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B anking Update
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The Journal of Institute of Banking Career & Studies, Chandigarh

Contents of this Issue

BANKING POLICY : 4 Basel III implementation
Intt. Rates on FCNR (B) Deposits

EEFC account modification Commission on Govt. business

Revised Kissan Credit Card Informal Clearing Houses

BANKING FEATURES : 4-8, 20

Securitization Transactions Banking Problems - Ombudsman cases Ultravires, Indoor Management

Central Registry under SARFAESI

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Diary of events - May, 2012: 9 Policy, Economy Banking Developments Capital Markets & Insurance General Awareness : 14 Multi-Option questions:15-19 Data Bank : 20

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of accounts from another bank. The policy may include norms relating to the nature of the accounts that may be RBI issued final guidelines on Basel II capital regulations taken over, authority levels for sanction of takeover, on May 02, 2012 which would become effective from Jan 1, 2013 in a phased reporting of takeover to higher authorities, monitoring manner. Basel III capital ratios will be fully implemented as on March 31, 2018. mechanism of takenover accounts, credit audit of For the financial year ending Mar 31, 2013, banks are to disclose the capital takenover accounts, examination of staff accountability ratios computed under the existing guidelines (Basel II) on capital adequacy especially in case of quick mortality of such cases after takeover, periodic review of taken over accounts at Board as well as those computed under the Basel III capital adequacy framework. /Board Committee level, Top Management level, etc. Interest Rates on FCNR(B) Deposits b) In addition, before taking over an account, the transIn view of the prevailing market conditions, RBI decided (May 04, 2012) that feree bank should obtain necessary credit information until further notice and with effect from the close of business in India as on from the transferor bank as per prescribed format. This May 4, 2012, the interest rates on FCNR(B) Deposits will be as under: would enable the transferee bank to be fully aware of 1) 1 year to less than 3 years - LIBOR/Swap plus 200 basis points (existing the irregularities, if any, existing in the borrowers acLIBOR/Swap plus 125 basis points) count (s) with the transferor bank. The transferor bank, 2) 3 - 5 years - LIBOR/Swap plus 300 basis points (existing LIBOR/Swap on receipt of a request from the transferee bank, should plus 125 basis points) share necessary credit information as per the prescribed Foreign currency loans out of FCNR(B) deposits may be given as Pre-shipformat at the earliest. ment Credit in Foreign Currency (FC) / Rediscounting of Export Bills Abroad to Interest Rates Deregulation - Export Credit in exporters and other entities (including exporters who desire to avail of FC Foreign Currency term loans for creating export capability) having a natural hedge or entities With a view to increasing the availability of funds to having a risk management policy for managing the exchange risk. exporters, RBI decided (May 04, 2012) to allow banks to Transfer of Funds from Non-Resident Ordinary (NRO) account to determine their interest rates on export credit in foreign Non- Resident External (NRE) Account currency with effect from May 5, 2012. As per recommendations of Committee to Review the Facilities for Individuals Intra-bank Deposit Accounts Portability Under FEMA, 1999 (Chairperson : Smt. K.J.Udeshi), the RBI decided (May 07, 2012) that NRI shall be eligible to transfer funds from NRO account to NRE RBI advised (Apr 27, 2012) the banks that KYC once account within the overall ceiling of USD one million per financial year subject done by one branch of the bank should be valid for transfer of the account within the bank as long as full to payment of tax, as applicable if funds were remitted abroad. KYC has been done for the concerned account. The cusRelease of Foreign Exchange for Miscellaneous Remittances tomer should be allowed to transfer his account from As per RBI circular dated Dec 23, 2003, the AD banks were advised not to one branch to another branch without restrictions. For insist on obtaining Form A2 to release / remit forex up USD 5000. The limit has KYC requirements, fresh address proof may be obtained. been raised from USD 5000 to USD 25000 w.e.f. May 07, 2012. Authorised Priority Sector Lending-Indirect Finance to Dealers need not obtain any document, including Form A-2, except a simple Housing Sector letter as long as the foreign exchange is being purchased for a current account transaction (not included in the Schedules I and II of Government RBI decided (April 27, 2012) to increase the limit from Notification on Current Account Transactions), and the amount does not Rs.5 lakh to Rs.10 lakh for the bank loans extended to exceed USD 25000 or its equivalent and the payment is made by a cheque non-governmental agencies, approved by NHB for their drawn on the applicants bank account or by a Demand Draft. AD banks shall refinance, for on-lending for the purpose of construcprepare dummy A-2 so as to enable them to provide purpose of remittance for tion/reconstruction of individual dwelling units or for slum clearance and rehabilitation of slum dwellers. statistical inputs for Balance of Payment. FDI in India - Issue of equity shares under the Exchange Earners Foreign Currency (EEFC) Account FDI scheme allowed under Govt. route As per RBI circular dated Nov 30, 2006, all forex earners were permitted to retain 100% of their forex earnings in EEFC account with any AD in India. On Vide circular dated Dec 09, 2011 RBI has issued guidelines on issue of equity shares/ preference shares under a review of the Scheme, RBI decided (May 10, 2012) as under :a) 50% of the balances in the EEFC accounts should be converted forthwith the Govt. route by conversion of import of capital goods into rupee balances and credited to the rupee accounts as per the directions / machineries / equipments (including second-hand maof the account holder. This process may be completed within a fortnight from chineries) and pre-operative / pre-incorporation expenses (including payments of rent, etc.), subject to the the date of the circular and compliance reported to RBI. b) For all future forex earnings, an exchange earner is eligible to retain 50% terms and conditions stated therein. With a view to (existing 100%) in non-interest bearing EEFC accounts. The balance 50% incentivising use of machinery embodying the latest stateof-the-art technology, compliant with international stanshall be surrendered for conversion to rupee balances. c) The facility of EEFC scheme is intended to enable exchange earners to dards, in terms of being green, clean and energy effisave on conversion/transaction costs while undertaking forex transactions in cient, RBI has decided (May 08, 2012) to exclude confuture. This facility is not intended to enable exchange earners to maintain version of imported second-hand machinery from the assets in foreign currency, as India is still not fully convertible on Capital purview of this provision. Account. Accordingly, EEFC account holders henceforth will be permitted to FDI in Commodity Exchanges and NBFC Sector access the forex market for purchasing forex only after utilising fully the RBI circular dated April 28, 2008 allowed foreign investavailable balances in the EEFC accounts. ADs are to obtain a declaration ment in commodity exchanges, subject to a composite while selling foreign exchange to their constituents. (FDI & FII) ceiling of 49% with FDI limit of 26% and FII The provisions at (b) and 2(c) apply also to holder of either a Resident Foreign limit of 23% under Portfolio Investment Scheme (PIS), Currency Account (RFC) or a Diamond Dollar Account (DDA). Evoluation of knowledge platform Transfer of Borrowal Accounts from One Bank to Another The birht of convergence of technoligies nano- bioRBI has advised (May 10, 2012) the banks that: info-eco for growth". a) Banks should put in place a Board approved policy with regard to take-over ........ Dr. APJ Abdul Kalam, former President of India

Banking events updatE June 2012

ANKING POLICY

Basel III Guidelines

(COMPILATION- ARUNDEEP TOOR, in Sydney, Australia - on the basis of information available on RBI Website)

Banking events updatE June 2012

subject to conditions stated therein. The policy for foreign investment in commodity exchanges, has been reviewed and RBI has decided (May 08, 2012) that prior approval of the Govt. (FIPB) would be required only for FDI component and Govt. approval would not be required for investment by registered FIIs in commodity exchanges. Further, under the extant FDI policy, leasing and finance is one of the 18 NBFC activities wherein FDI up to 100% is permitted under automatic route, subject to minimum capitalisation norms. RBI has clarified that FDI is permitted only in financial leases (financial leasing activity) and not in operating leases (operating leasing activity). Detection and Reporting Mechanism of Counterfeit Notes As per circular dated Nov 19, 2009, RBI had advised the banks that banknotes in the denomination of 100 and above may be re-issued over their counters or through ATMs, only if such banknotes have been duly checked for authenticity / genuineness by machines. Further, the banks were also advised to use such machines in all bank branches with average daily cash receipt of Rs.50 lakh and above, within a definite time frame. Banks have been advised by RBI to re-align their cash management in such a manner so as to ensure that cash receipts in the denominations of Rs. 100 and above should not be put into re-circulation without the notes being machine processed for authenticity. Risk Management and Inter Bank Dealings As per circular dated Apr 04, 2003, AD banks have been permitted to deploy foreign currency funds for granting loans to resident constituents for meeting their foreign exchange requirements or for the rupee working capital/capital expenditure needs subject to the prudential/interest-rate norms, credit discipline and credit monitoring guidelines in force. RBI has decided (May 09, 2012) that FCNR(B) funds representing deposit liabilities may be utilised for making loans to resident constituents for meeting i) their foreign exchange requirements or ii) for the rupee working capital/capital expenditure needs of exporters /corporates who have a natural hedge or a risk management policy for managing the exchange risk subject to the prudential/interest-rate norms, credit discipline and credit monitoring guidelines in force. Authorised dealers may be guided accordingly. Risk Management and Inter Bank Dealings As per RBI circular dated Dec 15, 2011, the Intra-day open position / daylight limit of Authorised Dealers should not exceed the erstwhile Net Overnight Open Position Limit available to them. It was further clarified through FEDAI Circular dated 21st Dec 2011 that restrictions placed on Intraday positions limits is only applicable for positions involving Rupee as one of the currencies. On a review, RBI decided (May 10, 2012) to fix the intra-day open position / daylight limit of the Authorised Dealers at 5 times the Net Overnight Open Position Limit available to them or the existing Intra-day open position limit as approved by RBI, whichever is higher, for positions involving Rupee as one of the currencies. Review of Service Charges for Cheque Collection As per RBI circular dated Jan 19, 2011, freedom was given to banks to determine collection charges for cheques valuing above Rs. 1 lakh cleared through Speed Clearing and Outstation Cheque Clearing mechanism subject to such charges being levied in a fair and transparent manner. The term fair and transparent manner, interalia, included fixing the service charges on a cost-plus basis and not on the basis of an arbitrary percentage to the value of the instrument. Levying the charges as an arbitrary percentage to the value of the instrument is in violation of instructions issued under Sec 18 of the Payment and Settlement Systems Act 2007. RBI has advised banks (May 11, 2012) to review the same and fix the charges on a costplus basis. Banks are to ensure that charges fixed for instruments valuing above Rs. 1 lakh is lower under Speed Clearing vis-a-vis Out-station Cheque Collection. Commission on Govt. Business RBI carries out the general banking business of the Central and State Governments through its own offices and through the offices of the Agency Banks appointed under Section 45 of the RBI Act, 1934, by mutual agreement. RBI pays agency commission (also called turnover commission) to the Agency Banks for the Government business handled by them at a rate determined by it. The rates revised w.e.f. 1.7.2012 are as under: Receipts in physical mode (per transaction) Rs.50 (existing Rs.45) Receipts in electronic mode (per transaction) Rs.12 Pension payment (per transaction) Rs.65 (existing Rs.60) Other payments (per Rs.100 turnover) 5.5 paise (existing 9 paise)

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Banking events updatE June 2012

Revised Kissan Credit Card Scheme

KCC scheme was implemented in the entire country during the year 1994. The Govt. of India constituted a Working Group to review the Scheme (Chairman Sh. TM Bhasin) and based on its recommendations, the guidelines have been issued by RBI (May 12, 2012): Applicability of the Scheme - It is to be implemented by Commercial Banks, RRBs, and Cooperatives. The implementing banks have the discretion to adopt the scheme to suit institution/location specific requirements. Activities covered - Short term credit requirements for cultivation of crops, post harvest expenses, produce marketing loan, consumption requirements of farmer household, working capital for maintenance of farm assets and activities allied to agriculture, like dairy animals, inland fishery etc. and investment credit requirement for agriculture and allied activities like pump sets, sprayers, dairy animals etc.
Eligibility

BANKING FEATURES devolving on the farmer, including existing loan obligations. The long term loan limit is based on the proposed investments during the 5 year period and the banks perception on the repaying capacity of the farmer. Maximum total amount : The short term loan limit arrived for the 5th year plus the estimated long term loan requirement will be the Maximum Permissible Limit (MPL) and treated as the Kisan Credit Card Limit.
Fixation of Sub-limits :

i. Farmers Individuals/Joint borrowers (owner cultivators) ii. Tenant Farmers, Oral Lessees & Share Croppers iii. SHGs or Joint Liability Groups of Farmers including tenant farmers, share croppers etc. Fixation of credit limit/Loan amount
A: Farmers other than Marginal farmers:

1. Short term limit for 1st year (in case of single crop in a year) : Scale of finance for the crop (as decided by Distt. Level Technical Committee ) x extent of area cultivated + 10% of limit towards post-harvest / household / consumption requirements + 20% of limit towards repairs and maintenance expenses of farm assets + crop insurance, PAIS and asset insurance. 2. Limit for second & subsequent year : First year limit as above plus 10% of the limit towards cost escalation / increase in scale of finance for every successive year (2nd, 3rd, 4th and 5th year) and estimated Term loan component for the tenure of Kisan Credit Card, i.e., 5 years.
More than one crop in a year:

i) The card limit is to be bifurcated into separate sub limits for short term cash credit limit cum savings account and term loans because interest rates are different. ii) Drawing limit for short term cash credit should be fixed based on the cropping pattern and the amounts for crop production, repairs and maintenance of farm assets and consumption may be allowed to be drawn as per the convenience of the farmer. In case the revision of scale of finance for any year by the District Level Committee exceeds the notional hike of 10%, contemplated while fixing the 5 year limit, a revised drawable limit may be fixed and the farmer be advised about the same. In case such revisions require the card limit itself to be enhanced (4th or 5th year), the same may be done and the farmer be so advised. For term loans, installments may be allowed to be withdrawn based on the nature of investment and repayment schedule drawn as per the economic life of the proposed investments. At any point of time the total liability should be within the drawing limit of the concerned year.
For Marginal Farmers:

A flexible limit of Rs.10,000 to Rs.50,000 be provided (as Flexi KCC) based on the land holding and crops grown including post harvest warehouse storage related credit needs and other farm expenses, consumption needs, etc., plus small term loan investments like purchase of farm equipments, establishing mini dairy/backyard poultry as per assessment of Branch Manager without relating it to the value of land. The composite KCC limit is to be fixed for a period of 5 years on this basis.
6. Disbursement :

1. The limit is to be fixed as above depending upon the crops cultivated as per proposed cropping pattern for the first year and an additional 10% of the limit towards cost escalation / increase in scale of finance for every successive year (2nd, 3rd, 4th and 5th year). It is assumed that the farmer adopts the same cropping pattern for the remaining 4 years also. In case the cropping pattern adopted by the farmer is changed in the subsequent year, the limit may be reworked.
Term loans

TL is for investments towards land development, minor irrigation, purchase of farm equipments and allied agricultural activities. The banks may fix the quantum of credit for term loan and working capital limit for agricultural and allied activities, etc., based on the unit cost of the asset/s proposed to be acquired by the farmer, the allied activities already being undertaken on the farm, the banks judgment on repayment capacity vis-a-vis total loan burden
Compilation : Arundeep Toor (Sydney - Australia) (Source-RBI Website)

The short term component of the KCC limit is in the nature of revolving cash credit facility. There should be no restriction in number of debits and credits. However, each installment of the drawable limit drawn in a particular year will have to be repaid within 12 months. Delivery channels - The amount can be drawn (a) from branch (b) through cheque facility (c) through ATM / Debit cards (d) through Business Correspondents and ultra thin branches (e) through PoS available in Sugar Mills/ Contract farming companies, etc., especially for tie-up advances (f) through PoS available with input dealers or (g) as mobile based transfer transactions at agricultural input dealers and mandies. As the CC limit and the term loan limit are two distinct components of the aggregate card limit bearing different rates of interest and repayment periods two separate electronic cards may be issued.
8. Validity / Renewal

BANKING FEATURES i. Banks may determine the validity period of KCC and its periodic review. iii. When the bank has granted extension and/or re-schedulement of the period of repayment on account of natural calamities affecting the farmer, the period for reckoning the status of operations as satisfactory or otherwise, would get extended together with the extended amount of limit. When the proposed extension is beyond one crop season, the aggregate of debits for which extension is granted, is to be transferred to a separate term loan account with stipulation for repayment in installments.
Repayment Period:

Banking events updatE June 2012

Clearing of Cheques Informal Clearing Houses

It has been the endeavour of RBI to put in place, the clearing infrastructure at all places where there are 5 or more banks operating, but do not have a clearing house, with a relaxation to District Headquarters where the presence of 3 banks is sufficient to establish a clearing house. Towards this endeavour, Regional offices of RBI continuously identify locations and banks for opening new clearing houses. As a result of such continuous efforts, there are 1200 clearing houses as on April 2012 across the country, of which more than 200 clearing houses have been made operational during the last 4 years. There are still some locations/districts where a formal clearing house could not be opened due to the presence of less than 3 banks or bank branches not being within commutable distances or the volume of cheques being too low for a formal clearing house arrangement. In such locations, banks are following the practice of bilateral exchange/counter presentation of such instruments for debit to the customers account and thereafter settlement of funds among themselves through various means. There is, hence, no uniform practice in the matter. RBI issued (May 11, 2012) the formal guidelines to be observed by banks at such places where there is no clearing house, as detailed hereunder: 1. Banks, through mutual discussions, will put in place arrangements to ensure that the instruments drawn on the other banks are delivered/exchanged at a mutually decided place and time every working day. 2. Ensure that the fate of the cheque is known on the same day and the return instruments are re-exchanged at a mutually decided place and time. 3. Put in place arrangements for settling the realisation proceeds through cash, transfer etc. 4. Presenting Bank should afford shadow credit to the presenting customers account on the same day of settlement and allow the customer to make use of the clearing credit as per the Cheque Collection Policy (CCP) of the bank. Banks are required to send to RBI a monthly report of instruments settled through bilateral exchange on monthly basis. The first such monthly compliance report is to be submitted on or before, October 12, 2012 to RBI Regional Office under whose jurisdiction, the bank branches are located.

1.Each withdrawal under the short term sub-limit should be liquidated in 12 months without the need to bring the debit balance in the account to zero at any point of time. 2. The term loan will be normally repayable within a period of 5 years. Banks may provide longer repayment period. Margin: To be decided by banks.
Security:

i. Hypothecation of crops up to card limit of Rs. 1.00 lakh as per the extant RBI guidelines. ii. With tie-up for recovery: Banks may consider sanctioning loans on hypothecation of crops up to card limit of Rs.3.00 lakh without insisting on collateral security. iii. Collateral security may be obtained at the discretion of Bank for loan limits above Rs.1.00 lakh in case of non tie-up and above Rs.3.00 lakh in case of tie-up advances.
Classification of account as NPA:

1. Account could be treated as standard, when the balance outstanding is less than or equal to drawing limit [short term (crop) loan] at any point of time during the preceding one year. The short term loan (with major component of crop loan) sanctioned on the KCC can be given the same treatment as a cash credit account for the purpose of applying prudential norms and should not be treated as out of order if the balance outstanding is less than or equal to the drawing limit and each drawl is repaid within a period of 12 months. Term loan under KCC has fixed repayment schedule and is to be governed by extant prudential norms.
Other Conditions:

In case the loan is allowed against the warehouse receipt of the produce, these should be linked with the crop loan account, if any and the crop loan outstanding in the account could be settled at the stage of disbursal of the pledge loan, if the farmer desires. All new KCC must be issued as per the revised guidelines of the KCC Scheme. At the time of renewal of existing KCC; farmers must be issued smart card cum debit card.
As per RBI Monetary Policy 2012, for furthering financial inclusion, it would be necessary to have an intermediate brick and mortar structure (USB) between the present base branch and Business Correspondent (BC) locations. These Branches may be set up between the base branch and BC locations so as to provide support to about 8-10 BC Units at a reasonable distance of 3-4 kilometres. These branches should have minimum infrastructure such as a CBS terminal linked to a pass book printer and a cash safe for cash retention, for operating large customer transactions. It would be managed full time by bank officers/ employees. These could be satellite offices or regular branches as the case may be. The base branch will provide oversight to these outlets including periodic visits by officers of the base branch to these outlets as well as to other places of functioning of BCs.
Ultra Small Branches (USB)

Banking events updatE June 2012

Securitisation Transaction
Securitisation involves pooling of homogeneous assets and the subsequent sale of the cash flows from these asset pools to investors. The securitisation market is primarily intended to redistribute the credit risk away from the originators to a wide spectrum of investors who can bear the risk, thus aiding financial stability and provide an additional source of funding. RBI issued guidelines on Securitisation during May 2011, a summary of which is reproduced: REQUIREMENTS TO BE MET BY THE ORIGINATING BANKS Assets Eligible for Securitisation: In a single securitisation transaction, the underlying assets should represent the debt obligations of a homogeneous pool of obligors. All on-balance sheet standard assets, except the following, are eligible for securitisation by the originators: (i) Revolving credit facilities (e.g. Cash Credit accounts, Credit Card receivables etc.) (ii) Assets purchased from other entities (iii) Securitisation exposures (e.g. Mortgage-backed/asset-backed securities) (iv) Loans with bullet repayment of both principal and interest. (Loans with tenor up to 24 months extended to individuals for agricultural activities where both interest and principal are due only on maturity and trade receivables with tenor up to 12 months discounted/purchased by banks from their borrowers will be eligible for securitisation. However, only those loans/receivables will be eligible for securitisation where a borrower (in case of agricultural loans) /a drawee of the bill (in case of trade receivables) has fully repaid the entire amount of last two loans/receivables (one loan, in case of agricultural loans with maturity extending beyond one year) within 90 days of the due date). Minimum Holding Period (MHP) Originating banks can securitise loans only after these have been held by them for a minimum period in their books. The banks need to ensure that: the project implementation risk is not passed on to the investors, and a minimum recovery performance is demonstrated prior to securitisation to ensure better underwriting standards. Banks can securitise loans only after a MHP counted from the date of full disbursement of loans for an activity/ purpose; acquisition of asset (i.e., car, residential house etc.) by the borrower or the date of completion of a project, as the case may be. MHP would be defined with reference to the number of instalments to be paid prior to securitisation. MHP applicable to various loans depending upon the tenor and repayment frequency is given in the following table: Minimum Holding Period The minimum no. of instalments to be paid before securitisation would be as under: 1. Loans with original maturity up to 2 years : Weekly-12,

BANKING FEATURES Fortnighly-6, Monthly-3 and Quarterly - 2 2. Loans with original maturity of more than 2 years and up to 5 years : Weekly-18, Fortnighly-9, Monthly-6 and Quarterly 3 3. Loans with original maturity of more than 5 years : Monthly-12 and Quarterly - 4 Where the repayment is at more than quarterly intervals, loans can be securitised after repayment of at-least two instalments. Minimum Retention Requirement (MRR) The MRR is primarily designed to ensure that the originating banks have a continuing stake in the performance of securitised assets so as to ensure that they carry out proper due diligence of loans to be securitised. The originating banks should adhere to the MRR, while securitising the loans. Minimum Retention Requirements at the Time of Securitisation Loans with original maturity of 24 months or less: 5% of the book value of the loan being securitized. i) Where securitisation involves neither credit tranching nor any first loss credit enhancement by originators : Investment in the securities issued by the Special Purpose Vehicle (SPV) equal to 5% of the book value of the loans being securitised. (ii) Where securitisation involves no credit tranching, but involves originators providing first loss credit enhancements e.g. off-balance sheet supports, cash collaterals, overcollateralisation etc. : The originator would be providing the required credit enhancement. If the first loss credit enhancement required is less than 5%, then the balance should be in the securities issued by the SPV. (iii) Where securitisation involves credit tranching but no first loss credit enhancement from originator : 5% in equity tranche. If equity tranche is less than 5%, then balance pari-passu in remaining tranches. (iv) Where securitisation involves credit tranching and first loss credit enhancements by originator (off-balance sheet supports, cash collaterals, overcollateralisation etc.) : If the first loss credit enhancement is less than 5%, then balance in equity tranche. If first loss credit enhancement plus equity tranche is less than 5%, then remaining pari-passu in other tranches. Loans with original maturity of more than 24 months 10% of the book value of the loans being securitised (i) Where securitisation involves neither credit tranching nor any first loss credit enhancement in : Investment in the securities issued by the SPV equal to 10% of the book value of the loans being securitised. (ii) Where securitisation involves no credit tranching, but involves first loss credit enhancements from originators e.g., off-balance sheet supports, cash collaterals, overcollateralisation etc.: The originator would be providing required credit enhancement. If this is less than 10%, then balance in the securities issued by the SPV. (iii) Where securitisation involves credit tranching but no first loss credit enhancement from originator: 5% in equity tranche or less if the equity tranche is less than 5%. The balance (10% - investment in equity tranche) paripassu in other tranches issued by the SPV. (iv) Where securitisation involves credit tranching as well as the first loss credit enhancements by originators (offbalance sheet supports, cash collaterals, overcollateralisation etc.) i) If the first loss credit enhancement is more than 5% but

BANKING FEATURES

Banking events updatE June 2012

Banking Problems based on Ombudsman Decisions

1. Recovery demands on undelivered card : A complainant approached the

OBO stating that he was issued statements for the credit card which was never received and used by him. The card agency continued to send the statements to the complainant, despite serving notice by the complainant through his advocate to the agency and even after confirmation by the agency that the status of the credit card was undelivered. The agency continued its lapse by initiating measures for recovery of dues, causing mental anguish to the complainant. The agency also debited premium for insurance cover for which the complainant had not given his consent. On taking up the matter with the agency, the agency reversed the entire outstanding balance on the card and also apologized to the complainant for the inconvenience caused. However, the case was adjudicated for issues relating to deficiency in providing services by the agency. An Award was passed by the BO and the agency was directed to pay an amount of Rs. 10,000/- to the complainant by way of compensation for harassment and mental anguish suffered by him. 2. Extension of PPF account of HUF: A complainant was having a PPF account in the name of HUF. On maturity, the account was extended for 5 years on account holder's request. After 2 years, the bank asked the account holder to close the account as it was not eligible for extension. The bank also informed that no interest would be payable for the extended period. The bank also reversed the interest credited in the account for the last 2 years. The complainant approached OBO to advise the bank to continue the extension of the account already granted by the bank and to repay the interest deducted. On taking up the matter, the bank contended that they had recovered the interest amount in the PPF account for the post maturity period as per the amendments to the Scheme. (The bank also paid an amount of Rs. 1,000 as a goodwill gesture for the inconvenience caused to the account holder). It was observed that the PPF HUF account was not eligible for extension. The bank was found deficient in providing service as it allowed extension beyond maturity instead of closing the account on maturity in terms of Govt./RBI instructions. The bank was advised to pay an amount of Rs. 1,000 for the act of commission by the bank and the inconvenience caused to the complainant. Subsequently, the Award was amended vide AAs order to pay interest at FD interest rate from the date of maturity to the date of closure of the account. 3. Changing the rate of interest without notice: A complainant approached the OBO stating that she was sanctioned housing loan at a fixed interest rate of 8% by the bank. After 3 years, the bank started charging interest at the rate of 8.5% without any intimation to the complainant. The complainant had requested that the bank may be directed to charge interest at fixed rate of 8% as per the banks commitment and refund the excess interest recovered. The bank stated that the change in rate of interest was as per the loan agreement signed by the complainant. One of the clauses stipulated reset of prevailing rates after every 3 years. The bank added that the change was reflected in statement of account provided from time to time and annual statement of interest provided to the customer for income-tax purpose. It was observed that the bank was required to issue notice to the borrower intimating the change in rate of interest and the borrower, if not agreeable to the revised interest rate so fixed, may request within 15 days to terminate the loan agreement and repay the loan in full and final settlement according to the provisions of the agreement relating to prepayment. The banks contention was not found acceptable as statement of account/interest could not be considered as a substitute for notice and as such the bank was found deficient in not adhering to the conditions of the agreement. However, the complainant could have also approached the bank to get her account closed when the change in rate of interest came to her notice. Therefore, the request of the complainant for refund of interest in excess of 8% was not accepted. However, an Award was issued to the bank to pay Rs. 1,000 as token compensation for the inconvenience caused to the complainant.

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Banking events updatE June 2012

BANKING FEATURES

Doctrine of Ultra-Vires, Constructive Notice of MoA/AoA & Indoor Management

Doctrine of Ultra-Vires
Whenever a company exercises its powers to achieve its objective stated in the Object Clause in Memorandum of Association(MOA), such actions are called intra-vires i.e. within powers of the company. But a transaction which is outside the scope of Objects Clause of MOA, is ultra-vires the company (i.e. beyond the powers of the company). Therefore, it is void. No rights and liabilities on the part of the company arise out of such transactions and it is a nullity even if every member agrees to it later on. Consequences of an ultra-vires transaction are under : 1. The company cannot sue a person for enforcement of its rights. 2. No person can sue the company for enforcement of his rights. 3. The directors of the company may be held personally liable to outsiders for an ultra vires. The doctrine does not apply in the following cases :1. If an act is ultra-vires of powers of the directors but intra-vires of company, the company is liable. 2. If an act is ultra-vires the Articles but it is intra-vires of the Memorandum, the articles can be altered to rectify the error. 3. If an act is within the powers of the company but is irregularly done, consent of the shareholders will validate it. 4. Where there is ultra-vires borrowing by the company or it obtains delivery of the property under an ultra-vires contract, the third party has no claim against the company on the basis of the loan but he has right to follow his money or property if it exist as it is and obtain an injunction from the Court restraining the company from parting with it provided that he intervenes before the money spent on or the identity of the property is lost. 5. The lender of the money to a company under the ultra-vires contract has a right to make director personally liable.

Evolution of Lending Rates Structure in India

Sep. 1990 : The structure of lending rates was rationalized into 6 size-wise slabs. Of these, banks were free to set interest rates on loans of over Rs. 200,000 with minimum lending rates prescribed by RBI. April 1992 : Slabs compressed into four. April 1993 : Slabs compressed into three. Oct. 1994 : Lending rates for loans with credit limits of over Rs.200,000 deregulated. Banks were required to declare their Prime lending rates (PLRs). Feb. 1997 : Banks allowed to prescribe separate PLRs and spreads over PLRs, both for loan and cash credit components. Oct. 1997 : For term loans of 3 years and above, separate Prime Term Lending Rates (PTLRs) were required to be announced by banks. April 1998 : PLR converted as a ceiling rate on loans up to Rs.200,000. April 1999 : Tenor-linked Prime Lending Rates (TPLRs) introduced. Oct. 1999 : Banks were given flexibility to charge interest rates without reference to the PLR in respect of certain categories of loans/credit. April 2000 : Banks allowed to charge fixed/floating rate on their lending for credit limit of over Rs.200,000. Apr 2001 : The PLR ceased to be floor rate for loans above Rs.200,000. Banks allowed to lend at sub-PLR rate for loans above Rs.200,000. April 2002 : Dissemination of range of interest rates through the Reserve Banks website was introduced. April 2003 : Benchmark PLR (BPLR) system introduced and tenor-linked PLRs discontinued. Feb. 2010 : Draft circular on Base Rate placed on RBI web site for obtaining comments/suggestions from public/ stakeholders. April 2010 : Base Rate system of loan pricing introduced effective July 1, 2010. Rupee lending rate structure completely deregulated
Source: Adopted from the speech Perspectives on Lending Rates in India, Mohanty, June 2010.

Doctrine of Constructive Notice of MOA & AOA

Memorandum of Association (MOA) and Articles of Association (AOA) are registered with Registrar of Companies (ROC). These can be inspected by any member of the public in the office of ROC by making payment of requisite fee. While dealing with a company, all persons are deemed to have notice of contents of MOA and AOA. This is known as constructive notice of MOA and AOA. The doctrine is of a negative nature. It stops a person from arguing that he had no notice of the contents of the MOA and AOA. The effect is that there is presumption that a person dealing with the company knows the contents of MOA and AOA. It stops the person from contending that he had no notice of contents of the documents. In order to protect himself against application of this doctrine, a person dealing with a company should go through these documents to make sure that the contract made with the company is in accordance with MOA and AOA. The doctrine protects a company from outsiders as they are presumed to have notice of contents of MOA and AOA.

Doctrine of Indoor Management

The doctrine of indoor management saves the outsiders from the inside management. The person dealing with a company can presume that the company and its officials understand all the rules and regulations under which the company is to be managed. Hence the outsider is not bound to inquire into regularity of internal functioning of the company. Hence, the outsider would not be affected by any internal irregularity on the part of the company or its officials. This is known as doctrine of indoor management. Exceptions to the doctrine The outsider is not protected if he has actual knowledge of the internal irregularity of the company, since he could have taken extra precaution in dealing with the company.

Financial Events
CORE SECTOR GROWTH DROPS SHARPLY: Output growth in eight core industries slowed to 2% in March against 6.5% in the year ago period. In February, the infrastructure industries grew by 6.8%. The fall was largely on account of a drop in output in the crude oil, petroleum refinery production and natural gas sectors. During the fiscal year 2012, the cumulative growth rate of core sector industries was 4.35 against 6.6% in 2010-11. INDIAN PACT WITH SWITZERLAND ON BANKING: Indian pact with Switzerland for liberal interpretation of the identity requirements for providing information as per Article 26 of the Agreement for the Avoidance of Double Taxation (DTAA) with respect to income as amended by the 2010 protocol was signed on April 20,2012. This will be effective form April 1, 2011. It is sufficient if the requesting State identifies the person by other means than by indicating the name and address of the person concerned and indicates to the extent known, the name and address of any person believed to be in possession of the requested information. The agreement is in line with the International Standards. LIC UNDER RATING WATCH: Rating Agency Moodys has placed Life Insurance Corporations (LIC) rating under watch because of its exposure to public sector. Moodys has placed insurance financial strength rating of LIC of India (Baa2/ Stable) under review for possible downgrade. The review for down grade reflects LICs direct exposure to the Indian Sovereign risk in terms of its investment portfolio and business profile. NABARD BILL 2012 FOR TRANSITION: NABARD Bill 2012 has entered the final stage of being legislated. The token 1% of capital that RBI holds in NABARD is sought to be vested in the Centre, completing the Transition. RBI had sold its majority stake to the centre in 2010. The latter now holds 99% in NABARD. The Bill 2012 will help bring about the complete transfer. Direct lending will replace the function of refinance, until now synonymous with NABARD. TRADE DEFICIT HITS ALL-TIMEHIGH TIME: Indias Trade Deficit touched a record high at $184.9 billion for 2011-12 as imports outpaced exports by a high margin. The higher than expected trade deficit is about 10.6% of the GDP and is mainly on account of bloating oil imports. Merchandise exports for the fiscal crossed the targeted $300 billion, despite a sluggish demand from key markets in crises-hit European Union and the US. The overall exports were up 21% in dollar terms to $303.7 billion as against previous years $251.1 billion. However imports grew 32.15% to $488.6 billion on rising oil and non-oil imports. E-FILING SYSTEM FOR PF RETURNS LAUNCHED: According to the Union Labour Minister, with the formal launch of the E-Challan-Cum-Return (ECR) System, employers need not to visit EPFO offices to file various monthly and annual paper returns. The ECR System would also enable the Employees Provident Fund Organisation Offices to do away with manually entering PF returns and update the information. The System was aimed at providing awareness regarding good labour practices and initiatives taken by the Central and State Governments to all stakeholders on a regular basis. INACCURATE TDS RETURNS TO ATTRACT PENALTY: Attempting to raise revenues, the government has targeted Tax Deducted At source (TDS) and proposed penal provisions for inaccurate details and ensuring filing of corrective Returns. From July 1, the Government may impose penalty of Rs.10,000 and
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Financial Events
Rs.1,00,000 for inaccurate details after proposed amendments in the Finance Bill are cleared.. S & P RAISES GREEK RATINGS: Standard & Poors raised Greeces Credit Rating out of default territory as expected after Athens slashed its debt by about a third by completing the biggest sovereign debt restructuring in financial history. But the Agency kept Greece firmly in the junk category with the CCC rating and warned that a deep recession, unpredictable elections on May 6 and popular anger against austerity could threaten Athens efforts to put its finance back on track. RBI TO ALLOW COSTLIER FCCB FOR PREPAYMENT: Facing huge redemption pressure on funds raised via Foreign Currency Convertible Bonds (FCCB), India Inc has requested the RBI to allow companies to offer higher interest rates on fresh Foreign Currency Loans/ Bonds, the proceeds of which will be used to pre-pay existing FCCB. The current norms mandate if a company wants to prepay FCCB via fresh foreign loans or bonds, the new paper must be of longer maturity and carry a lower interest rate than the existing. SBI INSTRUCTIONS TO BRANCHES ON SAVINGS ACCOUNTS: State Bank of India has decided to waive the requirement of maintenance of minimum balance for all types of savings bank accounts with immediate effect. The Bank has asked its branches to remove the minimum balance stipulation and refund charges that were collected for failure to maintain the same. Branches have been advised to use approved publicity material to the effect and to have them displayed prominently on branch premises. BANKS NOT ABLE TO HIT PRIORITY LENDING TARGET: According to the data available on RBI Site, Banks are likely to fall short of their priority sector lending targets in 201112, the proportion of priority sector lending of banks was down to 32.7% against 33.7% a year ago. According to the RBI Mandate, domestic banks have to lend at least 40% of their total loans to the priority sector. For Foreign Banks, the target is set at 32% of net bank credit. The figure of 32.7% has been arrived at a calculation based on the gross credit level. The ratio could be slightly higher at the net bank credit level,
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Banking events updatE June 2012

Financial Events
some debt-laden companies have been forced to pledge their shares and forfeit them or sell stake to others to raise fresh funds. UCO BANK TO CUT EXPOSURE TO MAJOR CORPORATES: UCO bank would aim to de-risk its balance sheet by reducing its exposure to big corporate accounts, particularly in the stressed sectors. According to the ED of the Bank, more than 60% of the banks total advances lie in the corporate sector at present, while retail accounts for a miniscule 8.5%. IOB TO MIGRATE TO ORACLE PLATFORM: RBI has told all banks to have a common platform Oracle-for their database, so as to streamline the automated data flow (ADF). The ADF is a system through which the RBI will be able to pull any information it wants from a banks dedicated server. IOBs home-grown CBS runs on Sybase. IOB is not he only bank to have to migrate. It is in the company of three of its peers- Corportaion Bank, Syndicate Bank and Canara Bank. So, all these four together have given a mandate to IDBI Intech, a subsidiary of IDBI Bank, to float a Common request for proposal. The bill would work out to anywhere between Rs.150 Crore to rs.300 Crore for each bank. ISLIMIC NBFC TO MOVE COURT AGAINST RBI: The rift between advocates of Islamic finance, which forbids the use of interest rate, and the RBI, which is adamant that local laws prohibit such funding, is heading for climax. Alternative Investments and Credits (AICL), the Kerala-based firm that has been stripped of its licence to carry out non-banking finance activities by RBI, is planning to move court against RBI. COURT VERSION ON ARBITRATION: Delhi High Court has ruled while setting aside an award of the arbitrator, that the time fixed in the Arbitration Act 1940 can be extended only by the court and not by the parties. BANKS INCREMENTAL EQUITY REQUIREMENT MANAGEABLE: ICRA, the Rating Agency has said that the incremental equity requirement appears manageable considering past trends in capital mobilisation. ICRA notes that between 2007-08 and 2011-12, banks raised Rs.1 Lakh Crore in equity. Half of this was in 2007-08 when the capital market was buoyant. The other half was raised between 2008-09 and 2011-12. And 60% of this came from the Government and LIC of India. INDIA INC SOUGHT MORE FOREIGN LOANS IN 2011-12: Indian firms solicited more overseas loans in 2011-12 than a year ago, ignoring rupee depreciation amid a domestic fund crunch. As per RBI Data, Indian firms notified plans to secure $35.96 billion in ECB and FCCB through the automatic and approved route in 2011-12. In 2010-11, they had notified the RBI of their intent to raise $25.77 Billion. While the value of ECB and FCCB applications grew by 39%. IRAN ACCEPTS YUAN IN EXCHANGE FOR OIL:

however, it might not be adequate to bridge the gap ( 40% target). RBI TELLS BANKS TO RAISE RISK CAPITAL RESERVE: RBI has asked banks to set aside more risk capital and implement Basel-III norms faster than its global peers. Indian banks have to migrate full y to RBIs version of Basel-III by March 31, 2018 whereas globally, the deadline is January 1, 2019. Similarly the risk capital to be set aside by Indian Banks is 11.5% of all its risky loans in the form of common equity whereas the global requirement is 10.5%. TAMILNAD MERCANTILE BANK UNVEILS NEW LOGO: Tamilnad Mercantile Bank has gone in for a change in its Logo. This is the second time in its 90 years history that the Bank had sought a change in its Logo. Earlier in 2005, the Bank opted for a change in its Logo and it was conceived by the Banks in-house team then. But this time, the Bank engaged JWT Consultants to get this job done. According to Mr. A.K.Jagannathan, MD and CO of the Bank, what hold the Logo together and helps break the clutter is the clever play on the letter M. An amalgam of two upward arrows; the positive M clearly symbolizes the Banks new promise- to be one step ahead of life. SUPREME COURT VERSION ON DISHONOUR OF CHEQUES: The Supreme Court has ruled that the Article 20 (2) of the Constitution does grant immunity against award of more than one punishment for the same crime but if the ingredients of the two cases are different, there is no bar on launching two different proceedings that could culminate in separate punishments for the two crimes. BANKS TO FACE CAP ON COSTLY YEAR-END DEPOSITS: The Finance Ministry is mulling a limit on the bulk costly deposits which are now being raised in the last quarter of the year which adversely affect profitability and asset-liability mismatch in the banks. In the just concluded financial year, banks raised nearly a third of their total deposits in the last month of the year. It has suggested that the bulk deposits by the Govt. banks at higher than the published rates (Card Rate) and certificate of deposits mobilized in the last quarter of the financial years should not be more than 20% of the total deposits mobilized in the year. HOLDING GOLD RESERVES BY RBI: RBI is holding Gold Reserves. As per Government sources, as on April 20, 2012, the value of Gold Reserves was $27.02 billion, which accounts for 9.2% of foreign exchange reserves of 4294.06 billion. RBI holds 557.75 tonnes of gold as part of foreign exchange reserves. The gold held by it is revalued on monthly basis as per accounting policies. SHG MEMBERS FROM COMMUNITY TO INDIVIDUAL BANKING: Growth in the rural economy and enhanced capacity to save has led the NABARD to overhaul the guidelines for its ground- breaking financial inclusion programme. As a result, Self Help Group (SHG) members are encouraged to open individual bank accounts / revive their No-frill accounts by depositing the surplus they generate. This move is aimed at helping SHG members steadily graduate from community banking to individual banking. RBI EASES NORMS TO BOOST INFLOWS: The currency, which weakened 1.7% against the dollar this weak, prompted the RBI to relax norms to attract foreign currency inflows. RBI relaxed the interest rate ceiling on foreign currency non-resident (FCNR) deposits of banks with maturities of one-three years to 200 basis points above the LIBOR or Swap rate, from 125% now. On 3 to 5 years maturity FCNR deposits, the rate ceiling will be relaxed to 300 basis points above LIBOR.RBI also allowed banks to freely determine the interest rates on export credit in foreign currency. INDIA INC PROMOTERS SHEDDING THEIR STAKES: The stake held by the promoters in Indian companies has been falling steadily and now stands at 52% of the market value for the BSE-500 companies. This is just above the 51% stake needed to push even ordinary decisions through at company meetings. Promoter stakes have dipped form 58% levels in March 2009.Promoters and promoter groups have shed their stake for several reasons like interest rates rising and profit growth slowing. Promoters in

Banking events updatE June 2012 11

Iran is accepting Yuan for some of the approximately $20 billion worth of crude the OPEC member supplies to its main client, China, annually. US sanctions against Iran have made paying for its crude with hard currency difficult for top oil customers, including China and India, forcing them to look for alternatives. The US dollars and Euros are the two main currencies used in the global oil trade. PANEL WANTS RBI & SEBI TO TRACK FLOW OF FUNDS: The Parliaments Standing Committee on Finance has recommended that SEBI and RBI to set up a co-ordination mechanism to monitor funds flow in the stock market. This recommendation is a part of the Committees report on The Prevention of Money laundering (Amendment) Bill 2011. The Bill wants to make the reporting entity responsible for identifying the beneficial owners. The Government aims to widen the definition of financial institutions. SEBI ISSUES FAQ TO INTERMEDIARIES: SEBI has issued a set of Frequently Asked Questions (FAQs) on how intermediaries should handle market related rumours. The FAQs are applicable to all SEBI registered entities. Intermediaries are required to design systems and code of conduct that is able to successfully block or completely supervise access to blog, chat forums, messenger and social network sites. They are also required to demonstrate the measures taken to the exchanges and SEBI.:BL) HIGHER COSTS AND BAD LOANS TO PUT PRESSURE ON PNB: the 19% profit growth which Punjab National bank (PNB) posted during the quarter to March 2012 period was the Highest in seven quarters. But the consistent decline in growth in Net Interest Income (NII) is a reflection of the fact that PNB is having trouble in managing higher cost of funds. Moreover, the 35% increase in NPAs since the December 2011 quarter indicates it will take a couple of quarters before its asset quality can significantly improve. RBI TO EXPORTERS ABOUT FOREX EARNINGS: RBI has said that 50% of the balances held by exporters in Exchange Earners Foreign Currency (EEFC) accounts should be converted into rupee balances and credited to their rupee accounts. The conversion process has to be completed within a fortnight. In respect of all future earnings, a foreign exchange earner will be eligible to retain 50% (Previous limit 100%) in non-interest bearing EEFC accounts. The other 50% has to be converted into rupee balances. INDUSTRIAL OUTPUT SLUMPS: Industrial output declined by 3.5% in March, a sharp fall from the 4.1% growth recorded in February and 9.4% growth a year ago. For the full year 2011-12, the Index of Industrial Production (IIP) grew just 2.8% compared with 8.3% last year. The weakness in IP was driven by the sharp fall in capital goods (-21.3%) in March due to the investment climate .for the entire 2011-12, capital goods contracted 4.1%, vis-a-vis14.8% growth in the previous year. APEX COURT RULING ON COMPENSATION; Delhi High Court ruled that an employee of a private sector company, especially the one to whom the protection under the industrial Disputes Act is not available, can not claim parity of treatment in the matter of compensation vis--vis a Government employee. REGISTRATION MANDATORY FOR INVESTMENT OVERSEAS: RBI has said

that Core Investment Companies (CICs) making overseas investment in the financial sector will require a Certificate of Registration. Currently, CICs with an asset size of less than Rs.100 Crore are exempt from registration with the RBI. Investment in the non-financial sector by such exempted CIC however, will not require COR. CICs with an asset size of Rs.100 Crore or more are considered as systemically important core investment companies and require to a COR from the RBI. NRI DEPOSITS IN BANKS TREBLE IN 201112: Monies that NRIs deposited into Indian Banks trebled into Indian banks trebled to a record $11 billion in 2011-12. Interest rates that NRIs earn on rupee deposits were freed in December. In the previous five years, inflows of NRI money averaged $2.9 billion. The record inflows came amid depreciation of the rupee from 44.5 to a dollar to 51.1.According to the RBI data, the aggregate value of NRI deposits held by Indian Banks stood at $57.9 billion by March 31,2012. BANKS ASKED TO FIX CHARGES ON HIGH VALUE CHEQUES: RBI has asked banks to fix charges on a cost-plus basis for cheques valued above Rs.1 Lakh and cleared through speed and out-station cheque-clearing routes. Last year, RBI had given banks the freedom to determine collection charges for such cheques, subject to the charges being levied in a fair and transparent manner. RBI has told the banks that they should notify their customers about the revised service charges structure for cheque clearing. IBPS RELAXED CLERICAL RECUITMENT CRITERIA: Banks had recently stipulated that graduation was the minimum criteria for clerical posts, following a recommendation by the Khandelwal committee on HR issues. This had upset a number of candidates who were nongraduates and had passed the common test held for these posts. Now it has been decided to postponement of the stipulation of higher eligibility criteria for the current exam cycle. RBI TOLD BANKS TO GIVE FARMERS SMART CARDS: RBI has asked Commercial Banks, RRBs

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Banking events updatE June 2012 and Co-operative Banks to issue smart cards/ debit cards to farmers under the revised Kissan Credit Card (KCC) Scheme so that they can access credit with ease. These cards should be compatible for use in the ATMs, hand-held swipe machines, point of sale (POS) terminals and mobile banking and be capable of storing, among others, adequate information on farmers identity, assets, land holding and credit profile. IRDA BANS PRODUCTS WITH GUARANTEE OF HAV: IRDA has asked Life Insurers to stop selling highest net asset value (NAV) guaranteed products. Highest NAVGuaranteed products are those that promise to pay the highest value the fund achieves during a certain period. However, to maintain that NAV consistently, insurers have to take risks by investing in stocks aggressively. That could lead to undue risks. BOB SECOND-MOST PROFITABLE PSU BANK: Stateowned Bank of Baroda (BOB) has pipped Punjab National Bank to become the Countrys second- Largest Public Sector Lender in terms of annual profit. BOBs net profit crossed Rs.5, 000 Crore during 2011-12, a rise of 18% from the previous year. PNBs net profit rose 10.2% to Rs.4,484 Crore for the financial year ended March 2012. SUPREME COURT VERSION ON BOUNCED CHEQUE: The Supreme Court has ruled that an authorised signatory of a company can not be prosecuted for issuing a dishonoured cheque without the company itself arraigned as an accused person. WORLD ECONOMIC FORUM TO ESTABLISH OFFICE IN INDIA: The World Economic Forum (WEF) plans to establish a permanent office in India .India is among the most important G-20 economies and this under- scores the Forums commitment to the country India as a partner. This would be the Forums fourth office in the world, besides China, Japan and the US. It has its Headquarters in Geneva, Switzerland.. PROMOTION POLICY FOR BANKS RELAXED: The Finance Ministry, as a one time measure has tweaked to promotion policy in Public Sector Banks for 2012-13. As per Govt.s communication, the zone of consideration for promotion should be generally three times the number of anticipated vacancies. However this condition may be relaxed for two times of the vacancies in case of need. The Board of Directors can further relax the minimum eligibility criteria in the length of service by up to six months over and above the one year already provided in the guidelines. CANARA BANK LAUNCHES NEW PAYMENT FACILIES: Canara Bank launched technology products and facilities for easy and secure banking. The products and facilities would enable customers to avail themselves of the service anywhere, and at any time. Some of the facilities include internet banking-bill payment, funds transfer by corporate account holder up to Rs.50 Lakh per day. In the cards segment, the bank launched facilities such as bill payment and on the ATM front, the bank introduced fund transfer using IMPS, payment of direct taxes and activation of mobile banking. MOODYS CUT RATINGS FOR 26 ITALIAN BANKS: Moodys has slashed its credit ratings by up to four notches for 26 Italian Banks, including UniCredit and Intesa Sanpaolo, citing their vulnerability to Italys recession and

more trouble in the Euro Zone. The ratings for Italian banks are now amongst the lowest within advanced European countries, reflecting these banks susceptibility to the adverse operating environments in Italy and Europe. MOODYS ALLOWS ICRA TO EXPAND IN ASIA: Moodys has allowed its Indian Affiliate ICRA to enter domestic credit and corporate instruments rating business in all Asian countries except four. The arrangement does not permit ICRA to enter certain Asian Markets such as Japan, China including Hong Kong, South Korea and Singapore where Moodys is present. In the domestic markets, foreign currency borrowings are also out of the rating domain of the local affiliate. However, ICRA is free to expand geographically in any other businesses than rating services. RBI TO OFFER SAARC COUNTRIES SWAP FACILITY: RBI will offer a $2 billion Swap Arrangement, both in foreign currency and Indian rupees to member-countries of the South-Asian Association of Regional Cooperation. The arrangement is aimed at providing SAARC member-nations a back-stop (Last resort) line of funding. This will help them meet any balance of payments and liquidity crises, till longer-term arrangements are made or if there is a need for short-term liquidity due to market turbulence. TCS TO MANAGE LAKSHMI VILAS BANKS BACK-OFFICE: Tata Consultancy service will centralize the entire Back-Office operations and document management system at Lakshmi Vilas Bank. This will facilitate centralizing processes such as account opening, know your customer compliance, loans and advances, trade finance and ATM card management. PFC EASES LOANS NORMS FOR POWER SECTOR: Punjab Finance Corporation (PFC) has eased certain eligibility criteria for loan disbursals to power projects in an effort to revive a sector starved of funds as developers are finding it tough to meet some stringent loan conditions. Since April 2011, PFC had been disbursing loans to only those power projects that has signed power purchase agreements with procurers and had also assured fuel supply for the plan tin place. Now instead of demanding for both fuel supply agreements and power purchase agreements, they are considering the request given if they fulfill only one condition. BANKS TO ACT TOUGH ON LOAN RESTRUCTURING: Corporates where managements have diverted funds or are perceived as incompetent will have stringent action by the banks. The Finance Ministry has specifically told banks against taking on their books quasi-securities like converting preference shares that have long tenure, low returns and high provisioning. While these securities are converted into equity in due course and give corporates breathing space, they are a strain on banks books. The Ministry has also suggested that banks may use the security enforcement law to change a management that has siphoned money from the company. RBI ALLOWED BANKS OUTLETS FOR BC IN RURAL AREAS: RBI allowed banks to establish outlets for Business Correspondents (BC) in rural areas to drive the Governments financial Inclusion Programme. Currently, every BC is attached to and is under the oversight of a base branch of a bank. The base branch will now supervise the BC outlets, including periodic visits by officers of the base branch to these outlets. These outlets may be in the form of low cost simple brick and mortar structures. IRDA TO CAP RISK PASSED ON TO REINSURANCE FIRMS: Insurance companies in India will not be able to pass on a majority of their risk to reinsurers. IRDA is set to specify the retention limit in this regard for insurance companies. According to IRDA, the companies operational for more than 10 years would not be able to cede more than 305 of their risks to reinsurance companies. Those operating for less than 10 years would have to retain half the risk in their books. There were no such caps till now. INDIAS RATING AND GOVTS STEPS ON FISCAL & OTHERS: Indias rating was lowered from Stable to Negative by the Global Rating Agency, Standard & Poors. The Government pitched for a higher credit rating from International Rating Agency, Fitch, citing good foreign direct investment inflows and commitment for fiscal consolidation.

Banking events updatE June 2012 13

Syndicate Bank has launched a Jewel loan Maha Mela to extend loans against the pledging of gold ornaments. The Bank is targeting a disbursal of loans worth Rs.100 Crore during the Mela period from May 1 to September 30,2012. RBI is looking at Shadow Banking activities closely and will tighten the regulations, if needed. The term refers to financial sector services that are beyond active regulatory purview of central banks. According to a new study by Gallup research, almost 31% or about 240 million Indian adults rate their lives poorly enough to be considered suffering . The All India Consumer Price Index (CPI) for industrial workers increased by 2 points in March at 201. The point-to-point rate of inflation for March shot up to 8.65% against 7.57% in February. According to the Parliamentary Panel, health indicators of the Urban Poor are worse than their rural counterparts. IRDA has launched a Web-site to educate general public and policy holders. The creation of the web-site is part of series of initiatives under the Bima Bemissal that hopes to create greater awareness about insurance. Indias exports in March fell for the First Time since 2009 global financial crises, as demand weakened in the US and Europe. Moving a step closer to setting up a Banking Business, the Department of Posts has started scouting for a Constancy Firm to prepare a road map for the proposed Post Bank of India. The Asian Development Bank (ADB) has projected healthy GDP of 6.9% for Developing Asia and the Pacific in the 2012 and an accelerated 7.3% growth next year. To give E-payments a big push, the Finance Ministry has directed all Banks to pay Vendors through On-line Fund Transfers- RTGS/NEFT mode. According to HSBC Purchasing Managers Index (PMI), PMI for manufacturing rose to 54.9 points in April from 54.7 points in March 2012. Private Sector lender, Ratnakar Bank announced a partnership with IT Firm Infosys and plans to revamp its products and services by deploying Finacle, a Core Banking Product . Mr. Rajeev Dubey has been appointed President of the Employers Federation of India for 2012-13. The Food Security and Poverty in

GENERAL AWARENESS
Asia and the Pacific Report, presented in the 5 th Annual Meeting of the Board of Governors of Asian Development Bank (ADB) recommended that the Governments to set up a Hunger Alleviation Fund, representing 1% of the countrys GDP, to be used when food prices grow beyond the reach of the poor. The Government proposes to set up a Sovereign Fund to finance acquisition of overseas mineral assets. Rating Agency ICRA pegged the incremental equity requirements of banks under the BASEL-III at around Rs.5 Lakh Crore. China will start issuing a new type of passport with an electronic chip that will contain a record of card holders personal information. The US unemployment rate fell to 8.1% in April as the economy created a modest 1, 15, 000 jobs. As per US Labour department data, unemployment is at the Lowest Level in over three years. Japans last running Nuclear Reactor is scheduled to shut down, resulting in the complete shutdown of 50-strong reactors in the country, leaving it without nuclear power for the first time since 1966. The Pension Fund Regulatory and Development has empanelled six insurance companies from which subscribers to the new Pension System can buy annuity products from. any of them. The Asian Development Bank (ADB) will provide assistance of $6.25 billion to India over three years for various projects, including those in the energy and education sectors. Till now, Iran was Indias Second Biggest crude oil supplier after Saudi Arbia, meeting about 12% of the countrys needs, but the position has been taken over by Iraq. The Corporate Affairs Ministry is in the process of bringing out a Business Confidence Index (BCI), which would be an indicator of optimism of business managers in the country. The Finance Ministry has levied definitive anti-dumping duty on partially oriented yarn (POY) imports form China. This duty will last for

five years unless revoked earlier. Andhra Pradesh has been chosen for the Investment Driven Economies Award in the Indias Most Competitive States awards 2012 initiative. China will have its First Yoga College to train qualified teachers for the ancient Indian spiritual and physical art form which has become hugely popular among the fast expanding middle class in the nation. According to a Washington DC Area Realtor, the White House, which has housed US Presidents and their families since 1800, would list for about $110 million on the open market. An analysis of GDP growth and investment flows of FIIs for the past 28 quarters reveals that whenever FIIs pulled money out of India in any quarter, economic growth fell during that three month period. Socialist Franois Hollande will be sworn as Frances new President on May 15. India has reacted sharply to US action of putting it on the Priority watch List for protection and enforcement of intellectual property rights. India is among 13 countries along with China and Pakistan that have been placed on the list. According to a Survey by Global Human resource Firm Mercer, 91% of the companies have listed Gender as a Top focus Area and efforts are required to give leadership roles to women. The Competition Commission of India (CCI) has constituted an Eminent Persons Advisory Group to give inputs and advice on issues impacting markets and competition. The group includes Mr. N.R. Narayana Murthy, former Chairman, Infosys. Indians are remitting lesser amounts as Gifts to their relatives abroad. It fell from $38.3 million in April 2011 to $12.1 million in January 2012. The dip in remittances could be due to the general slowdown in the economy. Giving relief to about 46 Lakh Subscribers of over 2700 private PF Trusts, the Finance Ministry has extended the income tax exemption for them till March 31, 2013. Moodys Investors Service will this month start cutting the credit ratings of more than 100 banks, a move that risks pushing up their funding costs and forcing them to curb lending in a threat to the European economic growth. Companies with export earnings may

14

Banking events updatE June 2012

have to take on higher currency risk, following RBIs new rule on EEFC account balances. The Government expects exports to grow at 10-15% this financial year. It is lower than the nearly 21% growth achieved last fiscal. The Lok Sabha and Rajya Sabha will hold special sittings on Sunday to mark the 60th anniversary of the First Session of Indias Parliament. According to the RBI latest data, Foreign Direct Investment (FDI) in India spiked 34% to a record $46.8 billion in 2011-12. As on February 1,2012, out of 555 Central Sector Projects costing Rs.150 Crore and above, 233 projects were delayed with respect to their original date of completion. German Lenders use of cheap loans from the European Central Bank is under examination by the countrys Top Banking Supervisor, amid concerns the influx of funding may eventually create a new bubble. In a bid to check frauds, RBI asked the Urban Co-operative Banks (UCBs) to verify income tax returns and other documents before opening bank accounts of businessmen as part of the KYC exercise. SEBI has warned the United Stock Exchange (USE) to be cautious and perceptive while discharging its functions and regulatory duties. SEBI also directed the Exchange to undo the imbalance in favour of particular directors within two months. The Commerce secretary, Mr. Rahul Khullar, will take charge as Chairman of Telecom Regulatory Authority of India ( TRAI) The Finance ministry has withdrawn its proposal to bring LIC under the Minimum Alternative Tax (MAT) regime. According to a survey by Earnst & Young (E&Y), consumers prefer the brand of the service provider, customer service and convenience over price while buying General Insurance Products. Bihar has been rated as the Best State in implementing the First Phase of Centre-sponsored road projects in areas affected by the Left Wing Extremism . The UKs only Museum dedicated to the glories of the British Empire has closed down because of public antipathy towards the countrys colonial past. According to the list released by Forbes, the US Secretary of State Hillary Clinton has been named No.1 in the Worlds 20 Most Powerful Moms .The list also ranked

India-born Indira Nooyi at the Third Spot and UPA Chairperson Sonia Gandhi at No.6. Moodys Investor Services has downgraded the standalone bank financial strength rating of the Top Three Private Sector Banks-ICICI Bank, HDFC Bank and Axis Bank. The Global Rating Agency also downgraded the LICs foreign currency insurance financial strengths rating. According to the statement by the Spanish Government, Spains Top four banks will build a new 11.3 billion ($15 billion) cushion against bad loans. Net Direct Collections zoomed by a whopping 644% to Rs.14,812 Crore in April, against Rs.1,992 Crore in the year ago period, as refunds fell from Rs.25,099 Crore in April last to rs.9819 Crore. RBI has imposed a fine of Rs.5 Lakh on the National Urban Cooperative Bank for violation of its guidelines relating to sanctioning of loans. The Supreme Court has ruled that the Government is empowered to blacklist and debar companies from bidding without any statutory law. According to the Deloitte India Compensation Trends Survey, people working in the manufacturing, infrastructure and real estate sectors will get Highest Salary increments this year. These sectors have projected 15% salary increments for 2012-13. Asian Paints is the Worlds Costliest Paint Stock. The Comptroller and Auditor General (CAG) has pulled up Jammu and Kashmir Bank for sacrificing Rs.180.82 Crore under one-time settlement (OTS) during the five years ending March 2011.This is indicative of the fact that reduction in NPA was mainly through settlement under OTS rather than recovery of NPA through normal course. In a bid to make insurance a significant part of the ongoing financial inclusion initiatives in rural areas, IRDA has come up with the concept of an Everything Product to address several risks of typical household with a single premium. According to the Government sources, Rial-Rupee Payment arrangement has been put in place for bilateral trade between India and Iran.

Cheques are still the Preferred Mode for making high value transactions in the country. As per RBI Data, use of electronic payment systems gained traction in 2011-12, but the volume and value of transactions was far less than cheque payments. According to the Government, sugar export norms have been relaxed. The DGFT has raised the ceiling from 10000 tonne to 25000 tonne, equivalent to one vessel load for white sugar, in each registered contract. The DGFT has also extended the time limit for completing the export from 30 days to 60 days from the date of issuing the registration certificate. The Government has set an Export Target of 4350 billion for the 2012-13 financial year, up over 15% from $303 billion achieved in 2011-12 An expert Panel constituted by the Planning Commission has cautioned the Government over its burgeoning current account deficit, saying the country can not sustain a deficit in excess of 3% for the next five years. Further as per Panels report, India will be able to sustain a current account deficit of 3%, provided economic growth is at 9% India made a strong case for higher ratings from Global Agency, FITCH citing good foreign direct investment inflow and commitment to keep fiscal deficit under control. Spain officially slipped into recession in the first quarter, leaving the country threatened with a prolonged slump as the Euro Zone struggles to balance austerity with growth. The General Anti- Avoidance Rules (GAAR), as approved under the finance Act, would be part of the Direct taxes Code (DTC) Bill to be tabled in the Parliament. HSBC, Europes Biggest Bank, said that it cut costs by $2 billion after one year of a three-year turnaround plan, and is on target to meet its return on equity and other financial targets. HSBC has sold 28 businesses, taking some 15,000 staff off its payroll and releasing about $55 billion in riskweighted assets. The consumer price index climbed to double-digit level in April at 10.36%, fuelled by a sharp rise in vegetable, edible oil and milk prices. For the same month, the wholesale price index based inflation stood at 7.23%.

DIARY OF EVENTS

Compilation : SP Sharma & Sapandeep Toor

Source : Financial Newspapers, Financial News-Magazines & Financial and Institutional Web-sites

MOCK-TEST PAPER
RBI Latest Policy Based Questions 01 What is the extent of FDI that is permitted in leasing and finance NBFC activities: *a 100% b 74% c 51% d 26% 02 Banks are required to re-align their cash management in such a manner that ensures that cash receipts in the denominations of _______ should be put into re-circulation after the notes being machine processed for authenticity. a Rs.50 and above *b Rs.100 and above c Rs.500 and above d Rs.1000 and above 03 The banks are required to use machines for processing of bank notes for authenticity, in all bank branches with average daily cash receipt of ___ . a Rs.10 lac and above b Rs.20 lac and above *c Rs.50 lac and above d Rs.1 cr and above 04 FCNR(B) funds representing deposit liabilities may be utilised for making loans to resident constituents for meeting (1) their foreign exchange requirements (2) for the rupee working capital/capital expenditure needs of exporters / corporates who have a natural hedge or a risk management policy for managing the exchange risk (3) for term loans up to 5 year repayment. a 1 to 3 all *b 1 and 2 only c 2 and 3 only d 1 and 3 only 05 As per RBI policy, the intra-day open position / daylight limit of the Authorised Dealers is ____ the Net Overnight Open Position Limit available to ADs or the existing Intra-day open position limit as approved by the Reserve Bank, whichever is higher, for positions involving Rupee as one of the currencies. a equal to b two times c 3 times *d 5 times 06 Under the scheme Exchange Earners Foreign Currency (EEFC) deposit accounts, the exchange earners can retain ____ of the forex earned while the balance is to be surrendered for conversion to rupee balances as per RBIs policy dated May 10, 2012 : a 100% b 75%

*c 50% d 25% 07 EEFC account holders can access the forex market for purchasing foreign exchange only after utilising fully the available balances in the EEFC accounts. a any time they need foreign exchange *b after they utilise 100% of the available balance in the EEFC account c after they utilise 75% of the available balance in the EEFC account d after they utilise 50% of the available balance in the EEFC account 08 As per RBI policy, the loan accounts can be taken over by banks from other banks: a after obtaining market report about the borrower *b after obtaining credit information from the transferor bank c after obtaining undertaking from the borrower about conduct of account with the transferor bank d all the above 09 Which of the following is not a credit rating agency working in India: a CRISIL *b CIBIL c Brickwork d CARE 10 Which of the following is not a credit information company working in India: a Experian b Equifax c High Mark *d Fitch 11 Which of the following banking group implements the Kissan Credit Card Scheme: a Public sector banks, private bank, RRBs, cooperative banks b Public sector banks, private bank, RRBs, Foreign banks c Public sector banks, private bank and RRBs *d Public sector banks, RRBs, cooperatives 12 Which of the following credit requirement of farmer is covered under the KCC scheme (1) cultivation of crops (2) post-harvest expenses (3) produce marketing loan (4) consumption requirements (5) working capital requirements (6) investment credit requirements a 1 to 4 only b 1 to 5 only *c 1 to 6 only d 1, 2, 4,6 only 13 Which farmer group is eligible for KCC: a All Farmers Individuals / Joint

b c *d 14

*a

15 a *b c d 16 a *b c d 17 a b c *d 18 a b *c d 19

Banking events updatE June 2012 15 borrowers who are owner cultivators Tenant Farmers, Oral Lessees & Share Croppers SHGs or Joint Liability Groups of Farmers including tenant farmers, share croppers etc. all the above For short term credit needs in case of one crop in a year, the card limit for the first year takes into account the following : scale of finance x area under cultivation + 10% of limit for postharvest etc + 20% for repairs, insurance etc. scale of finance x area under cultivation + 20% of limit for postharvest etc + 10% for repairs, insurance etc. scale of finance x area under cultivation + 20% of limit for postharvest etc + 20% for repairs, insurance etc. scale of finance x area under cultivation + 10% of limit for postharvest etc + 10% for repairs, insurance etc. Scale of finance for KCC scheme is fixed by which of the following: State Level Bankers Committee District Technical Committee NABARD Bank concerned The KCC scheme limit for 2 nd and subsequent years is to be sanctioned on which of the following basis? 1st year limit + 10% of the limit for every successive year up to 3rd year 1st year limit + 10% of the limit for every successive year up to 5th year 1st year limit + 20% of the limit for every successive year up to 3rd year 1st year limit + 20% of the limit for every successive year up to 5th year The long term loan limit under KCC is to be sanctioned on the proposed investments during : first year first 2 years first 3 years 5 year period For marginal farmers, a flexi KCC limit is to be sanctioned within the following range: Rs.20000 to Rs.100000 Rs.20000 to Rs.50000 Rs.10000 to Rs.50000 Rs.10000 to Rs.100000 The drawing limit under KCC can be drawn using which of the following delivery channel (1) ATM or Debit card
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16 Banking events updatE June 2012 (2) Cheque facility (3) point of sale with input dealer (4) mobile based transfer transactions (5) branch of the bank *a 1 to 5 all b 2 and 5 only c 1, 2 and 5 only d 1, 2, 4 and 5 only 20 Validity period of the KCC is: a maximum 3 years b maximum 4 years c maximum 5 years *d at discretion of the bank 21 Which of the following statement regarding KCC repayment is not correct: a each withdrawal should be liquidated within a period of 12 months b no withdrawal should remain outstanding for more than 12 months *c debit balance in the account must be brought to zero at least once d term loan component is repayable over 5 years 22 Which of the following statement regarding collateral security in KCC is not correct: a no collateral security to be taken for short term loan up to Rs.1 lac b in case of tie-up for recovery, no collateral security for loan up to Rs.3 lac c collateral security above Rs.1 lac for short term loan and up to Rs.3 lac in case of tie-up for recovery, can be taken at discretion of the bank *d none of the above 23 The working group to facilitate issue of electronic Kissan credit cards was headed by Sh.___ : a V K Sharma *b T M Bhasin c T. Janardhan d M. Udeshi 24 As per RBI norms, RBI endeavors to create clearing infrastructure of local instrument at those place where the no. of banks is : a 2 or more b 3 or more c 4 or more *d 5 or more 25 As per RBI norms, at District HQs there should be a clearing infrastructure for local instrument where the no. of banks is : a 2 or more *b 3 or more c 4 or more d 5 or more 26 As per RBI policy on interest rates on FCNR-B deposits for a deposit of 2 years the interest rate ceiling is: a LIBOR + 125 basis points *b LIBOR + 200 basis points c LIBRO + 300 basis points d there is no ceiling. It is at discretion of the bank. 27 As per RBI policy on interest rates on FCNR-B deposits for a deposit of 3 years to 5 years, the interest rate ceiling

a b *c d 28 a b c *d 29 a b *c d 30 a b c *d 31 a c 32 a c 33

a *c 34

a b c *d 35

is: LIBOR + 125 basis points LIBOR + 200 basis points LIBRO + 300 basis points there is no ceiling. It is at discretion of the bank. Funds can be allowed to be transferred by banks from which of the following accounts to NRE rupee accounts: FCNR-B and EEFC account NRO and RFC-D account EEFC and NRO account NRO and FCNR-B account What is the maximum amount that can be transferred from NRO account to NRE account: USS 1 lac in a financial year USD 2 lac in a calendar year USD 1 million in a financial year there is no restriction Form A-2 for purchase of or remittance of foreign currency is to be used when the amount exceeds: up to USD 1000 up to USD 5000 up to USD 10000 up to USD 25000 Basel III guidelines will be implemented in India beginning from: 1.4.2013 *b 1.1.2013 1.4.2013 d 31.5.2013 Basel III guidelines will be implemented fully in India by: Mar 31, 2019 *b Mar 31, 2018 Mar 31, 2017 d Mar 31, 2016 Mr. X has been transferred to New Delhi from Jaipur and he wants to transfer his saving bank account to Delhi. Which of the following will be the best option (1) he should close his account and open a new account (2) he should continue the existing account at Jaipur branch and open a new account in New Delhi (3) he can submit all documents required for KYC purpose and get the account transferred (4) he should submit new proof of address to get the account transferred: 1 or 2 b only 3 only 4 d only 1 RBI has increased the loan amount per dwelling unit from ____ to _____ for the bank loans extended to nongovernmental agencies, approved by NHB for their refinance, for on-lending for the purpose of construction/ reconstruction of individual dwelling units or for slum clearance and rehabilitation of slum dwellers. Rs.1 lac to Rs.5 lac Rs.2 lac to Rs.5 lac Rs.2 lac to Rs.10 lac Rs.5 lac to Rs.10 lac Questions on CERSAI The CERSAI created under SARFAESI Act 2002, is an abbreviation for which

a *b c d 36

*a c d 37

a *c 38 *a b c d 39

a *b c d 40

of the following: Central Electronic Registry of Secured Asset and Reconstruction of Security Interest of India Central Electronic Registry of Securitization Asset Reconstruction and Security Interest of India Central Electronic Registration of Securitization Asset Reconstruction and Security Interest Compulsory Electronic Registry of Securitization Asset Reconstruction and Security Interest CERSAI has been created with the objective (1) to create a public data base about encumbrances created on properties to secure loans and advances given by the banks (2) to create a public data base about encumbrances created on properties to secure loans and advances given by the financial institutions (3) to create a public data base about transactions of securitization or asset reconstruction SARFAESI Act (4) to create a public data base about transactions of securitization or asset reconstruction undertaken as per SARFAESI Act. 1 to 4 all b 1 and 2 only 1 and 3 only 2 and 3 only As per Government of India notification dated 31st March 2011, it is mandatory to file the particulars for registration of mortgage by deposit of title deeds within _____ of creation of the mortgage in respect of all mortgages created on or after 31st March 2011. 7 days b 15 days 30 days d 45 days To file particulars for registration with CERSAI, which of the following forms is matched: Form-IV : Satisfaction of charges in respect of Securitization or Reconstruction of Financial Assets Form-I :Acquisition of Financial Assets for the purpose of Securitization and Reconstruction of Financial assets. Form-III :Satisfaction of charges in respect of charges registered before Form-II :Mortgage charges created by deposit of title deed and in modification of charges. The shareholding of CERSAI is held by (1) Central Govt. (2) Public Sector Banks (3) National Housing Bank (4) CIBIL 1 to 4 all 1 to 3 only 1 and 3 only 1 and 2 only Memory Recalled Questions Two cheques of Rs.10249 dated Jan 12 and Rs.12340 dated Jan 24, signed by a Director of XYZ Limited, the

a b *c d 41

a c d 42 a b *c d 43 a b c *d 44

a b *c d 45

authorised signatory have been presented for payment on Jan 27. Meanwhile bank has been informed by the company that concerned Director has expired on Jan 20. Both the cheques will be returned Both the cheques will be paid Cheque dated Jan 12 will be paid and cheque dated Jan 24 will be returned. Cheque dated Jan 12 will be returned and cheque dated Jan 24 will be paid. In the beginning of the financial year, the capital of a firm was Rs.24000. The firm earned a profit of Rs.4500 and paid tax at 20%. The partners also withdrawn Rs.1500. What is the closing balance in the capital account. Rs.24000 *b Rs.26100 Rs. 27000 inadequate information Business firms are sanctioned working capital limits to provide finance for which of the following: fixed assets, trade debtors, stocks, cash holding fixed assets, trade debtors, stocks, trade creditors pre-paid expenses, trade debtors, stocks, cash holding trade debtors, stocks, cash holding, trade creditors What is correct regarding repayment period the banks allow for loans under Swarn Jyanti Gram Swairozgar Yojna? 3 to 7 years 5 to 9 years 3, 5 and 7 years 5, 7 and 9 years X and Y have a joint locker in their name and Z is the nominee. In case Y dies, the access to the locker will be given by the bank to which of the following: X alone X and legal heirs of Y X and Z X, Z and legal heirs A and B have joint fixed deposit receipt where Z is the nominee. A has expired and the FDR is yet to mature. B approaches for payment. payment can be allowed to B

*b payment can be allowed to B jointly with legal heirs of A c payment can be allowed to B jointly with Z d payment can be allowed to B jointly with Z and legal heirs 46 Bank has obtained guarantee from Z to secure an overdraft allowed by the Bank to X. This guarantee will be classified as: a performance guarantee *b continuing guarantee c specific guarantee d financial guarantee 47 The cash transaction report (CTR) is submitted by banks on a monthly basis to ____ and covers the following transactions: a RBI, single cash transactions above Rs.10 lac or cash transactions with total amount of above Rs.10 lac in a month *b FIU-India, single cash transactions above Rs.10 lac or cash transactions with total amount of above Rs.10 lac in a month c FIU-India, cash transactions of Rs.10 lac or above d RBI, cash transactions of Rs.10 lac or above 48 Your branch has sanctioned a loan of Rs.15 lac under Agri Clinics and AgroBusiness Centres scheme. It will be classified in priority sector as: a direct agriculture advance *b indirect agriculture advance c direct MSE advance d indirect MSE advance 49 Which of the following loans is not to be classified as priority sector loan by domestic banks in India: a loan to professional and self-employed persons b loans for small business *c export credit d loans to small road and water transport operators 50 The insurance sector and capital market is regulated by which of the following: a SEBI b IRDA *c IRDA and SEBI respectively

Banking events updatE June 2012 17 d SEBI and IRDA respectively 51 The call money transactions are undertaken by banks to borrow money for: *a single day b 2 to 7 days c up to 14 days d 15 days or more 52 Olericulture relates to which of the following: a silk production b mushroom cultivation c honey bee keeping *d vegetable cultivation 53 X had fixed deposit of Rs.30000 with your bank, in which Z was nominated. The FDR which had fallen due for renewal has been renewed recently. But Z forgot to incorporate the details about nomination: a the existing nomination will lapse *b the existing nomination will continue to be valid c new nomination should be obtained as a matter of precaution d new nomination is mandatory to ensure that the account has nomination facility 54 A grace period of 3 days is allowed before payment, in respect of which of the following instruments: a demand bills and usance bills b demand promissory notes and usance promissory notes c demand promissory notes and demand bills *d usance promissory notes and usance bills of exchange 55 In the balance sheet of a bank, the letter of credit or bank guarantee is classified as: a demand liability *b contingent liability c time liability d Other liability 56 A demand loan has been sanctioned and disbursed by the bank on the basis of a demand promissory note. The limitation period, in this case would be: a 3 years from date of sanction *b 3 years from date of promissory note c 3 years from date of recall of the loan d 3 years from date of closing of financial

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18 Banking events updatE June 2012 year in which the demand loan is given 57 The balance sheet prepared by a firm represents which of the following: a flow of funds during the period of one year b profitability position of the firm during the year *c position of assets and liability as on a particular date d all the above 58 In which of the following securities / assets, mortgage cannot be created: a land and building b machinery embedded to ground *c heavy vehicles d ship 59 Which of the following are the owners of a public limited company: a directors *b shareholders c debenture holder d a and b together 60 Which of the following requires to be witnessed in case of nomination in a deposit account: a where minor is appointed as nominee *b where nomination is made by way of thumb impression c where nomination is made by say of signatures in vernacular d a and b both 61 Bank has given crop loan to a farmer who grows long duration crops. His accounts becomes NPA if the loan remains overdue for payment for a period of: a more than 90 days *b more than one crop season c more than two crop seasons d more than 180 days 62 What is the highest amount of denomination of bank note which RBI can print: a Rs.100 b Rs.500 c Rs.1000 *d Rs.10000 63 Cash reserve ratio is calculated by banks on the basis of which of the following: a demand and time deposits b demand and time liabilities c demand loans and term loans *d none of the above

70 CRR is fixed by RBI under provisions of which of the following: a Section 24, Banking Regulations Act b Section 24, Reserve Bank of India Act *c Section 42, Reserve Bank of India Act d Section 42, Banking Regulations Act 71 The maximum amount of guarantee cover is ___ under CGT-MSE scheme for loans to Women Enterprises and loans in North Eastern States: a Rs.50 lac *b Rs.65 lac c Rs.62.50 d Rs.60.00 72 Recently, bank rate has been increased by RBI substantially, with a view to : a make the cost of deposit high b make the cost of lending high *c align with the marginal standing facility rate d align with the repo rate 73 What is the objective of know your customer guidelines of RBI (1) to prevent frauds taking place in banks (2) to prevent use of banks for money laundering purposes (3) to detect fraudulent and criminal activities of customers : a 1 to 3 all b only 1 *c only 2 d only 3 74 A bank draft of Rs.20000 or above can be issued by banks only with the following features (1) it should be generally crossed (2) it should be crossed as not-negotiable (3) it should be crossed as Account Payee only (4) it should be specially crossed. a 1 to 4 all b only 2 *c only 3 d only 1and 2 75 XYZ Limited obtained the following facilities from the bank (1) against pledge of stocks (2) documentary bills purchase which include railway receipt. The company did not file the details of charge in time with Registrar of Company. Which of the following action would be more appropriate: *a no registration of charge is required in both the loans b charge registration is required for documentary bills purchase for which ROC permission is required. Name:____________________________________________________ c charge registration is required for documentary bills purchase for which Address:__________________________________________________ Company Law Board permission is _________________________________________________________ required. __________________________________________Pin ____________ d charge registration is required for documentary bills purchase for which ROC or Company Law Board permission EMail Id_____________________________Mobile:________________ is required. DraftNo___________Date_________drawn on___________Bank, for Rs______fvg 76 The loan system of credit delivery is Infotech and Financial Services. PERIOD from ________ to________ applicable in those cases where: ( Old Subscn No. _______ ) a amount of fund based loans is Rs.10 cr b the amount of fund based and non-

64 Bank has decided to grant loans under PMEGP scheme. The project cost can be: a Rs.10 lac in case of manufacturing and Rs.25 lac in business services *b Rs.25 lac in case of manufacturing and Rs.10 lac in business services c Rs.25 lac in case of manufacturing and Rs.25 lac in business services d Rs.10 lac in case of manufacturing and Rs.10 lac in business services 65 A loan of Rs.40 lac has been sanctioned by the bank in a North East State, by obtaining guarantee from CGT-MSE. What is the rate at which guarantee fee would be paid. a 1.5% of the sanctioned amount b 1% of the sanctioned amount *c 0.75% of the sanctioned amount d 0.5% of the outstanding amount 66 What is the maximum time limit during which the loan application of Rs.2 lac is to be disposed off by the bank: a within 2 weeks *b within 4 weeks c within 8-9 weeks d at discretion of the bank 67 In case of an advances granted under Agri Clinics and Agro Business Centre, what is the amount of loan, where collateral security is exempted: a up to Rs.1 lac b up to Rs.2 lac *c up to Rs.5 lac d up to Rs.10 lac 68 What is the minimum amount up to which the CRR balance should be maintained by a bank on a daily basis: a 5% of net demand and time liabilities b 50% of the average fortnightly balance *c 70% of the average fortnightly balance d 80% of the average fortnightly balance 69 Interest subvention is available on short term crop loan up to Rs._____ at _____ from Central Govt. provided rate of interest charged from borrowing farmer is ____: *a Rs.3 lac, 2%, 7% b Rs.3 lac, 3%, 7% c Rs.3 lac, 2%, 4% d Rs.3 lac, 3%, 4%

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Banking events updatE June 2012 19

c *d 77

*a b c d 78

a *b c d 79

a *b c d 80 a b c *d 81

a b *c d 82 a c d 83 *a c 84 a b c

*d no time limit is fixed fund based loans is Rs.10 cr the amount of fund based working capital 85 In which of the following cases, the letter of administration is required limits is Rs.10 cr instead of succession certificate: the amount of fund based working capital limits is Rs.10 cr from the banking system a safe deposit of articles and deposit account If a loan is given under a consortium arrangement and there is possibility of b locker and deposit account this loan becoming sub-standard account *c locker and safe custody of articles account due to economic down turn, which of the following option would be best d deposit account, locker and safe custody of articles account suited: 86 The address verification of the new to restructure the loan under CDR customer can be done on the basis of to reschedule the loan through BIFR which set of documents out of the to recall the loan following: to file suit for recovery Banks obtain Articles of Association from a PAN card, bank account statement, letter from recognized public authority, the companies while allowing loans to ration card them. Which of the following aspect is *b telephone bill, voter I-Card, letter from verified from this document: recognized public authority, ration card borrowing powers of the company telephone bill, bank account statement, borrowing powers of the Board of c letter from recognized public authority, Directors ration card activities which the company can carry so that loans do not become ultra-vires d telephone bill, bank account statement, identity card, ration card all the above Which of the following is the monitoring 87 The system of concurrent audit was introduced on the recommendations of agency for subsidy and other matters in which of the following committee: case of loans under Prime Ministers Employment Generation Program a Narasimham Committee *b Ghosh Committee (PMEGP) : c Saraf Committee financing banks Khadi and Village Industries Commission d Rangarajan Committee 88 A customer undertakes a large amount District PMRY Task Force cash transaction through his account. State Level Bankers Committee Inspite of enquiring from him, he does Which of the following is not covered not provide the details. under lending to sensitive sector: a It will be reported to local police loans against essential commodities b it will be reported to RBI loans against real estate *c it will be reported to FIU-India capital market exposure d it is personal issue for the customer. none of the above No reporting is required Lending for film production is considered to be carrying higher risk due to which 89 Which of the following is covered in the implied authority of a partner: of the following reasons (find the most a to give mandate or power of attorney appropriate): for the business of the firm there is no collateral security b to refer a dispute case to arbitration tangible assets are not created there is higher degree of uncertainty *c to sign debt acknowledgement letter d to undertake additional liability about success of the project 90 A minor knew before his majority that all the above he was admitted to a partnership firm Network of networks is known as: but he remains silent for one year after CBS *b internet majority. What is the nature of his face book liability in the partnership? computer clouding Which of the following is not provided in *a he is liable like other partners from date of his admission for benefits a biometric card: b he is liable from date of attaining fire wall b eye retina majority finger prints d hand geometry he is not liable as he has not given his What is the time limit to get a will c consent registered? d his liability is to the extent of his share 10 days from date of execution in the firm 21 days from date of execution 91 What is the target for micro enterprises 30 days from date of execution

a b *c d 92 a b *c d 93 a b *c d 94

*a b

c d 95 a b c *d
01 06 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91

lending within MSE sector for the micro enterprises with investment in plant and machinery up to Rs.5 lac and in equipment up to Rs.2 lac: 40% of priority sector loans 20% of priority sector loans 40% of MSE loans 60% of MSE Loans Which of the following accounts is covered in the low risk category of customers: a public limited company a high net worth individual a salaried employee a non-resident Indian The DRI lending target for domestic banks is 1% of which of the following: projected loan outstanding of the bank for the current year adjusted net bank credit of the bank for the previous year total outstanding credit of the previous year adjusted net bank credit of the bank for the current year If the account number, to which an amount is to be credited, has been conveyed incorrectly in an RTGS transaction, who will be responsible: customer, if he has conveyed the incorrect details customer, irrespective of the fact whether he has conveyed the correct details or not, if indemnity has been obtained concerned bank in all circumstances the settlement authority Which of the following is not a form of post-shipment advance: purchase or discounting of postshipment bills advance against collection of postshipment bills advance against duty draw back claims none of the above
Answers
a c d b c b b a b b a b b b b d c b c 02 07 12 17 22 27 32 37 42 47 52 57 62 67 72 77 82 87 92 b b c d d c b c c b d c d c c a b b c 03 08 13 18 23 28 33 38 43 48 53 58 63 68 73 78 83 88 93 c b d c b d c a d b b c d c c b a c c 04 09 14 19 24 29 34 39 44 49 54 59 64 69 74 79 84 89 94 b b a a d c d b c c d b b a c b d c a 05 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 d d b d b d b c b c b b c c a d c a d

Registration RNI No. 67802/98

20 Banking events updatE June 2012

Postal Regn No.CHD / (0001) 2012-14

Licensed to be Post Without Prepayment at BPO Centre, PO Sector 17, Chandigarh

Central Registry (CERSAI) under SARFAESI Act 2002

Govt. of India established the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), a Govt. Company, U/S 25 of Companies Act, 1956 on Mar 31, 2011 to operate/maintain Central Registry functions as per SARFAESI Act 2002 under the superintendence and direction of Central Registrar. The majority shareholding (51%) is with Central Govt., Public Sector Banks and National Housing Bank. Type of transactions - It registers transactions relating to security interest over property, transactions of securitization and asset reconstruction. With registration of these transactions, a public data base will be created about encumbrances created on properties to secure loans and advances given by the banks and FIs, as also transactions of securitization or asset reconstruction undertaken pursuant to the provisions of the SARFAESI Act. The following transactions are not covered : (1) Securitization or asset reconstruction done outside the provisions of the SARFAESI Act ; or (2) Security interest created in favour of any lender not included in the definition of bank or FI as per SARFAESI Act. Benefits : A central database of security interests created over property and assignment of such security interest by way of securitisation or asset reconstruction, would make the secured lending activity in the financial market safer for the lenders. This would enthuse the secured creditors to provide credit to the productive sectors to help sustain the growth momentum of the Indian economy. Who is covered : The filing of details of transactions for registration is mandatory and is in the nature of a statutory requirement. The following categories of secured creditors are to file the details: (1) Banks (2) Financial Institutions (3) Debenture trustees appointed by any bank or FIs (4) Securitization Company or Reconstruction Company (5) Any other trustee holding securities on behalf of a bank of FI. Failure to complete the filing in time results in a default on the part of the Bank, which may result in penalties and reputation risk. Time limit and mandatory requirement : The details are to be filed within 30 days of creation of the mortgage for mortgages created on or after 31st March 2011. The right to enforce security U/S 13 of SARFAESI Act is not linked to the registration with the Central Registry and such enforcement can be done even if there is no registration with the Central Registry. The process of registration of transactions of creation of security interest, securitization and asset reconstruction is carried out through the www.cersai.org.in of the Central Registry. Search of records: The records maintained by the Central Registry are available for search by any lender or any other person. The registration under this Act is additional or supplemental and does not change or affect the requirement of registration of transactions under Companies Act or Indian Registration Act. Forms and fees: These have been prescribed by Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) Rules, 2011, notified on 31st March, 2011.

DATA COLUMN
Business of Banks
(Rs.in cr) Aggregate deposits Cash in hand/RBI Investments Bank Credit: -Food -Non-Food Cash-Deposit Ratio Investment-Deposit Credit-Deposit Mar25'11 5204703 349323 1500039 3938659 64283 3874376 6.71 28.82 75.68 May04'12 6060430 327380 1841270 4644070 98890 4545190 5.40 30.38 76.63 May04'12 7547210 1071510 681290 5792710 1710 2461620 4984560 1587230

Money Stock

(Rs.in Cr) Mar31'12 M3 (Out of which) 7344070 (a) Currency with public 1026600 (b) Demand deposits-Banks 700210 (c) Time Deposits - Banks 5614200 (d) Other deposits with RBI 3060 (a) Net Bank credit to Govt 2360780 (b) Bank credit to Comrcl sector 4950280 (c) Net Forex assets of Banks 1523670 Bank rate Statutory Liqdity Ratio Cash Reserve Ratio Base Rate 10.5 Reverse Repo Rate Repo Rate MSF Rate Federal Reserve(US) rate: Bank of England Rate : European Comm. Bank

Sources of Money Supply

Important Banking Indicators

09.00% (17.04.2012) 24.00% (18.12.2010) 04.75% (12.03.2012) - 11.0% (Leading banks) 07.00% (17.04.2012) 08.00% (17.04.2012) 09.00% (17.04.2012) 1.00% 0.50% 1.25% A year back 7.50 44.90 18322 5878 303506

Capital & Money Market Indicators

Parameter end-April 12 Call rates (percent) 6.10 Dollar-spot TT (Rs.) 50.54 BSE - Sensex (points) 17052 NSE - Nifty(S&P CNX) 5184 Foreign reserves(Million $) 290001

INDIAN ECONOMY-IMPORTANT PARAMETERS

RBI's growth estimate for 2012-13 : 7.3% GDP growth-2010-11 (revised estimate) : 8.4% GDP at factor cost 2012-13 (cr) : 10159884 Share of service sector in GDP : 64.5% Share of manufacturing sector in GDP : 18.2% Share of agriculture sector in GDP : 17.3% Current Inflation Rate (Wholesale) - Jan : 8.40% Money Supply (M3) expansion Mar12 : 14.3% Exports during 2010-11 : 291.3 bn Imports during (2010-11) : 347.4 Bn Export target for 2011-12 (in $) : 300 bn India's share in world merchandise export : 1.45% Food grain production (2007-08) -Estimate : 227.3 India's currency rating (S&P) : BB Postv India's external debt (Jun 2011) US $ : 317 Bn Fiscal Deficit Target (2012-13) 5.1% of GDP : 513590 cr Revenue Deficit Target (2012-13) 3.4.% of GDP : 350424 cr Tax-GDP ratio (2008-09) : 11.2% Apr-Mar 2012:Export 304 bn Imports : 488.6 bn Poverty line ratio (2004-05) : 27.5% Per capita Income 2010-11 (Rs.) : 53331 Indian economy's ranking in world in PPP : 3rd Indian economy's ranking in world in value: 10th

Transaction Form No. Fee Creation/modification of Security Interest secured creditors FORM I ** **Rs.500 for creation and for any Modification of Security interest in favour of a secured creditor for a loan above Rs.5 lakh. For a loan below Rs.5 lakh, the fee would be Rs.250 for both creation and modification of security interest. Satisfaction of any existing Security Interest FORM II Rs.250 Securitisation or reconstruction of financial assets FORM III Rs.1000 Satisfaction of securitisation or reconstruction transactions FORM IV Rs.250 Application for information recorded / maintained in the Register by any person Rs.50 Any application for condonation of delay up to 30 days * *Rs.2500 for creation of security interest for a loan up to Rs.5 lakh and Rs.5000 in all other cases.

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