneurs in times of a

crisis – especially important as MSME entrepreneurs have very limited financial capabilities to handle life cycle shocks. These

entrepreneurs turn to informal sources in such crisis situations and it is difficult to bring them back into the formal financial sector after

such an experience.

Despite the preponderance of evidence to the contrary (NPA analysis by size segments showed that the MSME-CMR segment had one

of the best performance), most financial sector participants consider the MSME sector to be massively risky and are loath to disburse

loans without adequate collateral. World Bank Enterprise surveys show that around 81% of all loans in South Asia are collateralized –

significantly higher than the 64% share in high income OECD countries. Further, most financial institutions insists on immovable

collateral like land or buildings on account of unenforceable secured transaction laws. Thus, MSME loans have comparatively higher





rejection rate for feasible projects.

The informal nature of most MSMEs, consequent lack of adequate compliance to tax and other legal regulations means that most

MSMEs find it difficult to adapt to the high levels of document requirements of the formal financial system. This situation is exacerbated

by the lack of qualified personnel for preparing the annual financial statements. Consequently, most MSMEs gravitate towards the

informal system that ask for little documentation.

The combination of the above discussed trends of physical branch based origination systems, low access, high turnaround times due to

complicated processes, inadequate access to collateral and documentation and perceptions of higher risk translate into significantly

higher cost of funding in terms of both the interest rate as well as processing costs for the MSMEs. The high cost of financing in turn has

a significant adverse impact on the future profitability and growth of the sector.

MSME LENDING – CREDIT SCORING BASED INFORMATION LENDING

The centrality of the MSMEs in ensuring India’s future economic and employment growth and the inability of the formal financial sector in

supporting the continued robust growth of MSMEs underline the need for a radical redesign of the entire MSME lending value chain.

Fortunately, the banks and the NBFCs already have a business segment – Retail Lending – that can serve as a guidepost for

redesigning a business model that can facilitate robust volume growth whilst maintaining risk under control.

As our previous research article “Credit Bureaus, Scoring & Technology – Key Pillars Of Sustainable Retail Lending” illustrated, financial

institutions have been able to robust risk-adjusted growth in retail lending in the past few years as the confluence of the structural trends

of the advent of the Credit Bureaus like TransUnion CIBIL, increasing information technology intensity and the resultant development of

credit scoring based automatic decision making has radically redefined the consumer lending business model from “manual, judgmental

and relationship driven” to “digital, credit scoring and transaction driven”. This paradigm shift in the business model has translated into

multi-faceted benefits for consumer lending industry, consumers and the aggregate economy.



In contrast to the current practice of a one-size-fits-all risk assessment system based on financial statement analysis and

collateralization, banks need to come up with risk assessment systems that are targeted at different commercial client segments.



6/8

Financial Statement Lending is suitable for large enterprises with a significant history of audited financial statements and consequent

financial transparency. Risk assessment and monitoring is largely a function of achievement and maintenance of financial performance

covenants.

Asset Based Lending i.e. Collateralized Lending should be used for medium-sized firms that exhibit the characteristics of limited

financial transparency, inadequate future cash flow generation capacity but access to reasonable amount of moveable collateral like

high quality accounts receivables and inventory and immovable collateral like land and buildings.

Credit Scoring Based Information Lending is the most appropriate form of lending for Micro and Small Enterprises that may lack

updated financial statements as well as reasonable amounts of collateral. In this type of lending, decisions involving the approval of the

loan, pricing and the other terms and conditions are linked to the Credit Score.

Credit Scoring is a quantitative technique in which the future probability of default is determined by financial and non-financial

characteristics of both the business and the business owner. A well-known example of Credit Score is the CIBIL MSME Rank (MSME

(CMR)) score provided by TransUnion CIBIL. The MSME (CMR) measures and predicts the future probability of default over a one-year

horizon on a rank scale of 1 to 10 with 1 being the best and 10 being the worst.

CREDIT SCORING BASED INFORMATION LENDING – KEY BENEFITS

Just like Consumer Lending, judicious use of credit scoring results in multifaceted benefits to lenders, borrowers and the aggregate

economy.

Use of credit scoring and the associated change in risk assessment practices leads to greater process standardization and concomitant

increase in objectivity in risk assessment practices. Financial Institutions can achieve meaningful increase in profitability as credit

scoring can reduce the costs associated with the processing of individual applications whilst increasing the volumes as lenders are able

to safely approve marginal applications that an individual underwriter may have rejected.

Various international studies have documented the positive impact of credit scoring on the availability, price and risk of credit to micro

and small enterprises. A US Study examining the benefits of credit scoring for micro business lending estimated that the usage of credit

scoring resulted in the loan processing costs coming down from a range of USD 500-1800 to around USD 100. Another study by the

Federal Reserve Bank of Atlanta found out that usage of credit scoring led to significant increase in credit availability especially in lowincome

areas – traditionally the geographic segments facing the largest credit gap – due to the rise in objectivity of the credit

assessment process.

The usage of credit scoring has the potential of solving the access challenges faced by MSMEs based in geographically remote areas

that have comparatively lower penetration of formal financial sector. Research by Raghuram Rajan and Mitchell Peterson showed that

the confluence of the trend of availability of credit information from infomediaries like Credit Bureaus and ability of banks to synthesize

this information through Credit Scoring and Information Technology investments has resulted in significant expansion of the distance

between the small firms and their lenders.

The combination of credit scoring and automatic decisioning platforms provided by Credit Bureaus like TransUnion CIBIL can have a

significant impact on the turnaround time of micro and small business lending. Since the majority of applications come from applicants

that are low risk in nature, an automatic decision rule (say accept all companies having a MSME (CMR) rank of 4 or below) would

significantly reduce the turnaround time for bulk of the applicants. Conversely, turnaround times are also reduced by explicit rejection

rules e.g. reject all applicants having a MSME (CMR) rank of 8 or above. It is our opinion that the current turnaround time of 17-30 days

can be reduced to around 1-5 days by utilizing the credit scoring risk assessment system in conjunction with automatic rule-based

decisioning systems.

Proactive utilization of Consumer Bureau data as well periodic monitoring of bureau scores should lead to a meaningful reduction in bad

debts. It is a well-established fact that enterprises would exhibit certain behavior patterns like irregular payments, deteriorating credit

score, multiple financial enquiries etc. before showing actual delinquency. A well-thought out delinquency indicator alert system

developed in partnership with a Credit Bureau would allow a lender to identify the set of clients going through a challenging time. This in

turn allows the financial institutions to limit the bad debt exposure as well as implement risk mitigation strategies that benefit both the

lender and the borrower.

In addition to application scoring, Credit Scores like the MSME (CMR) developed by TransUnion CIBIL can be leveraged for Collections

purposes as well. Collection process efficiency and profitability can be significantly increased by segmenting the default and the neardefault

clients into collection priority buckets through the usage of scores and ability and propensity of future payments.

Thus, the principal benefits accruing to a lender – lower bad debt expense, reduced turnaround time, lesser processing / operational

cost – result in expanded credit at comparatively lower cost to the micro and small enterprises. Additionally, there is a meaningful

improvement in the service quality as well.

In conclusion, it would be fair to say that the usage of credit scoring would go a long way in expanding credit availability at comparatively

lower cost to the MSME sector – one of the prime movers of the Indian economy and one of the principal sectors suffering from financial

exclusion.

MSME LENDING – PROFITABILITY STRATEGIES

Conventional wisdom suggests that the profitability of the MSME segment is likely to below-par on account of myriad operational and

financial challenges in servicing this segment. The profitability question become even more challenging in today’s economic scenario

characterized by weakening economic growth and rising NPAs.

However, IFC research of MSME Banking business models across various countries shows that banks can tackle this challenge by

having some innovations in the business model. Following best practices that banks have used to enhance the profitability of the SME

lending segment:

• Transitioning the business model from a relationship based lending business model to a sophisticated high volume approach that

emphasizes quantitative credit score based risk assessment system to get scalability and efficiency advantages.

• Harnessing the synergy between the MSME lending and personal banking of the MSME owners through retail or personal banking

divisions to enhance aggregate profitability.

• Sophisticated risk-tier based pricing dynamic pricing to better capture the risk-adjusted profitability and allow differentiated lending to

different risk profiles.

• Successful banks have developed product-specific profitability models to identify the optimum bouquet of products / services for the

MSME segment. In addition to asset products, successful banks have targeted the sale of non-lending products to enhance the overall

risk-adjusted profitability.

• Early warning risk indicators that allow the bank to proactively tackle the loans that are about to become delinquent is also a major

factor that distinguishes between a profitable and loss making portfolio. Key attributes of this approach would include the ability to timely

respond to arrears, maintenance of credit relationships as long as the situation seems resolvable and proactive loss minimization when

risk mitigation fails.

Very important banking terminologies

BANKING TERMINOLOGIES

 LIQUIDITY ADJUSTMENT FACILITY (LAF):

 As part of the financial sector reforms in 1998 the Committee on Banking Sector Reforms (Narasimham Committee II), LAF was

introduced under which the Reserve Bank would conduct auctions periodically, if not necessarily daily. LAF is used to aid banks

in adjusting the day to day mismatches in liquidity. LAF helps banks to quickly borrow money in case of any emergency or for

adjusting in their SLR/CRR requirements.

 LAF consists of Repo and Reverse repo operations. The Reserve Bank could reset its Repo and Reverse Repo rates which would

in a sense provide a reasonable corridor for the call money market. At present, daily LAF operations are being conducted on

overnight basis, in addition to term repo auctions.

 REPURCHASE AGREEMENT (REPO):

 Repo is a money market instrument combining elements of two different types of transactions viz., lending-borrowing and salepurchase.

Repo or repurchase option is a collaterised lending i.e. banks borrow money from RBI to meet short term needs by

selling securities to RBI with an agreement to repurchase the same at predetermined rate and date. The rate charged by RBI for

this transaction is called the repo rate. The collateral used for repo and reverse repo operations are Government of India

securities. Under Repo, the RBI injects funds to organisations (SCBs and Primary Dealers) which have both current account and

SGL account with the RBI.

 The Repo transaction has two legs. In the first leg, the Seller sells securities and receives cash while the purchaser buys

securities and parts with cash. In the second leg, the securities are repurchased by the original holder by paying to the counter

party the amount originally received by him plus the return on the money for the number of days for which the money was used

by him which is mutually agreed.

 REVERSE REPO:

 Reverse repo rate is the rate at which the Reserve Bank of India borrows money from commercial banks within the country. This

is exactly the opposite of the Repo transaction and is used for absorption of liquidity.

 The Reverse Repo Rate at present is at 25 basis points below the repo rate. Reverse Repo facility is available to Primary Dealers

also.

 The Reverse Repo is a monetary policy instrument which can be used to control the money supply in the country. An increase in

the reverse repo rate will decrease the money supply and vice-versa, other things remaining constant. An increase in reverse

repo rate means that commercial banks will get more incentives to park their funds with the RBI, thereby decreasing the supply

of money in the market.

 MARGINAL STANDING FACILITY (MSF):

 The Reserve Bank, in 2011, introduced MSF for banks and primary dealers to reduce the volatility in the inter-bank call money

market. The interest rate w.e.f. 6th April, 2017 is 25 bps above the repo rate, which is the rate at which banks borrow from the

RBI for the short term against the collateral of government securities. The rate may vary relative to the repo rate as warranted

by economic conditions.

 Banks can borrow funds through MSF when there is a considerable shortfall of liquidity. This measure has been introduced by

RBI to regulate short-term asset liability mismatches more effectively.

 The MSF Scheme is operational on the lines of the existing Liquidity Adjustment Facility – Repo Scheme (LAF – Repo) i.e.

commercial banks can borrow money from RBI. The basic difference between Repo and MSF scheme is that in MSF banks can

use the securities under SLR to get loans from RBI and hence MSF rate is 25 bps more than repo rate. All Scheduled Commercial

Banks having Current Account and SGL Account with RBI will be eligible to participate in the MSF Scheme.

 Under the facility, the eligible entities can avail overnight, facility up to one per cent of their respective Net Demand and Time



Liabilities (NDTL) outstanding at the end of the second preceding fortnight. Requests will be received for a minimum amount of

Rs. One crore and in multiples of Rs. one crore thereafter.

 TERM REPOS:

Term repo is a new window for providing liquidity to the banking system. Through Term repo auctions of 7-day and 14-day tenors

for a combined notified amount equivalent to 0.75 per cent of net demand and time liabilities (NDTL) of the banking system are

conducted by the Reserve Bank through variable rate auctions on every Friday.

Gist of Important FEDAI Rules

Gist of Important FEDAI Rules

Rule 1: Hours of Business

1.1 The exchange trading hours for Inter-bank forex market in India would be from

9.00 a.m. to 5.00 p.m. No customer transaction should be undertaken by the

Authorised Dealers after 4.30 p.m. on any working day. 1.2 Cut-off time limit of 05.00 p.m. is not applicable for cross- currency transactions.

In terms of paragraph 7.1 of Internal Control Guidelines over Foreign Exchange

Business of Reserve Bank of India (February 2011), Authorised Dealers are

permitted to undertake cross-currency transactions during extended hours, provided

the Managements lay down the extended dealing hours. 1.3 For the purpose of Foreign Exchange business, Saturday will not be treated as

a working day. 1.4 “Known holiday” is one which is known at least 4 working days before the date. A holiday that is not a “known holiday” is defined as a “suddenly declared holiday”. Rule 2: Export Transactions

2.1. Post-shipment Credit in Rupees

(c) Application of exchange rate: Foreign Currency bills will be

purchased/discounted/ negotiated at the Authorised Dealer’s current bill buying rate

or contracted rate. Interest for the normal transit period and/or usance period shall

be recovered upfront simultaneously. (d) Crystallization and Recovery:

(ii) Authorized Dealers should formulate own policy for crystallization of foreign

currency liability into rupee liability, in case of non-payment of bills on the due

date. (iii) The policy in this regard should be transparently available to the customers. (iv) For crystallization into Rupee liability, the Authorised Dealer shall apply its TT

selling rate of exchange. The amount recoverable, thereafter, shall be the

crystallized Rupee amount along with interest and charges, if any.



(v) Interest shall be recovered on the date of crystallization for the overdue period

at the appropriate rate; and thereafter till the date of recovery of the

crystallized amount. (vi) Export bills payable in countries with externalization issues shall also be

crystallized as per the policy of the authorised dealer, notwithstanding receipt

of advice of payment in local currency. (d) Realization of Bills after crystallization: After receipt of advice of realization,

the authorised dealer will apply TT buying rate or contracted rate (if any) to convert

foreign currency proceeds. (e) Dishonor of bills: In case of dishonor of a bill before crystallization, the bank

shall recover:

(ii) Rupee equivalent amount of the bill and foreign currency charges at TT selling rate. (iii) Appropriate interest and rupee denominated charges. 2.2. Application of Interest

(c) Rate of interest applicable to all export transactions shall be as per the

guidelines of Reserve Bank of India from time to time. (d) Overdue interest shall be recovered from the customer, if payment is not

received within normal transit period in case of demand bills and on/or before

notional due date/actual due date in case of usance bills, as per RBI directive. (e) Early Realization: In case of early realization, interest for the unexpired period

shall be refunded to the customer. The bank shall also pay or recover notional swap

cost as in the case of early delivery under a forward contract. 2.3. Normal Transit Period:

Concepts of normal transit period and notional due date are linked to concessional

interest rate on export bills. Normal transit period comprises the average period

normally reckoned from the date of negotiation/purchase/discount till the receipt of

bill proceeds.

It is not to be confused with the time taken for the arrival of the goods at the destination. Normal transit period for different categories of export business are laid down as below:

(c) Fixed Due Date: In the case of export usance bills, where due dates are fixed, or are reckoned from date of shipment or date of bill of exchange etc, the actual due

date is known. Therefore, in such cases, normal transit period is not applicable. (d) Bills in Foreign Currencies – 25 days

(e) Exports to Iraq under United Nations Guidelines – Max. 120 days

(g) Bills drawn in Rupees under Letters of Credit (L/C)

(i) Reimbursement provided at centre of negotiation - 3 days

(ii) Reimbursement provided in India at centre different from centre of

negotiation - 7 days

(iii) Reimbursement provided by banks outside India - 20 days

(iv) Exports to Russia under L/C where reimbursement is provided by RBI - 20 days. (h) Bills in Rupees not under Letter of Credit - 20 days

(i) TT reimbursement under Letters of Credit (L/C)

(i) Where L/C provides for reimbursement by electronic means - 5 days

(ii) Where L/C provides reimbursement claim after certain number of days

from the date of negotiation - 5 days + this additional period. 2.4. Substitution/Change in Tenor:

(o) In case of change in the usance of a bill, interest on post-shipment credit shall

be charged to the customer, as per RBI guidelines. In addition, the bank shall

charge or pay notional swap difference. Interest on outlay of funds for such

swaps shall also be recovered from the customer at rate not below base rate

of the bank concerned. (p) It is optional for banks to accept delivery of bills under a contract made for

purchase of a clean TT. In such cases, the bank shall recover/pay notional

swap difference for the relative cover. Interest at the rate not below base rate

of the bank would be charged on the outlay of funds. 2.5. Export Bills sent for collection:

(a) Application of exchange rates: The conversion of foreign currency proceeds of

export bills sent for collection or of goods sent on consignment basis shall be

done at prevailing TT buying rate or the forward contract rate, as the case

may be. The conversion to Rupee equivalent shall be made only after the

foreign currency amount is credited to the nostro account of the bank. (b) On receipt of credit advice/statement of nostro account and compliances of

guidelines, requirements of the Bank and FEMA, the Bank shall transfer funds

for the credit of exporter’s account within two working days. (c) If the above stipulated time limit is not observed, the Bank shall pay

compensation for the delayed period at the minimum interest rate charged on

export credit. Compensation for adverse movement of exchange rate, if any, shall also be paid as per the compensation policy of the bank.



Rule 3: Import Transactions

3.1 Application of exchange rate:

(a) Retirement of import bills - Exchange rate as per forward sale contract, if

forward contract is in place. Prevailing Bills selling rate, in case there is no

forward contract. (b) Crystallization of Import - same as above bill (vide para 3.3 below)

(c) For determination of stamp - As per exchange rate provided by the duty on

import bills authority concerned. 3.2. Application of Interest:

(a) Bills negotiated under import letters of credit shall carry commercial rate of

interest as applicable to banks’ domestic advances from time to time. (b) Interest remittable on interest bearing bills shall be subject to the directive of

Reserve Bank of India in this regard. 3.3. Crystallization of Import Bill under Letters of Credit. Unpaid foreign currency import bills drawn under letters of credit shall be

crystallized as per the stated policy of the bank in this respect. Rule 4 Clean Instruments:

4.1. Outward Remittance: Outward remittance shall be effected at TT selling rate of

the bank ruling on that date or at the forward contract rate. 4.2. Encashment of foreign currency notes and instruments, Foreign currency

travelers’ cheques, currency notes, foreign currency in prepaid card, debit/credit

card will be encashed at Authorised Dealer’s option at the appropriate buying rate

ruling on the date of encashment. 4. 3. Payment of foreign inward remittance, Foreign currency remittance up to an

equivalent of USD 10,000/- shall be immediately converted into Indian Rupees. Remittance in excess of equivalent of USD 10,000 shall be executed in foreign

currency. The beneficiary has the option of presenting the related instrument for

payment to the executing bank within the period prescribed under FEMA. 4.4. The applicable exchange rate for conversion of the foreign currency inward

remittance shall be TT buying rate or the contracted rate as the case may be. 4.5. Compensation for delayed payment: Authorised Dealers shall pay or send

intimation, as the case may be, to the beneficiary in two working days from the date

of receipt of credit advice / nostro statement. In case of delay, the bank shall pay

the beneficiary interest @ 2 % over its savings bank interest rate. The bank shall

also pay compensation for adverse movement of exchange rate, if any, as per its

compensation policy



Rule 5 Foreign Exchange Contracts:

5.1. Contract amounts: Exchange contracts shall be for definite amounts and

periods. When a bill contract mentions more than one rate for bills of different

deliveries, the contract must state the amount and delivery against each such rate. 5.2. Option period of delivery: Unless the date of delivery is fixed and indicated in

the contract, the option period may be specified at the discretion of the customer

subject to the condition that such option period of delivery shall not extend beyond

one month. If the fixed date of delivery or the last date of delivery option is a known

holiday, the last date for delivery shall be the preceding working day. In case of

suddenly declared holidays, the contract shall be deliverable on the next working

day. Contracts permitting option of delivery must state the first and last dates of

delivery. For Example: 18th January to 17th February, 31st January to 29th Feb. 2012. “Ready” or “Cash” merchant contract shall be deliverable on the same day. “Value next day” contract shall be deliverable on the working day immediately

succeeding the contract date. A spot contract shall be deliverable on second

succeeding working day following the contract date. A forward contract is a contract

deliverable at a future date, duration of the contract being computed from spot value

date at the time of transaction”. 5. 3. Place of delivery: All contracts shall be understood to read “to be delivered or

paid for at the Bank” and “at the named place”. 5.4. Date of delivery: Date of delivery under forward contracts shall be:

(i) In case of bills/documents negotiated, purchased or discounted - the date of

negotiation/purchase/ discount and payment of Rupees to the customer. However, in case the documents are submitted earlier than, or later than the

original delivery date, or for a different usance, the bank may treat it as proper

delivery, provided there is no change in the expected date of realization of

foreign currency calculated at the time of booking of the contract. No early

realization or late delivery charges shall be recovered in such cases. (ii) In case of export bills/documents sent for collection - Date of payment of

Rupees to the customer on realization of the bills. (iii) In case of retirement/crystallization of import bills/documents - the date of

retirement/ crystallization of liability, whichever is earlier?

5.5. Option of delivery: In all forward merchant contracts, the merchant, whether a

buyer or a seller will have the option of delivery. 5.6. Option of usance: The merchant purchase contract should state the tenor of

the bills/documents. Acceptance of delivery of bills/documents drawn for a different

tenor will be at the discretion of the bank



5.7. Merchant quotations: The exchange rate shall be quoted in direct terms i.e. so many Rupees and Paise for 1 unit or 100 units of foreign currency. 5.8. Rounding off: Rupee equivalent of the foreign currency Settlement of all

merchant transactions shall be effected on the principle of rounding off the Rupee

amounts to the nearest whole Rupee i.e. without paise. RULE 6 Early Delivery, Extension and Cancellation of Foreign Exchange

Contracts

6.1. General

(i) At the request of a customer, unless stated to the contrary in the provisions of

FEMA, 1999, it is optional for a bank to: (a). Accept or give early delivery; or

(b). Extend the contract. (ii) It is the responsibility of a customer to effect delivery or request the bank for

extension / cancellation as the case may be, on or before the maturity date of

the contract. 6.2. Early delivery: If a bank accepts or gives early delivery, the bank shall

recover/pay swap difference, if any. 6.3. Extension: Foreign exchange contracts where extension is sought by the

customers shall be cancelled (at an appropriate selling or buying rate as on the date

of cancellation) and rebooked simultaneously only at the current rate of exchange. The difference between the contracted rate, and the rate at which the contract is

cancelled, shall be recovered from/paid to the customer at the time of extension. Such request for extension shall be made on or before the maturity date of the

contract. 6.4. Cancellation

(i) In case of cancellation of a contract at the request of a customer, (the request

shall be made on or before the maturity date) the Authorised Dealer shall

recover/ pay, as the case may be, the difference between the contracted rate

and the rate at which the cancellation is effected. The recovery/payment of

exchange difference on cancellation of forward contracts before the maturity

date may be either upfront or back-ended at the discretion of banks. (ii) Rate at which cancellation is to be effected:

(a) Purchase contracts shall be cancelled at T.T. selling rate of the

contracting Authorised Dealer

(b) Sale contracts shall be cancelled at T.T. buying rate of the contracting

Authorised Dealer



(c) Where the contract is cancelled before maturity, the appropriate forward

T.T. rate shall be applied. (bi) Notwithstanding the fact that the exchange contract between the customer

and the bank becomes impossible of performance, for whatever reason,

including Government prohibitory orders, the exchange contract shall not be

deemed to have become void and the customer shall forthwith apply to the

Authorised Dealer for cancellation, as per the provisions of paragraph 6.4.(i)

and (ii) above. (iv)

(d) In the absence of any instructions from the customer, vide para 6.1(ii), a

contract which has matured shall be cancelled by the bank on the 7th working

day after the maturity date. (e) Swap cost, if any, shall be recovered from the customer under advice to him. © When a contract is cancelled after the maturity date, the customer shall not be entitled

to the exchange difference, if any, in his favour, since the contract is cancelled on

account of his default. He shall, however, be liable to pay the exchange difference

against him. 6.5. Swap cost/gain:

(ii) In all cases of early delivery of a contract, swap cost shall be recovered from

the customer, irrespective of whether an actual swap is made or not. Such

recoveries should be made either back-ended or upfront at discretion of the

bank. (iii) Payment of swap gain to a customer shall be made at the end of the swap period. 6.6. Outlay and Inflow of funds:

Authorised Dealer shall recover interest on outlay of funds for the purpose of

arranging the swap, in addition to the swap cost in case of early delivery of a

contract.

If such a swap leads to inflow of funds, interest shall be paid to the customer. Funds

outlay / inflow shall be arrived at by taking the difference between the original

contract rate and the rate at which the swap could be arranged. The rate of interest

to be recovered / paid should be determined by banks as per their policy in this

regard.

Types of letter of credit

TYPES OF LETTERS OF CREDITS



Documents against

Payment LC or Si ght

LC

DP LCs or Sight LCs are those where the payment is made against documents on presentation.

(DA = Documents against payment, DP=Documents against acceptance)

Documents against

acceptance or

us ance



DA LCs or Acceptance LCs are those, where the payment is to be made on the maturity date in terms

of the credit. The documents of title to goods are delivered to applicant merely on acceptance of

documents for payment. (DA = Documents against payment, DP=Documents against acceptance)

Deferred Payment LC It is similar to Usance LC but there is no bill of exchange or draft. It is payable on a future date if

documents as per LC are submitted.



Irrevocable and

revocable credits

The issuing bank can amend or cancel the undertaking if the beneficiary consents.

A revocable credit is one that can be cancelled or amended at any time without the prior knowledge

of the seller. If the negotiating bank makes a payment to the seller prior to receiving notice of

cancellation or amendment, the issuing bank must honour the liability.

With or without recourse

Where the beneficiary holds himself liable to the holder of the bill if dishonoured, is

considered to be with-recourse. Where he does not hold Himself liable, the credit is said to be

without-recourse. As per RBI directive dated Jan 23, 2003, banks should not open LCs and purchase /

discount / negotiate bills bearing the 'without recourse' clause.

Restricted LCs A restricted LC is one wherein a specified bank is designated to pay, accept or negotiate.

Confirmed Credits A credit to which the advising or other hank at the request of the issuing bank adds confirmation that

payment will be made. By such additions, the confirming bank steps into the shoes of the issuing

bank and thus the confirming bank negotiates documents if tendered by the beneficiary.

Transferable Credits The beneficiary is entitled to request the paying, accepting or negotiating bank to make available in

whole or part, the credit Cu one or more other parties (Article 48 of UCPDC). For partial transfer to

one or more second beneficiary/ies the credit must provide for partial shipment.



Back to back

credits

A back to back credit is one where an exporter received a documentary credit opened by a buyer in

his favour. He tenders the same to the bank in his country as a cover for opening another LC in

favour of his local suppliers. The terms of such credit would be identical except that the price may

be lower and validity earlier.

Red Clause

Credits

A red clause credit also referred to a packing or anticipatory credit has a clause permitting the

correspondent bank in the exporter's country to grant advance to beneficiary at issuing bank's

responsibility. These advances are adjusted from proceeds of the bills negotiated.



Green Clause

Credits

A green clause LC permits the advances for storage of goods in a warehouse in addition to preshipment

advance

.

Stand-by

Credits

Standby credits is similar to performance bond or guarantee, but issued in the form of LC. The

beneficiary can submit his claim by means of a draft accompanied by the requisite documentary

evidence of performance, as stipulated in the credit.



Documentary or clean

credits

When LC specifies that the bills drawn under LC must accompany documents of title to goods such as

RRs or MTRs or Bills of lading etc. it is termed as Documentary Credit. If any such documents are not

called, the credit is said to be Clean Credit.



Revolving Credits These provide that the amount of drawings made thereunder would be reinstated and made

available to the beneficiary again and again for further drawings during the currency of credit.

Instahnent credit It is a letter of credit for the full value of goods but requires shipments of specific quantities of

goods within nominated period and allows for part-shipment. In case any instalment of shipment is

missed, credit will not be available for that and subsequent instalment unless of LC permits the

Negative lien and set off

Negative lien and set off



There is no legal definition of 'negative lien'. Lien is the right to retain goods of a borrower or pledgor for the debt. Negative Lien is used in banking parlance for a borrower to undertake not to create any charge on his property without the consent

of the lender. The borrower may sometime be having non-encumbered assets which are not charged to the bank as security. The borrower is thus free to deal with these assets

and may even sell them if he so desires. To restrict this right of the borrower, bank may sometimes request him to give an undertaking to the effect that he will neither create any encumbrance on these assets nor sell them without the previous permission of the bank so long as the advance continues......



Negative Lien: When goods and securities are in possession of borrowers creditor

obtains an undertaking from the borrower that he will not create any charge on those

securities without the prior permission of the creditor this kind of lien is called as

negative lien.

The borrower may sometime be having non-encumbered assets which are not charged

to the bank as security. The borrower is thus free to deal with these assets and may

even sell them if he so desires. To restrict this right of the borrower, bank may

sometimes request him to give an undertaking to the effect that he will neither create

any encumbrance on these assets nor sell them without the previous permission of the

bank so long as the advance continues.

Set Off: The set-off refers to ―combining of two or more account for final settlement of

accounts‖

In other words set off is a process where the bank recovers its due loan, to the debit of

deposit account of the burrower

The essential condition is that one of such accounts must show a debit balance and the 

other, a credit balance

Different Branches are one unit

For exercising the right to set off all branches of a bank are treated as a single unit,

which means a loan from branch-A can be adjusted by the funds in branch-B

TT Rates and Bill rates

TT Rates and Bill Rates

Following 4 types of buying and selling rates are important:

1. TT Buying rate

2. Bill Buying rate

3. TT Selling rate

4. Bill Selling rate

In Interbank market, exchange rate is quoted up to 4 decimals in multiples of 0.0025. e.g.

1USD=53.5625/5650

For customers the exchange rate is quoted in two decimal places i.e. Rupees and paisa. e.g. 1

USD =Rs. 55.54.

Amount being paid or received will be rounded off to nearest Rupee.

TT Buying Rate

It is required to calculate when our Nostro account is already credited or

being credited without delay e.g. Receipt of DD, MT, TT or collection of

Foreign bills. This rate is used for cancellation of Forward Sales Contract.

Calculation

Spot Rate – Exchange Margin

Bill Buying Rate Bill Buying rate is applied when bank gives INR to the customer before

receipt of Foreign Exchange in the Nostro account i.e. Nostro account is

credited after the purchase transaction. In such cases.

Examples are:

 Export Bills Purchased/Discounted/Negotiated.

 Cheques/DDs purchased by the bank.

Calculation

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

margin.

TT Selling Rate Any sale transaction where no delay is involved is quoted at TT selling rate.

It is desired in issue of TT, MT or Draft. It is also desired in crystallization of

Export bills and Cancellation of Forward purchase contract.

Calculation

Spot Rate + Exchange Margin

Bill Selling Rate It is applied where handling of documents is involved e.g. Payment against

Import transactions:

Calculation

Spot Rate + Exchange Margin for TT selling + Exchange margin for Bill

Selling

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.

Forward Contract – Due date and Transit period

(Bill Buying Rates and Bill Selling Rates)

If due date after adding transit period and forward period falls in a particular month

Buy Transactions

Quote rates applicable to lower month (if currency is at premium) and same month (if currency

is at discount) due to the reason that currency becomes cheaper and Buy low and Sell High

Sale Transactions

Quote rates applicable to Same month (if currency is at premium) and lower month (if currency

is at discount) due to the reason that currency becomes dearer and Buy low and Sell High

Forward contracts can be booked by Resident Individuals up to USD1lac.

Buy

Transactions-

Currency at

Premium

Transit Period is

rounded off to

lower month in

which due date

falls

Spot Rate on 16.07.2012 is 1 USD = 34.6850/7275

Spot August = 4000/4200, Spot Sep = 7500/7700, Spot Oct = 1.05/1.07

Spot Nov =1.40/1.42

Transit Period = 25 days , Exchange Margin = 0.15%

Calculate Forward Buying Rate of 3 M Usance bill.

Due date of realization of Bill = 16.7.2012 + 3M + 25 days = 9.11.2012

By Rounding Transit period to lower month, Oct Rate will be as under:

34.6850+1.05 - .0536 (exchange margin) = 35.6814

Buy

Transactions-

Currency at

Discount

Transit Period is

rounded off to

same month in

which due date

falls

On 22.7.2013,

Spot Rate is 35.6000/6500 Forward 1M=3500/3000 2M=5500/5000

3M=8500/8000

Transit Period ----20 days Exchange Margin = 0.15%.

Find Bill Buying Rate & 2 M Forward Buying Rate

Solution

Bill Buying Rate (Ready) : Bill Date +20 days = 11.8.2013

Spot Rate = 35.6000 Less Forward Discount 1M (0.3500) Less Exchange

Margin 0.15% (0.529)

i.e. 35.6000-.3500-.0529(0.15% of 35.2500) = 35.1971

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.

Forward Contract – Due date and Transit period

(Bill Buying Rates and Bill Selling Rates)

If due date after adding transit period and forward period falls in a particular month

Buy Transactions

Quote rates applicable to lower month (if currency is at premium) and same month (if currency

is at discount) due to the reason that currency becomes cheaper and Buy low and Sell High

Sale Transactions

Quote rates applicable to Same month (if currency is at premium) and lower month (if currency

is at discount) due to the reason that currency becomes dearer and Buy low and Sell High

Forward contracts can be booked by Resident Individuals up to USD1lac.

Buy

Transactions-

Currency at

Premium

Transit Period is

rounded off to

lower month in

which due date

falls

Spot Rate on 16.07.2012 is 1 USD = 34.6850/7275

Spot August = 4000/4200, Spot Sep = 7500/7700, Spot Oct = 1.05/1.07

Spot Nov =1.40/1.42

Transit Period = 25 days , Exchange Margin = 0.15%

Calculate Forward Buying Rate of 3 M Usance bill.

Due date of realization of Bill = 16.7.2012 + 3M + 25 days = 9.11.2012

By Rounding Transit period to lower month, Oct Rate will be as under:

34.6850+1.05 - .0536 (exchange margin) = 35.6814

Buy

Transactions-

Currency at

Discount

Transit Period is

rounded off to

same month in

which due date

falls

On 22.7.2013,

Spot Rate is 35.6000/6500 Forward 1M=3500/3000 2M=5500/5000

3M=8500/8000

Transit Period ----20 days Exchange Margin = 0.15%.

Find Bill Buying Rate & 2 M Forward Buying Rate

Solution

Bill Buying Rate (Ready) : Bill Date +20 days = 11.8.2013

Spot Rate = 35.6000 Less Forward Discount 1M (0.3500) Less Exchange

Margin 0.15% (0.529)

i.e. 35.6000-.3500-.0529(0.15% of 35.2500) = 35.1971

USA, rate of interest is 6% whereas in Germany, rate of interest is 3% for

EURO. We will borrow from Germany and lend in USA where

1EURO =1.5 USD

Forward Point Calculation for 3 Months

Spot Rate x Interest rate difference x Forward Period

100 x Nos. of days in a year

= 1.5 x 3 x 90

100*360

=0.01125

3 month swap rate = 1.5 + 0.01125 = 1.5112

Calculation of Interest Differential

Forward Points x Nos. of Days x 100

Forward Period x Spot Rate

= 0.01125 x 360 x 100 =3%

1.5 x 90

Ex.1

Calculate TT selling rate for GBP/INR, if USD/INR is 43.85/87 & GBP/USD is 1.9345/49. A

margin of 0.15% is to be loaded.

Solution ; TT selling rate of GBP/INR

1 GBP = 1.9349 USD

= (1.9349 *43.87)+Margin 0.15%

=84.8841+.1273=85.0114 INR 85.0114-------------------------Ans.

Ex.2

A foreign correspondent intends to fund his Vostro Account maintained with Mumbai branch of

SBI. What rate will be quoted if 1 USD = 44.23/27 and margin is 0.08%

Solution : TT buying rate will quoted

44.23-.035 = 44.195 ---------------------------------------Ans.

Ex.3

If Swiss Franc is quoted as USD = CHF 1.2550/54 and in India, USD =INR43.50/52, how much

INR will exporter get for his export bill of CHF 50000.

Solution :

Swiss Franc will be sold for USD in overseas market and USD will be bought in local market i.e.

Sell Rate of CHF and Buy rate of USD.(Buy Low Sell High in both quotations)

1 USD = 1.2554 CHF and 1USD=INR 43.50

1CHF=43.50/1.2554 = 34.6503

Amount as paid to exporter = 34.6503*50000=17,32,515/- ----------------Ans.

(Both are direct quotations and Maxim Buy Low Sell High will apply in both)

Ex.4

If Swiss Franc is quoted as USD = CHF 1.2550/54 and USD =INR43.50/52, how much INR will

Importer pay for his import bill of CHF 50000.

Solution :

Swiss Franc will be bought against USD in overseas market and USD will be sold in local

market i.e. Buy rate of CHF and Sell rate of USD.

1 USD = 1.2550 CHF and 1USD=INR 43.52

1CHF=43.52/1.2550 = 34.6773

Amount to be received from Importer = 34.6773*50000

=17,33,865/- ----Ans.

(Both are direct quotations and Maxim Buy Low Sell High will apply in both)

Q. 5

Exporter received Advance remittance by way of TT French Franc 100000.

The spot rates are in India IUSD = 35.85/35.92 1M forward =.50/.60

The spot rates in Singapore are 1USD = 6.0220/6.0340 1M forward =.0040/.0045

Exchange margin = 0.8%

Solution

Cross Rate will apply

USD will be bought in the local market at TT Buying rate and sold at Spot Selling Rates in

Singapore for French Francs:

TT Buying Rates USD/INR = Spot rate – Exchange margin = 35.8500-.0287 = 35.8213

Spot Selling Rate for USD/Francs = 6.0340

Inference:

6.0340 Franc = 1USD

= INR 35.8213

1 franc = 35.8213/6.0340 = INR 5.9366 Ans.

(Both are direct quotations and Maxim Buy Low Sell High will apply in both)

Q.6 What rate will be quoted for repatriation of FCNR deposit (spot rate or TT rate)

Ans. No rate as the amount is to be paid in Foreign currency itself.

Forex Dealing

Room

operations

It is a service branch which deals Buying and Selling Operations of the

bank. It manages Foreign currency Assets and Liabilities and also

manages Nostro accounts.

A dealer has to maintain two positions:

1. Funds position

2. Currency Position

Currency position can be Overbought or Oversold.It is called Open

position. Hedging is done to square off the open position.

Mid Office deals with Risk Management.

Back Office takes care of settlement and Reconciliation.

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.