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Staff College, Bengaluru

Small things make a Big Change

With Best Wishes from Staff College, Bengaluru

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Staff College, Bengaluru

Syllabus for Written Test:

1. Banking Routine
2. Law & Practice of Banking
3. Economics including Agricultural Finance

Compiled by
Hrishikesh Mishra
Staff College, Bengaluru

Disclaimer: This is our voluntary effort and every care has been taken to give up-to-date information based on the RBI & Banks
guidelines. However users are advised to go through banks circulars & guidelines for details.

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Performance as of March 2016: Our Banks vis--vis Peer Bank














































































10. 98



















6. 78


Cost to Income Ratio

NA: Figures not available.







Union Bank





Business Mix (in lac Cr)

Domestic B (in lac Cr)
Overseas B (in lac Cr)
Overseas B (%)
CASA((in lac Cr)









Op Profit (In Cr)



Net Profit (In Cr)




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Table of Contents
1. Reserve Bank of India Act, 1934 .................................................................... 6
2. Banking Regulation Act, 1949 ....................................................................... 6
3. Banker Customer Relationship ...................................................................... 7
4. Know Your Customer ................................................................................. 10
5. Negotiable Instrument Act ......................................................................... 31
6. Banking Ombudsman - BO ........................................................................... 36
7. Consumer Protection Act & Banking Business................................................... 37
8. Right to Information (RTI) .......................................................................... 38
9. BCSBI ................................................................................................... 39
10. Public Provident Fund Scheme .................................................................... 43
11. Senior Citizens Savings Scheme - 2004 (SCSS).................................................. 44
12. Sukanya Samriddhi Account (SSA) ................................................................ 45
13. Atal Pension Yojana (APY) ........................................................................ 46
14. Priority Sector Guidelines .......................................................................... 46
15. Government sponsored schemes .................................................................. 59
16. Balance Sheet Analysis .............................................................................. 66
17. IRAC Guidelines ....................................................................................... 69
18. Recovery Measures .................................................................................. 73
19. SARFAESIA ............................................................................................. 73
20. Recovery through DRT & Court .................................................................... 76
21. Lok Adalat ............................................................................................. 78
22. Revenue Recovery Act .............................................................................. 79
23. Foreign Exchange .................................................................................... 80
24. BASEL III & Risk Management ....................................................................... 95
25. Marginal Cost of Funds based Lending Rate (MCLR) ......................................... 101
26. Acronym ............................................................................................. 104

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Bank Rate
Cash Reserve Ratio
Statutory Liquidity Ratio
Repo Rate
Reverse Repo Rate
Base rate of our bank
BPLR of our Bank
SB Rate
MCLR w.e.f.01.06.2016

Important Rates
7.00 % w.e.f.05.04.2016
7.00 % w.e.f.05.04.2016
4.00 %
21.25 % (02.04.2016)
6.50 % w.e.f.05.04.2016
6.00 % w.e.f.05.04.2016
9.65 % w.e.f.05.10.2015
14.25 % w.e.f.01.03.2016
4 % w.e.f.03.05.2011
9.20, 9.25, 9.30, 9.40, 9.45, 9.50, 9.55
1D, 1M, 3M, 6M, 1Y, 2Y, 3Y

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Reserve Bank of India Act, 1934

Established as per recommendations of Hilton Young Commission
Sec 31 of RBI Act: Prohibits drawing, accepting, making or issue of any bill of exchange,
hundi, promissory note payable to Bearer on demand, except by Central Government or
Sec 33 of RBI Act: Assets of issue department of RBI shall consist of gold coin, gold
bullion, foreign securities, rupee coins and rupee securities. The aggregate value of gold
coin, gold bullion and foreign securities held shall not any time be less than Rs. 200 crore
of which gold coin and gold bullion not less than Rs. 115 crores.
Sec 42 of RBI Act: CRR: Banks are required to maintain certain percentage of Net Demand
and Time Liabilities as CASH with RBI.
No Floor or Ceiling rate for CRR w.e.f.01-04-2007. RBI will fix CRR rate. At present: 4%
RBI will not pay any interest to Banks on CRR balances w.e.f.31-03-2007.
Banks are required to maintain minimum CRR balances up to 70% of total CRR requirement
on all days of the fortnight. If it is not maintained, penal interest @3% above bank rate for
first day and second day onwards, Bank rate plus 5%.

Banking Regulation Act, 1949

Not applicable for Co-Op Banks, Land Mortgage Banks, Non Agricultural Primary credit
Sec 8 of BR Act Prohibits banks doing trading activities except in connection with
realization of security given to or held by it.
Sec 9 of BR Act: Bank cannot hold any immovable property howsoever acquired except
for own use, for a period exceeding 7 years from acquisition thereof. It can be extended
by RBI by another 5 years.
Sec 13: Payment of exchange, brokerage on shares: Max.2.5% of paid up value of shares.
Sec 17 of BR Act: Banking Company is required to transfer to Reserve Fund, 25% of profits
before declaring dividend.
Section 19(1) : Forming subsidiary by Bank
Sec 19(2) of BR Act: No Banking Company can hold shares in another company
whether as pledge, mortgagee or absolute owner of an amount exceeding 30% of the
paid up share capital of that company or 30% of its own paid up share capital and
reserves, whichever is less.
Sec 20 of BR Act: NO Banking company shall grant loans or advances on the security of its
own shares as it tantamount to reduction of capital.
Sec 21A: Rate of Interest charged by Banks is not subject to scrutiny of courts.
Sec 22 of BR Act: Obtaining a license from RBI by a banking company
Sec 24: SLR: Maximum 40%. No Minimum prescribed now (earlier 25%). RBI fixes SLR rate
periodically. Now it is 21.25% of NDTL.
SLR can be kept in the form of Cash or in gold valued at a price not exceeding the current
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market price, or in unencumbered approved securities valued at a price specified by RBI

from time to time.
Following are excluded from DTL: Paid up capital & Reserves, surplus balance
in P & L a/c, Refinance from RBI, Exim Bank, NABARD,NHB, SIDBI etc.,
Provision for Income Tax in excess of estimates, DICGC & ECGC claims
received & not adjusted. Amount received from insurance companies pending
judgment in courts, Amount received from court receiver. Interbank liabilities with
maturity from 15 days to 1 year. DTL in Offshore Banking Units.
As per Recent RBI instructions, Transactions in Collateralised Borrowing and
lending Obligation (CBLO) with Clearing Corporation of India Ltd (CCIL)
attracts SLR and CRR requirement. Now these liabilities are included for
calculation of DTL for CRR, SLR purpose.
Sec 26 of BR Act: Return on Unclaimed Deposits i.e. not operated for last 10
years, as on 31st December every year. Banks to submit to RBI within One
Sec 35 of BR Act: Banking Ombudsman, Clean Note Policy, KYC guidelines and
other customer service related matters.
Sec 45Y of BR Act: Preservation of Records.
Sec 45Z: Return of Paid Instruments to customers after a true copy of all
relevant parts of such instruments and by taking undertaking letter from the
party to preserve the instrument for 8 years.
Sec 45ZA to ZF: Nomination in Deposits, Safe Custody and Locker Accounts.
Sec 49A of BR Act: Restriction on acceptance of deposits withdrawable by
cheque by anyone other than Banking Company.

Banker Customer Relationship

Deposit in the Bank
Loan from the Bank
Purchase of Draft
Payee of Draft
Safe Deposit Locker
Safe Custody
Money deposited without any instructions
Collection of cheque and standing instruction
Sale/purchase of securities on behalf of
Articles left by mistake

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Duties of a Banker towards customer
1. Duty of secrecy
2. Duty to honor Cheques
3. Duty to submit periodical statements
4. Duty to collect Cheques / bills
1. Duty of secrecy
A bank is legally obliged to keep the affairs of his customers secret.
There is no need to have separate agreement for it; it is implied in banker customer
This is also mandatory as per section 13 of Banking Companies (Acquisition and Transfer of
Undertaking) Act 1970.
(A) Circumstances where disclosure is authorized by law:1. Order of the court.
2. Disclosure as per Income tax Act 1961and Gift Tax Act 1958.
3. Criminal Procedure Code 1973.
4. Other Acts giving similar power to authorities like 1) CBI 2) Custom Authorities 3)
Central Excise Authorities. 4) Sales tax Authorities.
5. Foreign Exchange Management Act
6. Companies Act -1956
7. Reserve Bank of India Act 1934 etc.
(B) Circumstances where disclosure is permitted as per banking practices:-1. Disclosure to another bank to supply credit information / opinion on Customers when
requested by another bank ----to be supplied on IBA `s format, in general terms, without
fixing banks signatures and in coded words as supplied by IBA among banks.
2. Disclosure as per express or implied consent of the customer.
(C) Disclosure in public interest
The obligation to maintain secrecy continues even if the account is closed or customer
expires. In case of unauthorized disclosure, the customer can sue the bank for damages and
any third party who relies on such information and suffered loss can sue the bank if the
information turns out to be false.
2. Duty to honor Cheques:
As per Section 31 of NI Act, a bank is bound to honour his customers Cheques if the following
three conditions are fulfilled.
a. There must be sufficient balance in the account
b. The balance must be properly applicable for the payment of the cheque.
c. The bank must be duly required to pay the amount
However this obligation to honor Cheques stands extinguished upon receipt of
a) Garnishee order
b) Income Tax Attachment Order

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Garnishee order and Attachment Order

Garnishee Order
Issued by Court of Law
Applies to balance in the account at the time
of receipt of order. Future credits are not
Applicable only when relationship is that
of debtor and creditor between the bank
and the customer
When issued in single name, does not apply
to a joint account of the judgement
debtor with others
When issued in joint names, applies to
individual accounts of judgment debtor with
When issued in the name of a partner in his
partnership a/c
When issued in the name of firm, applies to
individual account of partners
Applies to deceased accounts also
Bankers right of set off enjoys priority
Applies to all accounts including FD not due
Preference to Attachment Order

Attachment Order
Issued by Revenue Authorities
Besides balance in the accounts at the
time of receipt of order, it covers future
Applicable when relationship between the
bank and the customer is of debtor and
creditor at the time of receipt of order or
at a future date
When issued in single name, applies pro-rata
to joint account of the assesses with other
When issued in joint names, applies to their
individual accounts like a garnishee order
Same as garnishee order

Just like garnishee order

Applies to deceased accounts also
Bankers right of set off enjoys priority
Applies to all accounts including FD not due
Preference to Attachment order

The bank upon whom the order is served is called Garnishee.

Court first issues order nisi and then order absolute.
It does not apply to overdraft or cash credit account of the borrower as no debt is due to
judgement debtor.
Garnishee order can be issued to
Head office of Bank which will communicate
to branch within reasonable time.
ATTACHMENT ORDER without mentioning the amount is invalid order.
If Bank fails to comply with Attachment Order, it will be liable for the amount of order and
deemed as an assessee in default.

Rights of a Banker
1. Right of general lien
It can be exercised on the goods and securities of the debtor, which are received in the
capacity of a creditor. A banker can sell goods/securities after giving the debtor a
reasonable notice. In case of time barred jewel loan, bank has got a right to sell the
jewels and appropriate the amount to loan account and other dues of the borrower.
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2. Right of set- off
When a customer has credit balance in one account and debit balance in another account,
the banker has a right to combine both the accounts to arrive at net sum, is called right to
set-off. Debit balance should be due. Term deposits which are yet to mature are not
available for set-off. Both the balances should be held in same capacities of the customer.
Prior notice to customer to exercise right must be given.
3. Right of Appropriation
When a debtor owing several debts makes a payment, the creditor should appropriate it
as per the rules of appropriation.
4. Right to act as per the mandate of the customer
A mandate is just a simple letter of authority given by an account holder to the bank to
allow a certain named person to operate his account on his behalf. A mandate is given for
allowing somebody to operate the account; to make, draw, accept or otherwise sign bills
of exchange or other negotiable instruments or to overdraw the account whenever
The Joint Account opened by more than one individual can be operated by single individual or
by more than individual jointly. The mandate for operating the account can be modified with
the consent of all account holders.
Rights of a Customer

Right to Fair Treatment

Right to Transparency, Fair and Honest Dealing
Right to Suitability
Right to Privacy
Right to Grievance Redress and Compensation

Know Your Customer

Process of Money Laundering
The entire process of money laundering involves three stages;
a. Placement: In this stage large amount of cash generated through criminal activities is
sought to be introduced into the legitimate financial channels in small quantities through
transactions of small value often through Benami means.
b. Layering: In this stage the funds introduced into the financial channels are
moved/rotated through a number of accounts in order to mask the origins of the funds.
c. Integration: In this stage the layered funds are brought together in an account directly or
indirectly controlled by the owners of the tainted funds. Very often at this stage shell
companies purportedly dealing in exports/imports, real estate, casinos etc are used.
Obligations under Prevention of Money Laundering (PML) Act 2002
Section 12 of PML Act 2002 places certain obligations on every Branching company, financial
institution and intermediary, which include: - Strive Hard Make a Mark


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Maintaining a record of prescribed transactions

Furnishing information of prescribed transactions to the specified authority
Verifying and maintaining records of the identity of its clients
Preserving records

Definition of Customer
As per Prevention of Money Laundering Act, 2002, a Customer is defined as:
A person or entity that maintains an account and/or has a business relationship with
the Branch;
One on whose behalf the account is maintained (i.e. the beneficial owner);
Beneficiaries of transactions conducted by professional intermediaries, such as Stock
Brokers, Chartered Accountants, Solicitors etc. as permitted under the law
Any person or entity concerned with a financial transaction which can pose significant
reputational or other risks to the bank, say a wire transfer or issue of high value
demand draft as a single transaction.
Beneficial Owner
Beneficial Owners shall mean the natural person who ultimately owns or controls a client
and/or the person on whose behalf a transaction is being conducted, and includes a person
who exercises ultimate effective control over a juridical person.
It is mandatory to create Cust IDs of all beneficial owners (BOs) like Proprietor, Partners,
Directors, Authorised signatories in case of Clubs, Associations etc, Trustees, Karta and CoParceners.
When does KYC apply?
a. Opening of a new Deposit/borrowal account
b. Opening of a subsequent account where documents as per current KYC compliance not
submitted while opening the initial account
c. Opening a locker facility where documents are not available with the bank for all locker
facility holders
d. When bank feels it is necessary to obtain additional information from existing customers
based on the conduct of account
e. Periodic intervals based on instructions received from RBI
f. Where there are changes to signatories, mandate holders, beneficial owners, etc
General Guidelines

The information collected from the customer for the purpose of opening an account is to
be treated as confidential and details thereof are not to be divulged for cross selling or
any other purposes.
ii. The branches, therefore, to ensure that information sought from the customer is relevant
to the perceived risk, is not intrusive, and is in conformity with the guidelines issued in
this regard.
iii. Any other information from the customer shall be sought separately with his/her consent.
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iv. The Branch, at the time of commencement of an account-based relationship, shall
identify its clients; verify their identity and other information on the purpose and
intended nature of the business relationship.
v. Any remittance of funds by way of demand draft, mail/telegraphic transfer or any other
mode and issue of travelers cheques for value of Rs. 50,000 and above is to be effected
by debit to the customers account or against crossed cheques and not against cash
vi. In case of transactions carried out by a non-account based customer/ walk-in customer,
where the amount of transaction is equal to or exceeds Rs. 50,000, whether conducted as
a single transaction or several transactions that appear to be connected, the customer's
identity and address shall be verified.
vii. However, if a branch has reason to believe that a customer is intentionally structuring a
transaction into a series of transactions below the threshold of Rs.50,000/- the branch
shall verify identity and address of the customer and also consider reporting such
transactions through Regional Office to Principal Officer, KYC-AML Division for
considering filing a Suspicious Transaction Report (STR) to FIU-IND.
viii. The Branches shall verify identity of the customer for all outgoing international money
transfer operations.
ix. The Branches shall ensure that the provisions of Foreign Contribution (Regulation) Act,
2010, as amended from time to time, wherever applicable are strictly adhered to.
Key Elements of KYC Policy
KYC policy is framed incorporating the following four key elements:
a) Customer Acceptance Policy;
b) Customer Identification Procedures;
c) Monitoring of Transactions; and
d) Risk Management.
Customer Acceptance Policy (CAP)
i. No account shall be opened in anonymous or fictitious/ benami name(s)
ii. Categorization of customers in to low, medium & high risk on the basis of following:
Nature of business activity
Location of the customer and his clients
Mode of payments
Volume of turnover
Social and financial status
Annual income
iii. Documents for proof of identification & address shall be collected
iv. Not to open an account or close an existing account where the Branch is unable to
apply appropriate customer due diligence measures i.e. the Branch is unable to verify
the identity and / or obtain documents required as per the risk categorization due to
non cooperation of the customer or non reliability of the data/information furnished to
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the Branch.
v. However to avoid harassment to the customer, decision to close an account in such a
scenario shall be taken at a reasonably high level, for instance Deputy General Manager
(DGM) / Assistant General Manager (AGM) heading a branch or DGM / AGM at the
Regional Office or authority above them, after giving due notice to the customer
explaining the reasons for such a decision;
vi. Necessary checks shall be performed before opening a new account so as to ensure that
the identity of the customer does not match with any person with known criminal
background or with banned entities such as individual terrorists or terrorist
organizations etc.
vii. A profile for each new customer based on risk categorization is to be prepared while
opening the account which will contain information relating to customers identity,
social/financial status, nature of business activity, information about his clients
business and their location etc.
viii. The Branches shall apply enhanced due diligence measures based on the risk
assessment, thereby requiring intensive due diligence for medium and higher risk.
Enhanced Due Diligence
Enhanced due diligence should be carried out before opening an account of customer falling
under High Risk Category by following the procedure as under:
Gathering further details of the customer profile including beneficial owners and the
sources of income/ funds, by making personal visits to the customers location and
interviewing him/her.
Review and reconfirmation of the completeness and accuracy of KYC documents
submitted by the customer by the Branch Head by signing on the form and
indicating his / her views.
Net worth of the Company/individual and Income Tax Returns of previous year should
be obtained
For HNI, Wealth Tax Return or Personal Balance Sheet should be obtained (High Net
worth Individual is one whose net worth is Rs.5.00 crore and above. Their accounts
should be classified as Medium Risk.)
Customer Accounts Requiring Enhanced Due Diligence

Trust / Nominee or Fiduciary Accounts

Accounts of Companies and Firms
Accounts of Multi Level Marketing (MLM) Agencies
Client accounts opened by Professional Intermediaries
Accounts of Politically Exposed Persons (PEPs) resident outside India
Accounts of Non-Face-to-Face Customers
Accounts of Proprietary Concerns

Customer Identification Procedure (CIP)

Customer Identification means identifying the customer and verifying his/her identity by using
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reliable, independent source documents, data or information.
Customer Identification Procedure (CIP) shall be carried out at different stages, i.e., while
establishing a Banking relationship, carrying out a financial transaction or when there is a
doubt about the authenticity/veracity or the adequacy of the previously obtained Customer
Identification Data.
Information collected at the outset for Customer Identification purpose shall generally

The purpose and reason for opening the account or establishing the relationship
The anticipated level and nature of the activity to be undertaken
The expected origin of the funds to be used within the relationship
Details of occupation/employment and sources of wealth or income

Precautions to be taken while opening accounts:

i. No accounts should be opened without the personal presence and photograph of the
ii. Customers signature should be obtained in presence of the branch official
iii. Branches should ensure certification by putting a rubber stamp with the words Signature
of the account holder has been obtained in the presence of branch official at the
bottom under Bank use only
iv. True identity of a person and his credentials to be ascertained
v. Identification of documents and verification with originals
vi. Telephone calls/visits can be made to ascertain the genuineness.
vii. In case of current account opening- unannounced visit by one of the officers
viii. Technology support like Ministry of Corporate Affairs (MCA), Know Your PAN,
OFAC/UNSCAN available in UBINET can be utilized for cross verification. NRIs are
exempted from producing PAN and Form 60/61
Single document for proof of identity and proof of address




There is now no requirement of submitting two separate documents for proof of identity
and proof of address. If the officially valid document submitted for opening a bank
account has both, identity and address of the person, there is no need for submitting any
other documentary proof.
Officially valid documents (OVDs) for KYC purpose include: Passport, driving license,
voters' ID card, PAN card, Aadhaar letter issued by UIDAI and Job Card issued by NREGA
signed by a State Government official or any document as notified by the Central
Government in consultation with the regulator.
To further ease the process, the information containing personal details like name,
address, age, gender, etc., and photographs made available from UIDAI as a result of eKYC process can also be treated as an 'Officially Valid Document'.
No separate proof of address is required for current address

Relaxation regarding officially valid documents (OVDs) for low risk customers
If a person does not have any of the 'officially valid documents' mentioned above, but if is
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categorised as low risk' by the banks, then she/he can open a bank account by submitting any
one of the following documents:
a. Identity card with applicant's photograph issued by Central/State Government
Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled
Commercial Banks, and Public Financial Institutions;
b. Letter issued by a gazetted officer, with a duly attested photograph of the person
c. Passbook issued by Post Office
d. Pension Payment Order
Updation of Customer Identification Data/Customer Profile (KYC Updation)

For Low risk customers once in 10 years

For medium Risk customers once in 8 years
For High Risk customers once in 2 years
Fresh photographs will be required to be obtained from minor customer on becoming
Monitoring of Transactions
Ongoing monitoring is an essential element of effective KYC procedures. Banks can
significantly reduce the risk of money laundering if they have an understanding of the normal
and reasonable activity of the customer. Banks must pay special attention to all complex,
unusually large transactions and all unusual patterns which have no apparent economic or
visible lawful purpose. Very high account turnover inconsistent with the size of the balance
maintained may indicate that funds are being washed through the account.
a. At least for first six months, the account should be monitored in all respects.
b. Transactions with amount over Rs. 1.00 lac, should be authorized by accountant/Assistant
Branch manager or Branch manager
c. Care should be taken in collection of cheques in newly opened account
d. Cash deposit aggregating Rs.50000/- or more in a day- PAN number of account holder is a
must, if it not provided at the time of account opening.
e. Branches should also have a close watch on Money Mule transactions. In Money Mule
transactions, others accounts are used by terror outfits and individuals for transferring
funds or making transactions for a commission or rent.
Risk Management
The Bank is exposed to the following risks, which arise out of Money Laundering activities:
i.Reputation Risk
It is the risk of loss due to severe impact on Banks reputation. This may be of
particular concern given the nature of the Banks business, which requires
maintaining the confidence of depositors, creditors and the general market place.
ii. Compliance Risk
It is the risk of loss due to failure of compliance with key regulations governing the
Banks operations.
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iii.Operational Risk
It is the risk of loss resulting from inadequate or failed internal processes, people
and systems or from external events.
iv. Legal Risk
It is the risk of loss due to any legal action the Bank/Branch may face due to failure
to comply with the law.
Risk Classification

Low Risk Customers: - For the purpose of risk categorization, individuals (other than High
Net Worth) and entities whose identities and sources of wealth can be easily identified
and transactions in whose accounts by and large conform to the known profile, shall be
categorized as low risk.


Medium Risk Customers:-Customers that are likely to pose a higher than average risk to
the Branch or which are neither low risk nor High Risk shall be categorized as medium risk


High risk customers:- Customers, especially those for whom the sources of funds are not
clear or are in cash intensive business, such as accounts of bullion dealers (including subdealers), jewellers, dealers in wild life articles, Arms and Ammunition dealers, etc will be
categorized as high risk requiring enhanced due diligence

Permanent Account Number (PAN)

Following banking transactions have been specified under the Income Tax Rules for which PAN
should be quoted:
a. A Term Deposit exceeding Rs. 50,000/b. Opening an account with amount exceeding Rs.50000/c. Payment in cash for purchase of bank drafts or pay orders or bankers cheques for
an amount exceeding Rs.50000/- during one day.
d. Deposit in cash exceeding Rs.50000/- during anyone day.
e. Making an application for issue of a credit card
When the customer quotes his PAN, a copy of the PAN card issued by the Income Tax
department should be obtained and kept on record.
Cash Transaction
The maximum permissible cash transaction in an account in a day is Rs.10 lac (both receipts &
withdrawals). In case, a customer desires higher cash transaction levels, the same will have
to be approved for each account by the concerned Regional Office. For this purpose, the
branch will submit supporting evidences viz. Income tax returns, Sales tax returns or Sales tax
assessment orders or any other documents justifying higher levels of deposit/withdrawal of
In respect of Bullion dealers, the maximum permissible daily cash level has been fixed at
Rs.50 lacs. This will be available for the bullion dealers buying bullion directly from our bank.
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Transactions beyond this limit needs to get approved by IBD, CO.
Suspicious Transaction
Suspicious transaction means a transaction whether or not made in cash which a person
acting in good faith
(a) Gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime
(b) Appears to be made in circumstances of unusual or unjustified complexity or
(c) Appears to have no economic rationale or bonafide purpose
Certain transactions not in line with the profile of the customer
Certain behavior displayed by the customer during interactions
Analysis of exceptional transaction reports etc.
Maintenance and Preservation of Records
The Branch shall maintain the records containing information in respect of transactions
referred to in Rule 3 of the Prevention of Money-Laundering (Maintenance of Records, etc)
Rules, 2005.
The Branch shall maintain for at least five (5) years from the date of transaction between
the Bank and the client, all necessary records of transactions, both domestic or international,
which will permit reconstruction of individual transactions (including the amounts and types
of currency involved, if any) so as to provide, if necessary, evidence for prosecution of
persons involved in criminal activity.
The Branch shall ensure that records pertaining to the identification of the customer and his
address (e.g. copies of documents like passports, identity cards, driving licenses, PAN card,
utility bills, etc.) obtained while opening the account and during the course of business
relationship, are properly preserved for at least five (5) years after the business relationship
is ended.
The Branch shall maintain under Rule 3 of Prevention of Money-Laundering (Maintenance of
Records, etc.) Rules, 2005 the following information in respect of transactions

Nature of the transactions;


Amount of the transaction and the currency in which it was denominated;


Date on which the transaction was conducted; and


Parties to the transaction.

E-KYC is a screen-based interface that accepts Aadhaar number and fingerprint and sends it
to NPCI through bank's network. If the fingerprint is matched at UIDAI, the KYC data as
defined in their interface specifications will be returned. E-KYC application will display the
KYC data on screen and on acceptance; it will be saved into the database.
i. The solution also exports an interface that can be invoked by any client application to use
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e-KYC services. The client application will invoke the interface and submit the Aadhaar
number and the encrypted fingerprint as specified in NPCI specifications. The application
will use e-KYC interface of NPCI to get the e-KYC data. The interface will return KYC data
or error code based on the return value from NPCI.
ii. The application will store the KYC data in the DB identified by Aadhaar number.
iii. A separate process is available to extract the KYC data from the DB in the form of a flat
file that can be used by the banking application.

Reports under KYC

A. Suspicious Transaction Report (STR)
Suspicious Transaction Report (STR) has to be submitted by branch to Regional Office within
seven working days on being satisfied that the transaction is suspicious.
B. Cash Transaction Report (CTR)
a. All cash transactions of more than Rs.10 lakh or its equivalent in foreign currency
b. All series of integrally connected cash transactions exceeding Rs.10 lakh or its
equivalent in foreign currency in a month
c. CTR has to be submitted by Central Office to FIU-IND by 15th day of succeeding month
C. NPO Transaction Report (NTR)
All transactions involving receipt by non-profit organizations exceeding Rs. 10 lakh or its
equivalent in foreign currency
D. Counterfeit Currency Report (CCR)
All cash transactions using forged currency notes or valuable security or document. CCR has to
be submitted by the Branch to Nodal Currency Chest Officer. Simultaneously the
branches/currency chests have to report detection of fake notes to KYC AML Division, Mumbai
in the single page prescribed format. Delay and/or non-reporting may attract financial
penalty by FIU India Ministry of Finance, recoverable from erring officials as personal liability.
E. Cross Border Wire Transfer Reporting (CBWTR)
Every reporting entity is required to maintain the record of all transactions including the
record of all cross border wire transfers of more than Rs.5.00 laks or its equivalent in foreign
currency, where either the origin or destination of the fund is in India. Bank shall ensure that
the information of all such transactions shall be furnished to Director, FIU-IND by 15th of the
succeeding month.
Tipping Off
The Bank shall ensure that the customers are not to be informed (tipped off) at any level
that the account is under monitoring for suspicious activities and a disclosure has been made
to the appropriate statutory authorities.

Operational Guidelines on Deposit

Addition / Deletion / Substitution of Names
A. Addition/Deletion in the deposit accounts of individuals is permitted as follows:
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Single depositor - Addition is permitted at the written request of the sole depositor
Deposit in the joint names of two or more persons (including E or S , Any one or
Survivor), addition/deletion in the deposit account would be permitted at the written
request of all the depositors
If the request for addition/deletion of a name is received from the survivor(s), after
the demise
of one or more of the joint depositors, the legal heirs of the
deceased depositor(s) and the survivor(s) should give the consent letter.
In point no ii & iii noted above, at least one of the original depositors should continue in
the account.

B. No Addition/Deletion in deposit account of individual is permitted

In the case of a Former or Survivor account, no deletion of the Former is permitted
No addition or deletion of name(s) is permitted in the case of accounts in the names of
Change is not permitted if encumbered (attachment order/ garnishee order/taken as
After any change fresh nomination is to be obtained
Interest Rates
a. Interest will be paid on Term deposits only if had run for a minimum tenor of 7 days.
b. Senior Citizens will be eligible to get additional 0.50% for 1 year and above maturity
c. Staff and eligible ex-staff members will continue to get the benefit of additional 1% over
and above the card rate.
d. Eligible ex-staff members, who are senior citizens, will get the benefit of additional 0.50%
over and above the card rate plus 1% p.a. in ALL maturity buckets of 1 year and above.
e. Interest will be calculated at quarterly rests and paid quarterly except where mentioned
otherwise in specified schemes.
f. Interest paid in cash to the depositor should be noted on the reverse of the Receipt.
g. Interest payable will be rounded off to the nearest Rupee.
h. The rate of interest allowed for renewed deposit will be the appropriate rate applicable
to the period for which the Deposit is renewed, as on the ruling on the date of maturity of
the Deposit.
Deposits Maturing on Holiday
In case of reinvestment deposits and recurring deposits, bank shall pay interest for the
intervening Sunday/holiday/non-business working day (as also Saturday in case of NRE
deposits) on the maturity value. However, in the case of ordinary term deposits, the interest
for the intervening Sunday/holiday/non-business working day (as also Saturday in case of NRE
deposits) shall be paid on the original principal amount.
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As per Section 269 T of the Income Tax Act 1961(43 of 1961) repayment of deposits together
with interest aggregating Rs.20000/- (wef 1.4.1989) or more should be paid by an account
payee cheque or bank draft or by crediting the amount to the account, if any, of the
depositor with the Banking Company or Cooperative Bank.
FORM 60/61
i. In absence of PAN, Declaration in Form 60 / 61 can be accepted.
ii. In case of account in the name of minor who does not have any income chargeable to
income tax is opened, such person can quote the PAN of his/her father or mother or
guardian, as the case may be.
iii. The declaration in Form 60 / 61 received during the financial year in respect of term
deposits exceeding Rs.50,000/- received in cash shall be forwarded to the concerned
Director of Income Tax (Investigation) in two installments i.e. the forms received up to
30th Sept shall be forwarded by the 31st October of that year and the declaration till the
31st March shall be furnished latest by the 30th April of the same year.
Tax Deduction at Source (TDS)
i. TDS in respect of Domestic deposits U/s 194A of Income Tax Act 1961 Banks are required
to deduct tax at source either at the time of payment or credit of interest or at annual rest,
whichever is earlier, on term deposit in case the aggregate interest on term deposits held
by the depositor exceeds or is likely to exceed Rs.10000/- for a customer in a financial
ii. Such TDS is to be deducted at the applicable rates in force.
iii. In case the depositor is not liable to pay any Income Tax and where Form 15G/H is duly
furnished with PAN Number, branches should update the same in CBS promptly and give an
acknowledgement for having received the form, to the customer immediately.
iv. Tax on interest paid need not be deducted in respect of the following categories of deposits
a. Any banking company to which the Banking Regulation Act, 1949 applies, or any
cooperative society engaged in carrying on the business of banking (including a
cooperative land mortgage bank)
b. Any financial corporation established by or under a Central, State or Provincial Act.
c. The Life Insurance Corporation of India.
d. The Unit Trust of India.
e. Any Company or Cooperative Society carrying on the business of insurance. Such other
institution, association or body or class of institutions, associations or bodies which
Central Government may for reasons to be recorded in writing, notify in this behalf in
the Official Gazette.
f. Wherever any Central/State Government undertaking company approaches the bank
stating that they are exempt from deduction of tax and produces copy of the
Government Notification explicitly citing the name of the institution in the
notification, then tax need not be deducted at source.
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g. As per Section 196 of the IT Act, no tax need to be deducted in respect of interest
payable to the Government or Reserve Bank of India or A Corporation established by or
under a Central Act, which is under any law for the time being in force, exempt from
income tax on its income or a Mutual Fund Specified under Sec 10 (23D).
h. The income of a local authority viz. Panchayat, Municipality, Municipal Committee,
District Board or Cantonment Board which is chargeable under the head income from
house property or income from other sources in exempt from income tax under Sec
i. List of institutions which are notified under Section 194A (3) (iii) (f) of IT Act for the
purpose of non deduction of tax at source from interest credit credited or paid
thereto. The list is furnished by CBDT.
v. Interests earned on the following types of deposits are liable for TDS under Sec 194A of IT
1. Capital Gains Deposit Account Scheme 1988 which is in the form of Term Deposit
attracts TDS.
2. Accounts by Official Liquidator in the style Official Liquidator account are also liable
for TDS.
FORM 15G / 15H




TDS is not required to be deducted in respect of persons who submit declaration in Form
15G or Form 15H as per the provisions of Income Tax Act.
Form 15G may be submitted by an individual (other than Senior Citizen), HUF, Association
of persons, body of individuals, Trust or any other category of depositor (other than firm
& Company) whose total estimated income for the Financial Year is less than the taxable
Form15H can be submitted by an individual, who is a senior Citizen, provided he/she
declares in Form 15H that the tax on his/her estimated total income during the financial
year will be NIL.
Quoting of PAN number is made mandatory for acceptance of Form 15G or15H.
Non residents are not eligible to submit Form 15G or 15H.
Certificate from the Assessing Officer for lower/nil tax deduction
In cases of assesses like educational Institutions, hospitals, charitable institutions etc.
whose income is exempt from Income Tax, an application in Form No.13 has to be made
to the ITO (TDS) who after satisfying himself that the income of the applicant is exempt
will issue a certificate under Section 197.
If such certificate is produced, the branch can act accordingly and note the same in CBS.
Non deduction certificates u/s 197 are issued for prospective period and not applicable
for the period prior to the date of the issue of the Certificate.
The date up to which the Certificate is valid should be diarized manually for removal of
exemption in CBS system. (Exempt up to date in Finacle validation check)
Branches to ensure all the transactions (covered by submission of ITO certificates as
above) are reported in e-TDS quarterly returns (26Q & 27Q).

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i. PAN is required to be quoted in TDS certificate issued in Form 16A and in all the e-TDS
return submitted to the Income Tax Department and correction statements.
ii. Pan is required to be quoted to avoid higher deduction of TDS under Section 206AA of IT
Act. As and when a customer quotes the PAN number, the same has to be verified by the
iii. Invalid and incorrect PAN quoted in e-TDS return/TDS certificates will lead to levy of
penalty on the bank.
iv. Any wrong or invalid PAN quoted may lead to non-credit of TDS to customer.
v. Xerox copy of PAN Card of the customer is to be obtained, verified and preserved.
Premature Closure / Withdrawal
a) Unless expressly prohibited under a deposit scheme, premature withdrawal of deposit will
be allowed, irrespective of the period, it has run.
b) Premature withdrawal norms are governed by norms of mandate/s.
c) No interest will be paid on term deposit, which remains with the bank for less than 7
d) For deposits which have run for 7 days and above, interest will be paid at the rate
applicable on date of deposit for the period for which it has actually remained with the
bank or the contracted rate whichever is lower without charging any penalty for
premature withdrawal.
e) With effect from 17.4.2014 Penal interest rate of 1% for premature closure of term
deposits is withdrawn.
Premature withdrawal of deposit in the name of minor
In guardian operated minor account
a. In case of death of the minor, the amount will be withdrawn by guardian and account will
be closed.
b. Premature withdrawal can be allowed provided the amount is to be utilized for the
benefit and in the interest of the minor
c. If guardian has died (minor alive) the balance is to be paid to the minor when he attains
majority. Alternatively, the next guardian can operate the account.
Renewal of Term Deposit
a. Renewal instruction by depositors can be at the time of opening the account or anytime
before the maturity of the deposit for the period of their choice.
b. In the absence of any instructions from customer, the bank will renew the deposit on due
date for the same period for which the matured deposit was placed.
c. However the deposit will have an option to change the auto renewal period within 14 days
from the date of maturity with value dated effect for such period.

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d. Request for change of the auto renewal period received after 14 days from the date of
maturity will be treated as premature renewal of deposit.
Renewal before Maturity
a. In case the depositor desires to renew the deposit by seeking premature closure of an
existing term deposit account, the renewal at the applicable rate on the date of renewal
will be permitted, provided the deposit is renewed for a period longer than the balance
period of the original deposit.
b. While prematurely closing a deposit for the purpose of renewal, interest on the deposit
for the period it has remained with the bank will be paid at the rate applicable on the
date of deposit to the period for which the deposit remained with the bank and not at the
contracted rate
Issue of Duplicate Deposit Receipts
i. If a term deposit receipt is lost, stolen, destroyed, mutilated or defaced, the person
entitled thereto may apply for the issue of a duplicate receipt to the branch from where
the receipt was issued.
ii. Every such application shall be accompanied by a statement showing particulars, such as
number, amount and date of receipt, and the circumstances leading to such loss, theft,
destruction, mutilation or defacement.
iii. Wherever applicable a Consent letter of legal heirs of the deceased depositor is to be
iv. Officer shall verify the signature/s of the depositor/s on the application.
v. Loss, theft, destruction, mutilation or defacement of the certification to be recorded in
the system
vi. If the concerned Branch Manager is satisfied of the loss, theft, destruction, mutilation or
defacement of the certificate, he shall issue a duplicate receipt on the applicant
furnishing an indemnity bond in the prescribed form with one or more approved sureties
or with a bank guarantee; provided that where such application is made with respect to a
deposit receipt mutilated or defaced, of whatever face value, a duplicate receipt may be
issued without any such indemnity bond, surety or guarantee, if the receipt mutilated or
defaced is surrendered and the receipt is capable of being identified as the one originally
vii. The duplicate receipt is to be printed from the system and labelled DUPLICATE ISSUED
IN LIEU OF ORIGINAL and the same to be handed over to the depositor/s against
Who can open SB account?
i. Individual: Individual who is having the contractual capacity can open the account for the
purpose of saving, wage, salary, scholarship, pension, etc.

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ii. Minor under the guardianship. Minor at the age of 10 years or more can open and operate
the account independently with prescribed limits. One time undertaking from guardians
while opening of account is required.
iii. Non-Profit making companies licensed under Sec 25 of Companies Act 1956 e.g., Chamber of
Commerce, IBA, Rotary Club, etc
iv. Society registered under Societies Registration Act 1860 or any other corresponding Law in
force in State or Union Territory.
v. Primary Co-operative Credit Society which is being financed by bank
vi. Khadi and Village Industries Boards
vii. Agriculture Product Market Committees
viii. Companies governed by the Companies Act 1956 which have been licensed by the Central
Govt. under section 25 of the said Act or under the corresponding provision in the Indian
Companies Act 1913 and permitted not to add to their names the word Limited or the
words Private Limited
ix. Government Departments/bodies/agencies in respect of grants / subsidies released for
implementation of various programmes/schemes sponsored by Central Govt. subject to
production of an authorization from the respective Government Departments to open
savings accounts.
x. Any trust or institution whose entire income is exempt from payment of income tax.
xi. Institutions other than those prohibited from opening a Savings Bank Account and whose
entire income is exempt from Payment of Income tax under Income Tax Act 1961.
xii. HUF not engaged in business activity: The HUF which is not engaged in any business activity
and only for the purpose of saving are eligible to open the SB accounts.
xiii. Development of Women and Children in Rural Areas (DWCRA)
xiv. SHGs, Farmers Club: Self Help Group and Farmers Club can open the SB account in which
the contribution from members, interest, donation, etc can be deposited.
Who cannot open SB account?
i. Any trading or business concern, (e.g. firms of Chartered Accountants, Lawyers, etc)
whether such concern is proprietorship, Partnership, Company or Association.
ii. Government depts. /bodies depending upon budgetary allocations for performance of their
iii. Govt. Department, Municipal Corp., Panchayat Samitis, State Housing Board, State
Electricity Board, Industrial Development Authority, Water / Sewerages / Drainage Board,
State Text Book Publishing Corporation, Metropolitan Development Authority, Housing Cooperative Society, etc
iv. Regional Rural Banks, Cooperative Banks and Land Development Bank.
v. Any political party

Types of Customer
According to Section 3 of Indian Majority Act 1875, a Minor is a natural person who has not
completed the age of 18 years. Where, however a legal guardian of the person or property
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of a minor has been appointed by a Court of Law before he has attained the age of 18
years, he attains majority on completion of 21 years.
A major is a person who has attained the age of 18 years.
Sec 11 of Indian Contract Act: Minor is not competent for contract and contract with
minor is void ab initio.
Sec 183 of Indian Contract Act: A Minor cannot appoint an agent. A Minor cannot delegate
powers to others. A Minor can be appointed as an agent and bind his principal.
Sec 26 of NI Act: A minor can draw, endorse or negotiate a cheque or bill but he cannot be
liable. Other parties to that instrument are liable.
A Minor cannot appoint Nominee. A minor can be appointed as nominee.
A Minor cannot become a partner but can be admitted to benefits of partnership
firm. On attaining majority, within 6 months, he has to exercise his option to continue in
partnership. If he is silent, he is liable ab initio. A minor cannot stop payment of cheque
issued by partnership firm.
Minor account operated by guardian: On minor attaining majority, we should
not pay cheques signed by guardian, though the cheque is dated prior to
attaining majority
Mother as guardian of Minor: Permitted by Supreme Court: Even if father is
alive, mother can open and operate all types of deposit accounts of minor. A Minor can
operate accounts
attaining 10
years age
he is
literate. Joint accounts of 2 minors can be opened provided both are at least 10 years age
and literates, belonging to same family and operation jointly
Account in the sole name of minor
a. A person is a minor who is 10 years or more and can read and write.
b. He should appear competent to transact business.
c. No account should be opened in the name of a minor who is blind (even if he is more
than 10 years old) to be operated by himself.
d. Minor should come personally to withdraw the amount from his account.
e. In ordinary course no chequebook should be issued. However, if it is issued, it should
be affixed with a rubber stamp encashable by self at counter only
f. Date of birth of minor should be noted on the account opening form and should be
verified by the bank.
g. In case of term deposit, the maturity date of the deposit should not be earlier than
the date on which the minor attains majority. In such cases, relaxation has been
allowed for accepting deposits beyond 10 years. Further, no loan or premature
payment should be allowed till the minor attains majority.
h. In the event of death of a minor during his/her minority, the balance in the account
can be paid to natural guardian, as it is generally believed that the natural guardian
could have provided money for opening account to the minor.
Minor cannot delegate authority in self operated accounts.
In case of Joint accounts with minor and guardian, we can accept either or
survivor operation condition. It will be in dormant till minor attains majority
and on attaining majority, he can also operate the account.

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A bearer cheque presented for cash payment by minor may be paid as a

minor can give a valid discharge in the capacity of Payee.
When a loan has been raised on a term deposit in the name of major person,
his request for addition of the name of minor cannot be entertained.
Minor cannot be declared as insolvent
As per Sec 6 of the Hindu Minority and Guardianship Act, 1956, father is the
natural guardian of a Hindu Minor boy or an unmarried girl and after him, the
In case of married Hindu minor girl, her husband is the natural guardian. If
husband is minor or minor girl becomes widow, her father in law and after
him the mother in law will be the guardians though they are not natural
When a guardian of a Hindu minor ceases to be a Hindu or he becomes a
hermit or sanyasi, he ceases to be natural guardian.
Guardian appointed by father of a minor, is called as Testamentary Guardian
and testamentary guardian will come into picture only after death of father. As per personal
law applicable to Muslims, father is natural guardian. A muslim father can appoint a
testamentary guardian and even mother of a muslim child can be testamentary guardian.
If father dies without leaving behind a will, fathers father i.e. Paternal
grandfather is the guardian. If father appoints testamentary guardian, testamentary
guardian will have priority.
After death of paternal grandfather, testamentary guardian appointed by paternal
grandfather will be guardian. If grandfather not appointed any testamentary guardian and
dies, then court will appoint testamentary guardian.
Declaration given by natural guardian is sufficient proof of date of birth.

Partnership account:
As per companies act 2013, the number of partners can be 100 (Earlier this
number was restricted to 10 for Banking Business and 20 for business other
than banking.)
NBFC, HUF, Minor, Insolvent, Insane & alien enemy cannot become a partner in partnership
NBFCs are prohibited from contributing capital to any partnership firm/LLPs/Association
of Persons or to be partners in partnership firms/LLPs/Association of Persons and in case
of existing partnership firms/LLPs/Association of Persons, NBFCs shall seek early
retirement from the partnership firms. Each partner is an agent of the firm and also agent
for other partners
Partners are jointly and severally liable for all the acts
One partner has the power to countermand (stop payment) the cheque given
by other partner.
Dissolution of the firm : Death, insolvency, retirement of a partner - causes dissolution
If account is having credit balance, the remaining partners can give a valid discharge to
the bank.
If the account is having debit balance, operations should be stopped to decide the liability
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of the deceased /insolvent/retired partner. Otherwise, the rule in Claytons case will
A registered partnership firm can sue others to enforce its rights arising out of contractual
An unregistered firm cannot sue others in its own name though others can sue it in its
name.(sec 69 of Indian partnership Act 1932)
Any partner including sleeping partner has authority to stop payment of a cheque issued
by another partner of the firm. However, revocation of stop order requires signatures of
all partners on revocation letter.
A partner, being agent of partnership firm, cannot delegate his authority to an outsider
without the written consent of all other partners.
The first item on the debit side will be the item to be discharged or reduced by the subsequent
item on the credit side. The credit entries in the account adjust or set off the debit entries in
the chronological order.
Joint Stock Companies:
Private Limited Company:
Number of members - maximum 200, min.2
General public can not contribute to the capital of the company
Number of Directors: min.2 maximum - No Ceiling
Minimum paid up capital - Rs.1.00 lakh
Public Limited company:
Affairs of the Public limited company will be managed by min.3 Directors &
maximum no ceiling.
Companies Limited by Shares: Minimum 7 members. No maximum ceiling. If
number of Directors exceeds 15, they have to seek central government
Minimum paid up capital - Rs.5.00 lakh
One Person Company

Concept of One Person Company (OPC limited) introduced by way of Company Bill 2013.
Number of Director 1
Memorandum of Association:
Constitution of the Company and it establishes the relationship of the
with the rest of the world.
Company cannot go beyond the
memorandum. It contains:
Name of the Company with Ltd as last word,
Registered Office address or State in which the registered office of the
company is situated,
Object/objectives of the company
Authorised Capital/Issued capital of the company
Limited liability clause
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Borrowing powers of the company

For alteration of memorandum, special resolution with 3/4 th majority in
general body meeting will be passed and approval from Central Govt is
Any violation of memorandum is ultravires of the company and intravires of
the directors ie company is not responsible for violation and directors are

Articles of Association
These are by laws and internal rules and regulations of the company.
Articles are indoor management of the company.
Borrowing powers of directors, procedures for appointment and removal,
retirement and rotation of directors
Articles can be amended by general body resolution. If the borrowing powers
are silent, still the company can avail the loan because every trading
company has the implied powers to borrow.
Certificate of Incorporation: Registrar issues this certificate. This is birth certificate of
Certificate of Commencement of Business:
This is issued by Registrar of companies after it is satisfied that certain
minimum capital has been subscribed by the public.
This certificate is not required in case of private limited companies.
Other matters relating to companies:
Borrowing powers of company: Private ltd company - Unlimited powers.
Public Ltd Company: Borrowing powers up to paid up capital plus free reserves of
the company. If requires more than this, consent of shareholders in general body meeting
is required.
Death of a Director: does not affect the operations in the account.
The Directors cannot delegate their authority to any other person
Charge creation is required to be registered when charge created on by way
of Hypothecation of stocks, book debts, mortgage of immovable properties,
ship, goodwill, uncalled share capital of the company.
Charge registration is not required in case of Pledge of goods or securities or
against Fixed Deposits.
Section 125 of Companies Act:
Charges created on a companys assets
(except pledge) have to be registered with Registrar of Companies within 30
days of creation of the charge.
ROC can grant extension of 30 days in filing particulars of charge under Sec 125. Company
is required to pay additional fees not exceeding 10 times of specified fees. Beyond this
period, permission from Company Law Board is required.
A person cannot have more than 15 Directorship concurrently (Sec 275 of companies Act)
Getting charge registered is companys responsibility. If company getting failed to
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register charge, as creditor, bank can register charge.

Non Filing of particulars/ non-registration renders the bank as unsecured creditor and
loan becomes payable immediately.
When charge in favour of two banks is registered, priority of charge is in favour of bank,
in whose favour it is created first i.e. date of documents.
Form CHG-1 - New Loan (new Charge) & Modification of existing charge
Form CHG-4 - Satisfaction of Charge.

Under Mitakshara School of Hindu Law, HUF can be formed by the Hindus, Sikhs, Jains and
The eldest coparcener including Female is Kartha. All male and female major members are
The eldest member will be KARTHA even if he/she lives outside India. Kartha
can appoint any other coparcener or third party to conduct business of HUF.
Coparcener cannot stop payment of cheque unless he is authorized to
operate the account.
Kartha alone has the power to incur debts for family business and legal necessity of the
Supreme Courts judgment: "A HUF directly or indirectly cannot become partner of a firm
because the firm is an association of individuals. HUF is a floating body whose
composition changes by births, deaths, marriages and divorces. A HUF not being a legal
person cannot enter into an agreement of partnership
Unless specifically provided for in the trust deed, No trustee or trustees can
raise loans against the security of the assets of trust.
Trustees cant delegate powers to outsiders even with mutual consent.
Death or insolvency of trustee does not affect the trust property and the bank
can pay cheques issued by the trustee prior to his death.
Limited Liability Partnership (LLP) Account

LLP is a hybrid corporate form entity, combining the features of existing

partnership firms and limited liability companies.
LLP is a body corporate & legal entity separate from its partners.
It has to suffix Limited Liability Partnership or LLP with its name.
It is liable to the full extent of its assets. The liability of the partners would be
limited to their agreed contribution to the LLP.

Two or more persons can form a LLP.
No upper limit on the number of partners in an LLP
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A body corporate (including a LLP) can be a partner in LLP.

Change of partners will not affect existence, rights or liability of LLP.
Conversion of a partnership firm or a private limited company or an unlisted public
company into LLP is allowed.
HUF cannot become a partner in LLP.
A minor cannot be a partner in LLP.
Registration: Needs registration with Registrar of Companies (ROC).
Types of accounts: Current & Term Deposit accounts.
LLP cannot be converted into a company or partnership firm.
A Private Company and an Unlisted Public Company can be converted into an LLP as per the
provisions of the LLP Act.
A partnership firm may be converted into an LLP in accordance with the provisions of
the Second schedule of the Act.
There is no provision under LLP act for registration of charges with ROC.
Mandate and power of attorney
A mandate does not require witnessing or stamping.
Power of Attorney is stamped as per Stamp Act as applicable in concerned State. It must
be registered or notarized.
Any cheque signed by agent and presented for payment after cancellation of authority shall
not be paid.
Power of Attorney or Mandate is revoked by death, insanity, insolvency of the Principal.
In case cheque issued by the agent is presented for payment after his death,
the same can be paid so long as the principal is alive, provided the same is
dated prior to date of death of agent.
Executors and Administrators:
a. Executors and Administrators are persons who are appointed to administer assets of a
b. An executor is appointed by a will and can open account only if he holds a probate issued
by the Court on the basis of will.
c. When the deceased has not left any Will, the Court appoints Administrator through Letter
of Administration.


Section 45ZA & 45ZB of BR Act - Nomination in Deposit Accounts

Section 45ZC&D : Nomination of Safe Custody articles
Section 45ZE&ZF: Safe Depositor Lockers Nomination facility
Status of Nominee: trustee for legal heirs.
Nomination can be for individual accounts and proprietorship accounts only and not for
partnership accounts, companies, trusts, societies, HUF.
Only an Individual can be nominee. He can be Resident or Non Resident, Minor or even

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insolvent person.
In Case of Safe Custody Article-Single nominee only. In case of Joint Lockers with joint
Operations, there can be 2 nominees.
A Minor cannot appoint nominee. On his behalf nomination facility can be exercised by the
person legally competent to act on behalf of the minor.
In case of accounts in the name of single persons, nomination must be obtained. If the
depositor does not want to nominate anybody, a written letter should be obtained from
him in this regard.

Negotiable Instrument Act

Applicable to whole India including Jammu & Kashmir

Negotiable Instruments recognized as per NI Act, sec 13: Promissory notes,
Bill of exchange and cheques.
Bank Drafts, Certificate of Deposit and
Commercial Papers are also treated as Negotiable instruments.
Holder: Sec 8 of NI Act: A person entitled in his own name the possession
thereof and to receive the amount due thereon from parties thereto.
Holder in due course: who receives the negotiable instruments for value and in good faith
If neither Bearer nor Order is written on negotiable instrument, it is treated as payable to
If both are written i.e. Bearer and Order and none is struck, then it is payable to BEARER
As per Section 31 of RBI Act, 1934, no person other than Central Government
or Reserve Bank of India or any other person authorized in this behalf, can
issue bearer promissory notes and demand bills of exchange payable to
Section 20 of NI Act: Inchoate Instrument: An instrument on which date, payee
or amount is not mentioned, it is inchoate instrument. It can be completed by
the holder and the completion is not treated as material alteration.
An instrument without signature is not treated as an instrument at all.
Ambiguous instrument: An instrument which can be treated as bill of
exchange or Promissory note. Holder can treat it as BoE or PN
Bearer instrument is negotiated by mere delivery
Order instrument is negotiated by endorsement followed by delivery
An instrument which is endorsed by deceased Person. Legal heirs cannot
complete negotiation by delivery.
Sec 15 of NI Act: Endorsement: Signing of an instrument on the back or face
thereof or on a slip or paper annexed thereto for the purpose of negotiation is
called endorsement.
Blank endorsement: It makes an instrument drawn originally payable to Order
to Bearer.
An endorsement in which the endorser himself becomes endorsee is called
as back to back endorsement. In this case, the endorsee can recover the amount only
from parties prior to his own endorsement.
When a drawer of a cheque himself becomes endorsee, it is called Negotiation

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Back. This cheque is treated as Satisfied.

Endorsement can be made only for full amount. But in case part payment has been
received and a note to that effect is made on the instrument, then the same can be
endorsed for the balance amount.
Sec 85 of NI Act: PROTECTION TO PAYING BANKER: Paying Banker is concerned about
regularity of endorsement and not its genuineness.
Sec 10 of NI Act: PAYMENT IN DUE COURSE: Payment in accordance with apparent tenor
of the instrument, with good faith and without negligence.

Payment of a Cheque:

Form of cheque has not been given in the Act (CTS 2010 STD)
Different Ink: A cheque can be drawn in different inks, different handwritings
different scripts. It can be paid
The cheque should be written in Hindi or English or Regional language
Date: A cheque dated prior to its date of its presentation is called ante dated cheque and
can be paid within 3 months from the date of issue.
Post dated cheque means a cheque which is dated subsequently to the date of
Both ante dated and posted dated are valid as per Law. A post dated cheque
can be
passed only on the date written on it or within 3 months thereafter.
A cheque becomes stale after 3 months of its issue
A drawer of a cheque may reduce the validity of the cheque for less than 3 months. Such
cheque should not be paid after that validity period.
The drawer can revalidate the cheque any number of times.
A cheque with impossible date like 31-06-2010 should be paid on the last day of the month
or within 3 months of the last day of the month.
A cheque dated prior to the date of opening the account or prior to issue of cheque book
can be paid if otherwise is in order.
Sec 18 of NI Act: If the Amount in words and figures differs, the amount written in words
will be the amount intended to be payable. Amount in words can be paid.
If the balance available in the account is just equal to the amount of cheque, the cheque
can be paid.
If numbers of cheques are presented at the same time and the balance is not sufficient to
pay all the cheques, then normally priority is given to cheques
authorities, then cheques favouring public authorities. If balance is left, maximum number
of cheques should be paid taking care that cheque of very small amount is not
Sec 65 of NI Act: Banking Hours: The payment of a cheque should be made only during
banking hours. Otherwise, it will not be a payment in due course. Reasonable amount can
be paid to DRAWER even after business hours
If there is any mutilation of the cheque, it should be confirmed by the drawer.
Material Alteration: Any change in date, amount or name of payee is called material

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alteration. The change from Order to Bearer, Cancellation of Crossing or converting Special
Crossing into general crossing is also called as material alteration.
Bearer to Order, Crossing a cheque, converting general crossing to special crossing is not
material alteration.
If any material alteration on a cheque, it can be paid only after confirmation from drawer
i.e. drawer has to authenticate material alteration with full signature.
Sec 89 of NI Act: Paying banker gets protection in case of payment of materially
altered cheque if the alteration is not apparent at the time of payment and payment
has been made in due course.
If The Payee Is Fictitious Person: Cheque can be paid to bearer if it is payable
bearer. If cheque is payable to order, it can be paid only to drawer.
Bearer Or Order: If cheque is payable to Bearer or Order, it can be paid to bearer. If
neither bearer nor order is written, it is payable to order.
If there is Forgery In Signatures, such instrument is null and void. Paying banker will not
get protection if it pays such a cheque even though the drawer might have been
careless in custody of the cheque book or bank might have sent statement of account
and customer did not point out the mistake.
If the cheque has been signed by the drawer himself but in a different fashion, the
banker will not be liable.

Sec 123 of NI Act: If a cheque or draft bears across its face addition of two parallel
transverse lines with or without addition of words and Company or any
thereof, it is called General Crossing.
General Crossing is direction to PAYING BANKER to pay the cheque or draft through some
Even if the name of a city is written between two parallel lines like Delhi, it will
continue to be a general crossing and the cheque can be paid to any bank.
Sec 124 of NI Act: When a cheque or Draft bears the name of bank across its face with or
without two parallel transverse lines either with or without the words Not Negotiable it
is said to be specially crossed.
A cheque with special crossing can be paid only to the named bank or his authorized
agent for collection
The special crossing is in favour of a Bank and not in particular of Branch.
The act does not restrict the payment of a Crossed Cheque to the banker in cash.
For special crossing, it is not necessary that the cheque should bear two parallel lines.
Provisions to crossing are applicable only to cheques and drafts and not to Promissory Note
and Bill of Exchange.
Sec 127 of NI Act: A cheque crossed to two banks has to be returned unpaid unless crossed
by one bank to another as his agent for collection.
Account Payee crossing is not recognized by law but is a long standing practice among
Account Payee Crossing is direction to COLLECTING BANKER. Cheque should be credited to
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named payee.
Not Negotiable Crossing takes away an important characteristic of negotiability.
It can be transferred, but the transferee does not get better title. (Sec 130)
Cancellation of crossing can be done by drawer only under his full signatures
writing the words crossing cancelled. In such cases, payment can be made in cash to a
person known to the Bank.
Sec 128 of NI Act: Paying banker will get protection in respect of crossed cheques or
drafts provided the instrument has been paid in accordance with the requirement of the
crossing and payment has been made in due course
Sec 129 of NI Act: If a banker pays a cheque in violation of the crossing direction, it
shall be liable to true owner of the cheque for any loss he may sustain owing to payment
of the cheques
Sec 131: Protection to collecting banker, against the risk of Conversion. Conversion is
illegal interference with rights of true owner of instrument inconsistent with his rights
of ownership. Such protection is available to banker: when cheque/draft is crossed
before it is lodged with bank for collection, the bank receives payment for his
customer, the bank acts as
agent for collection and not as holder for value and it
receives payment in good faith and without negligence. As per amendments made
to the
Negotiable Instrument Act , 1881 by virtue of Negotiable Instruments
(Amendments and Miscellaneous Provisions) Act, 2002 whereby among others
Sections 6,64,81,89 and 131 of the NI Act, 1881 are also suitably amended to incorporate
the validity of the truncated image of the cheque. As per the amendment It shall be the
duty of the banker who receives payment based on an electronic image of a truncated
cheque held with him, to verify the prima facie genuineness of the cheque to be
truncated and any fraud forgery or tampering apparent on the face of the instrument
that can be verified with due diligence and ordinary care
Dishonor of cheques due to insufficient funds:
Recommended by Rajamanar Committee. Wef 01-04-1989.
Sec 138 of NI Act: If a cheque drawn by a person on an account maintained by him with a
banker for payment of any amount of money to another person
for the discharge, in
whole or in part of any debt or other liability, is returned by the bank unpaid, either
with the reason funds insufficient or similar reason, such person shall be deemed to
have committed an offence.
Maximum punishment: 2 years imprisonment or twice the amount of cheque or both.
As per Supreme Court judgement, cheques dishonoured on account of the payment being
stopped by the drawer or account being closed will attract penalty under Sec 138.
Conditions are to be satisfied for applying sec 138: A) cheque has been presented to
the banker with in a period of 3 months (w.e.f.01.04.2012) from the date on which it is
drawn or within the period of its validity whichever is earlier. B) Cheque has been
received for consideration. C) The payee or holder in due course of the cheque makes
a demand for the payment of the said amount of money by giving notice, in writing to
the drawer, of the cheque, within 30 days of the receipt of information by him from
the bank regarding return of cheque. D) The drawer of cheque fails to make the
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payment of the said amount, to the holder in due course of the cheque, within 15 days of
the receipt of the said notice.
Sec 141 of NI Act: In case of a company, every person, who at the time of offence was
committed, was in charge of and was responsible to the company for the conduct of
business of the company as well as the company shall be deemed to be guilty of
offence. Nominee Directors shall not be responsible.
Complaint should be made in the court of a metropolitan magistrate or a Judicial
magistrate of first class or above within one month of the date of cause of action, i.e.
payment not made within 15 days.
Banks cheque returning memo having official mark of the bank shall be presumed to be
proof of dishonor of cheque. Same rights and remedies will be available to the payee
against dishonour of electronic funds transfer as are available to the payee under Section
138 of the Negotiable instruments Act, 1938.

Bill of exchange:
A Documentary bill is one which is accompanied by any document of title to goods like LR,
RR, Bill of Lading etc.
Accommodation Bill means a bill issued without consideration. Dealing in such bill is
called as Kite Flying.
If in a bill of exchange or promissory note, interest rate is not mentioned, it will be 18%
To accept bill, drawee is allowed 48 hours excluding public holidays to accept the bill.
If a usance bill is payable after date, its due date is calculated from the date of bill and if
it is payable after sight, its due date is calculated from the date of acceptance.
Sec 22 of NI Act: 3 days grace period is allowed in the case of Usance Bills. If the due date
is fixed on a particular day, no grace period.
Sec 25 of NI Act: If a bill matures for payment on public holiday, it falls due on
immediate next preceeding business day.
If the drawee does not accept the bill within stipulated period, it is treated as
dishonoured by non acceptance. If is not paid on due date, it is dishonor by non-payment.
If the dishonor is got certified from Notary Public, such certificate is called a Protest. (Sec
100 of NI Act). For foreign bills, noting & protesting is compulsory.
If a Bill is dishonoured by Non Acceptance, the holder can recover the amount from all
prior parties except drawee. In this case, the drawer will be Principal Debtor.
If the bill is dishonoured due non-payment (after acceptance), the holder can recover
amount from all prior parties including the acceptor of the bill. In this case, acceptor will
be Principal Debtor.
Demand Bill need not be stamped.
Usance Bills: Usance period upto 3 months, no stamp duty is levied if the bill is for genuine
trade transaction and bank is a party to the bill.
Negotiable Instruments Act 1881
Section 85A: Demand Draft: An order to pay money, drawn by one office of a
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bank upon another office of the same bank for a sum of money payable to order
on demand.
Following instruments are LEGALLY RECOGNIZED AS NEGOTIABLE INSTRUMENTS as per Customs
and Usages of the trade

Pay Order or Bankers

Government Promissory Note
Certificate of Deposit
Commercial Paper
Treasury Bills
Bill of Lading
Railway Receipts

Dock Warrant
Warehouse Receipt (Wharfinger
Delivery Order
GRs issued by transport operators
approved by IBA.
Lorry Receipts approved by IBA are
negotiable instruments

Airway Bill is neither a document to title to goods nor recognized as

negotiable instrument.
In case of promissory notes payable in instalments, on default in payment in one
instalment, entire amount becomes payable.
Certificate of Deposits and Commercial Papers are also been recognized as usance
promissory notes.
Calculation of Due date:
Sec 22 of NI Act: 3 days grace to be added. If due date is mentioned, no grace
In case of Usance Promissory notes, 3 days of grace are to be added. In case of CD, CP no
grace period and the date mentioned in instrument is due date. Calculation of due date: From
15th January, one month: 15 + 3 days of grace, i.e. 18th February.
If 3 days from Jan 31: Feb last + 3 days i.e. 3rd March.
If the bills drawn in days, then while calculating the due date, 1 st day is to be excluded and
last day to be included.
E.g.: 45 days from 10th Jan: Days of January after 10th:21
Days of February: 24 days, Total 45 days. Adding 3 days of grace for Feb 24; due date is 27th
February. If maturity day is Sunday or Holiday, it will become payable on next Preceding
business day.
Electronic Cheque: A cheque which contains the extract mirror image of a paper cheque, with
the use of digital signatures.
Endorsement by Minor: A minor can endorse under section 26 of NI Act, but he will not be
liable as an endorser.

Banking Ombudsman - BO

Established under - BO Scheme 1995 by RBI in exercise of powers vested in it under Section
35A of the BR Act. Applies to J & K
Complaints alleging deficiency in banking service. Non-payment /inordinate delay in
payment or collection of collection of cheques, bills drafts etc.
Non acceptance of small denominations
Non issuance of DDs, non adherence to working hours, failure to honour guarantee,

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claims regarding fraudulent withdrawal of amounts, NRI remittances etc. Non

opening of accounts without valid reasons for refusal.
Loans: Non observance of RBI directives regarding interest rates, delay in sanctions etc.
Party has to first complain to Bank. Wait for 1 month for response. If no settlement or
no response is there, it is cause of action and the party can file within 1 year from cause
of action, his complaint with Ombudsman. (Total period available to customer for
complaining to Banking Ombudsman is 13 months)
After receiving complaint, Ombudsman calls for views of bank and waits for 1 month to
settle the issue by concerned bank. If not settled in the above period, ombudsman shall
announce award. Maximum award up to Rs. 10 lakhs only.
After receiving ombudsmans award, the customer has to furnish letter of acceptance
within 30 days from the date of receipt of copy of award. If acceptance is not given
within 30 days, the award shall not be binding on the bank.
Compliance of bank with in 1 month of receipt of acceptance from customer.
If bank is aggrieved on the award, it can make application for review to appellate
authority (Deputy Governor, RBI) within 30 days of the date of receipt of award.
For appeal, bank has to take permission from CMD or ED.
BO as an arbitrator: dispute between bank and customer or between bank and another bank,
of both parties agree, if such claim is not exceeding Rs. 10 lakh. (But up to Rs. 1.00 lacs
only for credit card matters)
RBI may appoint one or more of its officers in the rank of Chief General Manager or
General Manager to be known as Banking Ombudsman. Period not exceeding 3 years.

Consumer Protection Act & Banking Business

Not applicable to J & K

Consumer- A person who buy goods or hires services for consideration for
his/her use.
A consumer can file complaint within 2 years from the date of action
Jurisdiction -District Forum Up to Rs. 20 lacs, State Commission up to Rs. 100 lacs
and National Commission Above Rs. 100 lacs
Time limit for disposal of complaints - 3 months for state and national commissions.
Penalty for frivolous nature or for non compliance of orders - Imprisonment
for not less than one month and up to 3 years or fine not less than Rs. 2000 and
up to Rs. 10000 or both.
Limitation for appeal - 30 days from date of order.
Claims of compensation up to Rs. 20 lakhs : District Forum,
Exceeding Rs. 20 lakhs to Rs. 1 crore: State Commission headed by HC Judge Status.
Exceeding Rs. 1 crore: National Commission headed by status of Supreme Court Judge.
Appeal against judgement of District forum: before state commission by deposit of Rs.
25,000/- or 50% of claim whichever is less;
Appeal against State Commission to National Commission by deposit of Rs. 35,000/- or 50%
of the claim amount whichever is less

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Against National Commission to Supreme Court: Rs. 50,000/- or 50% of claim whichever is
less. Appeal within 30 days.
Non compliance: Fine up to Rs. 2000 to Rs. 10,000/-, Imprisonment of 1 month to 3 months
or both.
Frivolous Complaint: Fine can be maximum up to Rs. 10,000/- and will be given to the
opposite party.
Admission of complaint: within 21 days from the date on which the complaint was received.
Limitation period for lodging the complaint is 2 years from the date of cause of action

Right to Information (RTI)

What is the right to information?
This right means the right to information accessible under this Act which is held by or under
the control of our branches/ offices and includes the right to
inspection of work, documents, records;
Taking notes, extracts or certified copies of documents or records;
Taking certified samples of material;
Obtain information in the form of diskettes, floppies, tapes, video cassettes or in any
other electronic mode, or through printouts where such information is stored in a
computer or in any other device.

Salient Features of RTI Act

a. Right to Information Act 2005 (RTI Act) has come into force with effect from 20th October
b. The Act provides an opportunity to the members of the public to seek information, which
is under the control of any public authority. All Public Sector Banks fall under the
category of public authority.
c. Application for information can be made by the public to Central Public information
Officer (CPIO) or Central Assistant Public Information Officer (CAPIO).
d. Branches are not authorized to give any information under the Act to any member of the
public. However, they may advise the person to approach the CPIO/ CAPIO for the same.
e. The privacy of the customer and his accounts is to be protected unless called upon by any
legal authority such as Law Enforcement Agencies, Income Tax/ Sales Department etc.,
to furnish information
Procedure for furnishing information under the Act
a. A request for obtaining information under this Act may be received in writing or through
electronic means in English or Hindi or in the official language of the area.
b. The application should be made either to the CPIO or CAPIO specifying the information
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c. If for any reasons such request cannot be made in writing, the CPIO or CAPIO will render
appropriate assistance to the person making the request orally to reduce it in writing.
d. The person making the application need not furnish any reason for requesting the
information or any other personal details; except his address and contact numbers.
e. If the application is received by our CPIO or CAPIO but the information is held by another
public authority, the application may be transferred to such other public authority under
advice to the applicant.
f. This transfer should be done within 5 days from the date of receipt.
g. The request for information should be quickly disposed within 30 days of the receipt
either by providing the information on payment of the prescribed fees or reject the
request for any of the reasons specified under Section 8 and 9 of the Act.
h. If the information sought concerns the life and liberty of a person, the same shall be
provided within 48 hours of the receipt of request.
i. If the CPIO or CAPIO fails to give decision on a request for information within the period
specified above, it shall be deemed that the request has been refused.

Information exempted from disclosure

a. Section 8 of the Act exempts any personal information of the Banks customers which has
no relationship to any public activity or interest or which would cause unwarranted
invasion of privacy of the individual from disclosure.
b. Public Sector Banks can, therefore, refuse to disclose information about the affairs of
their customers on the ground that such disclosure will cause unwarranted invasion of
privacy of the customers as envisaged by Section 8(1)(j) of the Act.
Penalties under the Act
The CIC has the authority to impose a penalty of Rs.250/- per day subject to a maximum of
Rs.25,000/- on the CPIO or CAPIO if they have, without any reasonable cause

Refused to receive an application for information, or

Not furnished information within the time specified or
Denied the request for information due to malafide; or
Given incorrect/ incomplete or misleading information; or
destroyed the information which was requested for; or
Obstructed the furnishing of information.

Based on the recommendations of committee on Procedures and Performance Audit of on
Public Services (Tarapore Committee), RBI in its annual policy for 2005-06, had proposed to
set up an independent Banking Codes and Standards Board of India (BCSBI).

Registered as a separate society under the Societies Registration Act, 1860.

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An independent banking industry watchdog to ensure that the consumer of banking

services get what they are promised by the banks.
Reserve Bank to lend financial support for a limited period of five years.
To ensure that the Board really functions as an autonomous and independent watchdog of
the industry, the Reserve Bank extends financial support to the Board by way of meeting
its full expenses for the first five years.

Powers of the BCSBI

The Code will be enforced by the BCSBI by introducing a system of monitoring of compliance
by the member banks.
For the purpose the BCSBI will be resorting to:
Calling for annual compliance reports from the member banks.
Mystery shopping visits
Visits to the offices of the member banks by persons deployed for the purpose
by the BCSBI.
To ensure compliance, the BCSBI may take action against defaulting banks in the form of:

Insistence on the member bank complying with the Code

Issue of recommendations on the remedy of past conduct
Issue of a warning or reprimand
Name and shame
Suspension of membership
Cancellation of membership
The BCSBI is based on the principle of self regulation. Membership is voluntary. As
such, banks joining as members are expected to comply.
The actions taken by BCSBI will have a deterrent effect.
BCSBI is having the backing of the RBI which will derive supervisory comfort from the
success of the endeavour.

Complaints and BCSBI

The BCSBI does not deal with individual cases of complaints. However, in case complaints
point to any serious failing in complying with the code, the BCSBI may investigate and initiate
appropriate action. The BCSBI is interested in cases where member banks appear to have
breached the Code.
The Main objectives of the BCSBI are:
To plan, evolve, prepare, develop, promote and publish voluntary comprehensive
Codes and Standards for banks, providing fair treatment to their customers

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To function as an independent and autonomous watch dog to monitor and to ensure
that the banking Codes and Standards adopted by the banks are adhered to in true
spirit in delivering services, as promised, to the customers
Code of Banks Commitment
A comprehensive Bankers Fair and the banks joining Practice Code prepared by an IBA
working group is used as a standard by BCSBI. This code would be a covenant between the
BCSBI and the banks joining as members of the BCSBI. Through the covenant, the member
banks bind themselves for implementing the code and supervision by the board.
Banks code for customer service
1. BCSBI on 03.07.2006 released the Banks codes for Customer Service which is a voluntary
Code. The code sets minimum standards of banking practices for banks to follow when
banks are dealing with individual customers. It provides protection to the customers and
explains how banks are expected to deal with the customers for their day-to-day
2. Objectives of the code: the code has been developed with the view to
Promote good and fair banking practices by setting minimum standards in dealing with
the customers
Increase transparency so that the customers can have a better understanding of what
they can reasonably expect of the services
Encourage market forces, through completion, to achieve higher operating standards
Promote a fair and cordial relationship between the customers and their bank
Foster confidence in the banking system
3. Application of code:
Current deposit, saving deposit, term deposit, recurring deposit, PPF accounts and all
other deposit accounts
Payment services such as pension, payment orders, remittances by way of de\mand
drafts and wire transfers
Banking services related to Government transactions
Demat accounts, equity, government bonds
Indian currency notes exchange facility
Collection of cheques, safe custody services, safe deposit locker facility
Loans and overdrafts
Foreign Exchange services including money changing
Third party insurance and investment products sold through our branches
Card products including credit cards, debit cards, ATM cards and services (including
credit cards issued by our subsidiaries/ companies promoted by us)
1. Display
Services we provide
Minimum balance requirement, if any, for Savings Bank Accounts and Current Accounts
and the charges for non-maintenance thereof
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Name of the official at the branch whom you may approach if you have a grievance
Name and address of the Regional / Zonal Manager / Principal Nodal Officer (PNO)
whom you can approach if your grievance is not redressed at the branch
Name and contact details of the Banking Ombudsman under whose jurisdiction the
branch falls
Information available in booklet form
Displaying on our website our policies on
Cheque collection
Grievance Redressal
Collection of Dues and Security Repossession
Important time schedules under BCSBI code- Summary of key time commitments:
Closure of account on customer request- 3 days
Notice for closure of account by Bank 30 days
Transfer of account to other branch 3 days operationalization at new branch- 2 weeks
Acknowledgement of complaint 1 week
Redressal of customer complaint (max) 30 days
Closure of account by bank- Notice 30 days
Settlement of deceased claim case 15 days
Change in fee/charge- notice period- 1 month
Designating an account as dormant, inoperative or unclaimed- prior notice- 3 months
Return of unpaid/dishonoured cheque 24 hours
Loan recovery- time to visit customer- 7 am to 7 pm
Draft should be valid uniformly in banks- 3 months
Duplicate DD should be issued within 14 days
If duplicate DD not issued in time, interest payment should be made at FDR rate
Immediate credit- outstation instruments- banks discretion
Rate of interest payable in case of delay in collection of outstation cheques- banks
Composition of branch level customer service committee- BM, representatives of all
staff categories
Customer day celebrated on 15th every month
Employee working hours begin 15 minutes before customer service hours- Goiporia
Safe Deposit Locker: Fixed Deposit to cover 3 years rent
Return securities/documents/Title Deeds 15 days of the repayment of all dues
Confirm cancellation/closure of Credit Card 7 days
Not charge any processing fee for loans up to Rs. 5 lakh, whether sanctioned or not.
Dispose of your application for a credit limit or enhancement in existing credit limit up
to Rs. 5 lakh within two weeks; and for credit limit above Rs. 5 lakh and up to Rs. 25
lakh within 3 weeks; and for credit limit above Rs. 25 lakh within 6 weeks from the date

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of receipt, provided your application is complete in all respects and is accompanied by

documents as per check list provided
Not insist on collateral for credit limits up to Rs. 10 lakh or up to limits specified by
Reserve Bank of India, from time to time.
Grant you increase in the drawing power within 24 hours of lodgment of security.

BCSBI, after series of deliberations/consultations with the representatives of banks, RBI, IBA
etc. has once again carried out revision in the codes in January 2014 and MSE Codes in 2015.
BCSBI Code Compliance Rating
BCSBI has been monitoring, as part of its mandate, compliance with the Codes of Banks
Commitment to Customers and Banks Commitment to Micro & Small Enterprises by
carrying out survey of select branches of member banks for verifying implementation of the
Codes by the banks.
Parameters of Ranking (Weightage)

Information Dissemination (25),

Transparency (30),
Customer Centricity (20),
Grievance Redressal (15) and
Customer Feedback (10).

Public Provident Fund Scheme

Eligibility for opening The scheme is open to Individuals and account can also be opened
Account, 1968
on behalf of minor child as a natural / legal guardian, on behalf of
HUF, on behalf of an association of persons or a body of
Minimum amount Rs.500/- and maximum Rs.1,50,000/- per
annum. The number of installments in a financial year does not
exceed 12.
Minimum period is 15 years and can be extended in a block of 5
Rate of Interest
Presently, 8.10% wef 01.04.2016 however, subject to change as
per Govt. Notification from time to time.
Withdrawal from the Partial withdrawals are allowed after the expiry of 5 financial
Partial withdrawal is restricted to 50 % of the amount at credit
at the end of 6th year immediately preceding the year in which
the withdrawal is made.
Entire amount can be withdrawn after completion of 15 years.
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After the expiry of one year but before the expiry of 5 years from
the end of the year in which initial subscription was made, a loan
of 25% of the credit balance at the end of the second year
immediately preceding the year in which the loan is applied may
be availed of by the subscriber.


Nominations of one or more persons are allowed except in the

account opened on behalf of the minors.
No withdrawal is permitted before the expiry of 5 full financial
years from the end of the year in which initial subscription was
1. Interest on PPF / withdrawal from the fund is exempted from
Income tax.
2. Balance held in PPF account is totally exempt from wealth
3. Deposits in the name of wife/minor children will also qualify
Tax Act, 1961.

Premature Withdrawal

Tax Concessions

The balances under PPF are not subject to court attachment. PPF
accounts can be opened at any of the 1229 authorized branches:

Senior Citizens Savings Scheme - 2004 (SCSS)

Tenure of the Scheme
Rate of Interest
Frequency of Computing
Tax Aspects
Investment to be in multiples
Maximum Investment Limit
Minimum eligible age



5 years, which can be extended by 3 more years

8.60% (simple interest)
Interest is fully taxable

Rs. 15 lakhs
60 years (55 years for those who have retired under a
voluntary or a special voluntary scheme provided
investment is made within 1 month of date of receipt of
retirement benefits .
For retired Defence personnel retired on superannuation
- no age limit.
And for those retiring other than on superannuation,
minimum age is 55.
premature Available after 1 year of holding but with penalty

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Transferability feature
Nomination Facility
Mode of Holding


Not available
Not available
Generally single, Joint mode is permitted but only spouses
will be allowed to open the accounts jointly.
applications Forms are available with our 1229 authorized branches.

Sukanya Samriddhi Account (SSA)

The Scheme


Monetary Limits

A Govt of India Deposit Scheme for Individuals on behalf of Minor Girl

The account may be opened by the natural or legal guardian in the name
of a girl child from the birth of the girl child till she attains the age of ten
years and any girl child, who had attained the age of ten years, one year
prior to the commencement of these rules, shall also be eligible for
opening of the account under these rules.
Natural or legal guardian of a girl child shall be allowed to open the
account for two girl children only or 3 accounts if twin girls are born in
the second birth or triplets are born in the first birth.
Initial Minimum Deposit Rs1000/-in a F.Y. Maximum Rs150000/-in F.Y.
Birth Certificate of Girl child; Address proof of parents/guardians;
Identity Proof of the parents/guardian
Minimum tenure of contribution is 14 years from the date of opening of
21 years from the date of opening of account.
Withdrawal allowed up to 50% for the girls higher education and
marriage after she attains 18 years of age

Rate of Interest

As declared by Central Government from time to time

At present 8.60%p.a.

Tax Benefits

Annual subscription during F.Y. eligible for tax exemption under Sec 80 C
of I.T. Act.
Interest earned on the deposit amount under the scheme is tax free.
No tax will be levied on the maturity amount.

Premature Closure

Allowed in the event of death of the depositor or in cases of extreme

compassionate grounds such as medical support in life threatening
diseases to be authorized by an order by the Central Government.

Mode of Deposit

Cash/Cheque/ Demand Draft


50% of the balance lying in the account as at the end of previous financial
year for the purpose of higher education, marriage after attaining the age
of 18 years.

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Closure on

Completion of 21 years from the date of opening of the account & where
the marriage of the account holder takes place before completion of such
period of 21 years. (Affidavit verifying Account Holders 18 years of age as
on date of closing of account)
1229 Authorised branches can open Sukanya Samriddhi accounts
Accounts will be opened in GBM module, once enabled
Circular letter No. 00325 06.04.2015

Atal Pension Yojana (APY)


A Govt. of India Social Security Scheme for all Citizens in unorganized



All Citizen of India aged between 18-40 years


Defined contribution by subscriber depending upon his age & targeted pension
Minimum: Rs 42/- p.m. for subscriber of 18 years of age.


Contributions till the subscriber attain 60 years of age. Minimum tenure of

contribution is 20 years from the date of opening of account.

Duration/ Exit

The exit from the Scheme is permitted at the completed age of 60 years with
100% annuitisation of pension wealth. On exit, pension available to the
subscriber. Exit also permitted in the event of death of beneficiary or
terminal disease.


Rs1000/-to Rs. 5000/-, depending upon the contribution made by the




Pension scheme with fixed/ defined pension amount

Govt. will co-contribute 50% of the total contribution or Rs1000/-p.a.,
whichever is lower, to the eligible subscribers who join the Scheme between
01-06-2015 to 31-12-2015 for 5 years.
All branches are authorized to open accounts under APY
Account opening & operations through GBM module

Priority Sector Guidelines

Sectors which impact large sections of the population, the weaker sections
Sectors which are employment- intensive such as agriculture, Micro and small
Sectors which meets the basic needs of a common man
Sectors which contributes more to GDP of country

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Categories under priority sector
1. Agriculture
2. Micro Small and Medium Enterprises
3. Education
4. Housing
5. Export Credit
6. Social Infrastructure
7. Renewable energy
8. Others
Targets/Sub-targets (Benchmarks) for Priority sector

Domestic commercial banks

Total Priority 40% of Adjusted Net bank Credit (ANBC) or credit equivalent amount of offSector

balance sheet exposure, whichever is higher.


18% of ANBC or credit equivalent amount of off-balance sheet exposure,


whichever is higher.
Within the 18 percent target for Agriculture, a target of 8 percent of ANBC or
Credit Equivalent Amount of Off-Balance sheet Exposure, whichever is higher is
prescribed for small and marginal farmers, to be achieved in a phased manner
i.e. 7 % by March 2016 and 8 % by March 2017


7.5% of ANBC or Credit Equivalent Amount of Off-balance sheet Exposure,


whichever is higher to be achieved in a phased manner i.e. 7 % by March 2016

and 7.5% by March 2017.

Export credit

Incremental export credit over corresponding date of the preceding year, up to

2% of ANBC or Credit Equivalent Amount of Off-balance Sheet Exposure,
whichever is higher, effective from April 1, 2015 subject to a sanctioned limit up
to Rs. 25 crore per borrower to units having turnover of up to Rs. 100 crore

Advances to 10% of ANBC or credit equivalent amount of off-balance sheet exposure,


whichever is higher.


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The current years targets for priority sectors and sub-targets will be computed based on
ANBC or credit equivalent of off-balance sheet exposures of preceding 31st March.
The outstanding priority sector loans as on March 31st of the current year will be reckoned for
achievement of priority sector targets and sub-targets.
Computation of Adjusted Net Bank Credit:

Bank credit in India (As prescribed in item No VI of Form A (Special return as on

March 31st ) under section 42 (2) of the RBI Act, 1934


Bills rediscounted with RBI and other approved Financial Institutions


Net Bank Credit (NBC)*


Bonds/debentures in Non-SLR categories under HTM category + other investments

eligible to be treated as priority sector + outstanding deposits under RIDF and other
eligible funds with NABARD, NHB,SIDBI and MUDRA on account of priority sector
shortfall + outstanding PSLCs (Priority Sector Lending Certificates)

Eligible amount for exemptions on issuance of long term bonds for infrastructure and
affordable housing as per circular DBOD.BP.BC.No.25/08.12.014/2014-15 dated July
15, 2014.


Eligible advances extended in India against the incremental FCNR (B) /NRE deposits,
qualifying for exemptions from CRR/SLR requirements.

III + IV- Adjusted net Bank Credit (ANBC)

*For the purpose of priority sector only. Banks should not deduct/net any amount like
provisions, accrued interest, etc from NBC.
Description of the categories under Priority sector:
Classification of Agricultural advances:
Finance provided by banks to agriculture sector is divided into three parts, viz., Farm credit,
Agriculture infrastructure and ancillary activities.
Farm Credit:

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A. Loan to individual farmers (including Self Help Groups (SHGs) or Joint Liability Groups
(JLGs), directly engaged in Agriculture and allied activities viz., dairy, fishery, animal
husbandry, poultry, bee keeping and sericulture. This will include
1. Crop loans to farmers including traditional/non-traditional plantations and horticulture,
and loans for allied activities
2. Medium and long term loans for farmers for agriculture and allied activities (e.g. purchase
of agricultural implements and machinery, loans for irrigation and other developmental
activities undertaken in the farm, and developmental loans for allied activities.
3. Loans to farmers for pre and post harvest activities, viz, spraying, weeding, harvesting,
sorting, grading and transporting of their own farm produce.
4. Loans to farmers up to Rs. 50 lakh against pledge/hypothecation of agricultural produce
(including warehouse receipts) for a period not exceeding 12 months.
5. Loans to distressed farmers indebted to non-institutional lenders.
6. Loans to farmers under Kisan Credit Card Scheme.
7. Loans to small and marginal farmers for purchase of land for agricultural purposes.
B. Loans to corporate farmers, farmers producers organizations/companies of individual
farmers, partnership firms and co-operatives of farmers directly engaged in
Agriculture and allied activities, viz., dairy, fishery, animal husbandry, poultry, bee
keeping and sericulture up to an aggregate limit of Rs. 2.00 crore per borrower. This
will include
1. Crop loans including traditional/non-traditional plantations and horticulture, and loans
for allied activities
2. Medium and long term loans for agriculture and allied activities (e.g. purchase of
agricultural implements and machinery, loans for irrigation and other developmental
activities undertaken in the farm, and developmental loans for allied activities.
3. Loans for pre and post harvest activities, viz, spraying, weeding, harvesting, sorting,
grading and transporting of their own farm produce.
4. Loans up to Rs. 50 lakh against pledge/hypothecation of agricultural produce (including
warehouse receipts) for a period not exceeding 12 months.
Agriculture infrastructure
(Aggregate limit of up to Rs. 100 crore per borrower)

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1. Loans for construction of storage facilities (warehouses, market yards, godowns and silos)
including cold storage units/cold storage chains designed to store agricultural
produce/products, irrespective of their location.
2. Soil conservation and watershed development.
3. Plant tissue culture and agri-biotechnology, seed production, production of bio pesticides,
bio fertilizer and vermi compositng.
Ancillary activities:
1. Loans up to Rs. 5.00 crore to cooperative societies of farmers for disposing of the produce
of members.
2. Loans for setting up of Agri. clinics and agri. business centres.
3. Loans for food and agro-processing up to an aggregate sanctioned limit of Rs. 100 crore
per borrower from the banking system.
4. Loans to custom service units managed by individuals, institutions or organizations who
maintain a fleet of tractors, bulldozers, well boring equipment, threshers, combines, etc
and undertake farm work for farmers on contract basis
5. Bank loans to Primary Agricultural Credit Societies (PACS), Farmers Service Societies (FSS)
and large-sized Adivasi Multi-purpose Societies for on-lending to Agriculture.
6. Loans sanctioned by banks to MFIs for on-lending to agriculture sector subject to fulfilling
the concept of qualifying assets.
7. Outstanding deposits under RIDF and other eligible funds with NABARD on account of
priority sector shortfall.
For the purpose of computation of 8 percent target, Small and Marginal Farmers will include
the following:
Farmers with land holding of up to 1 hectare (2.5 acres) are considered as marginal
farmers. Farmers with a land holding of more than 1 hectare and up to 2 hectares are
considered as small farmers
Landless agricultural labourers, tenant farmers, oral lessees and share croppers, whose
share of landholding is within the limits prescribed for small and marginal farmers
Loans to Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e groups of individuals
small and marginal farmers directly engaged in Agriculture and allied activities, provided
banks maintain disaggregated data of such loans

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Loans to farmers Producers companies of individual farmers, and cooperatives of farmers
directly engaged in agriculture and allied activities, where the membership of small and
marginal farmers is not less than 75 per cent by number and whose land holding share is
also not less than 75 percent of the total land holding
Micro small and medium enterprises:
Enterprises can be broadly classified into manufacturing and services vide MSMED Act, 2006.
An enterprise with investment in plant and machinery comes under manufacturing and an
enterprise with investment in equipments comes under services sector is as under:
Manufacturing Enterprises:

Micro Manufacturing : units engaged in manufacture, processing or preservation of goods

and whose original investment in plant and machinery (except land and building) does not
exceed Rs.25 lakh

Small Manufacturing: units engaged in manufacture, processing or preservation of goods

and whose original investment in plant and machinery (except land and building) is more
than Rs.25.00 lakh but does not exceed Rs.5 Crores.

Medium Manufacturing: units engaged in manufacture, processing or preservation of

goods and whose original investment in plant and machinery (except land and building) is
more than Rs.5.00 crore but does not exceed Rs.10 Crores.

Service enterprises:

Micro ( service) enterprises - enterprises engaged in providing service and whose original
investment in equipment (excluding land, building, furniture, fittings or other items not
directly connected with rendering of service) does not exceed Rs.10.00 lacs

Small (service enterprises) enterprises engaged in providing service and whose original
investment in equipment (excluding land, building, furniture, fittings or other items not
directly connected with rendering of service) is more than Rs.10.00 lacs but does not
exceed Rs.2.00 crores.

Medium Service Enterprises: enterprises engaged in providing service and whose original
investment in equipment (excluding land, building, furniture, fittings or other items not
directly connected with rendering of service) is more than Rs.2.00 crores but does not
exceed Rs.5.00 crores.

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Bank loans up to Rs. 5.00 crores per unit to Micro, Small enterprises and Rs. 10.00 crore to
Medium Enterprises engaged in providing or rendering services and defined in terms of
investment in equipment under MSMED Act, 2006.
Khadi and Village Industries Sector (KVI):
All loans to units in the KVI sector will be eligible for classification under the sub target of 7.5
percent prescribed for Micro enterprises under priority sector.
Other finance to MSMSEs:

Loans to entities involved in assisting the decentralized sector in the supply of inputs to
and marketing of outputs of artisans , village and cottage industries

Loans to co-operatives of producers in the decentralized sector viz. artisans, village and
cottage industries

Loans sanctioned by banks to MFIs for on-lending to MSME sector as per the conditions
applicable to Qualifying Assets

Credit outstanding under General credit cards (including Artisan Credit Card, laghu
Udyami Card, Swarojgar Credit Card and Weavers card etc in existence and catering to the
non-farm entrepreneurial credit needs of individuals)

Outstanding deposits with SIDBI on account of priority sector shortfall.

To ensure that MSMEs do not remain small and medium units merely to remain eligible for
priority sector status, the MSME units will continue to enjoy the priority sector lending status
up to three years after they grow out of the MSMSE category concerned.
Loans to individuals for educational purposes including vocational courses up to Rs.10.00 lakh,
irrespective of the sanctioned amount will be considered as eligible for priority sector
Loans to individuals up to Rs. 28.00 lakh in metropolitan centres with population above 10
lakh and Rs. 20.00 lakh in other centres for purchase/construction of a dwelling unit per
family excluding loan sanctioned to banks own employees.

The overall cost of the dwelling unit in the metropolitan centre and at other centre should
not exceed Rs.35 lakh and Rs. 25 lakh respectively

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Loans for repair to the damaged dwelling units of families up to Rs.2.00 lakh in rural/
semi-urban areas or Rs.5.00 lakh in urban/metro areas.

Bank loans to any governmental agency for construction of dwelling units or for slum
clearance and rehabilitation of slum dwellers subject to a ceiling of Rs. 10.00 lakh per
dwelling unit.

The Loans sanctioned by banks for housing projects exclusively for the purpose of
construction of houses only to economically weaker sections and low income groups, the
total cost of which does not exceed Rs.10.00 lakh per dwelling unit.

Housing loans backed by long term bonds are exempted from ANBC

For the purpose of identifying the economically weaker sections and low income groups,
the family income limit of Rs.200000/- per annum, irrespective of location, is prescribed

Bank loans to housing finance companies (HFCs), approved by NHB for their refinance, for
on-lending for the purpose of purchase/construction/reconstruction of individual dwelling
units or for slum clearance and rehabilitation of slum dwellers, subject to an aggregate
loan limit of Rs. 10.00 lakh per borrower, provided the all inclusive interest rate charged
to the ultimate borrower is not exceeding lowest lending rate of our bank for housing
loans plus two percent per annum

The eligibility under priority sector loans to HFCs is restricted to 5 % of the individual
banks total priority sector lending, on ongoing basis. The maturity of bank loans should
be co-terminus with average maturity of loans extended by HFCs.

Housing loan to bank employees will be excluded.

Export Credit:
Incremental export credit over corresponding date of the preceding year, up to 2 percent of
ANBC or Credit Equivalent Amount of Off-balance Sheet Exposure, whichever is higher,
effective from April 1, 2015 subject to a sanctioned limit of Rs. 25 crore per borrower to units
having turnover of up to Rs. 100 crore
Social infrastructure:
Bank loans up to a limit of Rs.5.00 crore per borrower for building social infrastructure for
activities namely schools, health care facilities, drinking water facilities and sanitation
facilities in Tier II to Tier VI centres.
Renewable Energy:
Bank loans up to a limit of Rs.15.00 crore to borrowers for purposes like solar based power
generators, biomass based generators, wind mills, micro-hydel plants and for non-

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conventional energy based public utilities Viz. Street lighting systems and remote village
For individual households, the loan limit will be Rs.10 lakh per borrower.
Other Priority Sector:
Loans not exceeding Rs. 50000/- per borrower provided directly by banks to individuals
and their SHG/JLG, provided the borrowers household annual income in rural areas does
not exceed Rs.100000/- and for non-rural areas it should not exceed Rs. 160000/

Loans to distressed persons (other than farmers) not exceeding Rs. 100000/- per borrower
to prepay their debt to non-institutional lenders.

Overdrafts, up to Rs. 5000/- (per account), granted against basic banking/saving accounts
under Pradhan Mantri Jan Dhan Yojana (PMJDY) provided the borrowers household annual
income in rural areas does not exceed Rs.100000/- and for non-rural areas it should not
exceed Rs. 160000/-.

Loans sanctioned to State Sponsored Organizations for Scheduled Castes/ Scheduled Tribes
for the specific purpose of purchase and supply of inputs to and/or the marketing of the
outputs of the beneficiaries of these organizations.

Investments by banks in securitized assets:

Investments by banks in securitized assets, representing loans to various categories of

priority sector, except 'others' category, are eligible for classification under respective
categories of priority sector (direct or indirect).

The all inclusive interest (effective annual interest, processing fee and service charges)
charged to the ultimate borrower by the originating entity should not exceed the base
rate of the investing bank plus 8 % per annum.

Investments made by banks securitized assets originated by NBFCs, where the underlying
assets are loans against gold jewellery, are not eligible for priority sector status.

Transfer of Assets through Direct Assignment /Outright purchases

Assignments/Outright purchases of pool of assets by banks representing loans under

various categories of priority sector, except the 'others' category, will be eligible for
classification under respective categories of priority sector (direct or indirect). provided:

Inter Bank Participation Certificates bought by Banks

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Inter Bank Participation Certificates (IBPCs) bought by banks, on a risk sharing basis, shall
be eligible for classification under respective categories of priority sector, provided the
underlying assets are eligible to be categorized under the respective categories of priority
sector and the banks fulfill the Reserve Bank guidelines on IBPCs.

Priority Sector lending Certificate (PSLC):

The outstanding under PSLC bought by the banks will be eligible for classification under
respective categories of priority sector.
Weaker Sections
Priority sector loans to the following borrowers will be considered under weaker sections

Agricultural labourers more than 50% of their annual income is from activities related to

Tenant farmers farmers who take land on lease for cultivation

Share croppers persons who cultivate others land with a condition to share the produce
on an agreed basis

a. Small and Marginal farmers

b. Artisans, village and cottage industries where individual credit limits do not exceed Rs.
c. Beneficiaries of National Rural Livelihood Mission (NRLM)
d. Scheduled castes and scheduled tribes
e. Beneficiaries of Differential Rate of Interest (DRI) scheme
f. Beneficiaries of National Urban Livelihood Mission (NULM)
g. Beneficiaries under the scheme for Rehabilitation of Manual Scavengers (SRMS)
h. Loans to Self Help Groups (SHG)
i. Loans to distressed farmers indebted to non- institutional lenders
j. Loans to distressed persons other than farmers not exceeding Rs. 100000/- per borrower
to prepay their debt to non- institutional lenders
k. Loan to individual women beneficiaries up to Rs. 100000/- per borrower
l. Persons with disabilities
m. Overdrafts up to Rs. 5000/- under Pradhan mantra Jan- Dhan Yojana (PMJDY) accounts,
provided the borrowers household annual income does not exceed Rs. 100000/- for rural
areas and Rs.160000/- for non-rural areas
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n. Loan sanctioned under (a) to (m) above to persons from minority communities as notified
by Govt. of India.
Minority Communities
Sikhs, Muslims, Christians, Zoroastrians, Buddhists and Jain are notified minority

In states, where one of the minority communities notified is, in fact , in majority, the
other notified minority communities only coming under purview of weaker sections

In the case of a partnership firm, SHGs, JLGs, if the majority of the partners/members
belong to one or the other of the specified minority communities, advances granted to
such partnership firms may be treated as advances granted to minority communities

Bank Loans to MFIs for on-lending

Bank credit to MFIs extended for on-lending to individuals and also to members of
SHGs/JLGs will be eligible for categorization of priority sector advance under respective
categories viz., agriculture, micro, small and medium enterprises, and others as indirect
finance, provided not less than 85% of total assets of MFI (other than cash, balances with
banks and financial institutions, government securities and money market instruments)
are in the nature of qualifying assets. In addition, aggregate amount of loan, extended
for income generating activity, is not less than 70% of the total loans given by MFIs.

A qualifying asset shall mean a loan disbursed by MFI, which satisfies the following
1. The loan is to be extended to a borrower whose house hold income does not exceed
Rs.100000/- in rural areas and Rs.160000/- in non-rural areas.
2. Loan does not exceed Rs.60000/- in first cycle and Rs.100000/- in subsequent cycles.
3. Total indebtedness of the borrower does not exceed Rs.100000/-.
4. Tenure of loan is not less than 24 months when loan amount exceeds Rs.30000/- with
right to borrower of prepayment without penalty.
5. The loans is without collateral
6. Loan is repayable by weekly, fortnightly or monthly installments at the choice of the

Non-achievement of priority sector targets

Shortfall in lending to priority sector target/sub-target on the above mentioned
parameters shall be allocated amounts for contribution to the Rural Infrastructural

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NABARD/NHB/SIDBI/other financial institutions as decided by RBI from time to time

For the purpose of allocation of RIDF and other funds, as decided by RBI from time to
time, the achievement levels of priority sector lending as on the March 31st will be taken
into account.

The deposit under various funds will be called upon by NABARD or such other Financial
Institutions as per the terms and conditions of the scheme.

From 2016-17 onwards, the achievement will be arrived at the end of financial year based
on the average of priority sector target / sub- target achievement at the end of each

The interest rates on banks contribution to RIDF or any other funds, period of deposits,
etc. shall be fixed by RBI from time to time and will be communicated to the concerned
banks every year by RBI at the time of allocation of funds

Interest rates on RIDF is inversely proportional to the shortfall in achieving benchmark

Agricultural credit shortfall to ANBC
Less than 5 %
Over 5% and up to 10%
Over 10 %
(RBI circular dated 10.12.2014)

Applicable Rate of Interest

Bank Rate- 2%
Bank Rate-3%
Bank Rate 4%

Non-achievement of PS targets and sub-targets will be taken in consideration while

granting regulatory clearances/ approvals

Common guidelines for priority sector advances (PSA)

Processing of applications
1. Completion of Application Forms: : Bank staff should help for completion of application
2. Issue of Acknowledgement of Loan Applications: Affix a running number to each
application form and provide perforated acknowledgement to the applicant
3. Register of Rejected Applications: Register for disposal of loan applications to be
maintained. Applications of SC/ST cannot be rejected by BM without RO consent.
4. Repayment Schedule: Should be realistic and take into

account surplus generated,

minimum sustenance amount, BEP of asset

5. Rates of Interest: as directed by RBI and advised by respective Banks from time to time.
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6. Penal Interest: no penal interest up to loans of Rs. 25,000/- under PSA
7. Service Charges / Inspection Charges: : No service charges on PSA up to Rs. 25,000/8. Insurance against Fire and Other Risks: mandatory for vehicles and livestock however
may be waived up to Rs. 10,000/- and for MSE advances up to Rs. 25,000/- for nonhazardous goods
9. Photographs of Borrowers: Bank should arrange for cost of photograph in case of Weaker
section applicants
10. Discretionary Powers: Adequate powers be vested with BMs to sanction advances under
Priority sector and for weaker sections.
11. Capacity Building: Trainings as specified in schemes like NRLM, PMEGP should be
12. Machinery to look into Complaints: Machinery at RO to look into the complaints and
name and address of the officer be displayed
13. Amendments: Amendments made by RBI from time to time
1. Disposal of Applications

2 Weeks(fortnight) -

8 9 weeks

Application for MSE up to Rs.25000-within 2 weeks.

Up to Rs.5 lakh - within 4 weeks (applications should be complete in all respects)

Application up to Rs.25000/Application over Rs.25000/-

2. Rejection of Proposals:
Branch managers may reject applications (except in respect of SC/ST) provided the
cases of rejection are verified subsequently by the Divisional/Regional Managers. In
the cases of proposals from SC/ST, rejection should be at a level higher than that of
Branch manager.
Agricultural advances can be classified asShort term loans the loans which are normally to be repaid within 36 months depending upon
the crop.
Medium term loans the loans which are to be repaid in installments repayable within 60 months
or 5 years.
Long term loans the loans where the repayment schedule is more than 60 months
Production credit loans that are sanctioned for crop production for meeting cost of fertilizers,
seeds, labour etc. (working capital requirement for production of crops) These loans are normally
sanctioned as per scale of finance for each crop decided by DCC.

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Investment credit the loans where loan amount is invested to reap benefits over an extended
period of time. Investment credit has long term benefits and it is very much essential for
economy to grow. E.g. FM, MI, Allied activities, Land development etc.
Consumption credit the loan that is sanctioned over and above production credit and/or
investment credit to meet the domestic / unforeseen family expenses.
Measures of land
ACRE: A unit measuring area of land. It contains 4840 square yards or 43650 square feet and is
equivalent to approximately 0.40 hectares.
HECTARE: A unit of measuring land in metric system. It is equivalent to an area of 2.471

Government sponsored schemes

Prime Ministers Employment Generation Programme (PMEGP)

The scheme launched in April 2008 by merging Prime Minister Rojgar Yojana (PMRY) and
Rural Employment Generation Program (REGP).
The Scheme is administered by Ministry of Micro, Small & Medium Enterprises (MoMSME) by
the help of Khadi & Village Industries Commission (KVIC).
To generate employment opportunities in rural as well as urban areas of the country
through setting up of new self employment enterprises.
Any individual above 18 years of age as well as SHGs, provided they have not availed
benefits under any of the schemes.
No income ceiling for assistance for setting up projects under PMEGP.
The Beneficiaries should have passed at least the 8th standard for setting-up project
costing above Rs. 10 lacs in the manufacturing sector & above Rs. 5 lacs in the business /
services sectors
Project cost
Scheme The provides for projects costing up to Rs. 10 lacs (maximum) under business /
services sector & Rs. 25 Lacs (maximum) under manufacturing sector
Project cost includes Capital Expenditure & one cycle of Working Capital
A project without Capital Expenditure are not eligible under the scheme
Cost of land not to be included in the project cost
Application sponsored only for working capital to be considered with the permission of the
controlling office in exceptional cases
General Category 10%
Special category (SC/ST/OBC Minorities/ Women/ Ex servicemen, physically handicapped,
NER, Hill & Border areas) - 5%
It is one time assistance
Subsidy in case of General category is 25% for rural & 15% for urban areas
Subsidy in case of Special category is 35% for rural & 25% for urban areas
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The subsidy should be claimed within 15 days from nodal branch and nodal branch to
remit subsidy to finance branch within next 15 days. Hence subsidy should be received
before 30 days
Backend Subsidy
The subsidy should be kept in the form of Term Deposit Receipt (TDR) for a period of 3
years in the name of the beneficiary and credited to the borrowers loan account after 3
years from the date of first disbursement
No interest will be paid on the TDR and interest will not be charged on the loan for the
corresponding amount of TDR
In case the account becomes Non Performing Asset before 3 years for the reasons beyond
the control of the beneficiary, the subsidy can be adjusted to the loan account
Sponsoring agency
The beneficiary can directly approach the Bank / Financial Institution along with the
project proposal
It can be sponsored by KVIC / KVIB / DIC / Panchaayat Karyalayas etc
However, the applications received directly by the Banks will be referred to the Task
Force for its consideration
Collateral Security
No collateral security for projects up to Rs. 10.00 lacs.
However, all loans considered under PMEGP should be covered under CGTMSE as per the
eligibility criteria applicable to CGTMSE scheme (except finance made for Agriculture,
trading purposes and any type of finance made to SHGs)
On sanction of the projects, first instalment of the loan will be released to the
beneficiaries only after completion of EDP (Entrepreneurs Development Programme) for at
least two weeks.
EDP of minimum 3 days can be done for small service activities projects up to Rs. 2 lacs
Repayment Period
03 to 07 years, depending upon the activity, cash flow & economic life of the asset
Interest Rate

Interest rate as per instruction of CO from time to time as applicable for the purpose of

Points to remember
Only one person from a family is eligible for a loan
The family includes self & spouse
The subsidy is only one time assistance
Sign board to be displayed at prominent places
100% physical verification of assets to be done by KVIC or agency authorized by KVIC like
AFC (Agriculture Finance Corporation)
Banks to coordinate and assist KVIC for physical verification
Marketing support for the products produced may be provided through KVIC
The following activities listed as negative activities are not to be considered for finance:
a. Industry / Business connected with meat manufacturing
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b. Sale of beedi / pan / cigar etc.
c. Cultivation of crops including plantation crops, sericulture, horticulture, animal
husbandry including piggery, poultry & pisciculture
d. Manufacturing of polythene carry bags of less than 20 micron thickness
e. Processing of Pashmina wool
f. Rural / urban transport excluding cycle rickshaw
g. Business activities like grocery shop, stationery shop where there is no manufacturing
process or value addition

National Rural Livelihood Mission (NRLM)

The Ministry of Rural Development, Government of India has launched National Rural
Livelihood Mission by restructuring Swarnajayanthi Gram Swarozgar Yojana (SGSY)
effective from 1.4.2013


NRLM focuses on building, nurturing and strengthening the institutions of the poor women,
including the SHGs and their Federations at village and higher levels.

Women SHGs and their federations

It may consist of 10-15 persons

In case of special SHG i.e., groups formed in difficult areas, groups with disabled persons
may be minimum of 05 persons
NRLM will promote affinity based women SHGs.
NRLM will have both men and women in the SHGs. Registration not mandatory
Financial Assistance to SHGs:
Revolving Fund (RF)
Groups in existence for a minimum period of 3/6 months and follow the norms of panch
sutras- Regular meeting, regular savings, regular internal lending, regular recoveries and
maintenance of books.
Groups not received any RF earlier will be provided with RF, as corpus with a minimum of
Rs.10000/- and up to a maximum of Rs.15000/- per SHG.
Purpose of RF is to strengthen their institutional and financial management capacity and
build a good credit history within the group
Capital subsidy:
It is withdrawn under NRLM scheme
Community Investment Support Fund (CIF)

CIF will be provided to SHGs through village level / cluster level federations to undertake
the common / collective socio-economic activities

Introduction of Interest subvention

Banks will lend to all the women SHGs @7% up to an aggregated loan amount of

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The SHG will also get additional interest subvention of 3% on prompt payment, reducing
the effective rate of interest to 4%
Eligibility for lending

Group with active existence for 06 months as per the books not from the date of opening
S/B account
SHGs following panch-sutras
Grading Norms as fixed by NABARD by scoring
Disintegrated SHGs revived and continue to be active for a period of 3 months
Loan amount

The loans may be used for meeting social needs, high cost debt swapping and taking up
sustainable livelihoods by the individual members with in the SHGs or to finance any
viable common activity started by the SHGs
Multiple assistance can be given, over a period of time through repeat doses
First dose: 4-8 times to the proposed corpus during the year or Rs. 50000/- whichever is
Second dose: 5-10 times of existing corpus and proposed saving during the next 12 months
or Rs.100000/- whichever is higher
Third dose: Minimum of Rs. 200000/- based on the credit plan prepared by the group and
appraised by federation/support agency and the previous history
Fourth dose onwards: Rs. 5-10 lacs based on micro credit plans of the SHGs and their
Type of facility
Term loan / cash credit loan / both based on the need. In case of need, additional loan
can be sanctioned even though previous loan is outstanding.
Repayment Schedule
The first dose of loan will be repaid in 6 to 12 installments
Second dose of loan will be repaid in 12 to24 installments
Third dose repayment will be fixed based on cash flow and it has to be between 2 to 5
years either on monthly / quarterly / half yearly installments
Fourth dose onwards: Same as that of third dose but 3 to 6 years
Security and Margin
No collateral & no margin up to Rs. 10 lacs
No lien should be marked against bank account of SHGs
No deposit should be insisted while sanctioning loans
Dealing with willful defaulters
Should not be financed under NRLM
Defaulters can be allowed to benefit from the thrift and credit activities of the group and
up to assistance of revolving fund
At the stage of economic activity, they should not be allowed to access the benefits till all
the outstanding loans are repaid
Group may finance among the members excluding wilful defaulters
Default due to genuine reasons, banks may follow the norms suggested for restructuring
the account with revised repayment schedule

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National Urban Livelihood Mission (NULM)

Implemented with effect from 24.09.2013 replacing SJSRY

The existing provision of capital subsidy replaced with interest subsidy
No minimum educational qualification is required
Programme replaced with three Self Employment programmes namely i. Loans to
individuals (SEP-I) ii. Loans to group enterprise (SEP-G) iii. Loans to Self Help Groups (SEPSHG)
Individual Enterprises (SEP-I)
Eligibility Urban poor desirous of setting micro enterprises attained the age of 18 years
Project cost Maximum Rs. 2 lacs
Collateral Nil.
Eligible units should be covered under CGTMSE scheme 04 Repayment 5 7 years with
moratorium of 6 18 months as per banks norms
Sponsored by Urban Local Bodies (ULB)
Interest subsidy a) Loan should be charged at 7%. b) The difference between 7% rate of
interest and prevailing rate of interest will be provided to banks under this scheme. Bank
should claim the interest subsidy through prescribed format.
Group Enterprises (SEP- G)
Minimum 5 members with minimum of 70% of members should be from urban poor families
Age All members should have attained age of 18 years
Project cost Maximum Rs. 10 lacs
Margin as per banks norms
Collateral Nil.
Eligible units should be covered under CGTMSE scheme 05 Repayment 5 7 years with
moratorium of 6 18 months as per banks norms
Sponsored by Urban Local Bodies (ULB)
Interest subsidy a) Loan should be charged at 7%. b) The difference between 7% rate of
interest and prevailing rate of interest will be provided to banks under this scheme. Bank
should claim the interest subsidy through prescribed format.
Self help Groups (SEP-SHG)
Norms As applicable to SHGs and as per RBI master circular
Interest subsidy a) Loan should be charged at 7%. b) The difference between 7% rate of
interest and prevailing rate of interest will be provided to banks under this scheme. c)
Bank should claim the interest subsidy through prescribed format
Additional subvention
3% should be provided to those who repay in time.
Prompt payment guidelines- CC account

Outstanding balance should not have remained in excess of sanctioned limit/drawing

power for more than 30 days
There should be regular credits and debits.
At least one credit should one customer induced credit.
Credits should be sufficient to cover the interest debited during the month
Prompt payment guidelines- Term loan account

Accounts where all of the interest and/or instalments were paid within 30 days of the due
date during the entire tenure of the loans

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Self Employment Schemes for Rehabilitation of Manual Scavengers (SRMS)

Introduced in the year 2007 and revised with effect from November 2013
The objective of the scheme is to assist the manual scavengers for their rehabilitation in
alternate occupations
Manual scavengers and their dependents, irrespective of their income, will be eligible for
A person employed or engaged to clean excreta with the help of such devices and using
such protective gear shall not be a manual scavenger
Identified manual scavengers, one from each family would be eligible for receiving Cash
assistance of Rs.40000/- immediately after identification, in monthly installments of Rs.
7000/Amount of loan
Loan upto a maximum cost of Rs. 10 lakhs and Rs. 15 lakhs in case of sanitation related
projects like vacuum Loader, Suction Machine with vehicle, Garbage Disposal Vehicle, Pay
and Use toilets etc.
Repayment period including moratorium period 5 years for projects up to Rs.5 lakhs and 7
years for projects above Rs. 5 lakhs with a moratorium period of 2 years
Rate of Interest
Projects up to Rs. 25000/- will be 5% per annum (4% per annum for women beneficiaries),
For projects above Rs. 25000/- it is 6% per annum
Interest subsidy to the extent of the difference will be given to the banks by the
respective State Channelizing Agencies ( SCAs)
Back ended subsidy
a. up to Rs. 200000/- it is 50% of the project cost,
b. From 2 lakhs to 5.00 lakhs it is Rs. 1 lac + 33.3% of project cost between Rs. 2-5 lakhs,
c. From 5 lakhs to 10 lakhs it is Rs.2.00lakhs + 25% of project cost between Rs. 5-10 lakhs,
d. for projects of Rs. 10 to Rs. 15 lakhs it is Rs. 325000/-( to be kept in subsidy reserve

Differential Rate of Interest (DRI) Scheme

Under this scheme the banks provide credit to the target group at concessional interest
rates of 4% p.a.
Loan will be given for agri. Activities/collection& processing of forest products /cottage &
rural industries/tea shop/cycle rickshaw/mending footwear etc.
The family income of the borrower from all sources should not exceed Rs.18,000/- (in
case of rural areas) and Rs.24,000/- (in case of urban and semi-urban areas).
The land holding of the borrower should not exceed 2.5 acres (in case of dry land) or 1
acre (in case of wet land). However, SC/ST borrowers are eligible irrespective of their
land holdings.
The borrower should not avail any other credit at the same time.
Loan: Rs.15,000/- is to be given as a composite loan .
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Margin: NIL.
Interest: 4% p.a. (simple). The interest is not to be compounded. No penal interest should be
Repayment: Maximum five years with maximum moratorium period of two years.
Collateral Security: No collateral security. Only hypothecation of assets created out of loan.
Education loan: Eligible borrowers can be given loan up to Rs.15,000/- for higher education
of their ward if the later is not getting any other scholarship.
Housing loan: SC/ST beneficiaries can be given loan up to Rs.20,000 for construction of
houses and repair of their houses, in addition to assistance of Rs.15,000/-.
Loan for equipments to handicapped : Loans up to Rs.5,000/- can be sanctioned under DRI
scheme to physically handicapped persons for purchase of equipments / physical aids /
accessories / artificial limbs / hearing aids/ wheel chairs, etc.

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Balance Sheet Analysis

Classify the following assets and liabilities for Balance Sheet of M/s Ram & Brothers
Company for the year as on 31.3.2016.
Provision for Expenses
Unsecured loans (Long term)
Investment in other firms
Pre Operative Expenses
Prepaid expenses
Security Deposit
Land and building
Interest on Term Loan


Good will
Sundry Debtors
Term Loan
Plant and Machinery
Sundry Creditors
Expenses payable
Bank Borrowings / cash credit
Net profit


Current Ratio / Quick Ratio / Net working Capital / Debt Equity Ratio /
Debt Service Coverage (consider that installment during the year is 400) Ratio /
Stock turnover ratio / Debtor Turnover ratio / Debtor velocity ratio / Net profit %.
B TOTAL(Net Worth)
Unsecured Loans
Term Loan
SUB TOTAL(Term Liabilities)


Provision for Expenses
Sundry Creditors
Expenses Payable


Bank Cash Credit

SUB TOTAL(Current Liabilities)






Land and Building
Plant and Machinery
SUB TOTAL(Fixed Assets)
Investment in Firms
Security Deposit
SUB TOTAL (Total Non Current
Pre Operative Expenses
SUB TOTAL(Total Intangible
Sundry Debtors
Prepaid Expenses
Total Current Assets - Subtotal
GRAND TOTAL (Total of Assets)

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Net worth
Intangible assets
Tangible NW

Capital + Reserves


NW - Intangibles

3000 - 500




Long Term Liabilities

Long Term Sources

LTL + Networth

Current Liabilities

(= Current Liabilities)

Outside Liabilities

(= LTL + CL)

Long Term
(= Fixed Assets+
Intangible Assets
Current Assets
Working (= Total CA)
Short Term Uses







Net Working Capital

Quick Assets




CA -Stocks& Prepaid Exp





Current Ratio


4000 3000


Quick Ratio


1800 3000


Debt Equity Ratio


4000 2500



(Profit + Depreciation + TL Interest) (TL Installment + TL Interest)

500+200+300 = 1000
400+300 = 700
Turnover Sales Stocks
10000 2000
5 times

Drs T/o Ratio

Debtors Velocity
Net Profit %
Return on NW


(Sy DrsSales) x
(NP Sales) x
(NP TNW) x 100


6.3 times

(160010000) X 12
(500 10000) x 100


500 2500 x 100


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Increase in Sales

A favourable trend

Increase in Profit

Not a favourable trend



Not a favourable trend








accompanied by a higher % of an
increase in sales check-up, the
bad & doubtful debts, if any may
A favourable Indication, it
should be accompanied by a
growth in sales, it indicates
effective sales management
Indicates better Credit terms with
the suppliers, Increase should
It indicates additional funds
favourable indication, Ascertain
the purpose for increase
its ultimate utilization
replacement of Machinery in the
normal business? Is it for the
sake of expansion
diversification plans
Ensure that taxation & other
liabilities met out of earning for
the last year
Ensure that the
increase in
inventory is for production

Increase in Fixed





Term Loan


favourable Indication

qualitative and not on account of
May be on account of undertrading
Ascertain the portion of profits
retained in the business
Ascertain the reasons
Ascertain the reasons check up
the age of debtors Delete debtors
confidential report from banker.
Sudden Decrease in Debtors
may indicate diversion of
A mere increase in Creditors may
the borrower is
not in a position to generate
funds needed for
the payment to trade Creditors
Ensure that the increase is not due
to capitalization of reserves.

expenditure is acceptable to the
banker and there is no diversion
of funds.

inventory, i.e.
speculative purpose
Ensure that Depreciation has been Ensure
It indicates
favourable Ensure that repayment is not out
position. The borrower has got of working capital funds.
repayment capacity

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IRAC Guidelines
Performing asset - standard asset:
Assets which do not disclose any problem and do not carry more than normal
risk and also generates income for the Bank are Performing Assets
Interest and / or installment of principal remain overdue for a period of LESS THAN 90 days
in respect of Term Loan
The account is not out of order in respect of OD/CC
Over dues under Bills are less than 90 days whether purchased / discounted
In case of Agricultural advances, interest / installment of principal, the over
dues are within 2 crop seasons in case of short duration crops and one crop
season in case of long duration crops






Interest/Installment/Bill Purchased
Credit/Excess in W C limit/Nonadjustment
dormant/deficit in DP.

Default up to
30 days

Default from
31 days up to
60 days

Default from
61 days up
to 90 days






LC/LG/DPGL Installments/Other
Non-fund based commitment
viz. derivatives, Buyers credit,
Forward Contracts, un hedged
forex exposure etc.

Up to 30 days

31-60 days

61 up to 90

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NON-RENEWAL OF LIMITS (For general accounts as well as Agricultural accounts)




renewal proposal within
one month from expiry of
limits to the sanctioning

Renewal Pending from 31 Renewal pending from 90

days to 89 days from the days to 180 days from the
expiry of the limits
expiry of limits
(Irrespective of whether (Irrespective of whether
renewal submitted by the renewal submitted by the
branch or not)
branch or not)

SMA classification in Agricultural accounts:

Crop category

Categorization of advances

1. Short

for categorizing
as NPA after
due date




12 months (two Default up to 3 Default more than 3 Default for more
crop seasons)
months up to 9 months than 9 months & up
to 12 months
one crop in a
B)Under rain 24 months (two Default up to Default more than 12 Default more than
fed conditions crop seasons)
12 months
months & up to 21 21 months & up to
24 months
2. Long

18 months (one Default up to 3 Default more than 3 Default more than

crop season)
months & up to 15 15 months & up to
18 months

SMA 0 will be classified on the basis of following also:

a. Delay of 90 days or more in (a) submission of stock statement / other stipulated operating
control statements or non-renewal of facilities based on audited financials.
b. Actual sales/ operating profits falling short of projections accepted for loans sanctions by
40% or more; or a single event of non-cooperation / prevention from conduct of stock
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audits by banks; or reduction of drawing power (DP) by 20% or more after a stock audit; or
evidence of diversion of funds for unapproved purposes; or drop in internal risk rating by 2
or more notches in a single review.
Return of 3 or more cheques (or electronic debit instructions) issued by borrowers in 30
days on grounds of non-availability of balance/DP in the account or return of 3 or more
bills / cheques discounted or sent under collection by the borrower.
Devolvement of Deferred Payment Guarantee (DPG) installments or Letter of credit (LCs)
or invocation of Bank Guarantees (BGs) and its non-payment within 30 days.
Third request for extension of time either for creation or perfection of securities as
against time specified in original sanction terms or for compliance with any other terms
and conditions of sanction.
Increase in frequency of overdrafts in current accounts.
The borrower reporting stress in the business and financials.
Promoter(S) pledging/selling their shares in the borrower
company due to financial

Non-Performing Asset:
Nature of loan
Term Loan
Bills (purchased/discounted)
Agri. Advance

When it becomes NPA?

Interest and installment of principal remaining
overdue for a period of more than 90 days
Account remaining out of order for 90 days
Remaining overdue for a period of more than 90 days
Installment of principal or interest remaining overdue
for two cropping seasons for short term crops & one
cropping season for long term crops

NPA due to technical reasons

Review/renewal of regular or ad-hoc limit not done within 180 days from the due
date/date of ad-hoc limit
Drawings allowed against stock/book debts statement older than 180 days (drawings in the
account based on drawing power calculated from stock statements older than 3 months is
deemed as irregular drawings and if such irregular drawing is permitted in the account for
a continuous period of 90 days even though the unit is working.
Out of order
O/s balance remaining continuously in excess of sanctioned limit/DP
In cases where outstanding balance is less than sanctioned limit/drawing power, but there
are no credits continuously for 90 days as on date of balance sheet or credits are not
enough to cover the interest debited during the same period.
All NPAs are to be classified into following 3 categories:
Sub standard Asset
NPA less than or equal to 12 months
Doubtful asset
NPA exceeding 12 months,
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Loss Asset

If the erosion in the value of securities is more than 50% of the

value assessed by the bank, and where the value of the securities
is more than 10% of the outstanding liability, the account is
classified as doubtful category
A loss asset is one where loss has been identified by bank or auditors.
Such an asset is considered uncollectible and of such little value that
its continuance as a bankable asset is not warranted although there
may be some salvage or recovery value.

A NPA need not go through the various stage of classification. In cases of serious credit
impairment, such assets should be straightway classified as doubtful (where value is more
than 10% of liability) or Loss asset (where realizable value of the security is less than 10% of
outstanding liability) as appropriate.

Central government guaranteed a/c s to be treated as NPA only if the govt. repudiates
its guarantee when claimed.
State govt. guaranteed a/c s Irrespective of invocation, a/c to be classified as NPA if
principal / interest is overdue for more than 90 days.
Loan against NSCs/KVP/IVP/LIC Not NPA up to surrender value.
Advances under consortium based on record of recovery of the individual Bank.
Asset classification is borrower wise and not facility wise.
Multiple facilities one a/c NPA, then all a/c s NPA (percolated NPA).
Classification is based only on recoveries and not on value of securities or net worth of
party and/or guarantors.
In case of fraud a/c s, the a/c straight away classified as doubtful or loss asset.
Accounts regularized near balance sheet date is an NPA account if inherent weakness is

Due Date: Due date refers to the date on which interest / instalment is payable by the
borrower. Interest has to be collected at monthly rests in respect of Working capital and
Term Loans except agricultural advances. Interest falls due for payment immediately on the
date of debit. Exceptions are where repayment holiday is given such as Project finance,
Educational loans, agricultural advances, Gold Loans, Loans to staff etc.
Standard Assets:
Category of Standard Advances
Direct Advances to Agriculture and MSE Sectors(Micro & Small)
Commercial Real Estate
Commercial Real Estate-Residential Housing
Teaser Rate Housing Loan-till 1 year from date on which rates are
reset at higher rates if a/c remains standard
All other Loans and Advances (including Medium Enterprises)
Restructured accounts under standard category (restructured
after 01.06.13 )
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Restructured standard accounts as on
31.03.15(spread over 4 qtrs of 2014-15)- but shall be 5% wef 31.03.16
Provision on Non-Performing Assets
Category of Advances
Substandard Accounts (Secured portion)
Substandard Accounts (Unsecured portion)
Doubtful Accounts up to 1 year
Doubtful Accounts more than 1 year & up to 3 years
Doubtful Accounts more than 3 years
Doubtful Accounts (Unsecured portion)
Loss Account




= Total outstanding NPAs


= Gross NPA
1. Provision on NPA as per norms
2. Additional/floating provision
3. ECGC/CGT claim received pending for appropriation
4. Provision due to diminution in fair value in case of
restructured accounts.
5. Amount outstanding in Unrecovered Interest account, if any

Gross NPA %age

= Gross NPA / Gross Advances

Net NPA % age

= Net NPA / Net Advances (Gross Advances less Provisions as above )

Provision Coverage Ratio (PCR): Provision coverage ratio refers to the percentage of provision
that the bank has set aside, against the loan amount to meet an eventuality where the loan
might have to be written off if it becomes irrecoverable. It is a measure that indicates the
extent to which the bank has provided (set aside money to bear the loss) against the troubled
part of its loan portfolio.

Recovery Measures
Though there already existed a Debt Recovery Tribunals (DRTs) established under

Recovery of Debts Due to Banks Act, 1993 (RDDB Act, 1993) to take care of banks
debts (above Rs 10 lacs), need was felt to have one more legislation to strengthen
the banks. Narasimhan Committee I & II and Andhyarujjana Committee also suggested
enactment of a new legislation for securitization and empowering Banks and Financial
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Institutions to take possession of the securities and to sell them without intervention of

Court. Accordingly SARFAESIA Act was passed by Parliament and received assent of

the President on 17th December, 2002. Subsequently the said Act has under gone two
major amendments i.e Enforcement of Security Interest and Recovery of Debts Laws
(Amendment) Act, 2004 (Act 30 of 2004) and Enforcement of Security Interest and
Recovery of Debts Laws (Amendment) Act, 2012 (Act 1 of 2013).
Powers to the Bank

a. To take possession secured assets [Section 13(4)(a)]

b. To take over management of secured assets [Section 13(4) (b)]

c. To appoint any person for managing the secured assets taken possession of
[Section 13(4)(c)]

d. Requiring any debtor (under book debts) of NPA borrower to pay directly to the
Bank [Sec. 13(4)(d)]

e. Changing the management/administrator/directors [Section 15 read with Section



Abatement of reference to BIFR with concurrence of 60% (as amended by The

Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act,

2012,) in value of secured creditors

g. Sale of seized secured assets

h. Filing application for recovery of balance amount before DRT

Important Provisions
Sec 1 12
Sec 13(2)
Sec.13 (3A)

Sec. 13(4)
Sec 13(8)

Asset Reconstruction, establishment of AR companies, functions and governance
Issuance of 60 days Demand Notice
Authorised Officer to reply, within 15 days, to any representation/objection
received during 60 days period. (However, even after lapse of 60 days statutory
period if the Authorised Officer receives any representation/objection the same
should also be replied). The reply should be elaborate and touch all issues
raised by the borrower and with due application of mind.
right of secured creditors to take various measures including physical possession
of secured property after expiry of 60 days
Right of secured creditors to recover all such costs, expenses, charges
incidental to action, incurred by them out of the sale proceeds of property
If dues of secured creditors are tendered by debtors in full any time before the
date fixed for sale/auction, then secured creditors shall not proceed with sale
of property. As per the various judicial pronouncements the
mortgagor/borrower has right to redeem his property till issuance of the sale
certificate in favour of the purchaser.

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Sec 13(9)

Sec 13(10)
Sec 13(11)
Sec 13(13)
Sec 14

Sec 14(3)
Sec 15 & 16
Sec. 17

Sec 17(6)
Sec. 18


Sec 19
Sec 20 - 30
Sec 31

Where more than one creditor has financed the financial asset, then the
measures prescribed under Sec 13 (d) will be taken only when such secured
creditors of 60% in value of the outstanding agree to initiate action under the
above provision.
Where dues are fully met by sale of assets, secured creditors can file suit in
DRT or any other competent court for recovery of balance amount.
Without prejudice to the right against the debtor, creditor has right to proceed
against the guarantor or sell the pledged assets
Debtor shall not transfer, alienate or sell the secured property mentioned in
notice after issuance of notice u/s 13(2) without creditors consent
Power of CMM or DM to take possession of such assets and handover such assets
to the secured creditor. According to the recent amendment, secured creditor
while approaching to CMM/DM to file an affidavit containing 9 point
No act of such CMM or DM shall be called in question in any court or before any
Regarding taking over of Management
Right to appeal Any person including the borrower aggrieved by any of the
measures taken by the secured creditor may approach DRT within 45 days of
from the date of such measures. DRT if satisfied may restore the possession or
order for such other relief. However, such cases to be disposed of within 4
Aggrieved party (if DRT has not disposed of case within 4 months) may make an
appeal to DRAT
Aggrieved party against orders of DRT, may approach DRAT within 30 days of
receipt of orders subject to paying fees and also depositing 50% of the amount
determined as dues by DRT (DRAT may reduce this amount to not less than 25%
duly recording the reasons)
Where an application or an appeal is expected to be made or has been made
under sec. 17 of the Act the secured creditor or any person claiming a right to
appear before the Tribunal or the Court of Dist. Judge or the Appellate Tribunal
or High Court may lodge a caveat in respect thereof. [Inserted by the
Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act,
2004 w.e.f.03.01.2013.]
Borrower entitled to compensation when possession by secured creditor is
reversed by a court/DRT for any reason
Establishment of central registry & related provisions


Exclusions non applicability of the Act in case of

Lien on any goods, pledge of moveables, aircraft, vessel, rights of unpaid seller,
properties not liable for attachment as per Sec.60 of Civil Procedure code(tools
of artisans, residential house of agriculturists, pension etc.), agricultural land,
where dues are less than 1.00 lac and 20% of the principal and interest.
Protection of action taken in good faith. No suit or prosecution or other legal
proceedings shall lie against any secured creditor or any of his officers or
managers exercising any of the rights of the secured creditor or borrower for
anything done or omitted to be done in good faith under this Act
Civil Court not to have jurisdiction


This act overrides other laws in force

Sec 32

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Sec 36
Sec 37 42

Limitation documents to be within the limitation period(as per Limitation Act

1963) to take action under this Act
Other miscellaneous provisions


Rule 2(a)
Authorised officer means an officer not less than a Chief Manager of a Public
Sector Bank or equivalent, as specified by the Board of Directors or Board of
Trustees of the Secured Creditor.
Rule 2(d)
Approved valuer means a person registered as a valuer u/s 34AB of Wealth Tax
Act, 1957 and approved by the Board of Directors or Board of Trustees of the
Secured Creditor.
Rule 3
Mode of service of Demand Notice issued under Sec 13 (2) of the Act.
Rule 3A
Reply to the representation of the borrower to be issued within 7 days (?)
Rule 4
Procedure after issue of notice in case of moveable assets
Rule 5
Valuation of Moveable Assets
Rule 6
Sale of Movable Secured Assets.
Rule 7
Issue of certificate of Sale in respect of Movable assets.
Rule 8
Sale of Immovable Secured assets
Rule 9
Time of sale, issue of sale certificate and delivery of possession
Rule 11
Procedure of Recovery of shortfall of secured Debt
a. Lien on goods, money or security under S.172 of Indian Contract Act i.e. Pledge of
b. Aircraft
c. Shipping vessel
d. Conditional sale or hire purchase or lease
e. Rights of unpaid seller
f. Goods/properties exempted under S.60 of C.P.C. such as wearing apparels, vessels, tools
of artisan, books of a/c, part of salary etc.
g. Agricultural land [ As per various judicial pronouncements and interpretation of law
though the land may be shown as Agricultural land in the revenue records, however,
seeking exemption under SARFAESI Act, 2002 it is the actual agricultural use of the land
which is to be established. Hence, when it is found that the land is used for other
commercial activities action can be taken under the Act. Branches/Authorized Officers to
take action on case to case basis after taking legal opinion from the empanelled advocate
and consulting Law Officer attached to each R.O.)
h. Amount due is only 20% or less of the principal & interest thereon
i. Outstanding in the account is Rs.1.00 lac or less

Recovery through DRT & Court

The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB & FI Act,) was
passed in 1993, providing for establishment of Tribunals which will follow summary procedure
and Appellate Tribunals, for expeditious adjudication and recovery of debts to Banks and
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financial institutions. The Debts Recovery Tribunals have been constituted under Section 3 of
the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The original aim of
the Debts Recovery Tribunal was to receive claim applications from Banks and Financial
Institutions against their defaulting borrowers. For this the Debts Recovery Tribunal
(Procedure) Rules 1993 were also drafted.
a. Suit can be filed in DRT against NPA accounts where the total dues are Rs.10 lacs and
more as on date of filing of suit. Total dues mean ledger outstanding plus up to date
interest. The definition as per the Act Debt means any liability (inclusive of interest)
which is claimed as due from any person by a bank or a financial institution or by a
consortium of banks or financial institutions during the course of any business activity
undertaken by the bank or the financial institution or the consortium under any law for
the time being in force, in cash or otherwise, whether secured or unsecured, or assigned,
or whether payable under a decree or order of any civil court or any legally recoverable
on the date of application.
b. Suit can be filed even in cases where SARFAESIA action is already initiated.
c. Presiding Officer of a DRT shall be a person who shall be eligible to be appointed not
below the rank of a District Judge
d. Application to be filed in the form of paper book (sufficient copies) by applicant in
person or his agent or duly authorized legal practitioner to the Registrar of DRT
e. Application to be filed in the DRT in whose Jurisdiction, at the time of application,
defendant/s actually and voluntarily resides or carries on business or personally works for
gain, or cause of action wholly or in part arises (Sec.19)
f. Every application filed by the bank for recovery of any debt shall be in such form and
accompanied by documents or other evidence along with the fees as may be prescribed.
g. If any application filed before the Tribunal for recovery is settled prior to the
commencement of the hearing before the Tribunal or at any stage of the proceedings
before the final order is passed, the applicant can be granted refund of the fees paid by
him at such rates as may be prescribed by the Tribunal.
h. Tribunal shall issue summons requiring the defendant to show cause within 30 days of the
service of summons as to why the relief prayed for should not be granted.
i. The defendant shall, within a period of 30 days from the date of service of summons,
present a written statement of his defense. If the defendant fails to file the written
statement, within the period of 30 days. The Presiding Officer may, in exceptional cases
and in special circumstances to be recorded in writing, allow not more than two
extensions to the defendant to file the written statement.
j. Applicant/petitioner shall arrange for issuance of summons within 7 days of registering the
k. Tribunal to Endeavour to dispose of application in 6 months.
l. Recovery Certificate shall be issued by Presiding Officer within a week of passing the
judgment/decree after which Recovery Officer shall take steps for recovery of dues.
Decisions of Recovery Officer are appealable before Presiding Officer.
m. Aggrieved party may seek review of the order passed by DRT within 60 days of passing of
such an order before DRT or file an appeal before DRAT.
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Lok Adalat
a. It is voluntary process and works on the principle that both the parties to the dispute are
willing to sort out their dispute amicably. Through this mechanism, disputes can be
settled in a simpler, quicker and cost effective way.
b. The National Legal Services Authority constituted under the Legal Services Authority Act,
1987 is the Apex Agency for laying down principles and polices for making legal services
available under the Act.
c. Lok Adalat is a process wherein the borrowers are given opportunity to settle their dues
under compromise.
d. Lok Adalats are conducted at State Level, District Level and Taluk Level Legal Services
Authority in the respective states.
e. Branches / Regional Office have to follow up with the legal service authorities at the
district level where the branch is situated for identifying the dates of Lok Adalat and
ensure that maximum number of NPA accounts is settled in Lok Adalat.
f. The monetary ceiling of cases to be referred to Lok Adalat organized by civil court is
Rs.20.00 Lacs
g. The Bank will identify cases and furnish list of cases to the Authorities, who would send
notices to the borrowers to appear before Lok Adalat. The Bank would hold intensive pre
Lok Adalat meets with the borrowers and educate them on the advantages of settling
their dues through Lok Adalat and encourage them to participate in the Lok Adalat.
h. Lok Adalats are also held at different courts like DRT, High Court, Supreme Court etc.
periodically irrespective of the amount involved.
Features of Lok Adalat
a. Lok Adalats can hear both suit filed (litigation) and non suit filed (Pre- litigation) Cases.
b. In pre-litigation stage, NPAs with total outstanding up to Rs.20.00 Lacs (total dues
including dummy interest) can be referred to Lok Adalats organized by Legal Service
Authority at state/ district / taluka level.
c. The cases which are pending before various forums such as Civil Court, DRT, DRAT can
also be settled in Lok Adalat if the parties arrive at settlement with mutual consent.
d. No court fees is involved when Pre litigation cases are referred to the Lok Adalat.
However, if a pending case is settled at Lok Adalat, any court fee already paid will be
e. Every award made by Lok Adalat shall be final and binding on all the parties to the
dispute, and no appeal shall lie to any court against the award.
f. There is no strict application of the procedural laws and the Evidence Act while assessing
the merits of the claim by the Lok Adalat. The parties to the disputes though represented
by their advocate can interact with the Lok Adalat judge directly and explain their stand
in the dispute and the reasons therefore, which is not possible in a regular court of law.
g. NPAs which can be settled through Lok Adalat can be brought before the Lok Adalat
directly instead of going to a regular court first and then to the Lok Adalat.

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A Lok Adalat shall have jurisdiction to determine and to arrive at a compromise or settlement
between the parties to a dispute in respect of:
any case pending before; or
any matter which is falling within the jurisdiction of, and is not brought before, any
court for which the Lok Adalat is organized.
The Lok Adalat can compromise and settle even criminal cases, which are compoundable
under the relevant laws.
Award passed by Lok Adalat is deemed to be a decree of civil court and the award passed
by Lok Adalat is final and binding on all the parties to the dispute, and no appeal shall lie
to any court against the award.
If a pending case is settled at Lok Adalat, any court fee already paid will be refunded as
provided by the Court Fee Act, 1870.

Revenue Recovery Act

Under the Revenue Recovery Acts, in force in various States the Collectors have been
empowered to attach and sell the immovable properties under their jurisdiction for recovery
of arrears of land revenue to the government in respect of such properties. Dues to the Banks
are treated on par with land revenues/public demand and under the said Acts and be
recovered treating it as arrears of land revenue. Many State Governments have enacted laws
under which a Certificate is issued usually by Collector on application by the Banks, regarding
the dues payable to the Bank and such Certificates are enforced through Collector for
recovery of Banks dues.
As at present, recovery of dues through legal action under the Revenue Recovery Acts of
states is encouraged by the Government and the machinery in the following states namely:
Uttar Pradesh
Madhya Pradesh

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Foreign Exchange
What is Foreign Exchange?
As Per Foreign Exchange Management Act 1999, Foreign Exchange Means Foreign Currency &
All deposits, credits, balances payable in any foreign currency and
Drafts, TCs, LCs and bills of exchange expressed or drawn in Indian currency and payable in
foreign exchange
Drafts, TCs, LCs or bills of exchange drawn by banks, institutions or persons outside India but
payable in Indian currency
In simple terms Foreign Exchange refers to the currencies of other countries. It means the
claims of residents of one country to the foreign currency payable abroad
For Example: An Indian exporting goods to UK and invoicing it in GBP will receive the payment
in GBP. The GBP is foreign exchange to India.

No Country is self sufficient in resources.

Hence interdependence among nations has become necessary.
This has led to movement of goods & services from one Country to another which is called
International Trade.
The Buyer & Seller agree to settle the deal in any one currency
Hence International Trade Involves Cross Border Sale & Payment
Thus, International Trade involves inflow / Outflow of foreign exchange
Important Characteristics of Foreign Exchange
Scarcity Character
Commodity Character
No exact location of market
Twenty - four hour market. (London, NY, Tokyo, Zurich, Frankfurt)
Very Volatile Rates fluctuate almost every 4 seconds (21,600 times a day)
Five day operation
Two way quotes Buy Low Sell High
How Forex Earnings Classified?
A Countrys forex earnings depend up on its external receipts & payments. They are classified
as under:
1. Capital Account
2. Current Account

Capital Account Transaction: Transaction which alters the assets and liabilities,
including contingent liabilities outside India of persons resident in India or Assets and
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liabilities in India of persons resident outside India And includes the following: (a) Any
borrowing / lending in FC in whatever form / name. (b) Transfer/Issue of foreign security by
resident (c) Transfer / Issue of security by resident outside India (d) Export / Import of
currency notes (e) Transfer of immovable property (other than lease not exceeding 5
years) (f) Giving of guarantee in r/o debt by a resident to resident outside India.
Current Account Transactions: Current A/c Transaction means transaction other than
capital account transaction and includes: (a) Payments due in connection with foreign
trade, services, short term banking and credit facilities. (b) Payment of interest / net
income from investments. (c) Remittances of living expenses of parents, spouse, children
abroad. (d) Expenses reg: foreign travel, education, medical, etc.
Certain restrictions on Current A/c transactions
Schedule - I: Prohibited category. Lottery winnings, Racing / Riding etc, Remittance for
purchase of lottery tickets, banned magazines, etc.
Schedule - II: Government approval required. Cultural Tours: HRD Ministry Permission.
Hiring of transponders for TV channels: Ministry of Information and
permission. Remittance of Prize money abroad by person other than international /
national / state bodies if the amount involved exceeds USD 1.00 Lacs: HRD Ministry.
Schedule - III: ADs can allow transaction up to the prescribed limits and RBI permission
beyond that. Now under LRS, all schedule III items available to individuals are subsumed
under LRS limit
The transactions under Current a/c are further classified into:
a. Merchantise Trade (export / Import of trade / services)
b. Invisibles (travel / transport / Interest/ dividend etc)
The difference in external receipt & payment on these two counts give Current a/c Surplus or
How Foreign Exchange is regulated in India?
Through FEMA Act enacted by GOI in 1999
Based on the Act - RBI - acting as Custodian of Foreign Exchange on behalf of GOI is empowered
to regulate all foreign exchange dealings.
The conduct of foreign exchange business by banks in India involves compliance of:
The FEMA guidelines oversee external payments and receipts. The Foreign Exchange
Management Act (1999) incorporates directions of a standing nature to authorized persons etc.
Directions on Project & Service Exports, are spelt out in separate memoranda. Amendments /
changes are informed to authorized persons from time to time by RBI through AP(DIR) series
circulars & other notifications / direction etc.
The National Foreign Trade Policy notified by the Ministry of Commerce, Government of India
lays down the guidelines / procedures of Trade Control, relating to the physical movement of
goods into /out of India. The policy states, that exports and imports shall be free except in
cases where they are regulated by the provisions of this policy or any other law for the time
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being in force.
RBI circulates to authorized persons amendments to the FEMA and general procedure, as may
be applicable from time to time. RBI advises the policy guidelines on fixation of rate of interest
on export / import finance, NRI deposits etc. RBI also lays down guidelines / norms on the
extension of finance by the banks for forex related areas of export, import, non-residents etc.
ICC had in 1933 codified the rules regarding the operation of Letters of Credit, which received
acceptance in about 120 countries. The Uniform Customs and Practice for Documentary Credits
(UCPDC) was last revised on 01.07.2007 and is referred as UCP 600. ICC has also published
Uniform Rules for Bank to Bank Re-imbursement (URR 725), Uniform Rules for Collection (URC
522), International Standard Banking Practices (ISBP) and Incoterms for examination of
documents under documentary credits. Our country subscribed to these rules and hence it is
necessary that the practical implications of the provisions of these uniform rules with almost
worldwide acceptance is well understood by staff handling foreign exchange transactions.
The FEDAI rules and guidelines ensure uniformity in terms and conditions followed by
authorized persons in India. FEDAI also by way of circulars to the AD banks provide necessary
information and clarifications pertaining to foreign exchange business handled by the banks.
The Bank has issued detailed guidelines on various aspects of forex business. The ADs have been
granted increasing delegation under exchange control regulations and hence specific standard
conditions / procedures are laid down for consistent application by branches.
Non Resident Indian (NRI):
NRI is a person resident outside India who is a citizen of India or a Person of Indian Origin
(Regulation 2 of FEMA).
Person of Indian Origin (PIO) means:
A citizen of any country other than Pakistan or Bangladesh provided,
He, at any time held Indian Passport, or
He or either of his parents or grandparents was a citizen of India by virtue of the constitution of
India or Citizenship Act, 1955, or
Spouse of an Indian Citizen or a person referred to in (a) or (b) above.
Overseas Corporate Body (OCB) means
Overseas Companies, Partnership firms, societies and other corporate bodies which are owned
to the extent of at least 60 % by non residents of Indian Nationality / Origin, and overseas
Trusts in which at least 60 % of the beneficial interest is irrevocably held by such persons.
NRIs eligible to open NRI a/cs with Banks in India:
Any Indian citizen / PIO residing abroad
for employment, business, vocation
Any government official posted abroad on duty with the Indian Embassy / High Commission or
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deputed abroad with Foreign Governments or International agencies like the World Bank, IMF,
Crew Members of Indian Nationality or Origin Employed by Foreign / Indian Shipping and
Airlines Companies, and posted Abroad.
Students going abroad to pursue Higher Studies.
Or for any other purpose indicating an intention to stay abroad for an uncertain period.
Apart from the above, Foreign Nationals on Short Visits to India on Business or as Tourists for a
period not exceeding 6 Months are eligible to open NRO a/cs only.
NRIs not eligible to open NRI a/cs: Persons who have gone abroad for
Health grounds, medical check ups
Short visits either on excursions / business promotion/ tours,
Short visits to relatives / pilgrimage
Training for fixed period
Or for any other purpose which does not indicate uncertain period of stay abroad.
Opening of nonresident accounts in the names of Pakistan / Bangladesh nationals require prior
approval from RBI except opening of NRO accounts of individuals of Bangladesh Nationality
subject to the individual holding valid visa and valid residential permit.
NRE Deposits Operational Guidelines for Opening of Account
Documents Required:
NRE SB a/c Opening form (Download prescribed application. form from UBINET)
Relevant pages of Self Attested Passport Xerox copy including Visa stamped page
verified with the original)
Three Passport Size Photographs
Overseas address proof if already resident abroad (Optional)
Copy of Overseas Job permit / Employment letter (If applicable)

(To be

Guidelines to Branches:
No introduction required (passport can be treated as self introduction)
NRE details to be entered in CUMM under sub menu option N
A/c can be opened with zero balance
Chq Book to be issued after receiving initial remittance in to the a/c
Accounting Entries on Receiving Remittance from Customer:
Method (1):
Party while on his visit to India gives Foreign Currency Cheq / FDD / Trav. Cheques / Foreign
Currency and requests for credit to his NRE SB a/c by purchase / on realization.
Steps Involved:
Send the Cheque / DD to Centralised Cheque Collection Center (CCC), Mumbai along with
prescribed collection schedule duly mentioning the 15 digit a/c no. of the party. (Ref: IBD Cir
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No: 5812 dated 28.08.07)
In about 10 to 15 days,, the amount will be directly credited to the NRE SB a/c of the party by
CCC, Mumbai.
Note: In case of Travelers Cheques / Foreign currency immediate credit can be given to partys
a/c. (Ref: IBD Cir No: 7724 dated 20.07.07)
Method (2): Remittance through SWIFT:
Party will send wire transfer (TT) through SWIFT from abroad as per the guidance given by the
branch (Refer hand out given regarding the guidelines given for the customer / branch for
sending remittances through SWIFT).
On receiving information from customer about the remittance sent, immediately inform your
B Category branch about the remittance details and the disposal instructions i.e., for
conversion to Rupees or creating FCNR deposit.
Based on the instructions given, B category br. will either directly credit the NRE a/c of the
customer through intersol (or) send authurity cheque to the branch.
Branches can also Debit POB Forex and Credit partys a/c with value date of receiving credit in
Nostro a/c. The POB entry will be nullified with the authority cheque received from the B
Cat. Br.
Method (3): Remittance through e Remit:
NRI customers residing in US, UK can only use this facility.
Steps Involved:
NRI customer will log in to our banks website (unionbankofindia.com)
Make online registration for e-Remit (one time).
His registration will be activated within a week & he will be intimated USER ID & Password to
his email address.
Customer can remit the funds with a limit of USD 5000 per transaction through internet.
Foreign remittance sent will be converted to Rupees and will be directly credited to NRE a/c of
the party by International Exchange branch, Mumbai.
Branch has no role to play in this transaction except confirming the party about the remittance
received in to his a/c
Creation of NRE Fixed Deposit:
Open the fixed deposit a/c using the relevant scheme code for NRE FDR (TDE02) / NRE DRIC
Transfer the Balance in NRE SB a/c by passing the following accounting entries.
Debit :NRE SB
Credit :NRE FDR / DRIC
Renew the deposit as per usual procedure applicable to domestic deposits
On Withdrawal and Repatriation:
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Report the maturity amount to B Cat branch for conversion to Foreign currency of customer
choice and repatriation. Inform the remittance details viz., Name of customer , his overseas
bank details with a/c no etc to B cat br for sending the remittance through SWIFT.
Sent ACH to B category branch for the amount converted to foreign currency and credit the
balance amount if any to NRE SB a/c of the party.

Features of Various Deposit Schemes Available to Non-Resident Indians (NRIs)


Foreign Currency (NonNon-Resident

Non-Resident Ordinary
Resident) Account
(External)Rupee Account
Rupee Account
(Banks) Scheme (FCNR(B) Scheme (NRE Account) Scheme (NRO Account)





Who can open

an account

NRIs (individuals / entities

of Bangladesh/ Pakistan
require prior approval of

Joint account

In the names of two or more In the names of two or more May be held jointly with
non-resident individuals or non-resident individuals or residents


NRIs (individuals / entities

of Bangladesh / Pakistan
require prior approval of

Resident individuals
(close relatives as per
companies act) as 2
applicant on former or
survivor basis permitted
since 22/09/11

Resident individuals
(close relatives as per
companies act) as 2
applicant on former or
survivor basis permitted
since 22/09/11



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Any person resident

outside India (other than
a person resident in
Nepal and Bhutan).
(individuals / entities of
Bangladesh / Pakistan
nationality / ownership as
well as erstwhile OCBs
require prior approval of



Staff College, Bengaluru

Currency in
Pound Sterling, US Dollar,
which account Japanese Yen, Euro,
is denominated Canadian Dollar and
Australian Dollar

Indian Rupees

Indian Rupees




Not repatriable except for

the following in the
account - 1) current
income 2) up to USD 1
million per financial year
(April- March), for any
bonafide purpose out of
the balances in the
account / sale proceeds
of assets in India
acquired by way of
inheritance / legacy
inclusive of assets
acquired out of
settlement subject to
certain conditions.

Type of

Term Deposit only

Savings, Current,
Recurring, Fixed Deposit

Savings, Current,
Recurring, Fixed Deposit

Minimum: 1 Year

As applicable to resident

Period for fixed Minimum Period: 1 Year

Maximum: 5 years

Rate of Interest

Operations by
Power of
Attorney in

Maximum: At the discretion

of the bank (our bank:10yrs)

Subject to cap :

SB & Fixed Deposits :

Linked to LIBOR / SWAP (+

or - ) rates for the respective
currency of corresponding
maturities as determined by
RBI from time to time

RBI deregulated interest

rates on Term / SB w.e.f.

Operations on the account

in terms of Power of
Attorney are restricted to

Note: Cannot be higher

than interest rates offered
on domestic deposits

Operations on the account

in terms of Power of
Attorney are restricted to

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Interest Rates on Term

deposits deregulated
Now interest rates on SB
also deregulated w.e.f
Note: Cannot be higher
than interest rates offered
on domestic deposits.
Operations on the
account in terms of
Power of Attorney are


Staff College, Bengaluru

favour of a
resident by the
account holder

withdrawals for permissible

local payments or
remittance to the account
holder himself through
normal banking channels.

Rupee Loans
In India
To the Account
holder / third

No ceiling but subject to
No ceiling but subject to
usual margin requirements usual margin requirements

withdrawals for permissible

local payments or
remittance to the account
holder himself through
normal banking channels.

restricted to withdrawals
for permissible local
payments or remittance
to the account holder
himself through normal
banking channels.

No ceiling but subject to
No ceiling but subject to Not Permitted
Currency Loans usual margin requirements usual margin requirements
in India /
To the Account
holder / third
Purpose of

i) Personal purposes or for

carrying on business
activities. *

i) Personal purposes or for

carrying on business
activities. *

ii) Direct investment in India

i) to the
on non-repatriation basis by
Account holder way of contribution to the
capital of Indian firms /

ii) Direct investment in India

on non-repatriation basis by
way of contribution to the
capital of Indian firms /

iii) Acquisition of flat / house

in India for his own
residential use. (Please
refer to para 9 of Sch. 2 to

iii) Acquisition of flat / house

in India for his own
residential use. (Please
refer to para 6(a) of Sch.1 to

Personal requirement
and / or business
purpose *

a. In India

ii) to Third Party Fund based and / or nonfund based facilities for
personal purposes or for
carrying on business
activities *. (Please refer to
para 9 of Sch. 2 to FEMA

Fund based and / or nonPersonal requirement

fund based facilities for
and / or business
personal purposes or for
purpose *
carrying on business
activities *. (Please refer to
para 6(b) of Sch. 1 to FEMA

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b. Abroad
To the account
holder and
Third Party

Fund based and / or nonfund based facilities for

bonafide purposes.

Fund based and / or nonfund based facilities for

bonafide purposes.

Not permitted.

* The loans cannot be utilised for the purpose of re-lending or for carrying on agriculture or plantation
activities or for investment in real estate business. $ Provided no funds are remitted to India and are
used abroad only.
Note :a. When a person resident in India leaves India for Nepal and Bhutan for taking up employment or
for carrying on business or vocation or for any other purpose indicating his intention to stay in Nepal and
Bhutan for an uncertain period, his existing account will continue as a resident account. Such account
should not be designated as Non-resident (Ordinary) Rupee Account (NRO).
b. ADs may open and maintain NRE / FCNR (B) Accounts of persons resident in Nepal and Bhutan who
are citizens of India or of Indian origin, provided the funds for opening these accounts are remitted in
free foreign exchange, Interest earned in NRE / FCNR (B) accounts can be remitted only in Indian
rupees to NRIs and PIO resident in Nepal and Bhutan.
c. In terms of Regulation 4(4) of the Notification No.FEMA.5/2000-RB dated May 3, 2000, ADs may open
and maintain Rupee accounts for a person resident in Nepal / Bhutan.
d. The regulations relating to the various deposit schemes available to Non-Resident Indians have been
notified vide Notification No.FEMA.5 dated 3 May 2000, as amended from time to time. The relevant
Notifications and A P (DIR Series) Circulars have been placed on our website www.rbi.org.in and may
please be referred to for full details.
e. AD Category I banks and authorized banks may credit proceeds of demand drafts / bankers'
cheques issued against encashment of foreign currency to the NRE account of the NRI account holder
where the instruments issued to the NRE account holder are supported by encashment certificate issued
by AD Category I / Category II.
f. AD Category I banks and authorised banks may permit remittance of the maturity proceeds of FCNR
(B) deposits to third parties outside India, provided the transaction is specifically authorised by the
account holder and the authorised dealer is satisfied about the bonafides of the transaction.
g. The term loan (against NRE / FCNR deposits) shall include all types of fund based/nonfund based facilities.
h. In case of loans against FCNR deposits, the margin requirement shall be notionally calculated on the
rupee equivalent of the deposits.


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(Scheme introduced w.e.f. 22-09-1992)
Returning Indians, who have been outside India for a continuous period of not less than one
year and have become residents on or after 18.04.1992 are eligible.
Permitted Credits:
1) Balances held in NRE / FCNR deposit accounts
2) Assets held outside India at the time of return can be credited to such accounts.
3) Forex received as gifts or inheritance.
4) Proceeds of Insurance claims/maturity/surrender value settled in Foreign Currency.
5) Salary / Pension / Royalty etc., received in forex.
Type of deposit
: Term
: 6 months to 3 years
Rate of Interest
: Linked to LIBOR (as applicable to FCNR(B) dep)
: as applicable to domestic deposits
Utilisation of funds :For local withdrawals &
all permitted current / capital a/c
: Can be repatriated if holder re-attains NRI status
How to Control
: Same as applicable to FCNR(B) deposits (IBD cir:6266 dt 16.03.11)
Guidelines for conversion of FCNR (B)/NRE Term Dep. to RFC A/c:
Option 1:
To close the existing NRE/FCNR(B) deposits before maturity (without penalty) and convert the
balances at the present exchange rate to create RFC deposit a/c. (Rate of Interest as
applicable to RFC will be payable from the date of opening of RFC a/c
Option 2:
Allow the FCNR (B) deposit to continue till maturity and transfer the maturity proceeds to
RFC a/c.
NRI / Resident a/cs Liberalisation Measures
NRIs can hold joint a/cs (NRE / FCNR) with resident close relatives on former or survivor basis
(9076 dt 30/09/11)
NRIs can be joint a/c holder for resident close relative a/cs (all types of accounts including SB) on
either or survivor basis (9876 dt 18/03/14)
Resident individuals can gift NRI close relatives in INR under Liberalised Remittance Scheme
(LRS) (9080 dt. 30/09/11)
Resident individuals can lend in INR to NRI close relatives under LRS (9081 dt. 30/09/11)
Residents can repay loans taken by NRI close relatives (housing & other loans) (9082 dt
Residents can bear medical expenses of NRI close relatives in addition to lodging / boarding
facilities during their visit to India (9083 dt. 30/09/11)
FCNR (B) a/cs can be opened in any permitted currency (RBI:AP:DIR:36 dt. 19/10/11) (as of
now, Union Bank offers FCNR(B) deposits in six designated currencies as mentioned above)

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Interest rates on NRE & NRO (SB & Term) deposits deregulated by RBI w.e.f 16.12.11
(RBI:DBOD:63 dt 16/12/11)
NRIs are free to hold / own / transfer / invest any assets acquired abroad even after their return
to India for permanent settlement. An investor can also retain & reinvest the income earned on
investments made under LRS (9110 dt . 24/10/11)
Funds in NRO a/c can be transferred to NRE a/c upto USD 1 Mio per FY subject to compliance of
conditions (9283 dt 15.05.12)

Liberalised Remittance Scheme

Under this scheme Resident Individuals can remit up to USD250,000/- per Financial Year
for permitted current / capital a/c transactions
Resident Individuals are free to acquire and hold shares of listed companies or invest in
Mutual funds etc without prior approval of RBI
Resident individuals can also maintain foreign currency a/cs abroad
Can be utilised for repayment of loan availed abroad as NRI on becoming Resident Indian
Can be utilised for Gift / Donations
Remittance by DD in own name or third party with whom the permissible transaction will
be put through is permitted against self declaration

No credit facilities by banks for making remittances under LRS

LRS scheme should no longer be used for acquisition of immovable property, directly or
indirectly, outside India.
Not permitted for remittances listed under schedule I & II of FEM (Current a/c
transactions) rules 2000 & all transactions not permissible under FEMA
Not available for remittances to Bhutan / Nepal / Mauritius / Pakistan & countries
identified by FATF as Non co-operative countries (Iran, N.Korea, Algeria, Equador,
Myanmar (FATF)
PAN Number mandatory

Loans to NRIs: Permitted Purposes:

Against the security of their NRE term deposits for personal purpose or for carrying on
business activities.
For the purpose of making direct investment in India on non-repatriation basis
by way of contribution to the capital of Indian firms / companies subject to
compliance with the relevant FEMA provisions relating to such investments.
Housing Loans
Rupee/FC loans to be allowed to depositor/third party without any ceiling
subject to usual margin requirements against NRE/FCNR deposits. The facility
of premature withdrawal of NRE/FCNR deposits shall not be permitted, during
deposits. This
requirement shall be brought to the notice of the deposit holder at the time of
sanction of the loan itself by obtaining an undertaking, which shall form as an
integral part of the documentation. However this is subject to delegation of
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Loans to NRIs: Not permitted Purposes:
Business of chit fund
Nidhi Company
Agriculture or Plantation activities
Real Estate Business
Construction of Farm Houses
Investment in Capital Market including Margin Trading and Derivatives
Transferable Development Rights: It means certificates issued in respect of category of
land acquired for public purpose either by Central or State Government in
consideration of surrender of land by the owner without monetary compensation,
which are transferable in part or whole.) As per RBI guidelines, NRIs should not be
given loans / advances for trading in Transferable Development Rights (TDRs).
Foreign Exchange Facilities for Resident Indians
Applicant should be a customer of a Bank for at least One Year.
It is mandatory to have PAN number to make remittances under the Scheme. PAN Card is
not required for remittance under LRS for upto $25000.00
Liberalised Remittances Scheme: Remittance abroad without specific purpose per financial
year: US$ 250000/- for any permitted current or capital account transaction or
combination of both. But under LRS remittances for prohibited activities like lottery
or margin trading to overseas exchanges/overseas counter party for Forex trading is
not permitted.
The scheme is in addition to acquisition of ESOPs linked to ADR/GDR and acquisition of
qualification shares (i.e USD 20,000/- or 1% of paid up capital of overseas company
whichever is lower).
Individuals can also open, maintain and hold foreign currency accounts with a bank
outside India for making remittances under this Scheme without prior approval of RBI.
Individuals are free to use this Scheme to acquire and hold immovable property,
shares or any other asset outside India without prior approval of Reserve Bank.
The scheme is not available for remittance to countries identified by FATF as Non-cooperative countries and territories (NCCT) as available on FATF website and as notified
by RBI from time to time. By submitting Form A2, resident Indians can purchase foreign
exchange from Authorised Dealers, as per the following. Beyond the limits mentioned
below, RBI permission is required.
US$ 25,000: Small Value Remittance: Without form A2, with simple letter of declaration.
Resident individual: Limit of USD 250000 per financial year under the Liberalised
and donation by a resident individual (Except prohibited activity). Remittances
exceeding the limit will require prior permission from the Reserve Bank.
Other than individuals: ADs have been permitted to make remittances on account of
donations by corporate for some specified purposes subject to a limit of one per cent
of the foreign exchange earnings during the previous three financial years or USD 5
million, whichever is less. Other residents like partnership firms, trusts etc., are free to
remit up to USD 250000 per annum per donor/remitter each as gift and donation.
Remittances exceeding the limit will require prior permission from the Reserve Bank.
Remittence abroad without any specific purpose under LRS
(Including gifts / donations & excluding prohibited activity)
Time for purchase of forex
Before 60 days of journey
Mode of purchase of forex paying cash
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Upto USD 3000 in FC. Up to USD 5000 for Iraq and Libya,
For Russia and Iran & CIS countries & for HAJ pilgrimage No ceiling.

LRS is available to all resident individuals including minors.

Remittances in respect of family members can be consolidated.
Branches/Offices shouldnt permit following remittance under the Liberalized Remittance
a. Remittance for any purpose specifically prohibited under FEMA Schedule-I, or any item
restricted under Schedule II of Foreign Exchange Management (Current Account
Transaction) Rules 2000 (Rules) as amended from time to time.
b. Remittances made directly or indirectly to Bhutan, Nepal, Mauritius, Pakistan or any
other country identified by the Financial Action Task Force [FATF] as "non co-operative
countries and territories", as declared from time to time or as notified by RBI.
c. Remittances directly or indirectly to those individuals and entities identified as posing
significant risk of committing acts of terrorism as advised separately by the Reserve
Bank to the banks.
d. Remittances for margins or margin calls to overseas exchanges/overseas counter party.
Other important matters:
Foreign Exchange purchased for any permitted purpose if not utilized for that purpose,
can be utilized for any other permitted purpose. If not used, to be surrendered to
Authorised Dealer.
Indian Residents & Non Residents are permitted to bring currency notes into country and
taking out of the country Indian Currency notes up to `25000/- to any country including
NEPAL & BHUTAN, except Pakistan & Bangladesh.
Unspent Foreign Exchange: Foreign Exchange up to US$2000 in any Foreign Currency or
TCs can be retained by Resident Indians out of unspent Foreign Exchange brought back
by him, can be utilised for subsequent visits abroad during the specified period. The
balance (over US$2000)
has to be necessarily surrendered to Authorised Dealer within
180 days
Resident can bring any amount of Foreign Exchange from abroad, which may be in the
form of Currency or FCTC. If the amount exceeds US$10,000 or its equivalent in TC /
Currency or currency notes exceeds US$5000 or its equivalent in FC, Resident
has to declare to customs authorities in
CDF(Currency Declaration Form).
An Individual Resident may borrow a sum of not exceeding USD250,000/- or its
equivalent from close relatives residing outside India and the minimum repayment
period should be at least one year. Loan should be free of interest and loan amount
has to be received through normal banking channels including debit to
There is no restriction on Residents holding Foreign Coins.
The limit for EXPORT OF GOODS by way of gifts `5 lakhs per annum.
Branches may allow payments for export of goods / software to be received from a
third party (a party other than the buyer) or allow payments to be made to a third
party for import of goods, subject to conditions e.g., Tripartite agreement or
Documentary evidence for circumstances leading to third party payments / name of the
third party being mentioned in the irrevocable order / invoice has been produced by the
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AD: An authorized dealer is normally a bank specifically authorized by the Reserve Bank
under Section 10(1) of FEMA,1999, to deal in foreign exchange or foreign securities
Arbitrage - Purchase and selling in different centres to take advantages of
rate differentials.
Asian Clearing Union - 9 Countries - Sri Lanka, Pakaistan, Bangladesh, Nepal,
Bhutan, Iran, Mynamar, India. (9 th Country - Maldives added on 1.1.10). HQ -Tehran.
Authorised person to deal with sale and purchase of foreign exchange: Authorised
Dealers, Money Changers and Offshore Banking Units.
Avalisation means Co-Acceptance of Bills.
Bill of entry has to be submitted to AD by the importer within a period of 15
days from 6 months from the date of remittance in case of non capital goods
and within 15 days from 3 years from date of remittance in case of capital
Bill Rediscounting Scheme (BRD): Overdue BRD should be delinked on the
ostensible due date i.e. 15th day from end of NTP/Due date as the case may be,
@TT Selling Rate as on the date of delinking. In case of early realization
branches are now permitted to refund the proportionate interest including the
spread effective from 01.10.2011.
Buyers Credit: The buyer in India will have to avail either a rupee loan from
any bank in India or Foreign Currency Loan from a Bank or Financial
Institution in India or abroad to settle the bill of the Seller on sight terms.
Cash / Ready: Transaction and delivery on the same day.T+0
Categories of Branches dealing with foreign exchange: (a) Category A:
Maintains and operates NOSTRO a/c (eg.ID) (b) Category B:
NOSTRO a/c (eg.FEX cell, Overseas Br & Designated branches (c) Category C:
Not permitted to deal independently FC
CIF (Cost, Insurance, Freight) Upto named destination paid by exporter
Crystallization - In case of import bills, the liability to be crystallized with 10
days of date of receipt. Export Bills in 15 days from due date.
On realization of export bill, it is to be ensured that the proceeds of the export
bill is remitted by the overseas buyer.
Deemed Exports means:
Supplies made to IBRD, IDA, ADB or EPZ, SEZ or
100% EOUs. Where goods does not leave country.
Delinking of export bill has to be done on 15 th day after normal transit period
in case of sight bill, 15 th day after notional due date /actual due date in case
of usance bill or even before that date if special request is there from exporter in
writing. On the date of delinking of export bill, the rate applied is TT selling rate.
Import sight bills under LC are to be delinked on 10 th day after receipt of document at
FD/Import Designated Branch

Green Clause LC: Authorises the nominated bank to give advance payment for
Warehousing and Insurance Charges
High Sea Sales: Where the goods under import are sold on the way to Indian
shores before they actually land at the port. It takes place by way of
endorsement on documents.
Payment will be made by original importer and
goods will be delivered to endorser.
Importer-Exporter Code is allotted by DGFT (Ten Digit)

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Lloyds Certificate: A certificate of sea-worthiness and age of the vessel issued

by Lloyds Registry of Shipping.
LORO Account: Their Nostro Account with You or third party account
Correspondent Abroad
Prime Bank: Top 1000 world Banks Rating published by the magazine The Banker.
Receipt of Foreign Exchange through authorized person : No Limit
Red Clause LC: LC which authorizes the nominated bank to sanction Pre Shipment
credit to beneficiary
SDF: Statutory Declaration Form by Exporter where Electronic Data Interchange
system is introduced in Customs Office - in place of GR form
SGS certificate: A pre shipment merchandise inspection certificate issued by Society
Generale De Surveillance
SOFTEX: Export Declaration form for Software Export ( in Triplicate)
Spot: Transaction - Today. Delivery - Second Working day. (T+2)
Suppliers Credit: Credit extended by the overseas supplier to the buyer in India for
selling his goods is known as Suppliers Credit.
Tom: Transaction - Today / Delivery of forex: Next working day.
Value Date in forex: When quoting the rates, the banks take into account the
time factor i.e. how much time is going to be taken to get the purchased
currency credited to Nostro account abroad. This date is known as Value date. Date of
Credit of Nostro account /or/ Date of Debit of Vostro account / or / Date of settlement
is the value date.
VOSTRO Account: Foreign Correspondants account with us in Rupees.
XOS FORM: Banks should furnish a statement in Form XOS to RBI (at the end of June and
December) giving details of all export bills outstanding beyond 6 months from the date
of export, in triplicate, within 15 days from the close of the relevant half-year.
TOBIN Tax: It is a tax for spot conversion of one currency into another. The
tax is intended to put a penalty on short-term speculative gain to another
currency. Tobin tax was suggested by Nobel Laureate economist James Tobin
in 1972 and hence the name. The tax on foreign exchange transactions was
devised to cushion exchange rate fluctuations and to find a way to manage
exchange-rate volatility. Imposition of a small tax dissuades the speculators
and hence helps stabilization of monetary system. In India, Tobin Tax is not
IMPOSSIBLE TRINITY: The "Impossible Trinity" is referred to the balancing act
of (1) inflation (price
stability), (2)
rates (currency
appreciation) and (3) capital inflows (capital mobility).Economic theory says,
a country can only attain two of the three objectives and it is impossible to
balance or control all the three parameters simultaneously, hence it is called
as impossible trinity.
Golden Share: It is a type of share that gives its shareholder veto power over
changes to the company's charter.

External Commercial Borrowing

It can be in the form of bank loans, buyers credit, suppliers credit, floating
bonds, fixed rate bonds.
It is availed from Nonresident lenders.
There are two routes for availing ECB: Automatic route and approval route.

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Automatic route is used for investment in real sector (mfg sector/service sector).
Corporate borrowers (except financial intermediaries) are eligible.
Individuals, Trusts, Non-profit organizations are not eligible.
MFI & NGOs engaged in micro finance eligible. (Up to USD 10 Mn in a financial year)
Indian companies in the hotel sector (with a total project cost of INR 250 crore or more),
may avail ECB under USD 10 billion scheme with RBI permission i.e.
under the approval route.
Developers/builders, housing finance companies (HFCS)/ National Housing Bank (NHB) are
permitted to avail ECB for low cost affordable housing projects, under the approval

BASEL III & Risk Management

Basel III reforms are the response of Basel Committee on Banking Supervision (BCBS) to
improve the banking sectors ability to absorb shocks arising from financial and economic
stress, whatever the source, thus reducing the risk of spill over from the financial sector to
the real economy. It has its origins in the financial market turmoil after failure of Bretton
Woods system of managed exchange rates in 1973.It had resulted into large foreign
currency losses to many banks world over. In response to this During Pittsburgh summit in
September 2009, the G20 leaders committed to strengthen the regulatory system for
banks and other financial firms and also act together to raise capital standards, to
implement strong international compensation standards aimed at ending practices that
lead to excessive risk-taking, to improve the over-the-counter derivatives market and to
create more powerful tools to hold large global firms to account for the risks they take. For
all these reforms, the leaders set for themselves strict and precise timetables.
Consequently, the Basel Committee on Banking Supervision (BCBS) released
comprehensive reform package entitled Basel III: A global regulatory framework for
more resilient banks and banking systems (known as Basel III capital regulations) in
December 2010.
Basel III reforms strengthen the bank-level i.e. micro prudential regulation, with the
intention to raise the resilience of individual banking institutions in periods of stress.
Besides, the reforms have a macro prudential focus also, addressing system wide risks,
which can build up across the banking sector, as well as the procyclical amplification of
these risks over time. These new global regulatory and supervisory standards mainly seek
to raise the quality and level of capital to ensure banks are better able to absorb losses on
both a going concern and a gone concern basis, increase the risk coverage of the capital
framework, introduce leverage ratio to serve as a backstop to the risk-based capital
measure, raise the standards for the supervisory review process (Pillar 2) and public
disclosures (Pillar 3) etc. The macro prudential aspects of Basel III are largely enshrined in
the capital buffers. Both the buffers i.e. the capital conservation buffer and the
countercyclical buffer are intended to protect the banking sector from periods of excess
credit growth.
Reserve Bank issued Guidelines based on the Basel III reforms on capital regulation on
May 2, 2012, to the extent applicable to banks operating in India. The Basel III capital
regulation has been implemented from April 1, 2013 in India in phases and it will be fully
implemented as on March 31, 2019. Further, on a review, the parallel run and prudential

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floor for implementation of Basel II vis-D-vis Basel I have been discontinued.
Keeping in view the Reserve Banks goal to have consistency and harmony with
international standards, it was decided in 2007 that all commercial banks in India
(excluding Local Area Banks and Regional Rural Banks) should adopt Standardised
Approach for credit risk, Basic Indicator Approach for operational risk by March
2009 and banks should continue to apply the Standardised Duration Approach (SDA) for
computing capital requirement for market risks.
BCBS has so far recommended the capital measures three times ,which are called:
BASEL-I:1988(implemented in India in 1993)
BASEL-II:2006 (implemented in India in 2008)
BASEL-III : 2010(implemented in India in 2013
The Basel III capital regulations continue to be based on three-mutually reinforcing Pillars,
viz. minimum capital requirements, supervisory review of capital adequacy, and market
discipline of the Basel II capital adequacy framework.
Three Pillars of Basel
1. Minimum Capital Requirement
2. Supervisory Review
3. Market Discipline
Pillar 1: Minimum Capital Requirement
The total regulatory capital consist of the following
I. Tier 1 Capital (Going Concern Capital, can absorb losses without triggering our
bankruptcy) comprisinga) Common Equity Tier 1 and
b) Additional Tier 1
II. Tier 2 Capital (Gone concern capital- such capital will absorb only in case of liquidation)
In addition, banks are to build capital conservation buffer (CCB), comprising common equity
Eligible Total Capital
CRAR (Total Capital) = --------------------------------------------------------------------------------[Credit Risk RWA + Market Risk RWA + Operational Risk RWA]
Overall Capital (% to Risk Weighted assets) for banks in India:

Regulatory Capital
Minimum Common Equity Tier 1 ratio
Capital conservation buffer (comprised of Common Equity)

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As% of RWA


Staff College, Bengaluru


Minimum Common Equity Tier 1 ratio plus capital



conservation buffer [(i)+(ii)]

Additional Tier 1 Capital
Minimum Tier 1 capital ratio [(i) +(iv)]
Tier 2 capital
Minimum Total Capital Ratio (MTC) [(v)+(vi)]
Minimum Total Capital Ratio plus capital conservation


buffer [(vii)+(ii)]
1. Common shares (paid up equity) issued by the bank which meet the criteria for
classification as common shares for regulatory purpose.
2. Stock surplus (share premium) resulting from the issue of common shares
3. Statutory reserves
4. Capital reserves representing surplus arising out of sale proceeds of assets.
5. Other disclosed free reserves, if any
6. Balance in P & L account at the end of the previous fin year
7. Current year profits can be reckoned on quarterly basis provided incremental NPA
provision at end of any of 4 quarters of previous Fin year have not deviated more than 25%
from avg of 4 qtrs.
8. Revaluation reserves arising out of change in the carrying amount of a bank's property
consequent upon its revaluation may, at the discretion of banks, be reckoned as CET1
capital at a discount of 55%, instead of as Tier 2 capital under extant regulations, subject
to certain conditions.
Deduction: Regulatory adjustment /deductions to be made from total of 1 to 7.
1. Perpetual Non-Cumulative Preference Shares (PNCPS),which comply with the regulatory
2. Stock Surplus (share Premium) resulting from the issue of instruments included in
Additional Tier I capital.
3. Debt Capital instruments eligible for inclusion in Additional Tier I capital, which comply
with the regulatory requirements.
4. Any other type of instruments generally notified by RBI from time to time for inclusion in
Additional Tier 1.
Deduction: Regulatory adjustments/deductions to be made from total of 1 to 4.
1. General Provisions and Loss Reserves :General provisions on standard assets, floating
Provisions, Provisions held for Country Exposures, Investment Reserve account, excess
provisions which arise on account of sale of NPAs and Counter cyclical provisioning
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buffer up to max of 1.25% of total credit RWA under Standardised approach. Under
IRB (Internal Rating Based) approach where the total expected loss is less than total
eligible provision than the difference may be recognize the difference as Tier II up to a
max of 0.6% of credit RWAs calculated under IRB approach.
Debt Capital Instruments issued by Bank.
Preference share capital instruments(PCPS/RNCPS/RCPS)issued by banks;
Stock surplus (share Premium) resulting from the issue of instruments in Tier 2 capital.
Any other type of instrument notified by RBI

Approaches for computation of risk:

Under Pillar 1, the Basel III framework will continue to offer the three distinct options for
computing capital requirement for credit risk and three other options for computing
capital requirement for operational risk, albeit with certain
modifications /
enhancements. These options for credit and operational risks are based on increasing
risk sensitivity and allow banks to select an approach that is most appropriate to the stage of
development of bank's operations. The options available for computing capital for credit risk
are Standardised Approach, Foundation Internal Rating Based Approach and Advanced
Internal Rating Based Approach. The options available for computing capital for
operational risk are Basic Indicator Approach (BIA), The Standardised Approach (TSA) and
Advanced Measurement Approach (AMA).
Credit Risk
Market Risk

Approach, Foundation
approach, Advance Internal rating based approach.
Standard Approach(comprising maturity method & duration
method),Internal risk based approach
Approach, Standard
Approach, Advance
Measurement Approach

Capital for Credit Risk:

The risk weight % under the Standardized approach has been fixed by RBI as under for on
balance sheet assets (i.e. fund based assets).
Use of credit rating: RBI allows use of ratings by credit rating agencies for assigning risk weights
for credit risk. Where the counterparty is rated by an eligible credit rating agency ,the risk
weight will be based on such rating. RBI has approved the following domestic and
international agencies for the purpose:
Domestic credit rating agencies
(a) Brickwork
Pvt. Limited
(b) Credit Analysis and Research Limited;
(c) CRISIL Limited;
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International agencies
a. Fitch;
c. Standard & Poors



Staff College, Bengaluru

(d) ICRA limited;
(e) India Ratings and Research Pvt. Limited
(India Ratings);and
(f) SME Ratings Ltd.(SMERA)
Important Risk Weighted Assets


Fund/non-fund based loan/claim of (i) Central Govt.or(ii)State Govt. or (iii) Weight

loans guaranteed by Central Govt. or (iv) amount receivable from Govt. of India
under Agr Debt Waiver Scheme 2008
(i)Loans guaranteed by State Govt. (ii)Claims on ECGC
Claim on (i)RBI,(ii) DICGC,(iii)Credit Guarantee Fund Trust for MSE and
on Foreign Sovereigns / Foreign Central Banks with AAA to AA rating
from S&P/Fitch /Moodys (it is 20% for A,50% for BBB,100% for BB and B ,150%
for below B and 100% for unrated
Claims on foreign public sector enterprises AAA to AA rating from S&P/Fitch
/Moodys (it is 50% for A,100% for BBB to BB ,150% for below BB and 100% for
unrated on Bank for International Settlement, International Monetary
Fund and Multi-lateral development banks (like IBRD,IFC,ADB etc)
Claims(other than investment) on Domestic banks with applicable CET
1+ applicable CCB and above(it is 50% for 75% to less than 100% of applicable
CET1+CCB,150% for 0% to less than 50% of applicable CET1 +CCB and 625% if CET
1 is term loans to domestic corporate or Primary Dealers (PDs) with AAA
rating(it is 30% for AA,50% for A,100% for BBB,150% for below B and 100% for
loans to domestic corporate or Primary Dealers (PDs) with A1+ rating
from any of 6 SEBI/RBI approved Indian rating agencies (it is 30% for A1,50% for
A2,100% for A3 and
Regulatory Retail Loans including education loans (excluding housing
for A4 and
for (i)max
amount Rs 5 cr(ii) max loan to single party 0.2%
of overall retail loans portfolio or (iii) annual turnover for small business less
than Rs 50 cr)House loans:


(i)Upto Rs 30 lac with Loan to Value(LTV)ratio of less than or


Capital Market exposure including loan to individuals against shares, credit

equal to 80%
cards, personal loans, consumer loans
of NPA
provision is lessofthan
(It is 100% if provision
(ii) Upto Rsportion
30 lac with
to Value(LTV)ratio
is atleast 20% and 50% if provision is at least 50%)
80% buton
than orcapital
equal funds
to 90%


loans Rs
by mortgages
30 lac
and upto or
Rs charge
75 laconwith
Loan to
Other staff loans (being part of regulatory retail)
of less than
to 75%
Other assets/loans(which


(iv) Above
Rs in30Gold/foreign
lac and upto
Rs 75 lac with Loan to








Value(LTV) ratio of more than 75% but less than or equal to

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(v) Above Rs 75 lac with Loan to Value(LTV)ratio of less than or


Staff College, Bengaluru

PILLAR -II: Supervisory Review Process
The objective is to ensure that banks have adequate capital to support the risks in their
business. In terms of RBI guidelines on New Capital Adequacy Framework (NCAF), banks are
required to have a Board approved document on ICAAP (Internal Capital Adequacy
Assessment Process). The ICAAP is a process for assessing the overall capital adequacy of
the Bank in relation to their risk profile and a strategy for maintaining the capital levels.
Pillar II of BASEL II& BASEL III framework covers Supervisory Review & Evaluation
process(SREP) which envisages the establishment of suitable risk management
systems in banks and their review by Supervisory Authority i.e. RBI. The objective of the
SREP by RBI is to ensure that banks have adequate capital to support all the risks in their
business as also to encourage them to develop and use better risk management techniques
for monitoring and managing their risks. This requires a well-defined internal assessment
process within Banks through which Banks have to assure the RBI that adequate capital is
held towards the various risks to which Banks are exposed
PILLAR III- : Market Discipline
The purpose of market discipline is to complement Pillar 1 and Pillar 2. It encourages market
discipline by developing a set of disclosure requirements, which will allow market participants
to assess key pieces of information on the scope of application, capital risk exposures risk
assessment processes and hence ,the capital adequacy of the institution
Capital Conservation Buffer
The capital conservation buffer (CCB) is designed to ensure that banks build up capital buffers
during normal times (i.e. outside periods of stress) which can be drawn down as losses are
incurred during a stressed period. The requirement is based on simple capital conservation
rules designed to avoid breaches of minimum capital requirements.
Countercyclical Capital Buffer
The aim of the Countercyclical Capital Buffer (CCCB) regime is twofold. Firstly, it
banks to build up a buffer of capital in good times which may be used to maintain flow of
credit to the real sector in difficult times. Secondly, it achieves the broader macroprudential goal of restricting the banking sector from indiscriminate lending in the periods
of excess credit growth that have often been associated with the building up of system-wide
Liquidity Coverage ratio (LCR)
BASEL Committee designed Liquidity Coverage Ratio (LCR) to strengthen the global
liquidity regulations with the goal of promoting a more resilient banking sector.

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The LCR requirement would be binding on banks from January 1, 2015; with a view to provide
a transition time for banks, the requirement would be minimum 60% for the calendar
year 2015 i.e. with effect from January 1, 2015 and rise in equal steps to reach the minimum
required level of 100% on
January 1, 2019.
The assets allowed as the Level 1 High Quality Liquid Assets (HQLAs) for the purpose of
computing the LCR of banks, inter alia, include Government securities in excess of the
minimum SLR requirement, and within the mandatory SLR requirement, Government
securities to the extent allowed by RBI, under Marginal Standing Facility (MSF) [presently 2 per
cent of the bank's NDTL] and under Facility to Avail Liquidity for Liquidity Coverage
Ratio (FALLCR) [presently 5 per cent of the bank's NDTL. In addition to the above-mentioned
assets as per the new guidelines, banks will be permitted to reckon government securities
held by them up to another 3 per cent of their NDTL under FALLCR within the mandatory
SLR requirement as level 1 HQLA for the purpose of computing their LCR. Hence the total
carve-out from SLR available to banks would be 10 per cent of their NDTL. For this purpose,
banks should continue to value such reckoned government securities within the mandatory
SLR requirement at an amount no greater than their current market value (irrespective of
the category of holding the security, i.e., HTM, AFS or HFT).

Marginal Cost of Funds based Lending Rate (MCLR)

The Reserve Bank of India has brought a new methodology of setting lending rate by
commercial banks under the name Marginal Cost of Funds based Lending Rate (MCLR). It will
modify the existing base rate system from April 2016 onwards.
As per the new guidelines by the RBI, banks have to prepare Marginal Cost of Funds based
Lending Rate (MCLR) which will be the internal benchmark lending rates. Based upon this
MCLR, interest rate for different types of customers should be fixed in accordance with their
The MCLR should be revised monthly by considering some new factors including the repo rate
and other borrowing rates. Specifically the repo rate and other borrowing rate that were not
explicitly considered under the base rate system.
As per the new guidelines, banks have to set five benchmark rates for different tenure or
time periods ranging from overnight (one day) rates to one year.
The new methodology uses the marginal cost or latest cost conditions reflected in the interest
rate given by the banks for obtaining funds (from deposits and while borrowing from RBI)
while setting their lending rate. This means that the interest rate given by a bank for deposits
and the repo rate (for obtaining funds from the RBI) are the decisive factors in the calculation
of MCLR.
Why the MCLR reform?
At present, the banks are slightly slow to change their interest rate in accordance with repo
rate change by the RBI. Commercial banks are significantly depending upon the RBIs LAF repo
to get short term funds. But they are reluctant to change their individual lending rates and
deposit rates with periodic changes in repo rate.

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Whenever the RBI is changing the repo rate, it was verbally compelling banks to make
changes in their lending rate. The purpose of changing the repo is realized only if the banks
are changing their individual lending and deposit rates.


Implication on monetary policy

Now, the novel element of the MCLR system is that it facilitates the so called monetary
transmission. It is mandatory for banks to consider the repo rate while calculating their
The RBI calls the effective passing of repo rate change into interest rate change by the
banking system as an important part of monetary transmission. Monetary transmission in
complete sense is the way in which a monetary policy signal (like a repo rate cut) is passed
into the economy in producing the set objectives.
Take the case of a repo rate reduction by the RBI. It is aimed to reduce overall interest rate
in the economy and thus promoting loans for consumption and investment. This consumption
and investment boost will be realized only if banks are cutting interest rate in response to the
reduced repo rate.
Previously under the base rate system, banks were changing the base rate, only occasionally.
They waited for long time or waited for large repo cuts to bring corresponding reduction in
their base rate. Now with MCLR, banks are obliged to readjust interest rate monthly. This
means that such quick revision will encourage them to consider the repo rate changes.
How to calculate MCLR
The concept of marginal is important to understand MCLR. In economics sense, marginal
means the additional or changed situation. While calculating the lending rate, banks have to
consider the changed cost conditions or the marginal cost conditions. For banks, what are the
costs for obtaining funds? It is basically the interest rate given to the depositors (often
referred as cost for the funds). The MCLR norm describes different components of marginal
costs. A novel factor is the inclusion of interest rate given to the RBI for getting short term
funds the repo rate in the calculation of lending rate.
Following are the main components of MCLR.
Marginal cost of funds;
Negative carry on account of CRR;
Operating costs;
Tenor premium.
Negative carry on account of CRR: is the cost that the banks have to incur while keeping
reserves with the RBI. The RBI is not giving an interest for CRR held by the banks. The cost of
such funds kept idle can be charged from loans given to the people.
Operating cost: is the operating expenses incurred by the banks
Tenor premium: denotes that higher interest can be charged from long term loans

Marginal Cost: The marginal cost that is the novel element of the MCLR. The marginal cost of
funds will comprise of Marginal cost of borrowings and return on networth. According to the
RBI, the Marginal Cost should be charged on the basis of following factors:
1. Interest rate given for various types of deposits- savings, current, term deposit, foreign
currency deposit
2. Borrowings Short term interest rate or the Repo rate etc., Long term rupee borrowing
3. Return on net worth in accordance with capital adequacy norms.
The marginal cost of borrowings shall have a weightage of 92% of Marginal Cost of Funds
while return on net worth will have the balance weightage of 8%.
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In essence, the MCLR is determined largely by the marginal cost for funds and especially
by the deposit rate and by the repo rate. Any change in repo rate brings changes in
marginal cost and hence the MCLR should also be changed.
According to the RBI guideline, actual lending rates will be determined by adding the
components of spread to the MCLR. Spread means that banks can charge higher interest rate
depending upon the riskiness of the borrower.
Powerful element of the MCLR system form the monetary policy angle is that banks have to
revise their marginal cost on a monthly basis. According to the RBI guideline, Banks will
review and publish their MCLR of different maturities every month on a pre-announced date.
Such a monthly revision will compel the banks to consider the change in repo rate change if
any made by the RBI during the month.
Regarding the status-quo of base rate, the initial guidelines from the RBI indicate that the
Base rate will be replaced by the MCLR. Existing loans and credit limits linked to the Base
Rate may continue till repayment or renewal, as the case may be. Existing borrowers will also
have the option to move to the Marginal Cost of Funds based Lending Rate (MCLR) linked loan
at mutually acceptable terms.
How MCLR is different from base rate?


The base rate or the standard lending rate by a bank is calculated on the basis of the
following factors:
Cost for the funds (interest rate given for deposits),
Operating expenses,
Minimum rate of return (profit), and
Cost for the CRR (for the four percent CRR, the RBI is not giving any interest to the banks)
On the other hand, the MCLR is comprised of the following are the main components.
Marginal cost of funds;
Negative carry on account of CRR;
Operating costs;
Tenor premium
It is very clear that the CRR costs and operating expenses are the common factors for both
base rate and the MCLR. The factor minimum rate of return is explicitly excluded under
But the most important difference is the careful calculation of Marginal costs under MCLR. On
the other hand under base rate, the cost is calculated on an average basis by simply averaging
the interest rate incurred for deposits. The requirement that MCLR should be revised monthly
makes the MCLR very dynamic compared to the base rate.
Under MCLR:

1. Costs that the bank is incurring to get funds (means deposit) is calculated on a marginal basis
2. The marginal costs include Repo rate; whereas this was not included under the base rate.
3. Many other interest rates usually incurred by banks when mobilizing funds also to be carefully
considered by banks when calculating the costs.
4. The MCLR should be revised monthly.
5. A tenor premium or higher interest rate for long term loans should be included.

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