Managing Stress

MANAGING STRESS ::

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

Stress in Modern Life

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

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

Change Your Life to Get Rid of Stress

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

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

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

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

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

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

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

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

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

TIPS FOR REDUCING THE STRESS

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

1. Healthy Nutrition

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

2. Regular sports

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

can also use sports as the way to manage stress.

3. Meditation

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

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

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

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

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

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

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

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

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

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

4. Sleep at Night

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

5. Positive Thinking

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

6. Be Pro-Active

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

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

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

7. Do What You Like

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

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

Mortgage

Mortgage

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

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

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

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

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

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

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

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

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

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

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

the execution.

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

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

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

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

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

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

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

his right of foreclosure through court.

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

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

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

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

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

Equitable Mortgage

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

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

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

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

loan is being raised.

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

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

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

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

deposited at Chennai.

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

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

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

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

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

certified copy of the title deeds.

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

authorities.

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

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

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

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

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

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

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

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

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

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

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

mortgage or date of registration.

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

redemption. This is available in all types of mortgages.

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

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

the mortgagee in case of mortgage by conditional sale.

Trade finance

Trade finance

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

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

WHAT ARE THE RISKS?

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

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

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

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

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

TYPES OF TRADE FINANCE PRODUCTS

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

                       

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

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

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

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

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

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

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

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

· Export

· Import

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MSME

MSME FOR BANKERS (EXAM DATED 27.04.2019)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

44. Identify which are the following is bill financing

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

61. Growth phase of MSE cluster features

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

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

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

65. RBI definition of Sick unit

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

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

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

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

70. Explanation of SICK GREY AREA

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

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

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

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

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

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

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

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

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

80. Primary security & Collateral security features

81. Customer DNA means

82. Insolvency & Bankruptcy difference between two

83. Features of Bank’s Board Bureau

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

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

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

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

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

89. Which among is pre shipment finance?

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

THE FATF RECOMMENDATIONS:: Total 40

THE FATF RECOMMENDATIONS:: Total 40

A – AML/CFT POLICIES AND COORDINATION

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

B – MONEY LAUNDERING AND CONFISCATION

3 Money laundering offence *
4 Confiscation and provisional measures *

C – TERRORIST FINANCING AND FINANCING OF PROLIFERATION

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

D – PREVENTIVE MEASURES

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

Reliance, Controls and Financial Groups

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

Designated non-financial Businesses and Professions (DNFBPs)

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

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

E – TRANSPARENCY AND BENEFICIAL OWNERSHIP
OF LEGAL PERSONS AND ARRANGEMENTS

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

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

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

Sanctions

35 Sanctions

G – INTERNATIONAL COOPERATION

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

Caiib ABM recollected questions 2019

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

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

1. Case Study on Demand Supply curves with graph

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

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

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

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

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

3. Simple Question on Y = a +bx

4. Halo effect means positive attitude rating

5. Inflation change calculation

6. Leniency error

7. Type of inflation

8. Bond problem

9. Ratio analysis

10. Linear program 5 marks

11. Probability 5 marks - Z values given

12. Sampling related 5 marks

13. Money Supply/ Demand curve related 5 marks

14. Narrow Money, Broad Money related case study

15. Credit Monitoring questions

16. Debtors turnover ration

17. STOCK TURNOVER RATIO

18. CURRENT RATIO

19. QUICK RATIO

20. FV formula

21. Calculating LC 5 mark case study

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

23. HRIS

24. Role erosion and role ambiguity

25. Net fiscal deficit

26. Green GDP

27. Real gross income

28. Standard estimate error

29. Regression/Coefficient

30. Interpretation of confidence interval

31. Simplex method

32. What is called broad money

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

34. Question on cluster sampling

35. GDP deflator

36. Who said what definition of economics

37. Working capital

38. Business cycle

39. Linear programming, HR theories, sampling

40. What is 3Vs

41. Sample proportion calculate

42. Marshall definition

43. Credit delivery

44. Case study on money measurements

45. Motivation theories with their founders

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

47. Johari window 1qs

48. SMA1

49. Zero coupon bond

50. Mixed economy

51. Performance appraisal systems

52. NPV

53. Microeconomics

54. Compensation

55. National domestic product

56. Left brain

57. B Type personality

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

59. Around 10 questions on Standard Deviation

60. Bell curve

61. Interpretation of confidence interval

Match the following was atleast 5

Numerical are easy

Many case study or questions from HR module

LC problems calculations

Letter of credit problems steps

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

1.what will be annual purchases.

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

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

4.Transit time if any

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

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

Then decide whether LC is DA or DP

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

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

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

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

Hw LC limit is calculated on that basis

Monthly purchases*total timing

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

We assume that

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

-Lead time ...L(months)

-transit time...T(months)

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

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

LC limit=P*C/12

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

TT Rates and Bill rates

TT Rates and Bill Rates

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

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

Recent amendments in SARFAESI act

Recent Amendments in SARFAESI Act

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

Notification of Chapter IV –A of the SARFAESI ACT​

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

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

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

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

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

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

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

Implications for the Bank​

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

Treasury management

TREASURY MANAGEMENT ::

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

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

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

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

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

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

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

Caiib BFM recollected on June 2019

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

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

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


Case study on Macaulay duration

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

Calculate

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


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

01. What is Weight (W)?

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

Ans - b

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

02. What is DGAP?

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

Ans - c

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

03. What is Leverage Ratio?

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

Ans - c

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

04. What is Modified Duration of Equity?

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

Ans - d

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

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

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

Ans - a

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

PBIDTA

PBIDTA:

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

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

Difference between Letter of Credit and Bank Guarantee

Difference between Letter of Credit and Bank Guarantee

📣📣📣📣📣📣📣

Introduction🏙

⬅⬅⬅⬅⬅⬅⬅⬅

This two terminology looks similar but both are very different. When one wants to expand the business means beyond the national boundary or within, one needs assurance from the buyer side that after delivery of goods or services the payment will receive and this can be done by the bank only.

In short, both these terms are used while doing business or transactions with domestic or international companies.

So, both these services are facilitated by the bank but in a different way as per the need of seller party.

Letter of Credit🏙

⬅⬅⬅⬅⬅⬅⬅⬅⬅

It is used while there is a high level of risk involves in business.It is used while doing import and export transactions with international companies.L/C is a written commitment issued by the bank or some other financial institutions for payment assurance to the seller party from buyer’s request.In L/C, the seller gets a guarantee of payment from the buyer’s banks on the due date payment will receive only if the seller meets all the conditions of deal like timely delivery etc.Banks offer a service like L/C on the basis of proof provided by the buyer’s party.If the buyer fails to make payment to the seller, the bank pays on behalf of a buyer and then the bank will recover it from a buyer anyhow.Banks will charge fees for this type of facilities.So in short, letter of credit is beneficial when product or service is delivered and payment is not done.It eliminates the financial risk involved in the business.

Types of Letter of Credit🎎

⬅⬅⬅⬅⬅⬅⬅⬅⬅⬅⬅

🗼Irrevocable Letter of Credit:

It is not modified or cancelled without the concern of all the parties.

🗼Revocable Letter of Credit:

In it, the issuing bank can revoke or cancel the letter of credit any time without prior notice to the seller.

🗼Confirmed Irrevocable Letter of Credit:

In it, the confirming bank gives more assurance to seller same as issuing bank.

🗼Unconfirmed Irrevocable Letter of Credit:

In it, an advisory bank from the seller's side performs as an agent for the issuing bank without any responsibility to the seller.

🗼Revolving Letter of Credit

This type of letter is used if in case regular transactions take place and remain valid for a long term without issuing the another letter of credit.

Bank Guarantee🏙

⬅⬅⬅⬅⬅⬅⬅⬅⬅⬅

🏦 guarantee is a service by which bank gives a guarantee to the seller on behalf of his client for assurance of payment.

🏢So, Bank guarantee has the same function as a letter of credit but with some differences.

🏦 guarantee generally used in domestic transactions.

🏦 guarantee is beneficial when contractual obligations are not fulfilled by the other seller party.

🏦 guarantee is used in infrastructure and real estate projects to reduce risk level.

⤵Letter of Credit V/s 🎎Bank Gurantee

Basis🎟

⤵Letter of CreditBank Guarantee-DefinitionA letter of credit is an obligation by the bank to the seller if the criteria met, the bank will make payment.

🎎In bank guarantee, if the opposing party doesn’t fulfil contractual obligations the Bank will make payment.

Boundary🎟

⤵It is used internationally.

🎎It is used domestically.

Protection🎟

⤵It protects both parties but favours exporter.

🎎It also protects both but favours buyer.

Industry🎟

⤵It is used by merchants.

🎎It is used by real estate and infrastructure developer.

L/Cs are frequently used in international transactions compared with bank guarantees. When comparing the two instruments, the market for bank guarantees is much larger than that for L/Cs.

SMERA

MSME::

SMALL AND MEDIUM ENTERPRISES RATING AGENCY (SMERA)

SME Rating Agency of India Ltd (SMERA) is a third party rating agency exclusively set up
for micro, smal l, and medium enterprises in India for ratings on credit worthiness.
SMERA is promoted by SIDBI and Dun & Bradstreet along with various government,
public and private sector banks. It provides ratings which enable MSME units to raise

bank loans at competitive rates of interest. SMERA's ratings are an independent thirdparty
assessment of the overall status of the MSMEs as performing entities. The ratings
comprise a composite appraisal indicator and a size indicator. Its ratings enhance the
market standing of the MSMEs among their trading partners and customers. In addition,
the agency factors in industry dynamics in its ratings through a system of comparison of
strengths and weaknesses of the MSME with other companies in the same line of
business. It is also risk profiling the clusters through special studies and these would fill
the information gap between the lender and the sector. Banks offer concessions in pricing
(0.25%-0.50%) for credit to MSMEs rated by SMERA.

Working capital

CONCEPT OF WORKING CAPITAL :

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

CCP recollected questions on 23.02.2020

CCP EXAM 23-02-2020

1.All most 10 questions from ratios and fund flow and cash flows.( queations  on stock and debtors turnover and their impacts)

2. 5 Questions on working capital assessment by different methods.

3. 5 Questions on lc calculatiin and definitions of lcs.

4.5 Questions set on PERIORITY SECTOR LENDING CERTIFICAE.
5.5 Questions on Msmed act.

6. 4 questions break even analysis.

7.Around 7 questions on payback method and irr

8. One question on formula of ANBC

9.Two questions from company act.(commemcement of business certificate not required now) etc.

10.There were  2 or 3 quetions on provision( provision for mse I remembered. Provisining coverage ratio also asked.

11. Kimberly method related to which.

12.Cardinal principal of lending.

BEP 5 Marks.
WC assessment,
NPV, IRR concept.
LC/BG assessment case study.
PSLC.
Priority sector classification.
LTV, Provisioning norms.
B/S analysis, DER.
ISCR calculation.

Theoretical questions are conceptual, problems were easy, read handbook on credit management thoroughly.

Dishonour of cheque

The drawer is liable for legal action by the holder u/s 138-147 of NI Act (w.e.f
01.04.89) incase of dishonour of cheque. In this context which statement is
incorrect with regard to holder to proceed against the drawer under this
section

If a cheque is dishonoured, the drawer is liable for legal action by holder, u/s 138-147 of
NI Act (wef 01.04.89) where:
1. Cheque is issued to discharge a liability (for gift cheque not liable).
2. Cheque presented within validity period (max restricted to 6 months/ 3 months from
1st April 2012)
3. Dishonour is due to insufficiency of funds or even for stop payment or closure of
account.
a) The cheque should have been issued for discharge of lawful liability
b) Cheque should be returned with the reason 'insufficient balance' but due to different
judgments of Supreme Court reasons like Refer to drawer, A/cclosed, Exceeds
arrangement, Payment stopped by drawer and effects not clear are treated equal to
insufficient balance.
c) The payee or holder in due course should give notice to drawer within 30 days of
return of , cheque with the reason 'insufficient balance' and demanding payment within
15 days of his receiving information of dishonour.
d) The drawer can make payment within 15 days of the receipt of notice and only if he
fails to do so prosecution could take place.
e) The complaint is to be made within one month of the cause of action arising i.e, expiry
of notice period.
f) Summary Proceedings: Fine upto Rs, 5000 or imprisonment upto 1 year or both.
g) Regular Proceedings: Punishment is fine upto double the amount of cheque or
imprisonment upto 2 years or both.

Can a minor be admitted in a Partnership firm?

Can a minor be admitted in a Partnership firm?
a Minor can be admitted ONLY FOR THE BENEFITS ( i.e, for profits only and not for losses)
Minors have no contractual capacity. He cannot bind other partners or the firm but they
can be partners for sharing profits only. Consent of all the existing partners necessary to
admit minor as such a partner. However, on attaining majority, he may choose to
continue his partnership or quit by giving a proper public notice.

India’s $ 5 Trillion Economy

India’s $ 5 Trillion Economy The government wants to launch a scheme to invite global companies through a transparent competitive bidding to set up mega-manufacturing plants in sunrise and advanced technology areas such as semi-conductor fabrication (FAB), solar photovoltaic cells, lithium storage batteries, solar electric charging infrastructure, computer servers, laptops, etc. and provide them investment linked income tax exemptions under section 35 AD of the Income Tax Act, and other indirect tax benefits. § Go to the Economic Survey 2018-19. It too states that “To achieve the objective of becoming a USD 5 trillion economy by 2024-25, as laid down by the Prime Minister, India needs to sustain a real GDP growth rate of 8 percent. International experience, especially from high growth East Asian economies, suggests that such growth only be sustained by a "virtuous cycle" of savings, investment and exports catalysed and supported by a favourable demographic phase. § “The key word for all these plans is investment – especially private investment. It is this investment that will create jobs, drive demand, create capacity and generate wealth. But investment is not something India can bring to its territorial jurisdiction easily. India needs foreign direct investment (FDI) urgently, and lots of it. Since FDI, unlike porolio investment, is long-term patent capital, entrepreneurs and bankers like to examine proposals very carefully. Bank Credit Towards a $ 5 Trillion Economy: India is now the 6th largest economy in the world and is on its way to become $5 trillion economy by FY25, based on an assumed 12% nominal GDP growth and 5% depreciation in Rupee § India is poised to spend a massive `100 lakh crore on infrastructure over the next 5 years § Bank credit needs to grow to `188 lakh crore in FY25 from `97.7 lakh crore in FY19, with an increase in incremental credit of `90 lakh crore during FY20-FY25. § PSBs could potenally supply at least `55 lakh crore of credit and `75 lakh crore of deposits mobilization in this period. Banks need to drive credit growth in agriculture, MSME, exports, retail, infrastructure and construction. Sector-wise Incremental Credit Requirement Agriculture - `8-10 lakh crore MSME and Exports - `18-20 lakh crore Infrastructure & construction - `10-12 lakh crore Retail - `25-28 lakh crore Issues to reach $5 Trillion Economy
Asset Quality - NPAs increased due to optimistic growth projections made during boom years, inadequate appreciation of inherent risks, delay in environmental and other clearances etc,. RBI's Asset Quality Review (AQR) exercise led to the elevated levels of Gross NPAs in the banking system. NPA cycle has peaked and GNPAs have started to decline and it stands at 9.3% as on Mar '19 as against 11 .5% as on Mar18Way forward - SCBs' GNPA rao may decline further to 9.0% in March 2020. § Allowing Foreign Portfolio Investors (FPI) to acquire stressed rupee loans directly instead of present system of going through an asset reconstruction company (ARC) § Allowing eligible ECB investors to fund acquisition of stressed companies both under IBC and outside IBC Capital Requirement - Need around `3-4 lakh crore of incremental capital for `50-60 lakh crore of incremental lending to manufacturing and services (excluding retail) in the next 5 years. § PSBs to explore multiple sources of capital – government, domestic and foreign lending. Recommendations -To fulfill the Vision of the Govt, PSBs will continue their role in the transformation of the economy. However, certain issues including asset quality, capital adequacy, HR, governance, transmission etc., need to be addressed. § To instill confidence in foreign investors, IBC might be tweaked to give clarity for various asset classes/creditors. § Corporate Governance in PSBs require attention. Address open issues such as appointment of top management, stability and expertise of management team, and skilling of manpower. § Keeping in view today's banking scenario of intense competition, HR policies of PSBs need to be changed to align them with the private sector

Banking: Stepping into the next decade

Banking: Stepping into the next decade – Reinvention A tidal wave of change is sweeping across the banking industry, transforming it and shaking its core foundations. That wave is called Fin Tech and it is reshaping the world of financial services in general, and banking in particular. The soaring expectations of customers spurred by GAFA (Google, Amazon, Facebook and Apple) and other Big Tech firms seems to have been further whetted by Fin Tech firms, who have quickly stepped into the gap left by traditional firms, and whose drive towards customer centricity and seamless and delightful customer experiences seems to have forced incumbent players to re-assess what products they must offer and how those products must be delivered to each and every customer in a personalized manner. Fin Tech is a portmanteau of Financial Technology and refers to the innovative use of technology in the design and delivery of financial services and products. Fin Tech mostly refers to the startup firms that spring up every other day and challenge the might of traditional firms like Banks and other legacy financial institutions by offering low-cost, innovative, seamless and personalized products to customers. But, that is not the right way to describe Fin Tech. Fintech is an ecosystem consisting of all the players that are a part of it and are referred to as A’s and B’s and C’s and D’s of Fin Tech. The A’s are the incumbent players in the financial services industry, like JP Morgan and Citi Bank, while the B’s are the Big Tech firms like Google, Apple, Facebook, Amazon and Twitter. The C’s are the companies that provide the infrastructure or technology that provides financial services like Visa, MasterCard, Fiserv, First Data and exchanges like NASDAQ etc. The D’s are the Disruptors, the startups and the innovative technology firms like Paydiant and Stripe (mobile payments), Lending Club and Prosper (Peer-to-Peer lending), Moven (Retail Banking), Atom Bank (Business Loans), Mint and Personal Capital (Smart Budgeting and Personal Finance) and Lemonade and Celo (Insurance). What are the technologies and trends that power Fintech? Open Banking is a financial services concept that refers to the use of APIs (Application Programming Interfaces) that enables third-party service providers to build applications and services around the incumbent financial institutions. APIs are simply third party applications that enable customers to talk to their banks. Open Banking got a new impetus because of pressure from EU regulators with the enactment of the Revised Payment Services Directive (PSD2) which allows Fintech firms to access the database of the incumbent banks and financial services firms. This is akin to a financial earthquake, because customer data was a closely guarded fortress, and that was the ultimate competitive advantage upon which traditional Banks held sway over predators. With Banks forced to provide access to third-party processors (TPPs), the walls are crumbling and the monopoly of banks over customer data will end and the control will shift to the rightful owners- the customers. The open banking initiative has many advantages. It will not only lead to secure data exchange with TPPs but, will also enable them to use another very important technology, Artificial Intelligence, to provide services in a more personalized way. Artificial Intelligence (AI) combines three very important technologies-machine learning, natural language processing and cognitive computing. The purpose of artificial intelligence is to transfer the complex thinking of humans into machines using the algorithms of machine learning and natural language processing, to overcome the barriers of scalability that humans face. Artificial intelligence enables machines to perform computations much faster than humans can ever contemplate. How is AI relevant to banking? There many important applications that can transform banking. First, chatbots are AI based software applications that mimics written or spoken human speech that simulates a conversation with a real human. They are used to solve customer problems before human beings get involved. AI can improve the Bank’s customer service exponentially. AI can aggregate all the information about the customer and can tailor the interactions accordingly. Voice recognition and facial recognition could be used instead of passwords or PIN to identify customers. A few banks are using voice powered devices like Amazon Echo, Google Home and Apple’s Siri to drive their customer service. Second, AI has the potential to make banks smarter. It can study the mass of data and reveal better customer insights and intelligence and thus, offer better customer experience, which is key to differentiating banks. Suggestions offered to customers can be unique for every customer and timely. The recommendations pop up just when the customer is about to take a decision. Third, AI can be used detect patterns that ferrets out terrorist financing and money laundering activities, including financial fraud. Fourth, invisible robots can carry out investment trades based on algorithms. AI will undoubtedly transform banking in many ways but, the easiest to predict is that AI can cut costs substantially by eliminating almost 50 to 70 percent of the current jobs in banking. AI works best with unstructured customer data-emails, recorded phone conversations, social media interactions, and legal documents. AI manages this data and then applies analytics to glean hidden insights.
The third revolutionary technology that can radically change the face of banking is the Distributed Ledger Technology or DLT as it is known. What is DLT? A distributed ledger is a digital database that is held and updated by each participant in a consensual group. Each participant in the group is called a node (a computer terminal). The heart of the DLT and this seems to be a sore point for banks is that each record is constructed
independently and held by each node without the intervention of a central registry or trusted third party. There is no central validating agent. Every single node is responsible for processing every transaction and validating the same. Once there is a consensus, after everyone has validated the transaction, the distributed ledger is updated and each node has a copy. The distributed ledgers are dynamic and engender new kinds of relationships in the digital world. The key technological gain is that the ledger is shared amongst parties that may not trust one another. The crux of DLT is how it sidesteps the trusted intermediary (the banks) and completely avoids the cost of trust. DLT is a more robust and consensual trusted system. A distributed ledger, thus, increases the speed of transactions and reduces their complexity because no third party is required to validate the transactions. It enhances data accuracy and transparency because, all changes are consensual and no single node can alter the data. DLT is highly resilient because there is no central database and hence, no single point of attack. Privacy and safe storage can be handled with technologies such as asymmetric encryption, asymmetric authentication and hashing. Block chain is one version of distributed ledgers and used mainly in distributing crypto currencies. DLT dealt a body blow to banks because, it completely negates the role of banks as trusted third parties. It is to their credit that not only have banks accepted this radical change but, have moved away from the custodianship of databases to leveraging the enormous benefits of extracting value from databases. So, how can Banks leverage DLT? Banks have preferred to use private, permissioned, DLT, through which reading rights and writing permission are given to those who have been pre-approved. This can be used by banks to give writing permissions to fellow banks and viewing rights to select customers. The banking industry can use DLT for efficient and cheaper KYC (Know-your-customer process), faster cross-border payments and improved detection of money-laundering and financial frauds. Ripple net, is a block chain network that enables seamless cross-border payments and has signed up about 100 clients, some of which are big names like Standard Chartered Bank, Santander, Unicredit and UBS. Ripple net is a competitor to SWIFT. Bank Chain, an Indian Block chain consortium has launched a new KYC system, Clear chain that facilitates sharing of KYC data of customers amongst network participants. Other areas that can use DLT, are, clearing and settlement of securities transaction on the bourses; the Australian Securities Exchange has decided to shift its securities clearing and settlement to a block chain system. Trade Finance is another area which is tailor-made for restructuring through DLT. The same set of information, bill of lading, letters of credit, commercial invoices and insurance policies need to be accessed by different parties and block chain is the obvious solution. The difficulty in block chaining trade finance is that in order to be reap its benefits, the entire ecosystem has to be on boarded- the shipping companies, the freight forwarders, other transporters, insurance companies, inspection agents, ports and customs. Block chain trade first, if you want to block chain trade finance. That would be a remarkable effort, truly a game changer, if it succeeds. However, DLT is yet to become mainstream because of some unresolved issues. Since, Distributed ledgers are cross-border, how will they be regulated? Do they need to be audited? What happens if there is dispute? These questions are unresolved but they are not insurmountable. A fourth technology, the Internet of Things (IOT) has the capacity to revolutionize banking in myriad ways. Gartner predicts that by 2020, there will be 25 billion connected devices and this shows how machine connectivity can be a powerful force that alters societal behavior. Machine-to-machine connectivity can help banks to gather data about customers and offer an enriched, contextual and personalized experience. It will be possible for Banks to identify a customer through IOT and Artificial Intelligence, the moment a customer enters the branch and anticipate his requirements. IOT can also help banks to track assets financed by the bank. However, IOT can pose major security risks, including privacy issues for banks and this has to be managed. Will banking and banks survive the onslaught of Fin Tech? First, let us understand the unique position of the Bank in the financial markets. Banks have existed for so many years, uncontested but, we need to understand why that moat might be breached. The primary model of banking is based on three very important principles- Intermediation, Fractional Banking and Credit Creation. Banks primarily issue liabilities in the form of checking accounts and fixed deposits and then originate non-marketable assets in the form of loans. Since, the liabilities are highly liquid and may be withdrawn by depositors, it is possible that the Bank might face a liquidity crisis. Banks have been able to manage this liquidity risk because they have the unique advantage of information asymmetry or insider information about borrowers. They are able to predict future outlays of funds and likelihood of satisfying those outflows because of insider information from borrowers.
Can the capabilities of deposit taking and lending be duplicated? Many Fin Techs and others like Mutual Funds already offer deposit and transactional facilities and there is no bar on lending by non-banks. Also with requirement of greater disclosures by corporates, insider information is no longer a competitive advantage for Banks. What if non-banks offer deposit-taking and loaning services simultaneously? Can they replicate banks
The answer is not yet!! One of the biggest competitive advantage Banks have is the facility of credit creation or creation of money. Credit creation is possible because banks are “not” subject to “client money rules”. According to client money rules, non-banks are required by statute to segregate customer deposits from their own monies and deposit customers monies with a bank or an approved institution in segregated accounts. Banks are not subject to client money rules. This is what enables them to create money and tide over liquidity mismatches by using one depositor’s funds to pay another departing depositor. Non-banks are not able to do that. Can this unique advantage be lost? Central Banks are already experimenting with the issue of digital money by using block chain technology. It should be possible for Central Banks to, then, take over responsibility for all transaction accounts and allow transactions using Distributed Ledger Technology. All Current and Savings Accounts (CASA), may then migrate from commercial banks to Central Bank. Banks will then have to abide by client money rules and bid for deposits like other non-banks. Hence, perhaps in the next decade, Banks will lose the ability to create money and that will end Banking as we know it. Banks will then become just another financial services firm. Banking and Banks as we know them, will never be the same again. There may be no bank branches, no tellers, no cheques, no ATMs and perhaps no current and savings accounts and no credit cards. But, surely people will still need to save money, take loans and perhaps make payments? How will it all change? Banks today, are in the same position as stage coach companies of the 1860s. It was possible to correctly predict then, that the market for transportation and travel would rise by leaps and bounds; but it would have been grossly erroneous to predict such a growth in stage coaches. Banking and Financial services will grow exponentially but will banks survive? That will depend upon how banks reinvent themselves?