PREPARATION FOR ALL INDIA SELECTION EXAMS

1. Important provisions of the RBI ACT- 1934

Section -22 : sole right to issue bank notes.
Section- 31 : Prohibits issue of bearer bills of exchange, promissory notes
payable to bearer.
Section 42(1) : Cash reserve ratio (CRR)
2. Important provisions of the Banking Regulation Act- 1949
Section - 11 : paid up Capital and Reserves :
For domestic banks: 5 lacs and for foreign banks 15 lacs in case of
banking business at Mumbai/ Calcutta or both
Section 20 : Restriction on advance against own shares
Section- 21 (A): Interest charged by the banks can not scrutinise by the
court.
Section 23 : Restriction on opening of new branch, extn. Counter etc.
except for one month.
Section 24 : Maintenance of SLR
Section 26 : Return of unclaimed Deposit .
Section 45(Y) : Preservation of the bank records.
Section 45 Z : Returns of paid instruments to customer
Section 45 ZA : Nomination in Deposit accounts
Section 45 ZC : Nomination in safe custody accounts
Section 45 ZE : Nomination in lockers
Section 47-A : Violation of KYC: RBI can impose penalty on banks for
violation of KYC norms.
3.Negotiable Instruments Act- 1881
Section -10 : Payment in Due course
Section -18: Diff.in word and figures for the amount mentioned, the
amount in words will be treated as the amount ordered by the drawer to
pay.
Section-22: Three days grace period for calculating maturity date of
usance bills.
Section-26: Minor can draw, indorse, and accept the negotiable
instrument so as to binding for all except himself.
Section-85(A): Protection to the paying banker in case of banks draft.
Section-85(1): Protection to the paying banker in case of an order
cheque which is properly endorsed by payee or agent.

Section-85(2): Protection to paying banker in case of a bearer cheque.

Section-89: Protection to the paying banker in case of materially altered
cheque but does appears to have been altered.
Section -99 : Noting.
Section-100: Protesting.
Section-128: Protection against payment in due course of crossed
cheque.
Section-131: Collecting bankers protection in respect of crossed cheque.
Section-138: Dishonour of cheque for insufficiency etc. of funds in the
account.
Negotiable Instruments:1] Bills of Exchange 2] Promissory notes 3] Cheques.
Negotiable instruments by Customs and Usages:1] Pay Order/Bankers Cheque 2] Govt. Promissory Notes 3] Certificate of
Deposit
4] Commercial Papers 5] Treasury Bills 6] Hundies
Following negotiable instruments are also treated as Documents to the title
to goods
1] Bill of Lading 2] Railway Receipts 3] Dock Warrants 4] Warehouse
Receipts 5] Delivery orders 6] GRs issued by Transport Operators approved
by IBA.
Holder: - Consideration and Actual possession is not essential and
defective title will affect the instruments.
Holder in due course:- Consideration and actual possession is essential
and defective title will not effect the instruments.

Bank and Customer Relationship [important]

NO TYPE OF TRANSACTION

BANK

CUSTOMER

Debtor

Creditor

Creditor

Debtor

Agent

Principal

Bailee
Lessor,Landlord,
Licensor
Mortgagee
Pledge
Hypothicatee

Bailor
Lessee,Tenant,
Licensee.
Mortgagor
Pledgor
Hypothecator

4
5

Deposit a/c and Credit balance in

CC/OD
Loan a/c and Debit balance in
CC/OD
Collection
of
cheques,TT,MT,Standing
Instructions,
sale/purchase
of
securities,
Maintenance of currency chest
Safe custody articles
Leasing of Lockers

6
7
8

Mortgage of immovable property

Pledge of securities/ Shares
Hypothecation of articles

2
3

Duties of banks
a. Duty of secrecy: Section 13 of Banking Companies Acquisitions &
Transfer of Property Act 1970.
b. Duty to honour the Cheque: Section 31 of N.I.Act.
c. Duty to supply periodical Statement of accounts.
d. Duty to collect payments.
Rights of the Banks.
a. Right of General Lien, Set -Off, Appropriation
b. Right to act according to the mandate given by the customer.
c. Under Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act 2002 [SARFESI ACT -2002] banks
can exercise the right of privat e sales.
Disclosure of payments
a.
b.
c.
d.
e.
f.

As per existing practice amongst the banks.

To safeguard Banks own interest
Duty to disclose information under law
Disclosure in public interest
Disclosing under instructions by the customers
Disclosing to regulatory bodies

Types of Endorsements:1) Blank Endorsements: section 16(1) it means endorser only signs his
name with adding any words or directions this endorsement makes
the instrument payable to bearer.
2) Endorsement in Full: - The endorser added the name of endorsee
specifically.
3) Conditional Endorsement: Here the endorser puts some conditions
for endorsee Here the binding of conditions is between endorsee and
endorser only.
3) San recourse Endorsement: - Endorser added the words without
recourse to me.
4) Facultative Endorsement: - Where an endorser waives the condition
of notice of dishonour.
5) Endorsement on Bearer Cheque: - The endorsement on bearer
cheque is meaning less as the cheque once bearer is always bear.
Crossing:General Crossing (Sec.123): Two parallel transverse lines on the face of
instruments with or without word Not negotiable. It is direction to the
paying bank that do not pay the cheque across the counter.
Special Crossing (Sec.124): In addition of general crossing the cheque
bears the name of collecting bank either with or without the words Not
negotiable.
Collection of cheques:Section 131: a banker who has in good faith and without negligence
received payment for a customer of a cheque (not available for B/E and
P/N) crossed generally or specially. The present section gives protection
provided following conditions are fulfilled
a) The bank must have acted in good faith and without negligence.
b) Bank has received the payment as an agent for collection.
c) Bank has collected the cheque in the duly introduced account of
customer only.
d) The cheque collected must be crossed.
Payment of cheques:Liability of drawee (paying banker): It is obligation of the banker to
honour the cheques of a customer provided there is sufficient balance

and the cheque is otherwise in order. Section 31 of NI act provides

that The Drawee of a cheque:
a)
b)
c)
d)

Must have sufficient funds in the account.

Properly applicable to the payment of such cheque.
Must pay the cheque when duly required to do so.
In default of such payment, must compensate the drawer for any
loss or damage.

Protection for paying banker in case of cheque:Regularity of endorsement Section 85(1): Paying bankers liability is to
ensure the regularity of the endorsement and is not concerned with
genuineness of endorsement. The genuineness of endorsement is the
liability of collecting banker. Therefore, protection is available to the
paying banker in case of forged endorsements.
Payment in due course (Section-10):a)
b)
c)
d)

In accordance with the apparent tenor of t he instrument.

In good faith and without negligence.
To the person in possession of the instrument.
Under the circumstances which do not afford a reasonable ground
for believing that he is not entitled to receive the payment of the
amount mentioned therein.

When bank should not pay:a) The death of the drawer in case of individuals account terminates
the contractual relationship.
b) Insane customers: in case of insanity.
c) Insolvent drawers: The bank should stop the operation of such
account as if drawer adjudged insolvent and balance in the
account vested with official receiver/assignee.
d) Countermanded by drawer: on receipt of valid stop payment
instruction by the drawer.
e) Others: when a cheque is post dated, with insufficient balance in
the account, cheque is of doubtful legality, or cheque is irregular,
ambiguous, materially altered or stale etc.
Dishonour of cheques (Sec. 138-147):The payee or holder in due course should give notice to drawer within 30
days of return of cheque with the reason Insufficient balance and

demanding payment within 15 days of his receiving information of

dishonour. Drawee can make payment within 15 days of the receipt of
notice and only if he fails to do so prosecution could take place. The
complaint is to be made with in one month of the cause of action arising
that is expiry of the notice period.
Punishments:
a) Summary proceedings: fine up to Rs. 5000/- and imprisonment
up to one year or both.
b) Regular proceedings: fine up to the double the amount of
cheque or imprisonment up t o 2 years or both.
Hindu undivided family (HUF):a) Hindu undivided family or HUF is not based on any act but the share
in ancestral property is decided on the basis of Hindu succession
Act- 1956.
b) The HUF account is managed by the eldest member of the family
called as KARTA. Other members are co-parceners by birth or
adoption including minor members. There are no restrictions on the
number of co-parceners. One co-parcener is not an agent of other
co-parcener.
c) Power of Karta:- as per law, karta has powers to incur debt, execute
the documents, pledge the securities, on behalf of the family
business, for that, consent of the co-parceners is not required.
Kartas liability is un-limited but co-parcener is liable to the extent of
their share in HUF property. However, if the documents are signed
by all the co-parceners, only then they are personally liable.
d) If karta stays abroad most of the time, he continues to be karta and
for operating the account he can give mandate to any one, may
be the outsider or any member of the family. A co-parcener can
not countermand the cheque unless the karta has delegated the
authority to operate the account. Further HUF can not become the
partner in any other partnership firm.

Some important points about Garnishee order and Attachment order:Particulars

Legal provision

Garnishee order

Civil
procedudre
code
sec.60
Order xxi, rule 46
Applicable
On clear balance available
amount
in the account at the time
of order received
Limitation period 12 years
Joint
account Not applicable
order in single
name

Attachment order
Related statutes such as
IT
Act, Sales tax act etc .
Applicable
on
subsequent balance.
30 years
Equal share depending
upon the number of
share holders

Trust accounts:a) In case of public trust, registration certificate of charity

commissioner is necessary and in case of private trust it is
optional.
b) If any one trustee dies the provisions of trust deed will
operate. If the sole trustee dies, further operation in the
account will be stopped and cheques already signed by him
should be paid.
c) Any trustee can give stop payment instructions including
those who is not authorised to operate the account.
d) Trustee can not delegate his powers unless it is provided in
trust deed.
e) Trustee can not borrow unless it is specifically mentioned in
the trust deed.
f) In case of death/insolvency/ insanity of the trustee, the
Cheques issued by him will be paid if otherwise in order.
Partnership firms:a) Partnership firms are governed by Indian partnership Act-1932.
b) Minor can be admitted to the benefits of partnership with the
consent of all the partners. He is not personally liable but his share
of property is liable.
c) Registration of partnership firms is done with Registrar of firms.
Banks normally do not grant any type of credit facility to the non-

d)
e)
f)
g)

h)

registrar firms as unregistered firms can not enforce any suit against
the third/ third parties.
Number of partners: mini- 02 and maxi- 10 in case of banking business
and 20 in case of other business. Maximum number of partners has
been specified in section 11 of companies act.
A partnership consisting of 20 partners plus two minors is a legal
association.
HUF cannot be a partner. However since the company has separate
legal entity, it can become the partner if permitted by Articles of
association.
Under section 19(1), the acts of a partner to carry on business of the
firm in a usual way, binds the firm and a partner is an agent of the firm
for the purpose of business of the firm. In order to bind the firm by his
acts, a partner must sign for and on behalf of the firm.
As per section 18 of Partnership act, every partner is the agent of firm
for the purpose of the business of the firm. Therefore, act of a partner is
known as the act of the firm. This is known as the implied authority of
the partner. This rule has certain exceptions.

Joint stock companies:Partnership

Mini.members
Two
Maxi. Members 10 banking
20 others
Directors
Not applicable

Pvt Ltd
Two
Fifty

Public Ltd.
Seven
No limit

Mini. 2
Mini. 3
Maxi. No limit Maxi. No limit

Some important features of a company:a) Memorandum of Association: is the constitution of the company
and it establishes the relationship of the company with the world.
b) Articles of Association: are bye- laws and internal rules and
regulations of the company.
c) Certificate of incorporation: issued by the Registrar of Companies,
under section 35 of cos act -1956. The legal existence of the
company begins from the date of issue of certificate.
d) Certificate of commencement of business: A public limited
company having a share capital and issuing a prospectus can not
commence the business until the registrar issues the certificate of
commencement of business.
e) Borrowing powers of the company: The board of directors of private
limited company has unlimited powers to borrow. However the

Board of Public limited company can borrow up to paid up capital

plus free reserves of the company. If they intent to borrow more
than that, general body resolution under sec. 293(1)(D) is required
to be passed.
f) Death of director: As the company has a separate entity, the death
of any director does not effect the operations of the account. Even
if cheque signed by the authorised director who has died, is
presented after death, the banker cannot return the cheque for
that reason.
g) Conversion: A cheque payable to the company should never be
deposited in the personal account of directors, as it would amount
to conversion under section 131 of the N.I. Act.
h) Section 125 of Companies Act: Provides that all charges created on
a companys assets except pledge, lien, and set-off, appropriation,
trust receipt have to be registered with the Registrar of Companies
with in 30 days of creation of the charge. Otherwise, the charge is
void.
Ombudsman:Provides independent, expeditious and inexpensive forum to
aggrieved bank customers. RBI has introduced this scheme under
powers granted under section 35-A of Banking Regulation Act.
a) Scope: complaints relating to deficiency in service in deposit,
ancillary/ advances area including fair practice code, credit card
etc. In loans non observance of RBI directives, delay in sanction or
disbursement, time schedule are included.
b) Pre-requisite: Customer should have complained to the concerned
bank first and wait for one month, complaint to Ombudsman can
be in writing or in electronic form.
c) Limitation and cause of action: before one year as from the reply
received from the concern bank or if no reply received from the
concern bank, then not later than one month and one year from
the date of representation to the bank.
d) Award: Ombudsman can give maximum award up to Rs. 10 lacs.
Binding on the bank if customer gives acceptance within 30 days
from the receipt. Compliance by bank with in one month of receipt
of acceptance.
e) Appeal: Any party can file appeal within 30 days on receiving
award or the Ombudsman rejecting his complaint to Appellate
Authority. If the appeal is by the bank, it should be made with
approval of CMD of ED only.

Know your customer [KYC]:KYC guidelines issued by RBI under section 35-A of BR Act to check
money laundering that is using banking channel for conversion of
illegal funds into legal funds and financial frauds. It is recommended
by Financial Action Task Force (FATF) on Anti Money Laundering (AML)
standards and Combating Financing of Terrorism.
a) Banks are required to verify the identity and address of the
customers
before
opening
of
accounts
to
avoid
fictitious/benami transactions.
b) Categorization of customers: Customers to be categorized in to
low, medium, and high risk keeping in view risk perception,
volume/ turnover, social and financial status etc.
c) Know your transactions: Banks to monitor and keep record of
high volume cash transactions of Rs. 10 lacs above and send
report of cash transactions of Rs. 10 lacs and above to Financial
Intelligence Unit (FIU) at Finance ministry. Cash transaction
report (CTR) for each month to be sent by 15 th of close of the
month.
d) Suspicious transaction report: to be submitted with in 7 days of
close of t he month.
e) Maintenance of records: Banks to maintain records relating to
suspicious transactions for a period of 10 years.
f) Documents for customer identity: Passport, PAN Card, voter
card, Driving license, Identity card to banks satisfaction, letter
from recognized public authority.
g) Documents for address: Telephone bill, Bank account
statement, letter from recognized public authority, electricity bill,
ration card, letter from employer.
h) KYC for lower income group: Simplified criteria of identification
and introduction be followed in small deposit accounts where
the balance shall not exceed Rs. 50,000/- and transactions in a
year does not exceed Rs. 2 lacs. In these cases, account can be
introduced by person having satisfactory account for 6 months
and self certification of address along with photograph. In our
bank we call such account as CENT BACHAT KHATA.
Consumer Protection Act:Consumer protection act is three tiered quasi judicial mechanism
implemented w.e.f. 15th April 1987 and is applicable through out the
country except Jammu and Kashmir.

a) Remedy: Available to consumer for deficiency in service for

consideration.
b) Limitation: 2 years from the cause of action.
c) Pecuniary Jurisdiction:
Dist. Forum up to Rs.20 lacs. State
Commission more than 20 lacs and up to 100 lacs. National
Commission more than 100 lacs.
d) Relief: Removal of defect, replacement, refund, award of
compensation.
e) Penalty for frivolous (false) complaint:- Imprisonment 1 month to 3
years and fine Rs. 2000/- to Rs. 10,000/-.
f) Appeal: period for appeal 30 days.
i) Appeal against District forum to State commission deposit of
50% of amount of Rs. 25,000/- which ever is less.
ii) Against State Commission to National Commission Rs. 35,000/III) Against National Commission to Supreme Court Rs. 50,000/-.
Banking cash transaction tax:Provision for deduction of tax at source is as per Finance Act 2005.
W.e.f. June 1 2005. Applicability through out the country except
Jammu and Kashmir. It is applicable to all types of account except
savings account. Amount of withdrawal for individual (single/joint) and
HUF above Rs.50, 000/- (from 1/06/07) and other than individual and
HUF above Rs. 1 lac. Rate of Tax is 0.1% and no surcharge in case of
company and firm up to Rs. 1 crore. Withdrawals by the banks for their
own transactions are exempted. Withdrawals from the different
accounts at the same branch or different branches, not to be
clubbed. Tax so deducted to be deposited within 15 days from close
of the month. Non deduction or Non-deposit of the tax will be
penalised for 100% of the amount + 1% per month interest.

Service Tax:Service tax applicable as per Finance Act 1995 w.e.f. 1 st July 1994. and
not applicable in Jammu and Kashmir. Responsibility of payment of
tax is that of service provider. Tax can be passed on to the ultimate
user as such it is indirect tax. Rate of tax is 12% + 3% education cess
(total: 12.36%). Tax is to be deposited by 5 th of the next month. Half
yearly return on Form ST -3 to be sent by 25 th of the next month after
close of half year.

TDS Provisions:Legal provisions: Section 194 of Income tax act.

Type of interest: On term deposits excluding RD.
Amount: Where interest paid/payable is above Rs. 10,000/-(w.e.f. 1st
June 2007) in financial year.
Tax rates: Residents - 10% + Surcharge (10.26%) Corporate 20%
(no surcharge) NRO- 30% (no surcharge).
Minors account should be clubbed with guardian. In case of joint
account deduction will be in the name of 1 st account holder.
TDS Certificate TDS certificate to be issued on Form No: 16-A within
one month from end of month during which deduction made, or within
30 days from the date of close of financial year.
Exemption from Deduction:- Declaration on form No: 15-G for Senior
citizen (Age 65 years and above) and 15-H for other individuals.
Payment to contractors:- Where amount of single payment exceeds
Rs.20,000/- or total amount exceeds Rs. 50,000/- during financial year.
Rent payments:- Where amount exceeds Rs. 1,20,000/- in a financial
year.
Professional fee:- Where amount exceeds Rs. 20,000/- in financial year.
Penalty:- Interest @ 1% pm., penalty equal to amount of tax,
imprisonment 3 months to 7 years.
Legal terminology for deceased customers:a) Will:- When a person dies after living a will, he is said to have died
testate. Will is legal declaration by testator in respect of his estate.
b) Probate:- It is certified copy of will issued by district courts under
section 289 of Indian succession Act.
c) Executor:- Person named in t he will of the deceased.
d) Letter of administration:- When a person dies intestate, court issues
letter of administration.
e) Administrator:- Person appointed by court to administrate the
estate of the deceased.
f) Succession certificate:- When a person dies intestate, on the
application of the legal hirers, court issues succession certificate
which applies to debts due to the deceased. (i.e. Deposits and
shares/ securities).

Procedure for the claim settlement of deceased customers account:a) In case of deceased accounts, the payment is to be made with in
15 days from date of receipt of complete papers.
b) Credit received after death (called pipe-line credit) can be
credited with permission of survivor, legal heirs or nominee only.
c) Pre-mature payment of t erm deposit can be allowed but no loan
can be allowed.
d) Interest in case of current account and savings account will be
paid as per savings bank rate from the date of death to the date of
payment after death.
e) Interest in case of term deposit:
a) if matured before death contracted rate till maturity and
there after savings bank rate.
b) If matured after death contracted rate till maturity and
there after FDR rate (Simple) for the period the deposit was
with bank.

Senior citizens savings scheme 2004:-

a) Operated:-Through post offices and banks maintaining PPF accounts.

b) Age: - 60 years and above. In case of VRS/Super Annuation 55 years
and above.
c) Joint account: - Allowed only with spouse. In case of joint account
the age of the 1st depositor/ applicant will be the factor to decide
the eligibility. There is no age bar or limit for the second applicant or
joint holder.
d) Nomination: - Nomination is available. NRIs can be the nominee only
of non- repatriation basis.
e) Investment: - Maximum Rs. 15 lacs. In multiples of Rs. 1000/f) Tenor: - 5 years and can be extended by 3 years.
g) Interest rate: - 9% p.a. on simple basis, but payment is on quarterly
basis.
h) TDS: - TDS is applicable. No loan is allowed on collateral security of
this deposit.
i) Premature closure: - With penalty after one year allowed. Penalty
1.5% for closure before 2 years and 1% after 2 years. Inter deposit
office transfers are allowed.

Deposit insurance:Extent of coverage: - Maximum 1 lac per depositor for principal and
interest
held
in
same
right
and
same
capacity.
Premium: - 10 paisa per Rs.100/- p.a. payable on half yearly basis in
advance within 2 months of beginning of the half year. Premium payable
on balance as on the last day of the prev ious half year.

Government business:Commission:a) Receipts: Rs.45/- per transaction.

b) Pension payment: Rs. 60/- per transaction.
c) Other payments: 9 paise per Rs. 100/-turnover (including PPF and sr.
citizen scheme )
Time period:a) T +3 in case of local transactions.
b) T + 5 in case of outstation transactions.

Priority sector advances:1. In 1985 Krishnaswamy committee recommended to achieve the

target of priority sector lending at 40 % by 1985. Sub-targets were
also specified for lending to Agriculture and the weaker sections
with in the Priority Sector.
2. In 2007 C.S.Murthy committee has recommended new priority
sector guidelines with effect from 30th April 2007.
3. Linkage of Targets:- The Priority sector targets are now linked to 40%
of ANBC or Credit equivalent of Off sheet balance exposure which
ever is higher.
4. ANBC = Net Bank credit + investment made by banks in non SLR
bonds held in HTM category.

TARGETS AND SUB TARGETS FOR PRIORITY SECTOR

DOMESTIC COMMERCIAL BANKS

Total
sector

FOREIGN
BANKS
priority 40% of adjusted net bank credit (ANBC) 32% of ANBC
or
or (CE-OBE)
Credit eq. amount of Off-balance sheet which ever is
(CE-OBE)
higher.
Exposure with ever is higher.

Total
agricultural
advances.

18% of ANBC or CE-OBE which ever is

higher. Indirect lending in excess of 4.5%
will not be reckoned as performance
under 18% targets.
Small
Advances to small enterprises sector will
enterprises
be
reckoned
in
computing
advances
performance under the overall priority
sector target of 40%
Micro
a) 40% total advances to small
enterprises
enterprises sector to mfg. enterprises
within
small with in investment in plant/machinery up
enterprises
to Rs. 5 lacs and service ent. With
sector.
investment in equip. up to 2 lacs.
Khadi
and All advances granted to units in the KVI
village
sector, irrespective of their size of
industries. (KVI) operations, location and amount of
original investment in plant and
machinery are eligible for classification
under priority sector.
Export credit
For domestic banks it is a Preferred
sector and not a part of priority sector.
Weaker section 10% of ANBC or 25% of total priority
sector advances.
Diff. rate of intt. 1% of total advances outstanding as at
the end of previous year. Out of that
mini. 2/3rd of DRI should go to rural and
semi-urban areas and 40% should be for
SC/ST.

No target.

10%

Same as for
domestic
banks.

No target.

12%
No target.
No target.

Chart showing bifurcation in small enterprises advances:

Small enterprises advance.
Manufacturing enterprises

service enterprises

Original investment in plant

Original cost of equipments
& machinery does not exceed
does not exceeds Rs. 2 crores.
Rs. 5 crores.
( 40 % of total advances to small enterprises will goes to..)
a) Original cost of investment in plant
And machinery is up to
Rs. 5 Lacs.

a) original cost of investment

in equipments is up to Rs. 2
Lacs.

( 20 % of total advances to small enterprises will goes to..)

b) Original cost of investment in
Plant and machinery is over
Rs. 5 lac and up to Rs. 25 lacs.

b) original cost of investment

in equipments is over Rs.
2 Lacs and up to Rs.10 lacs

Categories of priority sector:

1] Direct finance to agriculture:
a) SHORT TERM LOANS:-Direct finance to farmers:- short term loans
for raising crops that is for crop loans [NEED BASED]
In addition to farmers against pledge/hypothecation of agricultural
produce (including warehouse receipts) for a period not exceeding
12 months [ Rs.10 LACS]
b) MEDIUM TERM LOANS: For machinery and equipments, land
developing etc. [NEED BASED]
2] Indirect finance to agriculture:
a)Financing the distribution of fertilisers, pesticides, seeds etc.
[NEED BASED]
b) Loan granted for financing for distribution of inputs for the allied
activities such as cattle feed, poultry feed etc [Rs. 40 LACS]
c) Finance extended to dealers in drip irrigation, sprinkler irrigation,
agricultural machinery with a ceiling per dealer [Rs. 30 LACS]

3] Small enterprises:
For all types of small enterprises whether for manufacturing or for service
industries finance is granted [NEED BASED]
4] Retail traders:
a) Retail traders dealing in essential commodities (fair Price shops) and
consumer co-op. stores [ NEED BASED]
b) For private retail traders [Rs. 20 LACS]
5] Housing:
Construction of house irrespective of location [ Rs. 20 LACS]
For repairs of house at rural/ semi urban area [Rs. 1 LAC]
For repairs of house at urban/metro area
[Rs. 2 LACS]
6] Education loans:
In India
: Rs. 10 Lacs
In foreign countries : Rs. 20 lacs
7] Micro credit:
Directly or indirectly through SHG/JLG Rs. 50,000/- per borrower.
Advances to the Weaker section:
The weaker sections under priority sector shall include the following
a) Small and marginal farmers with land holding of 5 acres and less,
and landless labourers, tenant farmers and share croppers.
b) Artisans, village and cottage industries with individual credit limits
up to Rs. 50,000/-.
c) Beneficiaries of SGSY, SC/ST, DRI, SJSRY, SLRS, SHGs.
d) Loans to distressed poor to prepay their debit to informal sector,
against appropriate collateral or group securities.
Penalties for non- achievement of priority sector lending targets.
a) For Domestic banks having shortfall in lending to priority sector
target of 40% and / or agriculture target of 18% shall be allocated
amounts for contribution to RIDF with NABARD.
b) For Foreign banks having shortfall in lending to stipulated priority
sector advances targets to contribute SEDF of SIDBI.

Collateral security norms:

No margin & No collateral up to Rs.
50,000/No margin & No collateral up to Rs. 5
B) Agri clinic & Agri business
lacs.
No collateral
c) Small enterprises (SSI)
Up to Rs. 5 lacs.
i) Normal accounts.
ii) Good Track record units. Up to Rs. 25 lacs.
iii) A/cs covered under Up to Rs. 50 lacs.(fund based and non
fund based.
CGTMSE.
No collateral up to Rs.7.50 lacs.
d) Education loan
A) Agriculture

Hi tech agriculture concepts:1. Apiculture: Rearing of honey bees.

2. Aquaculture: Shrimp farming, fish production in artificial tanks/lakes.
3. Apriculture: Cultivation of mushroom.
4. Blue revolution: Pisciculture.
5. Floriculture: Flower production.
6. Green revolution: Targeted to increase agriculture production.
7. Operation flood (White revolution): Increase milk production.
8. Olericulture: Vegetable cultivation.
9. Mulberry: Associated with sericulture.
10. Pisciculture: Rearing/breeding of fish and fish farming.
11. Rainbow revolution: Connected with flowers.
12. Sericulture: Silk production.
13. Tissues culture: Aims at multiplication and improvement of plant
varieties.
14. Vermiculture: Rearing of earth worms.
15. Yellow revolution: Associated with oil seeds and pluses.
Government sponsored schemes:
1] Differential rate of interest (DRI) 1972.
a) Main objective: To assist poorest poor and to bring them above
poverty line.
b) Applicable: All over India.
c) Eligibility norms: Individuals whose family income not to exceed
Rs. 18,000/- p.a. in rural areas and Rs. 24,000/- p.a. in urban and
semi urban areas.

d) Purpose of loan: For productive activities, pursuing higher

education by indigent students, purchase of artificial limbs,
hearing aids, wheel chair by physically handicapped.
e) Quantum of loan: Maxi. Rs. 15,000/- as term loan or working
capital or both for productive purpose. For housing Rs. 20,000/f) Target: Mini. 40% to SC/ST and 2/3 rd to be routed through rural
and semi urban branches.
g) Classification: Weaker section of advances under priority sector.
h) Rate of interest: 4% p.a. simple rate of interest.
i) Security: Hypothecation of assets created out of bank loan. No
collateral security.
j) Repayment: Maxi. 5 years including grace period up to 2 years.
2] Prime minister Rozgar yojana (PMRY) - 2nd Oct. 1993.
a) Main objective: To provide employment for setting up of micro
enterprises by educated unemployed youth. All activities except
direct agriculture operations like raising crops, purchase of manures
etc can be financed.
b) Applicable: Both urban and rural areas all over the country.
c) Eligibility norms: Age: 18-35 years, for applicants in NE States, HP,
and Uttarkhand, Jammu and Kashmir 18-40 years. For SC/ST, EXServiceman physically handicapped and women in all states 18-45
years.
d) Educational qualification: Mini. 8th passed or ITI passed.
e) Income: Income of the beneficiary along with the spouse or the
income of parents of beneficiaries to exceed Rs. 1 lac p.a.
f) Residence: Permanent resident of the area for at least 3 years.
g) SHG under PMRY: SHG may consist of 5 -20 educated unemployed
youth undertaking common economic activity. There would not be
upper ceiling on the loan.
h) Implementing agencies: The district industry centres and
Directorate of industries.
i) Project cost: Business/Service sector Rs. 2 lacs and for industry sector
Rs. 5 lacs. Loan to be of composite nature. Rs. 10 lacs. If 2 of more
eligible persons join in a partnership. Assistance shall be limited to
individual admissibility.
j) Targets: SC/ST- 22.5%, OBC- 27%, Women entrepreneurs 30%.
k) Classification: Advances to SC/ST, Artisans village and cottage
industries up to Rs. 50,000/- only to be classified as weaker section.
l) Subsidy: 15% of project cost with a ceiling of Rs. 12,500/- in states
other than NE. For NE, HP, J & K etc. 15% of project cost with a
ceiling of Rs. 15,000/- for NE, HP, J & k etc. Subsidy for SHG has been

enhanced to Rs. 15,000/- to maxi. Rs. 1.25 lacs per SHG. Lock in
period is 3 years.
m) Repayment: 3 years to 7 years with moratorium of 6 to 18 months
where necessary.
3] Swarna Jayanti Gram Swarojgar Yojana 1st April 1999
a) Objective: To rise individuals/ groups of rural poor above poverty
line over a period of time. Scheme is funded by centre and states in
ratio 75: 25.
b) Applicable: In rural areas.
c) Eligibility norms: Rural poor identified through Below Poverty line
Census duly approved by gram sabha.
d) Implementing agencies: DRDA/Financial institutions/ PRI/ NGO.
e) Purpose of loan: Economically viable and productive, farm sector
and non- sector activities identified for each block.
f) Quantum of loan: Full amount as per unit cost prescribed by
NABARD.
g) Target: Women 40%, SC/ST 50% and Disabled 3%.
h) Classification: To be covered in weaker section under priority sector
advances.
i) Subsidy: Uniform @ 30% of project cost. Maxi. Rs. 7500/- SC/STs @
50% maxi. Rs. 10,000/- for group of Swarojgaries/ SHGs @ 50% maxi.
Rs. 1.25 lacs.
j) Margin: The subsidy may be treated as margin money.
k) Repayment: Mini. 5 years Maxi. 9 years.
4] Swarnajayanti Shahari Rozgar Yojana 01st Dec1997
a) Main objective: To provide gainful employment t o the urban poor
living below the urban poverty line, unemployed or under
employed.
b) Applicable: All urban and semi urban towns.
c) Eligibility norms: Unemployed youth below urban poverty line. Maxi.
Education up to 9 standard. No Mini. Qualification. No age limit is
prescribed under the scheme.
d) Quantum of loan: Project cost up to Rs. 50,000/- will be financed by
the bank. Amount of loan is 95% of project cost subject to ceiling of
Rs. 47,500/-.
e) Target: Women 30%, Disabled 3% , SC/ST proportionate to
strength.
f) Subsidy: Govt. will provide subsidy at 15% of the project cost subject
to maxi. Rs.7500/-. The subsidy is back ended and the lock in period

is 2 years. The borrower has to bring 5% of the project cost as

margin.
g) Repayment: 3 to 7 years with morat orium of 6 to 18 months where
necessary.
Agri-Clinics and Agri-Business centres:
a) Agri-Clinics and Agri- Business centres scheme has been formulated
by NABARD.
b) Graduates in agriculture or any subject allied to agriculture such as
Horticulture, Sericulture, Veterinary Science, Forestry, Dairy, Poultry
farming, and Fisheries etc are eligible.
c) An individual or a group of individuals (One of them can be a
management graduate out of five individuals) is eligible for availing
the loan.
d) The outer ceiling for the project cost is Rs. 10 lacs and for joint/group
projects, the ceiling is Rs. 50 lacs pro-rata.
e) Repayment will be in 5 10 years with moratorium of 2 years.
f) The NABARD provides 100% refinance. NABARD also provides
margin money up to 50% of margin required under soft loan
scheme.
g) Collateral security and margin requirement has been waived for
loans upto Rs. 5 lacs.
Credit gurantee scheme for micro and small enterprises:
a) CGTMSE introduced w.e.f. 1st June 2000 by Government of India
and SIDBI, with corpus of Rs. 2500 crores.
b) Eligible units: existing Micro Small Enterprises (Earlier SSI) including IT
units with credit facilities without any collateral security and or third
party guarantee.
c) Credit facilities: Units sanctioned fund based and non-fund based
upto Rs. 50 lacs.
d) Coverage: Not to exceed 75% of the amount of default, with
maximum of Rs. 37.50 lacs.
e) Guarantee fee: One time guarantee fee 1.5% of the facility
sanctioned as up-front.
f) Annual service fee: @ 0.75% on the amount of credit facility as on
31march each year with in 60 days.
g) Exceptions: For all units sanctioned credit facility upto Rs. 2 lacs,
Women entrepreneurs and units located in J & K, NE States
guarantee fees will be charged to the borrower is 0.25% only. The
balance 0.50% will be borne by the bank.

Education loan:
Based on the recommendation of R.J.Kamath committee. The scheme
aims at providing financial assistance to the poor, needy and meritorious
students to pursue higher/professional/technical education.
a) Course eligible: i) All kinds of education in India ii) studies abroad:
graduation, post - graduation courses conducted by CIMA London, CPA
in USA.
b) Quantum of studies: Studies in India Maxi. Rs. 10 lacs and Studies
abroad Rs. 20 lacs.
c) Margin: Up to Rs. 4 lacs: Nil above 4 lacs, studies in India 5% and studies
abroad 15%.
d) Security: No collateral security up to Rs. 7.50 lacs. Documents to be
executed by the students and parents/ guardians.
e) Rate of interest: Upto Rs. 4 lacs PLR and above Rs. 4 lacs PLR+1
f) Repayment: Course period + 1 year or 6 months after getting job which
ever is earlier. The loan to be repaid in 5 to 7 years after commencement
of repayment.
Gramodyog Rojgar Scheme: (KVIC Margin money scheme)
a) Objectives: To generate employment in rural area ( population
20,000)
b) Margin money subsidy: for General 25% for the project cost upto
Rs. 10 lacs and 10% for project cost above Rs.10 lacs upto Rs. 25
lacs. Maxi. Margin money is Rs. 4 lacs. For Weaker section 30% of
the project cost up to Rs. 10 lacs and above this amount upto Rs. 25
lacs it will be 10% of remaining cost of the project. Maxi. Margin
money will be granted is upto Rs. 4.50 lacs.
c) Eligibility: Individual entrepreneurs, self help groups, institutions, CoOp. societies, Trusts and public limited companies owned by state
and central government are eligible.
d) Contribution: 10% of the cost of project for general category and
5% in respect of beneficiaries belonging to SC/ST/OBC and Women
entrepreneurs.
e) Bank finance: 90% of the project cost for general category and
95% of the project cost for weaker section.
Kisan crdit card [KCC]:
KCC Scheme introduced in August 1998, to provide adequate and
timely credit for the comprehensive credit requirements of farmers
under single window. The credit facility extended will be in the nature

of term loan and revolving cash credit for agriculture and allied
activities for consumption, production, and investment.
Validity is for 5 years and amount is need based. Insurance is
automatic and in case of the accidental death or permanent disability
Rs. 50,000/- and for partial disability Rs. 25,000/-.
Premium is of Rs. 15/- per year and out of which Rs.10/- will be borne by
the bank and Rs. 5/- borne by the beneficiary.
Laghu Udyami Credit Card [LUCC]:
SIDBI has structured a Laghu Udyami Credit Card for small business,
retail traders, artisans, professionals, self- employed persons and small
industrial units.
Eligibility: existing customers will satisfactory track record with working
capital limits upto 10 lacs for last three years are eligible for the card.
Limit Rs. 10 lacs and validity 3 years.
Self help group [SHG]:
a) Objectives: To evolve a supplementary credit strategy for
reaching the rural poor and to encourage banking activities,
both thrift as well as credit.
b) Essential requirements: Group should have been in active
existence at least for a period of 6 months. The group may
be informal or formal [registered]. The group should have
successfully undertaken savings and credit operations from its
own resources for a period of six months.
c) Size: Preferably between 10 to 20 members.
d) Revolving fund: SHG can be sanctioned revolving fund where
there is bank linkage of at least for 6 months in the ratio 1:1 or
1:4.
e) Subsidy: Minimum Rs. 5,000/- and Maxi. 10,000/-. Being equal
to group corpus. Additional subsidy of Rs. 10,000/- is available
as 2nd dose for SHG showing promise.
f) Margin: Savings are considered as margin. No requirement of
collateral securities.
g) Repayment: 3 to 10 years.
h) Refinance: 100% refinance from NABARD.
Joint liability group [JLG]:
A Joint liability group [JLG] is an informal group for the purposes
of availing bank loan either singly or through the group
mechanism against a mutual guarantee.

a) Size: 4 to 10 individuals coming together.

b) Beneficiaries: Tenant farmers, share croppers, oral lessees,
farmers with small land holdings without proper land records.
c) Refinance: 100% from NABARD.
National equity fund [NEF]:
To provide equity support to entrepreneurs, both for setting up new
projects in tiny/small enterprises sector and for expansion and
modernization by existing units.
a) project cost: The project cost (including margin money and working
capital) should not exceed Rs. 50 lacs.
b) Promoters contribution: Minimum 10% of project cost.
c) Debt equity ratio: 65:35 or 1.857:1
d) Nature of assistance: Equity type assistance in the form of soft loan.
e) Amount: 25% of project cost or Rs. 10 lac per project. Whichever is
lower.
f) Interest: Service charge @ 1% p.a. to be retained by the bank,
interest @ 6% would be recovered by SIDBI.
g) Repayment period: 7 years (including moratorium period of 3 years)
for the soft loan.
h) Security: No security and credit risk in respect of soft loan is to be
borne by SIDBI.
Rashtriya Krushi Bima Yojana (RKBY):
Government of India has introduced Rashtriya Krushi Bima Yojana from
Rabi 1999-2000 season. It has replaced the comprehensive Crop
Insurance Scheme.
a) Crops covered: All crops including food grain, cereals, pulses, and
oil seeds are covered.
b) Eligibility: All farmers, including sharecroppers, and tenants growing
notified crops and availing seasonal agricultural operational loans.
For non-loanee farmers optional.
c) Risk covered: Non- preventable risks such as natural fire, lighting,
storms, hail storms, cyclone, flood, inundation, landslide, drought,
dry spells, pest/ diseases etc.
d) Sum insured: Extent of insurance coverage is upto the value of
threshold yield of the crop with in option to cover upto 150% of the
average yield on payment of extra premium.
e) Implementing agency: General Insurance Corporation of India.
f) Premium: During Kharif Season 2.5% to 3.5% and for Rabbi Season
1.5% to 2%.

g) Subsidy: Small and marginal farmers are eligible for 10% subsidy on
premium.
Types of mortgage (Section 58 of Transfer of property act):
a) Equitable mortgage: under section 58F of Transfer of property act.
Allowed in Mumbai, Kolkata, Madras or any notified towns. The
towns are notified in state gazette. Method of creation is deposit of
title deeds. Witness and registration is not required. Possession and
ownership is not transferred. Right to redemption is available to
mortgagor. Limitation is 12 years.
b) Simple mortgage: Under section 58B of Transfer of property act.
Allowed in all over India. Method of creation is writing of Mortgage
deed. Two witness and registration is required. Possession and
ownership is not transferred. Right to redemption is available to
mortgagor. Limitation is 12 years.
c) Mortgage with conditional sale: Under section 58C of Transfer of
property act. Allowed in all over India. Possession and ownership is
not transferred but conditional sale to be re-transferred if debt is
paid back. Method of creation is writing of Mortgage deed. Two
witness and registration is required. Limitation is 12 years.
d) English mortgage: Under section 58E of Transfer of property act.
Method of creation is writing of Mortgage deed. Allowed in
Mumbai, Kolkata, Madras or any notified towns. The towns are
notified in state gazette Two witness and registration is required. The
title is transferable but not the possession. Limitation is 12 years.
Different types of charges:
Type
charges
Mortgage

of Type of security

Pledge
Hypothecation
Lien

Assignment

Immovable securities

Example of security

Land, building, machinery

embedded in t o the earth.
Movable assets
Raw material, shares &
Stocks, gold, jewellery.
Movable assets
Raw
material,
motor
vehicles, standing crops.
Securities
which
are Goods
and
securities
already in possession of except actionable claims
the creditor.
and money.
Actionable claims
LIC policies, book-debts,
FDRs.

Limitation act:
Description
Period
Money deposited payable on 3years
demand
Demand loan
3years
Term loan
3years
Demand Bill
Usance bill
Cash credit[ hypothecation]
Cash credit[ pledge]
By a mortgage for foreclosure

3years
3years
3years
N.A.
30
years

By a mortgage for possession of 12

immovable property mortgaged. years

Period begins to run from:

When the demand is made.
When the loan is made.
From the due date of each
instalment.
From the date of bill.
From the due date.
From the date of documents.
N.A.
When the money secured by
the mortgagee becomes
due.
When
the
mortgagee
becomes
entitled
to
possession.

Important notes about balance-sheet:

a) Liabilities have credit balance and Assets are debit balance.
b) Current Liabilities are those liabilities, which have either become
due for payment or shall fall due for payment within 12 months from
the date of balance-sheet.
c) Current Assets are those assets, which undergo change in their
shape/form within 12 months. These are also called working capital
or gross working capital.
d) Net worth and Long-term liabilities are also called Long term
sources of funds.
e) Current liabilities are also known as Short -term sources of the funds.
f) Long term liabilities and short term liabilities are also called as
Outside liabilities.
g) Current assets are Short -term use of funds.
h) Assets other than Current Assets are long-term use of funds.
i) Instalments of term loan payable in 12 months are to be taken as
current liability only for calculation of current ratio and quick ratio
only.
j) If there is profit, it shall become part of net worth under the head
reserves and if there is loss it will become part of intangible assets.
k) Investment in govt. securities to be treated current only if these are
marketable and due. Investments in other securities are to be

treated as current if they are quoted.

Investment in
allied/associated/sister units or firms to be treated as Non-current.
l) Bonus shares are issued by capitalisation of general reserves and as
such do not effect the net worth. With rights issue, change takes
place in net worth and current ratio.
Ratio analysis:
Financial Ratios can be classified in four broad heads.
a) Liquidity: These ratios reflect the ability to meet current dues out of
short term assets.
b) Solvency: Extent of dependence on outside liabilities and feasibility
of meeting them if need arises.
c) Activity: Efficiency of the unit in utilizing present available resources.
d) Profitability: Capacity of the unit to generate profits and its rate of
return.
e) Tangible Net Worth = Net Worth Intangible assets.
1] Liquidity ratio:
a) Current RatioCurrent assets/ Current liabilities.
b) Quick RatioQuick assets/ Quick liabilities.
2] Solvency Ratio:
a) Debit Equity RatioLong Term Liabilities/Tangible Net Worth.
b) Total Outside Liabilities/ Tangible Net Worth
= Term Liabilities + Current Liabilities/ Tangible Net Worth.
c) Proprietary RatioTangible Net Worth/Tangible Assets *100
d) Debit Service Coverage Ratio
Profit after tax + Depreciation Annual Intt. On Term Loans
Annual intt. On long term loans and liabilities + Annual instalment
On loans.
Break even point analysis:
Break even point is that level of production or sales at which unit incurs
no profit and no loss.
Break even point in term of sales = Fixed Costs/Contribution *sales.
Break even point in terms of volume = Fixed Costs/ Contribution.

Variable expenses.
Raw materials.
Packing materials.
Consumable stores and spares.
Any other expenses for production.

Fixed and semi-fixed expenses

Rent and insurances.
Wages and salaries.
Repairs and maintenance.
Depreciation.
Admn. And financial expenses.

Format of balance-sheet for ratio analysis:

Liabilities
Assets
Net worth/equity
Fixed assets
Share capital/eq. capital, paid up
Such as land and building, plant
Capital/owners funds, all types of
and machinery, etc.
Reserves.
Original value depreciation.
(These are purchased for long term
use
And depreciated every year)
Long term liabilities.
Non current assets.
Term loan, debentures and bonds,
Investment in non quoted shares
Unsecured loans, fixed deposits, and
other
Securities, investment in long term
Long term liabilities.
nature associate or sister concerns.
[Those liabilities which are not due Old or disputed
for
Stock or book debts. Long term
Payment within 12 months from the security deposits and other misc.
Date of balance-sheet
assets which are not
Current and fixed assets.
Current liabilities.
Current assets.
Working capital limits sanctioned by Cash/bank balance including FDRS.
Banks such as CC,OD,Bills, export Marketable/quoted govt and other
credit.
Sundry
creditors,
Bills securities. Book debts, Sundry
payable. Short duration loans or creditors, Bills receivables. Stock
deposits,
Expenses
payable, and inventories such as raw
Provision against various items.
material, stock in process, and
[Those liabilities which are due for finished goods. Stores and spares for
the payment within 12 months from regular consumption.
Advance
the date of balance-sheet.]
payment of taxes and other
prepaid expenses.
Loans and
advances recoverable within 12
months.
Intangible assets.
Patents, good will, debit balance of
P/L account, preliminary or preoperative expenses.

Working capital management:

Methods of assessing working capital limits
a) Nayak committee

b) Tandon Committee C) Cash Budget Method.

a) Nayak Committee: Annual Projected Turn over Method.

Eligibility: Small enterprises having aggregate sanctioned working
capital fund based limits upto Rs. 5 crores and Non-SSi upto 2 crores.
Method of computation:
Working capital requirement
: 25% of annual projected turnover.
Sanction of Working capital
Limit
: 20% of the projected turnover.
Margin (Borrowers contribution) : 5% of their annual turnover.
b) Tandon committee:
1st method of lending.
Total Current Assets.
Less:
Current
liabilities
other than short term bank
borrowings.
Working capital gap
Less: 25% of Working
capital gap.
Maxi. Permissible bank
borrowings.
Excess borrowings.
Current Ratio

370
150

220
55
165
35
1.17:1

2nd method of lending

Total current assets.
Less: Current liabilities other
than short term bank
borrowings.
Working capital gap
Less: 25% of Total Current
Assets.
Maxi.
Permissible
bank
borrowings.
Excess borrowings
Current ratio

370
150

220
92
128
72
1.33:1

NPA Guidelines:
A) Term loans: Interest or installments overdue for a period of 90
days.
B) Cash Credit/ Over draft: Account remains out of order for a
period of 90 days.
C) Bills Account: Bills payable or Bills Discounting account
remains overdue or unpaid for a period of 90 days.
D) Agriculture:
1) Short duration crop: If installment or interest overdue
for two crop seasons.

2) Long duration crop: If installment or interest overdue

for one crop season.
E) NPA on account of erosion in the value of security.
If realizable value of security is less than 50% the account will
be shifted to Doubtful category directly.
If realizable value oaf security is less than 10% then the
account will be shifted to loss asset directly.
Asset classification:
Group
Definition
Standard. Accounts which are in order
SubAccounts which have been classified as NPAs for a period
standard.
not exceeding 12 months.
Doubtful
Sub standard accounts, which have remained NPAs for
period exceeding 12 months.
Loss assets. Accounts which have become unrealizable, where losses
have been identified by the bank/internal or external
auditors/ RBI inspectors.
Special
RBI has instructed banks to identify the accounts which are
mention
over due/out of order but not yet completed the 90 days
accounts. and require maintaining a special watch. Banks are free to
fix the number of days for identifying. For provisioning
purpose SMAs are clubbed with Standard Assets only.
CATEGORY PROVISION REQUIREMENTS
Standard
Direct Agri. Resi.
Select.
All other loans
assets.
SME sector Housing sectors
and advances
Loans.
0.25%
1.00%
2.00%
0.40%
SubSecured
Sub- Un Secured Sub-Standard
standard
standard
assets.
10%
of
out 20% of out standing
standing
Doubtful
First 12 months Next 24 months
Over 36 months
assets.
Secured: 20%
Secured: 30%
100%
Unsecured:
Unsecured:100%
Uniformly.
100%
Loss assets. The entire assets should be written off. If permitted to remain
in the books for any reason, 100% of the outstanding should
be provided for.
Select Sector: Personal loans, Credit Card receivables, capital market,
commercial real estate exposure, and loans and advances to
systematically important NBFCs.

Foreign Exchange
Type of transactions:
a) Inter-bank Transactions
banks/institutions

Forex

transactions

between

two

b) Merchant Transactions: Sale or Purchase transactions with the

customers.

Types of accounts:
a) Nostro Accounts: OUR ACCOUNT WITH YOU It is foreign currency
account maintained by a bank in domestic country with the bank
in foreign country.
b) Vostro Accounts: YOUR ACCOUNT WITH US Rupee account of a
foreign bank in India.
c) Loro Accounts: Their account with you Account of third bank in
foreign country.
d) Mirror accounts: Dummy account maintained by the banks to know
actual position of Nostro accounts for reconciliation purposes with
the foreign correspondent banks. We may call it a pass-book for
our accounts maintained with foreign banks.
Foreign Exchange Management Act [FEMA]
FEMA was implemented in India with effect from 1 st June 2000. It defines
certain terms as..
a) Capital Account Transactions: The Transaction which alters the
assets and liabilities outside India of a person resident in India or
assets or liability in India of a person resident outside of India.
b) Current Account Transactions: Other than a capital account
transaction and include payments due in connection with foreign
trade, other current business services and short term banking and
credit facilities in ordinary course of business.
c) Resident as per FEMA: Any person residing in India for more than 182
days during the course of preceding financial year will be taken as
resident in India.

Method of delivery of forex:

Ready/cash The transaction settled on same day. Also known as value
today
TOM
The delivery of foreign exchange/ currency to be made on
the day next to the date of transaction.
SPOT
Exchange of currencies takes place two days after the date
of contract SPOT RATE.
FORWARD
When the delivery has to take place at a date farther than
the spot date, then it is a forward transaction FORWARD
RATE.

Letter of credit:
Letter of credit is an undertaking given by the issuing bank on behalf of
importer in favour of the exporter, undertaking to make payment on
presentation of documents as per the terms and conditions of LC. LCs are
governed by Uniform Customs And Practices For Documentary Credit.
Important types of letter of credits:
a) Irrevocable LC: An LC in which issuing bank gives a definite,
absolute and irrevocable undertaking to honor its obligations
provided the beneficiary complies with all the terms and conditions
of LC.
Once irrevocable LC is issued, it can not be
revoked/amended, without the consent of beneficiary.
b) Transferable LC: An LC containing a specific clause that it is
transferable. This gives the beneficiary the right to request the bank
to make the credit available in whole or in parts to one or more
beneficiaries. The transferable LC can be transferred in part or in full
but it can be transferred only once.
c) Red-clause LC: An LC in which a provision exists for allowing preshipment credit to the beneficiary for procurement/manufacturing
of goods to be exported.

d) Green clause LC: An LC in which apart from provision of allowing

pre-shipment credit the issuing bank also has to arrange for
storage/warehouse facility.
e) Back to back LC: An LC involves two irrevocable credits. Firstly, the
inward credit (Original LC) and the second called as outward credit
(back-to-back), which is opened on the basis and security of the
original LC.
f) Stand-By LC: An LC similar to bank guarantee by issuing bank,
guaranteeing payment and/or performance.
g) Revolving LC: Under these LCs. The part amount, which has been
utilized, is automatically restored and is available for further use.
These are meant for more than one dealing. In such LC, roll-over of
transactions take place.
Type of bill of lading:
a) On board bill of lading: It acknowledges that the goods have been
put on board of the shipment. This is considered safe for negation
purpose.
b) Clean bill of lading: This bears no super imposed clause or notation
that expressly declares the defective condition of goods or
packaging. Best bill for negotiation purpose.
c) Claused bill of lading: This bears super imposed clause or notation
that expressly declares that defective condition of goods and
packaging. Ship owner can disclaim his liability on loss of goods in
case of such bill of lading. Hence it is not considered as safe.

Forex facilities for residents:

As per FEMA resident Indians are permitted to buy or sell foreign
exchange from Authorized Dealers (AD) s and full fledged moneychanger (FFMC) for permitted current account transactions. ADS can
accept payment in cash upto Rs.50,000/- against sale of foreign
exchange. Releases of forex beyond the limits mentioned below require
RBIs approval.

Sr.No. Purpose
Amount Details
1
Tourism/private visit $
Per financial year per family
Out side of India.
10,000/- member for one or more visits
abroad. Visit to all countries except
Nepal and Bhutan are eligible for
this facility.
2
Gift/donation out As per Per financial year. This facility is
side of India.
LRS.
subsumed under LRS scheme.
3
Employment,
$ 1 lac. To Indian resident going abroad for
Immigration,
gainful employment/ to meet
Education,
incidental expenses in the country
medical
of migration on production of
treatment,
evidence/per academic year of
maintenance
of
institute where admission has been
close relative.
obtained./on basis of declaration
by the patient./ per year basis.
4
Business trip
$
Available per trip except Nepal
25,000/- and Bhutan. It covers visits for
international trade conferences,
seminars, training etc.
5
Small
value $ 5000/- For any permissible transaction on
remittances.
the basis of simple letter from the
applicant without insisting on
submission of Form A-2.
Liberalized remittances scheme (LRS):
a) Resident Indian individuals are permitted to freely remit upto USD 2
lac per financial year for any current or capital account
transactions or a combination of both.
b) LRS facility is in addition to the other remittances allowed.
c) Gifts/Donations are now included in LRS facility within the overall
limit of USD 2 lac. There is no sub-limit.
Fuller capital account convertibility- 2006:
Second committee chaired by S.S.Tarapore. Earlier committee on CAC in
1997 had put out a road map for full convertibility. T he second committee
on FCAC submitted its report to RBI on 31 st July2006. They have
recommended a Road map for fuller convertibility within a broad frame
work for five years in three phases. 2006-07 (Phase-1) 2007-08 and 200809(Phase-2) and 2009-10 and 2010-11 (Phase-3).

Forex accounts for resident Indians.

Particulars
Who can
open
An
account
Sources of
funds

RFC account
RFC (D)
For returning Indians Resident
i.e. those who were individuals
NRI/PIO

USD, GBP, EURO &

YEN.

EEFC
A person resident in
India,
which
includes individuals,
firms, cos.
Foreign
Status
holder,
exchange
Exporter individual,
acquired while professional,
can
on visit to any retain upto 100%
place outside of
India.
Current
Current accounts
accounts
and Time Deposits.
USD, GBP, EURO USD, GBP, EURO &
& YEN.
YEN.

Type
of
accounts
Currency
of
accounts
Loans and
overdrafts
Interest

SB., CA, TD.

Not permitted

Not permitted

Not permitted

Bank can decided

No interest

Only
for
term
deposit and can
maxi. Upto $ 1 mio.
With maturity upto
31.10.2008.

By foreign inward
remittances,
transfer of funds of
FCNR (B), deposits,
NRE Deposits.

Non resident Indian (NRI) accounts:

1) Non resident Indian (NRI): An NRI is a person holding Indian
pass-port.
Gone abroad for a gainful employment or
business or vocation, or for any other purpose indicating an
indefinite period of stay outside of India. Working abroad on
foreign assignments/employed by IMF, IBRD, UNO, UNESCO
etc. Employed in central or state government and public
sector under takings and deputed abroad on temporary
assignments or for temporary period.
2) Person of Indian origin (PIO): PIO means a citizen of any
country other than Bangladesh, or Pakistan. If he held an
Indian pass-port at any point of time, or whose parent/s or
grand parent/s were citizens of India (Undivided India) or

foreign national spouse of an either NRI or PIO is given the

status of PIO.
Power of Attorney in NRO Accounts:
1) Local payments in rupees including eligible investments.
2) Remittance outside India of current income of the account holder
net of applicable taxes.
Power of Attorney holders in NRE Accounts:
Allowed all transactions except the following
1) Credit foreign currency notes and traveler cheques in NRE A/c can
not be accepted.
2) Repatriation except in favour of the principal i.e. NRI Account
holder.

Bank accounts for Non-Resident Indians:

SR.NO. PARTICULARS NRO
1.
Who can
NRI/PIO
open.
2.
Currency of
INR
the a/c.
3.
Source of
Local or
the funds.
funds from
abroad.
4.
Accounts
SB/CA/RD,TD.

NRE
NRI/PIO

FCNR[B]
NRI/PIO

INR

Foreign currency
USD,GBP,YEN,EURO,CAD,AUD
Funds from abroad.

5.

Mini/maxi.
period

Mini. 1 year
Maxi. 3 years

Mini. 1 year and Maxi. 5 yrs.

6.

9.

Tax benefits.

With resident
not permitted
and with nonresident
permitted.
permitted
Freely
repatriable
Exempted

With resident not permitted

and with non-resident
permitted

7.
8.

Joint
account
with resident
& Nonresident.
Nomination.
Repat riation

As per
domestic
deposit
Permitted
with both
Resident and
Non resident.
permitted
Not
permitted
No tax

Funds from
abroad.

SB/CA/RD/TD. Only Time Deposits.

Permitted
Freely repatriable
Exempted from all taxes

10.

Interest
rates.

exemption
TDS @ 30%
For SB-3.5%
For T/Dbanks are
free to fix the
rate

from all taxes.

For SB- 3.5%
linked with
domestic
rate and for
T/D- linked
with
LIBOR/SWAP.

T/D- Fixed or floating within

ceiling rate of respective
LIBOR/SWAP rate less 75 basis
points.

Exchange control relating to exports:

Export import code Number [IEC]: Every person/ Firm/ Company engaged
in export business has to obtain an IEC Number issued by the Director
General of Foreign Trade.
Export Declaration Forms: Any export of goods from India that full value of
exports will be realized within prescribed period in the prescribed manner.
GR/SDF
Exports made otherwise than by post.
PP FORM
Exports made by Post Parcel.
SOFTEX FORM Exports of software in Non-Physical forms.
Time limits for exporters to receive export payments:
1) Normal Exporters: 6 months.
2) Status holders, 100% Export Oriented Units, EHTP, STP (Software
Technology Park) etc. are permitted to realize and repatriate
within a period of 12 months from the date of export.
3) A unit in SEZ has no limit.
4) Extension to be sought from AD in form ETX.
Reporting to RBI: Half-yearly statement in form XOS which gives details of
all exports bills outstanding beyond six months from the date of export as
at the end of June and December.
Prescribed method: The payment for export proceeds should be received
through the medium of the Authorized Dealers (Ads). However, in
exceptional cases where the track record of the exporters is good, Ads
can accept the amount received by exporters direct by cheques, DD
etc.
Submission of Export Documents: The exporter has to submit duplicate
copy of GR form along with the shipping documents to the AD within 21

days of shipment. The AD s will report the export bills accepted for
collection or negotiation to RBI every fortnight in a statement call ENC
along with R return.
Crystallization of Export bills: Crystallization is a process of conversion of
foreign currency liability of customer in to rupee liability. Authorized
dealers are now free to fix the period after which crystallization has to
take place after taking in to consideration various risk factors such as the
Credit risk of Exporters, Operational risks etc.
a) TT selling rate on the date of crystallization or the original bill buying
rate, whichever is higher will be applied for crystallization .
b) Swap cost/gain for the period from due date of the bill to t he date
of crystallization should be passed on to the exporter.

Application for exchange rates:

Selling
rates
TT selling
rates
Bill selling
rate.
TC/FX
Currency
Buying
rates
TT buying
rate
Bill buying
rate
TC/FX
Currency

Transactions.
a. Outward remittance in foreign currency
(TT.MT.PO.DD.)
b. Cancellation of purchase bills/DD etc.
c. A forward purchase contract cancelled.
Transaction involving transfer of proceeds of import bills.
At the option of ADs.
Transactions.
Clean inward remittances (PO, MT, TT, DD) where cover is
already credited to ADs Nostro a/c. cancellation of FSC.
Purchase/Discounting of bills and other instruments. Where
bank has to claim cover after payment.
At the option of ADs.

Asset liability management:

ALM: ALM is the management of Assets & Liabilities in the balance sheet in
such a way that the net earning from the interest is maximized and
Liquidity Risk and Interest rate risk are minimized. It is mandatory now for
banks since 1st April 1999.
RBI has issued guidelines on A LM to banks. Banks have to use the Flow
Approach and construct maturity ladders to identify and manage the
mismatch and gaps.
Maturity Buckets: There are two different maturity ladders constructed for
the purpose of Liquidity and interest rate management.
Liquidity Buckets: 1) Next day 2) 2-7 days 3) 8-14 days 4) 15-28 days 5) 2990 days 6) 91-180 days 7) 181-365 days 8) 1-3 years 9) 3-5 years 10) above
5 years.
Interest rate sensitivity: 8 time buckets 1) 1-28 days 2) 8-14 days 3) 29-90
days 4) 91-180 days 5) 181-365 days 6) 1-3 years 7) 3-5 years 8) above 5
years and 9) Non-sensitive.
Mismatch Position: When a particular maturity bucket, the amount of
maturity liabilities or assets does not match, such position is called
mismatched position, which create surplus or liquidity crunch position and
depending upon the interest rate movement, such situation may turnout
to be risky for the bank.
Ceiling on Mismatch position (RBI Guidelines): For liquidity, mismatches for
cash flows for the first four buckets not to exceed 5%, 10%, 15% and 20%
respectively of cash outflows for those buckets. For Interest Sensitivity
mismatches for cash flows for 1-14 days and 15-28 days buckets to be
kept to minimum (not exceed 20% each of cash outflows for those
buckets.
ADR, GDR and IDR:
American and global depository receipts: American Depository Receipts
(ADR) and Global Depository Receipts (GDR) are instruments in the nature
of depository receipt or certificate. These are negotiable and issued by
non-US Company, representing publicly traded, local currency equity
shares. For Indian corporates, it is preferred source of raising capital in
foreign markets. Non-resident Indians (NRIs) prefer to invest in these
instruments. ADR are listed on American Stock Exchange whereas GDRs
are listed in a Stock Exchange other than American Stock Exchange say
Luxemburg or London.

Indian Depository Receipts: Companies incorporated outside the country

raise resources from the Indian capital market with issue of Indian
Depository receipts (IDRs). IDR means any instrument in the form of
depository receipt created by the domestic depository in India against
the underlying equity shares of the issuing company.
Annual information returns: AIR is annual return to be furnished by Banks to
Commissioner of income tax (Central Information Bureau) in form number
65 on before 31st August each year. Not furnishing AIR will attract penalty
at Rs. 100/- per day.
Financial transaction to be reported in AIR includes:
a) Cash Deposits of Rs. 10 lacs or more in a year.
b) Aggregate credit payments in excess of Rs. 2 lacs or more in year.
c) Cash deposits aggregating to 10 lacs rupees or more in a year in SB
with the bank.
d) Payments made by any person against bills raised in respect of a
credit card issued to that person, aggregating to 2 lacs rupees or
more in the year.
e) Receipt from any person of an amount of 5 lacs rupees or more for
acquiring bonds or debentures issued by the bank. Receipt from
any person of an amount of 1 lac rupee or more for acquiring
shares issued by the bank.
f) Receipt from any person of an amount aggregating to 5 lacs
rupees or more in a year for RBIs saving bonds issued by authorized
branches.
Summary of penalties:
a) If person fails to ensure payment of FDR of Rs. 20,000/- or above, not
in cash: penalty equals to sum of the payment (Sec. 271E of IT Act.)
b) If a bank fails to furnish Annual Information Return: Penalty of Rs.
100/- for each day during which the failure continues (Sec. 271FA of
IT Act.)
c) If a person fails to furnish return of income: Penalty of Rs. 5000/(Sec.271F, IT Act.)
d) Penalty for Non-Deduction of tax at source on interest on deposit,
by a bank is simple interest at 12 % pa on amount of tax.
Imprisonment under section 276-B: 3 months to 7 years.
Benchmark PLR: To enhance transparency in banks pricing of the loan
product and also to ensure that the PLR truly reflects the actual costs, RBI
has advised banks to announce a benchmark PLR with the approval of
their boards, taking into consideration:

a) Actual cost of funds,

b) Operating Expenses
c) A minimum
margin to cover regulatory requirements of provisioning and capital
charge, and profit margin.
CAMELS Rating for Banks:
As per the recommendation of Shri S. Padmanabhan Committee, that
bank were placed in the following two categories for the purpose of
examination, depending on the known and reported condition of the
banks in financial, operational, management and compliance terms. For
evaluation and ratings of Indian banks, the committee has suggested
CAMELS ratings model on lines of rating model (CAMEL) employed by the
supervisory authorities in the USA.
Six key parameters rating criteria
C - Capital adequacy.
A - Asset quality.
M Management.
E Earning Performance.
L Liquidity.
S Systems & Controls.
Capital Fund:
Tier I Capital:
1) Paid up capital
2) Statutory reserves.
3) Capital reserves representing surplus arising out of sale proceeds of
assets.
4) Investment fluctuation reserve.
5) Innovative perpetual debt instruments.
Less: equity investment in subsidiaries and intangible assets.
Tier II capital:
1) Un-disclosed reserves and cumulative perpetual preference shares.
2) Revaluation Reserves ( at a discount of 55% while determining their
value for inclusion in Tier II Capital)
3) General Provisions & Loss Reserves (Up to maxi. 1.25% of weighted
risk assets)
4) Hybrid debt capital instruments.
5) Subordinated Debt (Long term unsecured loans)
6) Redeemable Cumulative Preference Shares.

Capital Adequacy Ratio (CAR):

Capital adequacy ratio reflects t he adequacy of the capital funds (that is
Share capital, free reserves and other capital funds) in relation to the riskweighted assets. It is calculated as
CAR = Capital funds / Risk Weighted Assets * 100 = 9%
Capital Funds: RBI Guidelines envisaged (decided in near future) a two
Tier capital structure namely Tier I and Tier II.
a) Tier I capital is also known as Core Capital. It provides the most
permanent and readily available support to a bank against
unexpected losses.
b) Tier II capital contains elements that are less permanent in nature or
are less readily available.
Important Risk weights:
Cash balance with RBI.
0%
Balance with other banks.
20%
Govt./Approved Securities.
2.5%
Secured loans to staff members.
20%
Housing finance to individuals secured by mortgage upto 20 lacs.
50%
Housing finance to individuals secured by mortgage over 20 lacs.
75%
Mortgage deed securitization of assets.
77.5%
Forex and gold open position.
100%
Loans upto Rs. 1 lac against gold and sliver ornaments.
50%
Central / State Govt. guaranteed advances.
0%
Loans to public sector units.
100%
Other loans.
100%
Loans guaranteed by DICGC/ECGC.
50%
SSI Advances upto CGFT Guarantee.
0%
Advances against Term Deposits, LIC Policies, NSCs with adequate
0%
margin.
Consumer credit/ Credit cards.
125%
Venture capital funds, SEZ Developers, Commercial Real Estates, 150%
and Capital market.
Revised guidelines:
Educational loans will be hence forth be classified as Non-consumer
credit for capital adequacy norms.
The risk weight applicable to
educational loans would be as:

a) Under Basel I: the risk weight would be 100% as against 125% at

present.
b) Under Basel II : the Educational loans, now no longer being a part of
Consumer Credit would be treated as a component of the
regulatory retail portfolio and attract a risk weight of 75% as against
125% at present.
CIBIL:
CIBIL is the Indias first credit information bureau, which is a repository of
factual information on the credit history and repayment records of
commercial and consumer borrowers. CIBIL will provide this specific
information to its members in the form of credit information reports. CIBIL
is promoted by several market players including SBI and has a corpus of
Rs. 25 crores. To start with, CIBIL is maintaining a database on suit -filed
accounts of Rs. 1 crore and above and suit -filed accounts [willful
defaulters] of Rs. 25 lacs and above. This information is based on a
application developed to enable the users to access date through a
parameterized search process across banks and companies at various
geographical locations. Suit -filed accounts of lower value are proposed
to be covered in a phased manner.
Capital market exposure:
1) Aggregate capital market exposure: Restricted to 40% (Both
direct and indirect ) of net worth of the bank as on 31 st march
of previous year both on solo and consolidated basis. Within
the overall limit of 40%, direct exposure by investment in
shares, debentures/ bonds not to exceed 20% of net worth.
2) Advance against shares: To individuals limited to Rs. 10 lacs
against shares held in physical for and Rs. 20 lacs in demat
accounts from Banking Sector. Margin 50% including cash
margin with at least 25% margin as cash margin (within 50%).
3) IPO finance: Restricted to Rs. 10 lacs/ indiv idual from the
banking sector with 50% margin with at least 25% margin as
cash margin (With in 50%).
4) Statutory Restriction: Banks cannot allow loan to their
employees/ others for purchase of their own shares. This is as
per sec. 20 of banking regulation act.
5) Statutory ceiling: As per sec. 19 of Banking regulation act, the
banks can not hold more than 30% of their own paid up
capital + reserves or 30% of paid up capital of the company
(Which ever is lower), as pledge, mortgage or absolute
owner.

Certificate of Deposit:
Certificate of Deposit (CDs) is a negotiable money market instrument and
issued in dematerialized form or as a Usance Promissory Note, for funds
deposited at a bank or other eligible financial institution for a specified
time period.
Eligibility: CDs can be issued by schedule commercial banks excluding
regional rural banks and local area banks and selected all-India financial
institutions.
Aggregate Amount: For banks, depending on their requirements. For
other financial institutions, t he overall limit fixed by RBI not to exceed 100%
of Net Owned Funds.
Minimum Size of issue and Denominations: Mini. Rs.1 lac and in multiples
of Rs. 1 lac thereafter.
Who can subscribe: Individuals, Corporations, Companies, Funds, and
Associations etc. NRIs can also subscribe on non-repatriable basis.
Maturity: Banks- Mini. 7 days and maxi. 1 year.
Reserve requirements: CRR and SLR is applicable.
Date of Maturity: No grace period. If the maturity date is a holiday,
payment to be made on the immediate preceding working day.
Core banking solutions: (CBS)

Core banking solution is the software package customized and

tailor made for specific banks to support entire banking activities
using a central server. It covers Retail, corporate and trade
banking.
CBS will enable bank to capture the personal data of the customer
at the point of contact, like his profession, income, dependents and
their income and occupation, occupation of spouse, assets owned
etc. this can be used later on for market survey, launching new
need based products etc.
CBS will facilitate the bank to build relationship with the customers
and structure customized financial products by identifying their
needs.

Commercial paper:
Commercial paper (CP) is an unsecured money market instrument issued
in the form of a promissory note. CP as privately placed instrument and
was introduced in India in 1990.
The corporate, PDs financial institutions can issue commercial paper.
Eligibility: A corporate would be eligible to issue CP provided:

Tangible net worth, as per latest audited balance sheet is not less
than 4 crores.
Company is sanctioned working capital limit by banks/ or financial
institutions.
Is classified as a standard Asset by the financing banks/ institutions.
Rating Requirement: Mini. Credit rating P2 of CRISIL/ equivalent from RBI
approved CRAs.
Maturity: Mini. 7 days and a maxi. 1 year from the date of issue. Maturity
date of the CP should not go beyond the date of validity of the credit
rating.
Denominations: Rs. 5 lacs or multiples thereof.
Limits and the amount of issue of CP:
CP can be issued as a stand alone product.
Banks and FIs will have the flexibility to fix working capital limits duly
taking into account the resource pattern of companies financing
including CPs.
Total amount should be raised within a period of two weeks from
the date of issue opening.
CP may be issued on a single date or in parts on different dates
provided that in the latter case, each CP including renewal should
be treated as a fresh issue.

Official language:
Hindi Diwas: To be observed on 14 th September every year. 14
States and union territories are classified into 3 categories for the
purpose of official language policy.
Region - A: H.P., Haryana, Rajasthan, MP, UP, Bihar, Uttarakhand,
Jharkhand, Chhattisgarh, and union territory of Delhi, AndamanNikobar.
Region B: Maharashtra, Gujarat, Punjab and Union territory of
Chandigarh.
Region C: All other states and union territories.
The public Sector Banks to follow Official Language Act - 1963 and Official
Language Rules 1976 while using Hindi as Official Language. Process of
use of Hindi is monitored by RBI.
The Official Language Implementation Committee: At HQs and all
branches committee to meet once in a quarter to review.
Targets for correspondence: 1) Region A to A and Region A to B 100%
2) Region B to B and B to A 90% 3) Region A to C 65% 4) Region C to A, C
to A, B, & C 55%.
Letter received in Hindi should be answered in Hindi 100%.
Correspondence received in Hindi from Central /State Govt. should be
replied in Hindi.

Money market terminology:

Call money
Notice
money
Term
money
Held
till
maturity
Held
till
trading

Money lent for overnight.

Money lent for a period of 2-14 days.
Money lent for 15 days or more in inter-bank market.

Govt . securities which are not meant for sale and are meant
to be held maturity by the banks.
Govt. securities acquired by the banks with the intention to
trade by taking advantage of the short -term price/ interest
rate movement.
Available
Govt. securities which do not fall within the above two
for sale
categories that is HTM or HFT.
Yield
to Expected rate of return on a security if held till maturity after
maturity
purchasing (takes into account the purchase price)
Coupon
Specified interest rate on fixed income securities such as
rate
Corporate and government straight bonds.
Treasury
Short term bonds issued by the treasury (Govt.). They have
bills
the features of Zero bond coupons.
Gilt edged Government security. It is a secured financial instrument
securities
which guarantees certainty of both capital and interest.
Zero-bond
Bonds with no promised periodical coupons (Interest). The
coupons.
difference between the purchase value and maturity value
is the value received by the investor. Normally treasury bills
are issued as Zero-coupons bonds with 91,182 and 364 days
tenor.
Dated
Instruments which have tenure over one year. The returns
Securities.
on dated securities are based on fixed coupon rates akin to
corporate bonds.

Public Provident Fund (1963):

It is operated through Public Sector Banks and Post Offices.

Mini. Contribution is Rs: 500/- and Maxi. Rs. 70,000/-.
Tenor 15 Years and the period can be extended for further 5 years.

Risk management:
Major risks identified in banking business:
1) Liquidity Risk 2) Interest Rate Risk 3) Credit Risk 4) Market Risk
Operational Risk

5)

Guidelines to banks for managing these risks:

RBI / ALM Guidelines: Liquidity Risk, Interest Rate Risk
RBI/Basel II Guidelines: Credit Risk, Market Risk, & Operational Risk.
1) Liquidity Risk: Risk to inability of a bank to meet its contractual
obligations due to mismatch in inflows/ out flows from assets and
liabilities.
2) Interest Rate Risk: Risk due to adverse movements in interest rates
impacting profitability.
3) Credit Risk: Risk on account of possible default by the borrower/
counter party in meeting commitments.
4) Market Risk: Risk of adverse deviations due to marking to market
value of the trading portfolio due to market movements.
5) Operational Risk: Risk of loss due to inadequate or failed internal
process, people, systems or external factors. Examples of such
events are internal, external frauds, negligence, data loss etc.
6) Exchange Risk: Risk on account of adverse fluctuation in forex
rates.
7) Settlement Risk( Herstatt Risk): Risk of counterparty default after the
deal is put through and before the settlement. Also known as
Hersttat Risk due to the famous Herstatt Bank incidence where
many American banks suffered due to default by Herstatt Bank,
Germany which was put under liquidation without notice before it
could settle the deals it had agreed upon.

Risk management Basel II RBI Guidelines:

1988

1996

Basel I accord put in place

by G 8 Countries
to avoid situations like the
Herstatt Bank incident.
Basel I modified

Addressed
Minimum
Capital
adequacy and credit Risk. Capital
charge for Credit
Market Risk to be identified,
Quantified and capital charge
provided for.

2004

Three Pillars of Basel II norms Banks to provide Capital Charge for

defined:
Operational Risk also.
Minimum
Capital,
Supervisory process. Market
disclosures.

RBI
Time Frame
Guide Indian banks with overseas
Lines
Presence
and
foreign
banks in India to migrate to
Basel II by 31/03/2008.
All other banks except
RRBs, UCB by 31/03/2008.

Basel Norms
Pillar I: Minimum capital Adequacy
Basel II Norm 8%, RBI 9%
Pillar II: Supervisory Process
RBI Supervises through On-site & Off
site methods.
Pillar III: Market disclosures.

Capital charge / Capital Calculations:

1) Credit Risk: Indian banks have to adopt standardized method for
calculations as per Basel/ RBI Guidelines. Here, risk weights are
assigned as per RBI guidelines/Approved external rating agencies
and 9% of the RWA is arrived at as the Minimum Capital
Requirement for credit risk.
2) Market Risk: Indian banks have to adopt standardized (Duration)
method as per RBI guidelines Capital Charge arrived at using
Duration method and capital requirement arrived at by multiplying
the capital charge by 12.5
3) Operational Risk: Indian banks have to adopt Basic indicator
approach as per RBI Guidelines Capital Charge arrived at Basic
indicator method of applying 15% (alpha) on the average gross
income of past three positive years. Once capital charge is arrived,
capital requirement is arrived by multiplying capital charge by 12.5
4) Minimum Capital Requirement = Capital for Credit Risk + (Capital
Charge for Market Risk x 12.5) + (Capital charge for Operational Risk
x 12.5)
Real Time Gross Settlement System:
1) An RTGS payment system is one in which payment (Above 1lac)
instructions between banks are processed and settled individually
and throughout the day.
2) The settlement is on gross basis unlike usual clearing systems which
are on Net Basis

3) The settlement cycle is once in two hours till 5 pm.

4) In RTGS, RBI acts as the settlement agent between the banks,
Settlement risk are minimized because of RTGS.
5) The information flow is on a Y shaped model in India.
6) Credit is to be available within 2 hours.

POINTS ON STAFF MATTER

Stagnation increments (award staff)
Category
Clerical
Sub staff

Number of times
Six
Six

Frequency
3 years
2 years

amount
Rs 560/Rs 270/-

ANNUAL MEDICAL AID; Rs 1500/- p.a.for Award Staff (including PTSK) and
for officers Rs 3750/- for scale 1 to III and Rs 5000/- for scale IV to VII
Hospitalization Expenses: 100% for Self (with Limit), 75% for Dependant.
For officers scale 1 to 111,it will be 125% limits laid down to workmen and
for scale IV to VII 150% limits laid down to workmen except Bed Charges
which are spelt separately
PTSK are eligible for hospitalization on pro rata basis
Employees on suspension will be entitled to the facility of medical aid and
hospitalization
REF CIR staff cir no 141 dt 10-01-2008 (gist) in terms of this cir if the spouse
of the staff is employed in another organization, then reimbursement of
expenses on domiciliary treatment/hospitalization expenses of spouse
should first be made with spouses employer and if there is no scheme in
that organization a declaration to be given to that effect stating the
name & address of organization.
If partially settled the, unpaid amount can be claimed subject to a
certificate from that organization detailing the amount of reimbursement
etc

In case of Medi-claim or any insurance is available, such option is to be

exercised first .If no medi-claim is there then an undertaking to be given
by the staff that the staff or spouse does not have Mediclaim
REF CIR: Staff 123 dt 17/09/2007
A married female officer can include only her natural parents ( and not
parents in law) for LTC if 1) they normally reside with her 2) the monthly
income from all sources (anyone or both taken together) does not
exceed Rs 2550/- per month.
However for reimbursement of hospitalization expenses married female
officer may include either her natural parents or parents in law subject to
other conditions
Under Staff Welfare Scheme :
Reimbursement of additional medical expenses leading to hospitalization/
domiciliary treatment
95% for self & 80% for dependent s
Root Canal (not for beautification) up to Rs.5000/- p.a. (for self and or
dependent)
LEAVE

casual leave: max 12 days in a calendar year

( not more than 4 days
continuously and provided that holidays and Sundays combined should
not exceed 6 days) ( in case of officers the condition not exceeding 6
days is not there)
Holidays except Saturdays and Sundays shall not be prefixed or suffixed to
casual leave without the previous permission of the officer granting such
leave.
Holidays and weekly offs falling within the period of casual leave will not
be treated as a part of casual leave
UN availed casual leave credited to sick leave and for officers it can be
suffixed or prefixed to sick leave in the following three years,
It can be availed for by award staff One day without medical certificate
and by officers at a stretch 4 days without medical certificate
PRIVILEGE LEAVE: While computing PL earned during the year any fraction
of 11 days worked shall be computed as one day PL during the year. PL
can be availed maximum 3 occasions in a year and there is no restriction
on minimum number of days. However beyond 3 occasions PL can be
availed minimum for 5 days on production of medical certificate
MATERNITY LEAVE; max 6 months on any occasion (max 12 months in
entire service)

LEAVE FOR ADOPTION: Once during the service/childless female/legally

adopting a child below 1 year old Max 2 months or till the child attains 1
year old whichever is earlier

Category
Sub staff

Clerical

Dist
Place of domicile
or any place in
India up to a max
dist of 2250km

Cycle
2 years

Fare
sleeper class
fare for the
journey by
mail by
express
Do

Place of domicile
or 4500Km
Place of domicile
or any place in
India upto a max of
1750 km

4 years
2 years

First class fare

or 11 class
A/C
If he actually
travels/if
traveled by
air then 11
class A/C

Place of domicile
or 3500 km

4 years

Do

Conveyance expenses within the prescribed rates from residence to

nearest railway station/bus stand/airport/docks and vice versa, as also
similar expenses at the place of destination shall be reimbursed under LFC
facility within the overall entitlement of the employee.(AWARD STAFF)
Encashment of Leave fare concession (award staff) equal to entitled
receive lump sum equal to 75% of notional train fare for the admissible
distance (depending on 2 year or 4 year block) by the entitled class
subject to deduction of admissible tax at source the employee so
encashing the facility of LFC shall proceed on leave for a period of 4 days.
Encashment of LTC for officers 75% of eligible fare for the class of travel by
train upto distance of 4500 km(one way) for Scale 1 to scale 111 and
5500 kms (one way) for scale iv to and above
The facility of encashment of P/L while av ailing LFC is also available while
encashing facility of LFC.

Leave Encashment: (while proceeding on LFC)

An employee will be entitled to encash PL at his credit while proceeding
on Leave Fare Concession
2 Year block----- max of 15 days in each block or 30 days in one block
4-year block-max of 30 days
Washing Allowance: w.e.f. from 01.08.2004 shall be payable at Rs.75 p.m.
Cycle Allowance: Rs.60 p.m. ( not payable if leave exceeds 30 days)
Reimbursement of expenses on Road Travel:
Where an employee has to travel on duty /LFC between 2 places not
connected or partially connected by rail or steamer the reimbursement
will be actual road mileage cost or Rs.2 per k.m. whichever is less
Housing loan:
category
Housing loan
Sub staff

3 lacs or estimated
cost

Clerical

4.5 lacs or estimated

cost

Silver jubilee award

Enlarging/repairs
Least of estimated
cost or 50 times
monthly
pay(including spl
pay ranking for pf)
or Rs 80000/Least of estimated
cost or 50 times
pay(inc spl. pay
attracting pf) or Rs
1.20 lacs

Rate of int erest

(Simple) w.e.f.
1.10.2001
Upto 1.10 lacs 5%
Over 1.10 lacs Upto 3.00 lacs 10%
Upto 1.10 lacs 5%
Over 1.10 lacs Upto 4.50 lacs 10%

Rs. 2000/- max (ptsk eligible)

Festival advance (max)

Officers
Rs 10000/-Clerical
Rs 8000/Substaff
Rs 6000/PTSK and employees on probation (production of surety) are also eligible
Int on loan OD against NSC

Up to Rs 50000/-

0.5% over and above NSC rate or

9% , which ever is lower (margin
10%)

Above Rs 50000/-

9% (margin 25%)

LOCKER: 25% concession in rent for any locker in one branch (staff &
retired staff)
Relief to employees who die in harness
Funeral expenses of Rs.5000/-to be paid on the day itself and ex gratia
(sanctioned by regional office 0of Rs 12000/- to be paid within 7 daysCent convenientoverdraft facility-in lieu of 1] special marriage loan 2]
plc 3] cent comp 4]cent comp-ed 5]personal loan
All staff members including PTSK with three years service are eligible
subject to 1) not on loss pay for more than 30 days during 1 year prior to
date of sanction 2) not under suspension
Upto 2 lacs 9% and above 2 lacs 9.5%
Quantum of amount is based on the number of years of service
completed as well as number years of left over service
Fig in lacs
Actual years of
service
3 to 5 years
Above 5 years to
10 years
Above 10 years

Officers

Clerks

Sub-staff

2.0
3.0

1.50
2.00

1.00
1.25

4.0

2.50

1.50

Left over service

to retirement
Below 5 years
Below 4 years
Below 3 years
Below 2 years
Below 1 year

Officers

Clerks

sub staff

4.00
3.00
2.50
2.00
2.00

2.50
2.00
1.75
1.50
1.50

1.50
1.35
1.25
1.00
1.00

Canteen subsidy
Wef 01-04-2005 Rs 60/- per employee in MUMBAI, KOLKATA, CHENNAI &
DELHI
Other places Rs 50 per employee

Canteen subsidy is extended to all branches/offices irrespective of

number of employees
Reimbursement of cost of News paper-award staff aged 50 years and
above
Clerical Rs 60 per month 2) sub staff Rs 45 per month
Wef 16/06/2005, reimbursement of exam fees JAIIB RS 1500/-and CAIIB Rs
2000/Staff members who are RESIGNING are also eligible to encash PL at the
time of resignation
Max 50% of PL (available) or 120 days max
Staff members at the time of RETIREMENT leave to his credit (PL) or
maximum 240 days PL
LFC:
Officiating allowance for officers; 6% of pay (if officiated for a continuous
period of 7 days or aggregate of 7 days during calendar month

PAYMENT OF SUBSISTENCE ALLOWANCE RECOVERY TOWARDS LOANS

AND ADVANCES CO:PRS:2003-04:120 5th Nov 2003
(a) Deductions which can be made :
Income Tax, provided the employees yearly income
calculated with reference to the Subsistence Allowance is
taxable.
Recovery of Standard Rent/House Rent for providing Banks
Accommodation/Rent Reimbursement facility and recovery
towards provision of furniture, if any, provided at the residence
of officer.
Repayment of loans and advances taken from the bank at
such rates as may be decided by the Competent authority. For
this purpose, the competent authority shall be - Regional
Manager/Chief Manager (PRS), Zonal Office for award staff
and officers upto Scale III, Zonal Manager for officers in Scale
IV & V working in the Zone. The Competent authority while
deciding this aspect, should ensure that the member should get
a take home pay of at least 33.33% of the subsistence
allowance.

(b) Deductions which are optional and may be effected with the written
consent of the employee :
Premium/Contributions due on Life Insurance Policies etc.,
under Salary Savings Schemes.
Amount due to Co-operative Credit Societies.
(c) Deductions which may not be effected:

Professional Tax
Subscription to Provident Fund
Amount due on Court attachments
Recovery of loss to bank for which an employee is responsible.

Staff members who acquire AIII/FIII (Insurance Institute of India) will get
reimbursement of Rs 2650/Reimbursement of examination fees for JAIIB is 1500/- and for CAIIB is Rs
2000/-(on passing)
Classification of Branches
Category
Small
Medium
Large
Very large
Exceptionally large

Business figures(Average aggregate

deposits and advances during last
two years)
Less than 4 crores
4 crores to less than 25 crores
25 crores to less than 70 crores
70 crores to less than 175 crores
175 crores and above

Staff pensioners can open Joint account with their spouse to receive
pension
Bonus
Employees whose salary/wages do not exceed Rs 10000/- pm are eligible
for Bonus (for bonus calculation it will be taken as Rs 3500/- if wages
exceed Rs 3500/-)
DISCIPLINARY ACTION

1.

By the expression gross misconduct shall be meant any of the

following acts and omissions on the part of an employee.
(a)

Engaging in any trade or business outside the scope of his

duties except with the written permission of the bank;

(b)

unauthorized disclosure of information regarding the affairs of

the bank or any of its customers or any other person
connected with the business of the bank which is confidential
or the disclosure of which is likely to be prejudicial to the
interests of the bank;
Drunkenness or riotous or disorderly or indecent behavior on
the premises of the bank;

(c)
(d)
(e)

willful damage or attempt to cause damage to the property

of the bank or any of its customers;
willful insubordination or disobedience of any lawful and
reasonable order of the management or of a superior;

(f)

habitual doing of any act which amounts to minor

misconduct as defined below, habitual meaning a course
of action taken or persisted in, notwithstanding that at least
on three previous occasions censure or warnings have been
administered or an adverse remark has been entered against
him;
(g)
willful slowing down in performance of work;
(h)
gambling or betting on the premises of the bank;
(i)
speculation in stocks, shares, securities or any commodity
whether on his account or that of any other persons;
(j)
doing any act prejudicial to the interest of the bank or gross
negligence or negligence involving or likely to involve the bank in
serious loss;
(k)
(l)
(m)
(n)

giving or taking a bribe or illegal gratification from a customer

or an employee of the bank;
abetment or instigation of any of the acts or omissions abovementioned;
Knowingly making a false statement in any document
pertaining to or in connection with him employment in the
bank;
Resorting to unfair practice of any nature whatsoever in any
examination conducted by the Indian Institute of Bankers or
by or on behalf of the bank and where the employee is
caught in the act of resorting to such unfair practice and a
report to that effect has been received by the bank from the
concerned authority;

(o)

Resorting to unfair practice of any nature whatsoever in any

examination conducted by the Indian Institute of Bankers or
by or on behalf of the bank in cases not covered by the
above Sub-Clause(n) and where a report to that effect has
been received by the bank from the concerned authority
and the employee does not accept the charge;
(p)
Remaining
unauthorized
absent
without
intimation
continuously for a period exceeding 30 days;
(q)
Misbehavior towards customers arising out of banks business;
(r)
Contesting
election
for
parliament/legislative
assembly/legislative
council/local
bodies/municipal
corporation/panchayat, without explicit written permission of
the bank;
(s) Conviction by a criminal Court of Law for an offence involving
moral turpitude;
(t)
Indulging in any act of sexual harassment of any woman at
her workplace;
Note : Sexual harassment shall include such unwelcome
sexually determined behavior (whether directly or otherwise)
as
(a)
(b)
(c)
(d)
(e)
(u)

physical contact and advances;

demand or request for sexual favors;
sexually colored remarks;
showing pornography; or
any other unwelcome physical verbal or non-verbal
conduct of a sexual nature.
(For State Bank of India)

the giving or taking or abetting the giving or taking of dowry

or demanding directly or indirectly from the parent or
guardians of a bride or bridegroom, as the case may be, any
dowry.
2.

An employee found guilty of gross misconduct may;

(a)
(b)

be dismissed without notice; or

be removed from service with superannuation benefits i.e.
Pension and/or Provident Fund and Gratuity as would be due
otherwise under the Rules or Regulations prevailing at the
relevant time and without disqualification from future
employment; or

(c)

(d)

(e)
(f)
(g)
(h)

(i)
3.

be compulsorily retired with superannuation benefits i.e.

Pension and/or Provident Fund and Gratuity as would be due
otherwise under the Rules or Regulations prevailing at the
relevant time and without disqualification from future
employment; or
be discharged from service with superannuation benefits i.e.
Pension and/or Provident Fund and Gratuity as would be due
otherwise under the Rules or Regulations prevailing at the
relevant time and without disqualification from future
employment; or
be brought down to lower stage in the scale of pay up to a
maximum of two stages; or
have his increment/s stopped with or without cumulative
effect; or
have his special pay withdrawn; or
be warmed or censured, or have an adverse remark entered
against him;
or
be fined.

By the expression minor misconduct shall be meant any of the

following acts and omissions on the part of an employee:
(a)
(b)
(c)
(d)
(e)
(f)
(g)

(h)

absence without leave or overstaying sanctioned leave

without sufficient grounds;
unpunctual or irregular attendance;
neglect of work, negligence in performing duties;
break of any rule of business of the bank or instruction for the
running of any department;
committing nuisance on the premises of the bank;
entering or leaving the premises of the bank except by an
entrance provided for the purpose;
attempt to collect or collecting moneys within the premises of
the bank without the previous permission of the management
of except as allowed by any rule or law for the time being in
force;
holding or attempting to hold or attending any meeting on
the premises of the bank without the previous permission of
the management or except in accordance with the
provisions of any rule or law for the time being in force;

(i)

(j)
(k)
(l)
(m)

(n)
(o)
(p)

4.

Canvassing for union membership or collection of union dues

of subscriptions within the premises of the bank without the
previous permission of the management or except in
accordance with the provisions of any rule or law for the time
being in force.
failing to show proper consideration, courtesy or attention
towards officers, customers or other employees of the bank,
unseemly or unsatisfactory behavior while on duty;
marked disregard of ordinary requirements of decency and
cleanliness in person or dress;
incurring debts to an extent considered by the management
as excessive;
resorting to unfair practice of any nature whatsoever in any
examination conducted by the Indian Institute of Bankers or
by or on behalf of the bank in cases not covered by subclause (n) under `Gross Misconduct and where a report to
that effect has been received by the bank from the
concerned authority and the employee accepts the charge;
refusal to attend training programme without assigning
sufficient and valid reasons;
Not wearing, ,while on duty, identify card issued by the bank;
Not wearing, while on duty, the uniforms supplied by the
bank, in clean condition.

An employee found guilty of minor misconduct may:

(a)
be warned or censured; or
(b)
have an adverse remark entered against him; or
Have his increment stopped for a period not longer than six months.

IMPORTANT RISK WEIGHTS

[01.07.2008]

Cash balance with RBI.

Central / State Gov t. guaranteed
adv ances.
SSI Adv ances upto CGFT Guarantee.
Adv ances against Term Deposits, LIC
Policies, NSCs with adequate margin.
Gov t./Approv ed Securities.
Balance with other banks.
Secured loans to staff members.
Housing finance to indiv iduals secured by
mortgage upto 20 lacs.
Loans upto Rs. 1 lac against gold and sliv er
ornaments.
Loans guaranteed by DICGC/ECGC.
Housing finance to indiv iduals secured by
mortgage ov er 20 lacs.
Mortgage deed securitization of assets.
Forex and gold open position.
Loans to public sector units.
Other loans.
Consumer credit/ Credit cards.
Venture capital funds, SEZ Dev elopers,
Commercial Real Estates, and Capital
market.

0
0
0
0
2.5
20
20
50
50
50
75
77.5
100
100
100
125

150

PROVISION REQUIREMENT
[01.07.2008]

Direct Agri. SME Sector

Resi. Housing Loans
Personal loans, Credit Card receiv ables, capital market,
commercial real estate exposure, and loans and
adv ances to systematically important NBFCs.
All other loans and adv ances

0.25 %
1%
2%

.40%