Bank Promotion Exam Notes by Murugan-2019

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COMMON NOTES FOR ne
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BANK PROMOTION EXAMS
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SCALE - I, II & III

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January 2019 K Murugan, MCA MBA CAIIB

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Bank Promotion Exams – Index
Sl No Topic Page No
1 Key Highlights of Union budget 2018-19 3
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2 Highlights of the latest monetary policy announced by RBI 12
3 Latest Policy Rates 12
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4 Various Acts related to Banking 13
5 Garnishee Order and Income Tax Attachment Order 25
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6 Bank and Customer Relationship 27
7 Non Resident Indians – Products 33
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8 Banking Codes and Standards Board of India (BCSBI) 40
9 Anti Money Laundering (AML) / Know Your Customer (KYC) 44
10 Business Correspondents / Business Facilitators (BCBF) Model 49
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11 Basel III 51
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12 Startup India 53
13 Make in India 54
14 Stand up India 55
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15 Real Estate Investment Trusts (REITs) Funds 56
16 Payment Banks 59
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17 Small Finance Banks 61

18 Licensing of New Banks in the Private Sector 63
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19 Goods & Services Tax (GST) 64

20 Types of Banking 65
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21 Risk Management 66
22 Important Committees on Banking 70
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23 USBs / Direct Benefit Transfer (DBT) / Subprime Lending 73

24 Money Market Instruments / CDs / CPs / Call/Notice/and Term Money 74
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25 Ways and Means Advances (WMA) 75

26 Bank Rate / Repo Rate / Reverse Repo Rate / CRR / SLR / MSF 76
27 Net Demand and Time Liability(NDTL) / Liquidity adjustment facility (LAF) 76
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28 Derivatives / Futures / Options / MBS / CDO / Swap 77

29 NBFC / MFI / Mutual Funds / ECB 78
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30 ADR / GDR / IDR 79

31 Take-out Financing / Bill Discounting / Factoring / Forfaiting 79
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32 BSE / NSE 80
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33 Balance Sheet Analysis 81

34 IRAC Norms & Recovery of NPA 82
35 Wilful Defauters / Non-Cooperative Borrower 83
36 SARFAESI / DRT / CERSAI / Lok Adalat 83
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37 CGTMSE 85
38 Period of limitation at a glance 86
39 Restrictions on loans and advances / Selective Credit Control Methods of 87
RBI / Fair Practice Code
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40 Credit Information Companies (CIC’s) 88
41 Credit Syndication / Consortium Financing / Multiple Financing / MCLR 88
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42 Collateral/Security : Indemnity / Guarantee / Bailment / Pledge / 89
Hypothecation / Assignment / Mortgage
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43 Corporate Debt Restructuring-CDR/Asset Reconstruction Companies-ARC 97
44 Credit Appraisal 98
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45 Net present value (NPV) / Internal rate of return (IRR) 101
46 Fund based / Non-fund based lending 102
47 Working Capital 103
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48 Prompt Corrective Action (PCA) Framework for Commercial Banks 104
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49 Ratio Analysis 107
50 Priority Sector Lending 116
51 PMSBY / PMJJBY / APY / MUDRA 121
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52 Pradhan Mantri Fasal Bhima Yojana (PMFBY) & Weather Based Crop 122
Insurance Scheme (WBCIS)
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53 Foreign Exchange 124

54 Digital Banking : Information Technology in Indian Banking Sector 126
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55 Latest Schemes And Programmes Launched By Indian Government 134

56 Banking Terms 141
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57 Latest Developments in Indian Banking 145

58 Some Important Things to Remember 148
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Update Yourselves
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59 Major Ratios of Your Bank 152

60 Performance Data of Your Bank 153
61 Bank Specific Deposit Products 153
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62 Retail Schemes / MSME Schemes 153

63 Loan Policy / Recovery Policy 153
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Key Highlights of Union budget 2018-19
Agriculture and Rural Economy

 MSP to increase at least 1.5 times that of production cost.
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 Minimum Support Price (MSP) of all crops shall increase to at least 1.5 times that of the production
cost.
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 The government will set up a fund of Rs 2,000 crore for developing agricultural markets.
 Our focus is on productive and gainful on-farm and non-farm employment for farmers and landless
families, says Jaitley.
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 MSP for Kharif cost will be 1.5 times the cost of production.
 As per the FM, APMCs will be linked with ENAM.
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 The government will develop 22,000 Gramin agricultural markets.
 The cluster-model approach will be adopted for agricultural production.
 Allocation in food production sector doubled to Rs 1400 crore.
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 Minimum Support Price shall be increased by 1.5 times. Operation Green will be launched for
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agriculture and the Minister allocates Rs500 crore for this.
 Agricultural corpus worth Rs 2000 crore will be set up. 470 APMCs have been connected to eNAM
network, the rest to be connected by March 2018.
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 A fund for the fishery, aquaculture development and animal husbandry will be set up with a total
corpus to be Rs 10,000 crore. We will also allocate Rs 1290 crore for a bamboo mission, as it is green
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gold.
 In all, we are providing Rs 10 lakh crore to Rs 11 lakh crore as credit for agricultural activities.
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 Jaitley proposes to increase the target of providing free LPG connections to 8 crore to poor women.
 Ujjwala Yojana, the free LPG connection scheme expanded to eight crore households.
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 Six crore toilets have been built already, and in the next year, two crore additional toilets will be
constructed.
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 The government will provide 4 crore electricity connections to the poor under Saubhagya Yojana.
 Kisan credit card to be extended to fisheries,animal husbandry farmers.
 The government will establish a dedicated affordable housing fund.
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 Loans to self-help groups will increase to Rs75,000 crore.

 Govt. allocated Rs5,750 crore to National Livelihood Mission and Rs2,600 crore to the groundwater
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irrigation scheme.
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Education, Health and Social Protection

 Outlay on health, education and social protection will be 1.38 lakh crore.
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 By 2022, every block with more than 50% ST population and at least 20,000 tribal people will have
'Ekalavya' school at par with Navodaya Vidyalas.
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 A major initiative named Revitalising Infrastructure and Systems in Education (RISE) to be launched
by 2022 with a total investment of Rs.1,00,000 crore in next four years.
 Government will launch the Prime Minister‟s Research Fellows (PMRF)‟‟ Scheme this year.
 Allocation on National Social Assistance Programme this year has been kept at Rs. 9975 crore.
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 Govt. is launching a new national health protection scheme – Rashtriya Samaj Beema Yojana. This
will have 50 crore beneficiaries and 10 crore families will get 5 lakh per year for their families to
cover secondary and tertiary hospital expenses. This is the world's largest government-funded
healthcare program.
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 A Rs 600 crore corpus is being set up to help Tuberculosis patients. This will build a new India in
2022 and enhance productivity and will also generate lakhs of jobs for women.
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 PM Jeevan Beema Yojana benefitted more than 2 crore families.
 Jan Dhan Yojana will be extended to all 60 crore bank accounts.
 Rs 1200 crores allocated for the National Health Policy, 2017, which with 1.5 lakh Health and
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Wellness Centres will bring health care system closer to the homes of people.
 Government will be setting up 24 new Government Medical Colleges and Hospitals.
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 All 4465 Ganga Grams – villages on the bank of river - have been declared open defecation free.
Medium, Small and Micro Enterprises (MSMEs) and Employment
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 Rs. 3794 crores provided for giving credit support, capital and interest subsidy and for innovations.
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 Target of Rs.3 lakh crore for lending under MUDRA for 2018-19.
Employment Generation
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 Finance Minister cited an independent study showing 70 lakh formal jobs will be created this year.
 Government will contribute 12% of the wages of the new employees in the EPF for all the sectors for
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next three years.
 An outlay of Rs.7148 crore for the textile sector in 2018-19.
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 EPF contribution has been reduced to 8% for the first 3 years of employment and 12% government
contribution to EPF in sectors employing a large number of people, however, there will be no
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changes in employer contribution.
Infrastructure and Financial Sector Development

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 Increase of budgetary allocation on infrastructure for 2018-19 to Rs.5.97 lakh crore

 Under the Bharatmala Pariyojana, about 35000 kms road construction in Phase-I at an estimated
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cost of Rs.5,35,000 crore has been approved.
Railways
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 Railways Capital Expenditure for the year 2018-19 has been pegged at Rs.1,48,528 crore.
 600 railway stations to be redeveloped.
 Over 3600 km railway track renovation targeted in the current year.
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 In Railways, 18,000 kms of doubling of tracks would eliminate capacity constraints.

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 We are moving towards optimum electrification of the railway. Over 3,600 km of track renewal is
being targeted in 2018-19.
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 150 km additional suburban railway network at the cost of Rs. 40,000 cr.
 Rs 11,000 crore is being allocated for Mumbai Suburban Railways.
 Proposal for railway university in Vadodara.
 Rs. 17,000 crore is being set aside for Bengaluru Metro.
 Govt. to eliminate over 4,267 unmanned level crossings in the next two years.
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 All railway stations and trains will have WiFi and 150 kilometres of additional suburban corridors in
being planned.
Air Transport
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 Airport capacity to be hiked to handle 1 billion trips per year.
 UDAN will connect 56 unserved airports and 36 unserved heliports.
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 As per the FM, The Airport Authority of India has 124 airports.
Finance & Digital Economy
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 Government will establish a unified authority for regulating all financial services in International
Finance Service Centre (IFSCs) in India.
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 NITI Aayog will initiate a national program to direct efforts in artificial intelligence.
 Department of Science & Technology will launch a Mission on Cyber Physical Systems
 Allocation on Digital India programme increased to Rs 3073 crore in 2018-19
 Proposed to set up five lakh wi-fi hotspots to provide net connectivity to five crore rural citizens.
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 Rs. 10000 crores allocated in 2018-19 for creation and augmentation of Telecom infrastructure.
Disinvestment
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 Finance Minister announced that 2017-18 disinvestment target of Rs. 72,500 crores has been
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exceeded and expected receipts of Rs.1,00,000 crore.
 Disinvestment target of Rs. 80,000 crores for 2018-19.
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 Three Public Sector Insurance companies- National Insurance Co. Ltd., United India Assurance Co.
Ltd., and Oriental India insurance Co. Ltd., will be merged into a single insurance entity.
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 A comprehensive Gold Policy will be formulated to develop gold as an asset class

 To celebrate the 150 Birth Anniversary of Mahatma Gandhi an amount of Rs.150 crore set aside for
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the activities leading to the commemoration programme.

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Fiscal Management, Direct & Indirect Taxes

 Budget Revised Estimates for expenditure in 2017-18 are Rs.21.57 lakh crore (net of GST
compensation transfers to the States) as against the Budget Estimates of Rs.21.47 lakh crore.
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 FM projected a Fiscal Deficit of 3.3% of GDP for the year 2018-19.

 Revised Fiscal Deficit estimates for 2017-18 were put at Rs. 5.95 lakh crore at 3.5% of GDP.
 Proposed acceptance of key recommendations of the Fiscal Reform and Budget Management
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Committee to bring down Central Government’s Debt to GDP ratio to 40%.

 Growth of direct taxes in financial year 2016-17 was 12.6 percent, and for financial year 2017-18
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(upto 15th Jan, 2018) is 18.7 percent. Buoyancy in personal income tax for financial year 2017-18
(RE) is 2.11.
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 Number of Effective Tax Payers has increased from 6.47 crore at the beginning of Financial year
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2014-15 to 8.27 crore at the end of 2016-17.

 Proposed 100 percent deduction to companies registered as Farmer Producer Companies with an
annual turnover upto Rs. 100 crores on profit derived from such activities, for a period of five years
from financial year 2018-19.
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 Payments exceeding Rs. 10,000 in cash made by trusts and institutions shall be disallowed and
would be subject to tax.
 Long Term Capital Gains exceeding Rs. 1 lakh to be taxed at the rate of 10 percent, without allowing
any indexation benefit.
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 Proposed to introduce a tax on distributed income by equity oriented mutual funds at the rate of 10
percent
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 Proposed to increase the cess on personal income tax and corporation tax to 4 percent from the
present 3 percent. It will be called the “Health and Education Cess”.
 Increase customs duty on mobile phones from 15 percent to 20 percent, on some of their parts and
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accessories to 15 percent and on certain parts of televisions to 15 percent.
 Customs duty is proposed to be reduced on raw cashew from 5 percent to 2.5 percent, to help the
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cashew processing industry.
 Proposed to change the name of the Central Board of Excise and Customs (CBEC) to the Central
Board of Indirect Taxes and Customs (CBIC).
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 Deduction of 30 percent on emoluments paid to new employees Under Section 80-JJAA to be
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relaxed to 150 days for footwear and leather industry, to create more employment.
 No adjustment in respect of transactions in immovable property where Circle Rate value does not
exceed 5 percent of consideration.
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 Standard Deduction of Rs. 40,000 in place of present exemption for transport allowance and
reimbursement of misc medical expenses. 2.5 crore salaried employees and pensioners to benefit.
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 Introduce a tax on distributed income by equity oriented mutual fund at the rate of 10%.
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Relief to Senior Citizens proposed in the Budget

 Exemption of interest income on deposits with banks and post offices to be increased from Rs.
10,000 to Rs. 50,000.
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 TDS not required to be deducted under section 194A. Benefit also available for interest from all
fixed deposit schemes and recurring deposit schemes.
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 Hike in deduction limit for health insurance premium and/ or medical expenditure from Rs. 30,000
to Rs. 50,000 under section 80D.
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 Increase in deduction limit for medical expenditure for certain critical illness from Rs. 60,000 (in case
of senior citizens) and from Rs. 80,000 (in case of very senior citizens) to Rs. 1 lakh for all senior
citizens, under section 80DDB.
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 Proposed to extend Pradhan Mantri Vaya Vandana Yojana up to March, 2020. Current investment
limit proposed to be increased to Rs. 15 lakhs from the existing limit of Rs. 7.5 lakh per senior
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citizen.
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Other Important Highlights from the Budget

 To make the villages open defecation free and improving the lives of villagers, FM announced the
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launch of Galvanizing Organic Bio-Agro Resources Dhan (GOBAR-DHAN).

 2600 crore allocated under Prime Minister Krishi Sinchai Yojna to provide assured irrigation in 96
deprived irrigation districts
 Allocation of Rs 1,34,572 crore has been made for the transport sector while the efforts to develop
disaster resilient infrastructure is being given a push with an allocation of Rs. 60 crores in 2018-19.
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 Total earmarked allocation for SCs in 279 programmes increased to Rs. 56,619 crores & for STs in
305 programmesto Rs. 39,135 crores for 2018-19.
 Ten prominent sites to be developed as Iconic tourist destinations.
 Under the Smart City mission, 99 cities selected with the outlay of Rs. 2.04 lakh crores.
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 The government announced AMRUT program to focus on water supply to all households in 500
cities. Water supply contracts for 494 projects worth 19,428 crores will be awarded.
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 Government does not consider crypto-currency as legal tender and will work towards eliminating
illicit transactions going on through crypto assets.
 24 Public Sector Units to be divested.
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 The government will involve a scheme to assign every enterprise a unique ID just like Aadhaar.
 The Department of Investment and Public Asset Management will come up with debt Exchange
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Traded Fund.
 National Logistics Portal as a single online window will link all stakeholders, to be developed by
Department of Commerce.
 Salaries of President, Vice President and Governors will be increased. Rs. 5 lakhs for President, Rs
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4.0lakh for Vice-President and Rs 3.5 lakh for governors. Salaries of Members of Parliament will also
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be raised.
 A new law will be introduced that will automatically revise MPs' emoluments every five years,
indexed to inflation.
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 Government to set up two industrial defence industrial development corridors in 2018-19.
 Estimates 1.38 trillion rupees expenditure on health, education and social security. Railway capital
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expenditure set at 1.49 trillion rupees for 2018/19.
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Key Highlights of Union budget 2018-19

 As per the FM in the Union Budget, India is expected to become the fifth largest economy very soon.
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 The Growth rate is expected between 7.2-7.5% in the second half of 2017-18.
 Exports are expected to grow 15% in 2018.
 As per the FM, India is a Rs2.5 trillion economy.
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 Minimum Support Price (MSP) of all crops shall increase to at least 1.5 times that of the production
cost.

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The government will set up a fund of Rs 2,000 crore for developing agricultural markets.
 Our focus is on productive and gainful on-farm and non-farm employment for farmers and landless
families, says Jaitley.

.b
MSP for Kharif cost will be 1.5 times the cost of production.
 As per the FM, APMCs will be linked with ENAM.
 The government will develop 22,000 Gramin agricultural markets.
w
 The cluster-model approach will be adopted for agricultural production.


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Allocation in food production sector doubled to Rs 1400 crore.

 Operation Green will be launched for agriculture and the Minister allocates Rs500 crore for this.

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Agricultural corpus worth Rs 2000 crore will be set up. 470 APMCs have been connected to eNAM
network, the rest to be connected by March 2018.
 A fund for the fishery, aquaculture development and animal husbandry will be set up with a total
corpus to be Rs 10,000 crore. We will also allocate Rs 1290 crore for a bamboo mission, as it is green
gold.
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 In all, we are providing Rs 10 lakh crore to Rs 11 lakh crore as credit for agricultural activities.
 Jaitley proposes to increase the target of providing free LPG connections to 8 crore to poor women.
 Ujjwala Yojana, the free LPG connection scheme expanded to eight crore households.
 Six crore toilets have been built already, and in the next year, two crore additional toilets will be
m
constructed.
 The government will provide 4 crore electricity connections to the poor under Saubhagya Yojana.
co
 Kisan credit card to be extended to fisheries,animal husbandry farmers.
 The government will establish a dedicated affordable housing fund.
 Loans to self-help groups will increase to Rs75,000 crore.
s.
 Govt. allocated Rs5,750 crore to National Livelihood Mission and Rs2,600 crore to the groundwater
irrigation scheme.
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 24 new government medical colleges.
 Government is implementing a comprehensive social security scheme.
 Govt. will initiate an integrated B-Ed programme for teachers.
 Government proposes to launch the Revitalising of Infrastructure and Systems of Education (RISE) by
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next year.
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 Govt. proposed to set up two new full-fledged schools of planning and architecture.
 18 new schools of planning and architecture will be set up in the IITs and NITs.
 Rs. 1 lakh crore over 4 years for initiative for Infrastructure Devt. in education.
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 2 major initiatives as part of Ayushman Bharat program.
 National health protection scheme to cover 10 cr poor families. Health cover of up to 5 lakh per
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family per year for poor & vulnerable. National health protection scheme to benefit 50 crore people.
 24 new govt medical college & hospitals.
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 Rs. 600 crore for nutritional support to all TB patients.

 Rs. 1200 crore for health and wellness centres.

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Loans to women self-help groups of women to be increased to 75,000 cr by March 19.

 Govt. is launching a new national health protection scheme – Rashtriya Samaj Beema Yojana. This
will have 50 crore beneficiaries and 10 crore families will get 5 lakh per year for their families to
kp
cover secondary and tertiary hospital expenses. This is the world's largest government-funded
healthcare program.
 A Rs 600 crore corpus is being set up to help Tuberculosis patients. This will build a new India in
an
2022 and enhance productivity and will also generate lakhs of jobs for women.
 PM Jeevan Beema Yojana benefitted more than 2 crore families.

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Jan Dhan Yojana will be extended to all 60 crore bank accounts.

 The government increased allocation for SC-ST earmarked programmes: Rs 56,000 crore for SCs and
Rs 39,000 crore for STs.
w
 By 2022, every block with more than 50% ST population and at least 20,000 tribal people will have
'Ekalavya' school at par with Navodaya Vidyalas.
w
 The government will announce measures to address non-performing assets of MSMEs.


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As per the FM, Rs. 3 lakh crore for lending under is being allocated in FY 19 for PM's MUDRA Yojana.
 Smart city Mission and AMRUT discussed.
 Smart city command control centre discussed.
 Govt to contribute 12% of wages of new employees to EPF for 3 yrs.
 Rs. 7148 crore allocation for the textile sector.
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 Govt. will launch a scheme for Galvanising Organic Bio-Agro Resources Dhan (GOBARDHAN).
 Under the Smart City mission, 99 cities selected with the outlay of Rs. 2.04 lakh crores.
 EPF contribution has been reduced to 8% for the first 3 years of employment and 12% government
contribution to EPF in sectors employing a large number of people, however, there will be no
m
changes in employer contribution.
 10 tourist cities to be developed into iconic tourist destinations.
co
 600 railway stations to be redeveloped.
 Over 3600 km railway track renovation targeted in the current year.
 Scheme for revitalizing school infrastructure, with an allocation of 1 lakh crore rupees over four
s.
years. Called RISE - Revitalizing Infrastructure in School Education.
 The Bharatmala project has been approved and we are confident of completing 9000 km of highway
am
construction.
 In Railways, 18,000 kms of doubling of tracks would eliminate capacity constraints.
 We are moving towards optimum electrification of the railway. Over 3,600 km of track renewal is
being targeted in 2018-19.
x
 150 km additional suburban railway network at the cost of Rs. 40,000 cr.
ne
 Regional air connectivity scheme shall connect 56 unserved airports.
 Airport capacity to be hiked to handle 1 billion trips per year.
 Training for 50 lakh youth by 2020.
io
 Govt. to eliminate over 4,267 unmanned level crossings in the next two years.
 All railway stations and trains will have WiFi and 150 kilometres of additional suburban corridors in
ot
being planned.
 Rs. 17,000 crore is being set aside for Bengaluru Metro.
m
 UDAN will connect 56 unserved airports and 36 unserved heliports.

 Rs 11,000 crore is being allocated for Mumbai Suburban Railways.
 5 lakh WiFi spots to be installed for benefit of 5 crore rural citizens.
ro
 As per the FM, The Airport Authority of India has 124 airports.
 The government announced AMRUT program to focus on water supply to all households in 500
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cities. Water supply contracts for 494 projects worth 19,428 core will be awarded.
 Proposal for railway university in Vadodara.
 Niti Aayog to establish a national program to direct efforts in artificial intelligence.
an
 Department of Science will launch a national program for cyberspace.

 Allocation of Digital India has been doubled and the government proposes to set up 5 lakh WiFi
.b
hotspots.
 Government does not consider crypto-currency as legal tender and will work towards eliminating
illicit transactions going on through crypto assets.
w
 Disinvestment target of Rs. 80,000 crore for 2018-19.

 Bank recap to help banks lend additional Rs. 5 lakh crores.
w
 24 Public Sector Units to be divested.

 The government will involve a scheme to assign every enterprise a unique ID just like Aadhaar.
w
 The Department of Investment and Public Asset Management will come up with debt Exchange
Traded Fund.
 Gold monetisation scheme to be revamped.
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 Govt revised fiscal deficit for 2017-18 was Rs 5.95 lakh crore or 3.5% of GDP. Jaitley projects deficit
of 3.3% of GDP next fiscal.
 National Logistics Portal as a single online window will link all stakeholders, to be developed by
Department of Commerce.
m
 Government insurance companies to be merged into a single entity, and subsequently listed in the
stock exchange, as part of the disinvestment programme.
co
 Target for 2017-18 has been exceeded and will reach Rs 1 lakh crores.
 Salaries of President, VP and Governors will be increased. Rs. 5 lakh for President, Rs 4.0 lakh for
Vice-President and Rs 3.5 lakh for Governors. Salaries of Members of Parliament will also be raised
s.
which will be linked to Inflation Indexation.
 A new law will be introduced that will automatically revise MPs' emoluments every five years,
am
indexed to inflation.
 Govt. announced a Rs 150 crore fund to celebrate the 150th anniversary of Mahatma Gandhi.
 Rs 11,000 crores will be allocated to Mumbai rail network.
 GST revenue for only 11 months, instead of the usual 12 months, is 21.5 lakh crore.
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 Tax buoyancy for 2017-18 is at 2.11%.
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 Number of tax payers has increased from 6.47 lakh crores to 8.27 lakh crores.
 Government to set up two industrial defence industrial development corridors in 2018-19.
 100% tax deduction for farmer production firms with 100 cr turnover.
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 100% tax deduction for the first five years to companies registered as farmer producer companies
with a turnover of Rs 100 crore and above.
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 12.6% growth in direct taxes in 2017-18.
 18.7% growth in indirect taxes in 2017-18.
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 Employment-based tax incentives will be extended to footwear and leather industry.

 The benefits of corporate tax by bringing down the tax rate to 25% for firms that reported turnover
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up to Rs 250 crores.
 No change in income tax slabs, but assesses can avail of a standard deduction of Rs40,000.
 Long term capital gains over Rs. 1 lakh to be taxed at the rate of 10%.
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 Railway Capital Expenditure is set at Rs. 1.48 lakh crore.

 All stations and trains to have WiFi.
 Relief on tax for senior citizens from income coming from bank interest increased from 10,000 to
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30,000.
 Fixed Deposit/Post office interest to be exempt till Rs 50,000 {80D benefit enhanced to Rs 50,000
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(from 30,000)}.
 Short-term capital gains taxed at 15% to continue for a one-year hold period.
 Standard deduction of Rs 40,000 with respect to transport reimbursements. Standard deduction is
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in lieu of travel and medical expense reimbursement, which amounts to Rs 30,000. So the actual tax
benefit would be Rs 10,000 for each taxpayer.
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 Customs duty increased on mobile phones from 15% to 20%.

 4% health and education cess; currently it's 3%.
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 Estimates 1.38 trillion rupees expenditure on health, education and social security. Railway capital
expenditure set at 1.49 trillion rupees for 2018/19
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Highlights of latest monetary policy announced by RBI on December 5, 2018:
 RBI Monetary Policy Decision: As expected, central bank keeps repo rate unchanged at 6.5% but
also maintains calibrated tightening stance
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 No change in stance! RBI maintains calibrated tightening; does it mean no repo rate cut in
February too?
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 RBI chose not to softened stance! Central bank maintained its stance of ‘calibrated tightening’
 RBI keeps repo rate unchanged, but home loan, car loan interest rates may still go up
 Reserve Bank of India (RBI) governor Urjit Patel said that even as the inflation print softened, the
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meeting called by OPEC later this week on oil price, trade war truce and the fiscal deficit of
central and state government will be crucial for decision making. We reiterated calibrated
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tightening stance to buy more time to pause, reflect and undertake future policy action with
more inflation signals, Patel said.
 Here's why RBI maintained calibrated tightening stance, governor Urjit Patel explains
 RBI to cut SLR by 25 bps to align it to LCR requirement
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 Ravindra H Dholakia emerged dove again! Voted to change stance to neutral
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 Interest rate for borrower to change only if credit rating is changed, says RBI deputy governor
 Oil now more volatile than it was in October, says Urjit Patel
 The BSE Sensex dropped nearly 350 points to a low of 35,777.81 points, while the NSE Nifty
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tanked to the 10,750-level following RBI's decision to reiterate 'calibrated tightening' stance.
 Markets react to RBI's refusal to soften stance; Sensex drops 350 points
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 Positive surprise from RBI: If inflation risks don't materialise, there could be repo rate cut
 RBI governor Urjit Patel on Wednesday officially came face-to-face with reporters during policy
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review press conference first time since rift with the government came to light. However, Patel
refused to answer questions related to the controversy, saying that it was a presser on MPC
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review and macroeconomics. "I already said that I would avoid those questions. We are here
discussing the monetary policy committee resolution," Patel told reporters. The central bank
governor reiterated the same when asked if he agreed with views shared by Viral Acharya in his
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speech last month.

 RBI to issue consolidated norms for forex loans, masala bonds by month end; key things to know
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Policy Rates as on 01.01.2019
Policy Rates As on 12.02.2017 Update Yourselves

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Repo rate 6.50 %

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Reverse repo rate 6.25 %

Marginal standing facility (MSF) 6.75 %
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Bank Rate 6.75 %

Cash Reserve Ratio (CRR) 4.0 %
Statutory Liquidity Ratio (SLR) 19.50 %
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THE BANKING REGULATION ACT, 1949
Preamble of regulatory Act
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 An Act to consolidate and amend the law relating to banking.
 WHEREAS it is expedient to consolidate and amend the law relating to banking .
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 The Banking companies act, presently known as banking regulation act was enacted owing to
safeguard the interest of depositors, control abuse of power by some bank personnel controlling the
banks in particular and to the interest of Indian economy in general.
s.
 The Banking Regulation Act was passed as the Banking Companies Act 1949 and came into force
w.e.f 16.3.49. Subsequently it was changed to Banking Regulations Act 1949 wef 01.03.66.
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 However, it should be remembered that this act does not supersede the provision of companies act
or any other law for the time being in force in respect of banking business.
Definition of banks
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 In India, the definition of the business of banking has been given in the Banking Regulation Act, (BR
Act), 1949. According to Section 5(c) of the BR Act, 'a banking company is a company which
transacts the business of banking in India.' Further, Section 5(b) of the BR Act defines banking as,
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'accepting, for the purpose of lending or investment, of deposits of money from the public,
repayable on demand or otherwise, and withdrawable, by cheque, draft, order or otherwise.'
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 This definition points to the three primary activities of a commercial bank which distinguish it from
the other financial institutions. These are: (i) maintaining deposit accounts including current
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accounts, (ii) issue and pay cheques, and (iii) collect cheques for the bank's customer
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Different provisions of Banking regulations Act

S. No. Parts Topics Sections covered
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1. I Preliminary 1 to 5A
2. II Business of Banking Companies 6 to 36 A
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3. IIA Control over management 36AA to 36AC

4. IIB Prohibition of certain activities in relation to banking Companies 36AD
5. IIC Acquisition of the undertakings of Banking Companies in certain 36AE to 36AJ
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cases
6. III Suspension of business and winding up of Banking Companies 36B to 45
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7. IIIA Speedy provision for speedy disposal of winding up proceedings 45A to 45X
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8. IIIB Provision relating to certain operation of Banking Companies 45Y to 45ZF

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9. IV Miscellaneous 46 to 55A
10. V Application of the Act to cooperative Banks 56
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Applicability of the Banking Regulation Act, 1949

This Act applies to following categories of Banks:
 Nationalized Banks
 Non-Nationalized Banks
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 Cooperative Banks
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Business of banking Companies Section 6(1) and 6(2) r.w. 56(b)
 Borrowing, raising or taking of money
 Giving advance
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 Bills business
 L/C , Bank Guarantee, Indemnity
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 Foreign exchange
 Providing safe deposit vaults
 Collecting and transmitting money
 Managing, selling and realizing any property that may come into the possession of the bank in
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satisfaction or part satisfaction of any of its dues
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 Acquiring, holding and dealing with any property or any right, title or interest in any such property
that may form the security or part of the security for any loans or advances or which may be
connected with such security
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 Undertaking and executing trusts
 Acquiring, constructing, maintaining and altering of any building for the purpose of the bank
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 Acquiring and undertaking the whole or part of the business of any person or bank / company if its
nature of business is as per the allowed business for the bank
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 Doing all such other things as are incidental or conducive to the promotion or advancement of the
business of the bank
 Any other business the Central Govt. may by notification specify as a allowed business
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 Banks are prohibited to do any other business

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Use of words bank, banker, banking or banking company

(1) No company other than a banking company shall use as part of its name 15[or, in connection with its
business] any of the words bank, banker or banking and no company shall carry on the business of
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banking in India unless it uses as part of its name at least one of such words.
(2) No firm, individual or group of individuals shall, for the purpose of carrying on any business, use as
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part of its or his name any of the words bank, banking or banking company.
(3) Nothing in this section shall apply to-
(a) a subsidiary of a banking company formed for one or more of the purposes mentioned in sub-section
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(1) of section 19, whose name indicates that it is a subsidiary of that banking company;
(b) any association of banks formed for the protection of their mutual interests and registered under
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section 25 of the Companies Act, 1956 (1 of 1956).]

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Applicability against other laws

Provisions of the Banking regulation Act, 1949 are not in substitution of other laws applicable, unless
otherwise expressly said (Section 2 sub 56 (b)
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Act is not applicable to

 Primary Agricultural Society
 Co-operative Land Mortgage Bank
 Any other co-operative society except as provided by Sec. 56(Section 3)
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Banking Policy
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“Banking Policy” means policy specified by RBI from time to time in the interest of
 Banking system
 Monitory stability
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 Sound economic growth
 Interest of depositors
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 Volume of deposits and other resources of the bank
 Efficient use of the deposits and resources …..Section 5(ca)
Cash Reserve (CRR) Section 18 r. w. 56 (j)
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 Every bank is required to keep cash reserve, with itself or by way of balance in the current account
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with RBI or Central / District Co-operative Bank or net balance in all such way, of minimum
prescribed % amount of its DTL as of last Friday of fortnight
 A return about this has to be submitted to RBI before 15thof each month about alternate Friday
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SLR (Statutory Liquidity Ratio)
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 Bank shall maintain unencumbered approved securities, valued not exceeding the current market
price, or an amount which shall not be less than 24% of the total of its demand and time liabilities
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(DTL).
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Restrictions on loans and advances

Notwithstanding anything to the contrary contained in section 77 of the Companies Act, 1956 (1 of
1956), no banking company shall,
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(a) grant any loans or advances on the security of its own shares, or
(b) enter into any commitment for granting any loan or advance to or on behalf of
 any of its directors,
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 any firm in which any of its directors is interested as partner, manager, employee or guarantor,
or
 any company [not being a subsidiary of the banking company or a company registered under
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section 25 of the Companies Act, 1956 (1 of 1956), or a Government company] of which 61[or
the subsidiary or the holding company of which] any of the directors of the banking company is
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a director, managing agent, manager, employee or guarantor or in which he holds substantial

interest, or
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 any individual in respect of whom any of its directors is a partner or guarantor.

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Licensing of banking companies

 Save as hereinafter provided, no company shall carry on banking business in India unless it holds a
licence issued in that behalf by the Reserve Bank and any such licence may be issued subject of such
conditions as the Reserve Bank may think fit to impose.]
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 Every banking company in existence on the commencement of this Act, before the expiry of six
months from such commencement, and every other company before commencing banking business
69[in India], shall apply in writing to the Reserve Bank for a licence under this section.
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Power to publish information
The Reserve Bank or the National Bank, or both, if they consider it in the public interest so to do, may
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publish any information obtained by them under this Act in such consolidated form as they think fit.
Power of the Reserve Bank to give directions
s.
Where the Reserve Bank is satisfied that
 in the 134[public interest]; or 135[(aa) in the interest of banking policy; or]
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 to prevent the affairs of any banking company being conducted in a manner detrimental to the
interests of the depositors or in a manner prejudicial to the interests of the banking company; or
 to secure the proper management of any banking company generally, it is necessary to issue
directions to banking companies generally or to any banking company in particular, it may, from
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time to time, issue such directions as it deems fit, and the banking companies or the banking
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company, as the case may be, shall be bound to comply with such directions.
The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any
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direction issued under sub-section (1), and in so modifying or cancelling any direction may impose such
conditions as it thinks fit, subject to which the modification or cancellation shall have effect.
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Amendments of provisions relating to appointments of managing directors, etc., to be subject to

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previous approval of the Reserve Bank.

 no amendment of any provision relating to the maximum permissible number of directors .
 no appointment or re-appointment or termination of appointment of a chairman.
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Further powers and functions of Reserve Banks.

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1. (a) caution or prohibit banking companies or any banking company in particular against entering into
any particular transaction or class of transactions, and generally give advice to any banking company;
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(b) on a request by the companies concerned and subject to the provision of section 149[44A], assist, as
intermediary or otherwise, in proposals for the amalgamation of such banking companies;
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(c) give assistance to any banking company by means of the grant of a loan or advance to it underclause
(3) of sub-section (1) of section 18 of the Reserve Bank of India Act, 1934 (2 of 1934);
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2. The Reserve Bank shall make an annual report to the Central Government on the trend and progress
of banking in the country, with particular reference to its activities under clause (2) of section 17 of the
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Reserve Bank of India Act, 1934 (2 of 1934), including in such report its suggestions, if any, for the
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strengthening of banking business throughout the country.
3. The Reserve Bank may appoint such staff at such places as it considers necessary for the scrutiny of
the returns, statements and information furnished by banking companies under this Act, and generally
to ensure the efficient performance of its functions under this Act.
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Certain provisions of the Act not to apply to certain banking companies.

1. The provisions of section II, sub-section (1) of section 12, and sections 17, 18, 24 and 25 shall not
apply to a banking company—
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 which, whether before or after the commencement of the Banking Companies (Amendment) Act,
1959 (33 of 1959), has been refused a licence under section 22, or prohibited from accepting fresh
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deposits by a compromise, arrangement or scheme sanctioned by a court or by any order made in
any proceeding relating to such compromise, arrangement or scheme, or prohibited from accepting
deposits by virtue of any alteration made in its memorandum; or
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 whose licence has been cancelled under section 22, whether before or after the commencement of
the Banking Companies (Amendment) Act, 1959 (33 of 1959).
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2. Where the Reserve Bank is satisfied that any such banking company as is referred to in sub-section
(1) has repaid, or has made adequate provision for repaying all deposits accepted by the banking
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company, either in full or to the maximum extent possible, the Reserve Bank may, by notice
published in the Official Gazette, notify that the banking company has ceased to be a banking
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company within the meaning of this Act, and thereupon all the provisions of this Act applicable to
such banking company shall cease to apply to it, except as respects things done or omitted to be
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done before such notice.]
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Control over Management
1. 36AA. Power of Reserve Bank to remove managerial and other persons from office.
 36AAA. Supersession of Board of directors of a multi-State co-operative bank.
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 36AAB. Order of winding up of multi-State co-operative bank to be final in certain cases

 Reimbursement to Deposit Insurance Corporation by liquidator or transferee bank
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2. 36AB. Power of Reserve Bank to appoint additional directors,

3. 36AC. Part IIA to override other laws.
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4. 36AD. Punishments for certain activities in relation to banking companies.
Suspension of Business and Winding up of Banking Companies

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1. High Court defined.

2. Suspension of business.
3. Winding up by High Court.
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4. Court liquidator.
5. Reserve Bank to be official liquidator.
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6. Application of Companies Act to liquidators.

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Sec 5(b) Banking : Banking means acceptance of deposit for the purpose of lending or investment, the
deposit of money from the public, repayable on demand or otherwise & withdrawal by cheque, draft,
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order or otherwise.
Sec 5(c) Banking Company : It means any co. which transacts the business of banking in India.
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Sec 6 Forms of Banking Business : In addition to the banking business, a banking co may deals in bills of
exchange, hundis, PN, issue LC/BG, buying or selling of foreign exchange, safe custody, safe deposit
locker, acting as an agent for any Govt. or local authority, undertaking the administration of estate of
executor, trustee, leasing, mortgaging etc. or any other form of business which Central Govt. may notify.
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Sec 7 Use of words Bank/Banking/Banking Co. : A banking co carrying on banking business in India must
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use the word Bank, Banking, Banker, or Banking Co in its name & no other organisation can use these
names.
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Sec 11 Paid up Capital & Reserve requirement
For Domestic banks-minimum paid up capital & reserve Rs.5 lac.
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Foreign bank- Min Rs.15 lac&Min Rs.20 lac if bank has place of business in Mumbai &/or Kolkata
Capital Structure : The ratio of authorise, subscribed and paid up capital must be minimum 4:2:1
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Sec 19(2) Holding shares of any Co : No banking co shall hold shares in any co. whether as pledgee,
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mortgagee, or absolute owner of an amount exceeding 30% of paid up capital of that co. or 30% of its
own paid up capital + reserves whichever is less.
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Sec 20 Restriction on advance against its own shares : No banking co shall grant loans/advance on the
security of its own shares
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Sec 21 Power to control advance : RBI can restrict the banks from lending against certain notified
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commodities, maintenance of a min margin, ceiling limit of advance or charging of min rate of interest.
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Sec 21(a) No scrutiny of rate of interest : A transaction between the banking co and its debtors can not
be reopened by any court on the basis of excessive charging of rate of interest.
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Sec 24 Maintenance of SLR : Banking co is required to maintain at the close of business on any day a
certain percentage of its total demand & time liabilities in India in form of cash, gold & unencumbered
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approved securities. This is SLR. SLR is to be maintained with reference to total demand & time liabilities
as on the last Friday of 2nd preceding fortnight. SLR can be max 40%.
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Sec 45(y) Preservation of Bank records : Guidelines for returning the paid instruments to instrument to
customer by keeping a true copy.
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Sec 45(za) Nomination : For nomination in Deposit a/c

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Sec 45(zc) Nomination : For nomination in Safe Custody a/c

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Sec 45(ze) Nomination : For nomination in Locker a/c
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RBI Act, 1934

1. This Act may be called the Reserve Bank of India Act, 1934.
2. It extends to the whole of India
3. This section shall come into force at once, and the remaining provisions of this Act shall come into
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force on such date or dates as the [Central Government] may, by notification in the Gazette of India,
appoint.
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Some important Sections of RBI Act, 1934
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Sec 2(e) Scheduled Bank- A schedule bank means a bank whose name is included in the 2nd schedule of
RBI Act 1934. For inclusion, a bank should satisfy conditions laid down in sec 42(6). The essential
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condition of capital is that such banks have paid capital and reserves of not less than Rs.5 lac & further
that RBI is satisfied that the affairs will be conducted by the bank in a manner that will not jeopardize
the interest of the depositors. Banks which are not included in the 2nd schedule of RBI are called Non
schedule Bank.
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Sec 17- Types of Business
Defines various types of business which RBI may transact which include acceptance of deposit
without interest from Central/State Govt, any other person or institution, sale/purchase of foreign
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exchange, securities, rediscounting of bills/PN, grant loans etc.
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Sec 21- Right to transact Govt. Business
RBI has the right to transact Govt. business in India i.e. remittance, exchange, keeping deposit free of
interest etc.
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Sec 22- Bank Notes

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RBI has the sole right to issue bank notes.

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Sec 23- Issue Department

Bank notes will be issued by issue deptt. against security consisting of gold coins, bullion, foreign
securities & other approved securities.
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Sec 24- Denomination of Notes

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RBI issues all currency notes of denomination 2, 5, 10, 20, 50, 100, 500, 1000, 5000, 10000. It has
power to discontinue or non issue of currency note of any denomination. The notes of 2 & 5 are already
been discontinued.
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Sec-28- Rules of Refunding value : RBI can frame rules for refunding value of mutilated , soiled or
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imperfect notes as a matter of grace.

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Sec 42(1)- Define Cash Reserve Ratio : Every bank is required to maintain with RBI an average daily
balance equal to a percentage of the net demand & time liabilities as stipulated by RBI from time to
time. This is known as CRR. There is no minimum or maximum limit for CRR. Further RBI does not pay
interest on balance held for CRR purpose. Currently CRR is 7.75%.
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Collecting & Furnishing of Credit Information

 RBI is empowered to collect information related to borrower & suit filed accounts.
 Borrowers enjoying secured credit limit of Rs.10 lac & above & unsecured limit of Rs.5 lac & above-
as on last Friday of April.
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 Doubtful, lost & suit filled a/c of o/s balance of Rs.100 lac & above- half yearly, March & September.
 Basic Statistical Return: BSR-1 for borrower a/c of above Rs.2 lac & BSR-2 containing information
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about deposit with break up into current, saving & time deposits.
Sec 45-H-T Provision relating to NBFC : No NBFC shall commence business or carry on business without
s.
obtaining a certificate of registration & having net owned fund of Rs.25 lac
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Sec 49-Declaration of Bank rate : RBI shall declare bank rate from time to time which is the rate at
which it buys or rediscount bills of exchange or other commercial paper eligible for purchase under this
act.
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INDIAN CONTRACT ACT.
 Came into effect on 01/09/1872
 Not applicable to J and K.
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 Section 124 –Contract of Indemnity.
 Section 126-Contract of Guarantee.
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 Section 148- Bailment.

 Section 170/171 –Lien
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 Section 172-Pledge(Bankers lien is an implied pledge)

 Assigment- Section 130 of transfer of property act
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 Mortgage- Section 58 of transfer of property act.

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Official language policy

Hindi Divas-Sep 14
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Region A - Andaman & Nicobar, Bihar, Chattisgarh, Delhi, Haryana, HP, UP, Uttrakhand, Jharkhand,
Rajasthan, MP
Region B - PUNJAB, MAHARASHTRA, CHANDIGARH, GUJARAT
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Region C - OTHERS
Reply to letters.
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Region A B C
A 100% 100% 65%
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B 90% 90% 55%

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C 55% 55% 55%
Letters received in Hindi to be answered in Hindi (100% for Region A,B,C)

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Negotiable Instrument Act, 1881

1. Definition “Negotiable instrument”
 Negotiable means transferable
 Instrument means a written document
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2. A negotiable instrument is a document which entitles a person to a sum of money and which is
transferable from one person to another by mere delivery or by endorsement and delivery.
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3. It is a method of transferring a debt from one person to another.
Characteristics
s.
1. Freely transferable
2. Title of holder free from all defects
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 A person who is holding negotiated instrument he is free from a defect in the title of the transferor
Ex: S sells certain goods to B. B gives a promissory note to S for the price. He refuses to pay the
promissory note, claiming that the goods are not according to order. If S sues B on the note, B’s defence
is good. But if he negotiates the note to H, a holder in due course, B’s defence will be of no avail.
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3. Recovery - A holder of the negotiable instrument can sue for recovery of the amount.
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4. Presumptions
5. Negotiable instrument is for consideration
6. Dated
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7. Reasonable Time of acceptance
8. Before the maturity it should transferred
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9. Stamp when there is a dishonour
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Types of negotiable instrument

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Negotiable by statue
 Promissory note
 Bill of exchange
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 Cheque
Negotiable by custom or usage

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 Share warrants
 Dividend warrants
 Share certificates
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Some important Sections of NI Act, 1881

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Sec 4 Promissory Note : PN is an instrument in writing, signed by maker, containing an undertaking to

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pay certain sum to bearer

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Sec 5 Bills of exchange : Bills of exchange is an instrument in writing, signed by the maker containing an
unconditional order directing a person to pay certain sum to bearer.
Sec 6 Cheque : A cheque is a bill of exchange drawn on specified banker to be paid only on demand.
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Sec 7 Drawer, Drawee& Payee : Maker of bill of exchange/cheque is called drawer & person thereby
directed to pay is called drawee. The person named in the instrument to whom or to whose order the
money is directed to pay is called the payee.
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Sec 8 Holder : Holder of a negotiable instrument means a person entitle in his name to possession & to
receive/recover the amount.
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Sec 9 - Holder in due course : Holder in due course means a person who for consideration became
possessor of NI before the instrument became payable.
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Sec 10-Payment in due course : If payment is made according to apparent tenor of the instrument, in
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good faith & without negligence to the person having possession of the instrument under circumstance
which do not afford a reasonable ground of suspicion that he is not entitle to receive the payment.
Sec 13 NI : NI means promissory note, bill of exchange or cheque payable to order or bearer.
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Sec 18 Difference in words & figure : When there is difference in amount in words & figure, the amount
in words is to be treated as the amount ordered by the drawer to pay.
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Sec 20 Inchoate Instrument : Not to pay inchoate i.e. incomplete instrument.
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Sec 45(a) Holder’s right to duplica : NI which has been lost before it is over due, the person who was
the holder of it may apply to the drawer to give him another instrument of the same tenor, giving
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security to the drawer, if required, to indemnify him against any possible loss.
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Sec 47 Negotiation by delivery : NI payable to bearer is negotiable by its delivery.
Sec 85(1) Protection in case of Order cheque : Paying banker is protected by payment in due course of
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an order cheque which is properly endorsed by payee or its agent.
Sec 85(2) Protection to paying banker in case of Bearer Cheque : Paying banker is protected by
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payment in due course of a bearer cheque which is properly endorsed by payee or its agent.
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Sec 123- General Crossing : Where a cheque bears across its face parallel transverse lines with or with
crossing & the cheque is said to be crossed.
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Sec 124- Special crossing : Where cheque bears across its face addition of name of banker with/without
words “not negotiable” this addition specially.
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Sec126- Payment of crossed cheque : Where a cheque is crossed generally, the banker on whom it is
drawn shall not pay it otherwise than to a banker & where a cheque is crossed specially, the banker on
whom it is drawn shall not pay it otherwise than to a banker to whom it is crossed or his agent for
collection.
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Sec 131- Protection available for collecting banker : Banker who in good faith, without negligence
received payment for customer of crossed cheque, shall not incur any liability to the true owner of the
cheque in case the title to the cheque proves defective.
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Sec 138- Dishonor of cheque : Where any cheque drawn by a person maintaining a/c in bank, for
payment to another person out of that a/c, returns unpaid for want of sufficient balance in a/c, such
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person shall presumed to have committed offence & shall be punishable with imprisonment upto max 2
year or twice the amount of cheque.
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PUBLIC PROVIDENT FUND SCHEME, 1968
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 Can be opened by Individual & Minor with father or mother, only ONE a/c can be opened either in
Post office or in Banks
 NRI & HUF cannot open. HUF accounts opened on or before 13/05/2005 will be allowed to mature
and matured HUF account should be closed on 31/03/2011.
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 Minimum Rs.500/- & Maximum Rs150000/- in a financial year (in 12 instalments) If Father has
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1 a/c & he has opened another a/c along with minor child then he must deposit min. of Rs.500/- in
each a/c but max. of Rs. 150000/in both the a/c taken together.
 Interest is payable on lowest balance between 5th & last day of each month
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 Rate of interest is 8.7% WEF 01/04/2013
 Interest earned is Tax free
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 After the maturity of PPF it can be extended for a block of 5 years. Any no. of extensions of 5 years
block can be sought after expiry of each block
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 Nomination is allowed in favour of one or more person

 PPF cannot be attached by garnishee order but can be attached by Income Tax order
 If a/c is opened at minimum subscription & minimum subscription of Rs. 500/- is deposited in the
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1st year & if not deposited in a subsequent year then the party has take the initial subscription with
upto date interest on maturity or a/c can be regularized by paying a subscription of Rs. 500/- & late
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fee of Rs. 50/- per year of default.

 Loans & withdrawals are allowed as per rules. Loan interest for 36 months is 2% for more than 36
months it is 6%
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 No Agency commission is to be paid by branches WEF 01/12/2011

 Only authorized branches can open
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RIGHT TO INFORMATION ACT, 2005

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 Information can be sought by citizens of India.

 Fee prescribed for application is Rs.10/- No fee is payable by person below the poverty line.
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 If applicants request copies.

 For each page to be created/copied in A4 or A3 size paper - Rs. 2 per copy.
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 For each page to be created in paper of larger size - Actual charge.

 For inspection of record for first one hour - No charge.
 For inspection of record for more than 1 hour - Rs.5 per each 15 mins
 For information to be provided in a diskette of Floppy - Rs. 50 per diskette.
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 The public Information Officer should furnish the information within 30 days of receipt of
application (for life or liberty of a person within 48 hours)
 Penalty Rs.250/- per day maximum of Rs.25000/-
 Not applicable in Jammu & Kashmir.
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 Any person can appeal (FIRST) within 30 days from receipt of decision or expiry period. Second
appeal can be made within 90 days from receipt of decision of first appeal or expiry.
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 Exemption from disclosure of info is available in terms sec 8 and for rejection as per sec 9.
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Senior Citizen Scheme, 2004
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 Person 60 years & above can open Maximum total amount of deposit is Rs.15 lakhs
 Person 55 years & above can open provided they have retired either on superannuation or VRS etc.
maximum amount cannot exceed the total retirement benefits or Rs.15 lakhs whichever is less
(Retirement benefits received should be respectively deposited within one month of its
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receipt).Armed force personnel who retires on superannuation can open irrespective of age
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criterion subject to max retirement benefits or 15 lakhs whichever is less
 Interest is payable quarterly @ 9.2% p.a. WEF 01/04/2013
 It can be opened for 5 years on expiry of 5 years It can be extended for a block of 3 years
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 If closed prematurely after one year but before 2 years 1.5% of amount deposited will be deducted.
If closed after 2 years 1% of the amount deposited will be deducted. On the extended block of 3
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years no penalty will be charged if account is closed after one year
 More than One nominee is permitted.
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 Nominees Photo & signature to be obtained

 TDS to be deducted at source
 A person can have more than one a/c but the total of all the a/cs should not exceed the cap amount
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 It can be transferred from Post office to Bank & vice versa Upto 1 lakh no charge for transferring the
a/c for the 1st transfer a fee of Rs. 5/- per Lac or part thereof & for subsequent transfer Rs.10/- per
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Lac & part thereof.

 NO Agency commission is to be paid by branches WEF 01/12/2011
 Only authorized branches who can open PPF a/c can open SCSS, 2004
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Consumer protection act
Limitation period-2 years from the date of cause of action

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Jurisdiction
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 Up to Rs 20.00 lacs - District forum

 20 to 100 Lacs - State commission
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 Above 100 Lacs - National commission.
COPRA is not applicable to J and K

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Garnishee Order
A garnishee order is an attachment order issued by a competent court under section 60 of civil
procedure code (Rule 46 of Order XXI of schedule) at the request of a creditor to attach his debtor’s
funds in the hands of a Banker.
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A garnishee order is issued in two stages, first an order Nisi and then an order Absolute
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Banker – Garnishee; Person approached the court - judgment creditor and person whose funds are to be
attached - Judgment Debtor.
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Order Nisi
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 An order Nisi requires the banker to explain as to why the funds of the depositors should not be
attached
 On receipt of order Nisi the bank is bound to stop operation in the depositors account
 Bank must immediately inform the customer about the receipt of the order.
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Order Absolute
 After receipt of the explanation from the bank the court may issue order Absolute.
 On receipt of an order Absolute the bank should pay the amount to the court.
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 Production of pass Book/ Deposit receipt not necessary for making such payment
 Amount of the Garnishee Orders.
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 A Garnishee order usually does not mention the amount. In case, no amt is mentioned, the entire
balance to be attached. If issued for specific amount only that amount to be attached
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Accounts to be attached
 Garnishee order extends only to those accounts, which are held in the same capacity in which the
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order is issued.
 If the order is in the name of A and the account is in the name of a partnership firm
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where A is a partner the firm account cannot be attached.

 If the order is in the name of a partnership firm, not only the firm account but also the balance in
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the individual partner’s account can be attached.

 If the order is in the name of individual it would extend any account maintained by him in the name
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of a firm as sole proprietor

 Accounts held by a person as a trustee (Trust Accounts) are not attached by a Garnishee order
issued in individual name
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Accounts not attached

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 Deceased person’s account

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 Insolvent person’s account
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Income Tax Attachment Order (As per 226(3) of IT Act, 1961)

 It can attach SB, CD term deposit (payable on maturity), proceeds of collection items to be credited
to account
 Even though the order is received in a single name, it attaches balance (pro rata) in any joint
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account maintained by such person)
 Even the amount deposited after the receipt of order, it is attachable
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 No need to insist upon presentation of Deposit Receipt to make payment
Garnishee order Vs Attachment order
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Features Garnishee Order Attachment Order
Who issue the order Competent Court of Law Any Income Tax Department – Sales
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Tax, Custom Department
Under which act Sect 60 of CPC, 1908 Respective law governing the
concerned department
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Depositor Judgement Debtor Assessee
Bank
Stages
Garnishee or Judgement
Debtor’s debtor
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Two – Order NISI and Order
Assessee’s debtor
Directly Issued
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Absolute
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Purpose To recover private due To recover statutory due
Amount May be mentioned specifically Specified clearly in the order
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Applicable to account All demand deposit and term All demand deposit and term deposit
deposit accounts accounts
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Applicable to Amount Clear amount available with Amount in the account available at
garnishee at time of receipt of time of receipt of order as well as
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order future credits

Right to set off Available for lawful and due Available for lawful and due debts
debts
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Joint A/c, order single name Not applicable Applicable on pro rata basis
Joint A/c, order joint names Applicable Applicable
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Order in name of partner, Not applicable for a/c in name Not applicable for accounts in name
trustee,executor, liquidator, of firm, trust, company i.e, a/c of firm, trust, company i.e. accounts
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director of a company etc. in fiduciary capacity etc in fiduciary capacity etc.

FDR as collateral security Not applicable Not applicable
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Undrawn CC/OD limits Not applicable Not applicable

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Deceased Applicable Applicable

Failure to comply the order Contempt of Court Assessee in default
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Bank and Customer Relationship
Sl No Type of Transaction Bank Customer

1 Deposit a/c and Credit balance in CC/OD Debtor Creditor
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2 Loan a/c and Debit balance in CC/OD Creditor Debtor
3 Collection of cheques, TT, MT, Standing Agent Principal
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Instructions, sale/purchase of securities,
Maintenance of currency chest
4 Safe custody articles Bailee Bailor
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5 Leasing of Lockers Lessor, Landlord, Lessee, Tenant,
Licensor Licensee
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6 Mortgage of immovable property Mortgagee Mortgagor
7 Pledge of securities/ Shares Pledge Pledgor
8 Pledge Pawnee Pawnor
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9 Hypothecation of articles Hypothicatee Hypothecator
10 Issue of Duplicate Draft Indemnified Indemnifier
11 Payment of Draft
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Banker’s Rights : has three rights namely (i) Right of Lien (ii) Right of Set Off (iii) Right of Appropriation
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Right of Lien : Lien is the right of creditor to retain possession of goods and securities belonging to the
debtor till the debts due to him (creditor) are paid. This right is available only on goods and securities
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and not on balances in the accounts. Lien entitles retention of possession of goads but the creditor
cannot sell the goods. Lien can be Particular lien (Sec 170 of the Indian Contract Act) or General Lien.
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Right of General Lien, is available only to bankers, factors, wharfingers, attorneys (Section 171 of the
Indian Contract Act). Banker's Lien is also a general lien but it is an implied pledge because the banker
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has right to retain as well as sell goods of the borrower after giving him reasonable notice.
For exercising right of lien, (a) the goods or securities and debt should be in the same right and same
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capacity (b) Loan should be due or overdue and lawful (c) Reasonable notice is given. Further, Right of
Lien is available on the goods and securities received in the ordinary course of business. It is not
available when the goods or securities have been deposited for a specific purpose; goods received for
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safe custody or lying in safe deposit vault or goods left by the debtor negligently.
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However, in the case of loans against pledge of jewellery, bank can exercise right of general lien on the
ornaments left in the possession of the bank after adjustment of the jewellery loan in case some other
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advance is outstanding.
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Negative lien is a declaration from the borrower to the effect that securities/goods offered as security
are not encumbered and that the borrower will not create any charge over them without bank's
permission. This undertaking does not create any charge in favour of the bank and therefore advance
against negative lien are treated as dean advance.
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Right of Set off: Set off is the right to combine two or more accounts having debit and credit balance. It
is not defined in any Act. This right arises when two parties are debtor as well as creditor to each other
i.e. one account should be in debit and another account should be in credit. In the case of banks, this
right arises when wants to combine its loan due from a borrower with his deposit accounts. For
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exercising right of set off following conditions should be satisfied (i) Both accounts should be in same
right and same capacity (ii) The debt should be due and not accruing due. Reasonable notice should be
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sent to the depositor before exercising set off. Right of set off can be exercised even in case of loans
which are time barred. It can be applied on fixed deposit when it matures and not on FD which is not
due as yet. Similarly it can’t be applied for adjusting term loan or CC or overdraft which are regular and
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not overdue. If a loan is in the name of an individual, set off can be exercised on credit balance in his
individual account and sole proprietorship account. Set off can not be exercised on deposit accounts
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which are held jointly with other individuals, or partnership in which the borrower is partner, or client
account maintained by a solicitor or account of minor under guardianship where borrower is the
guardian or on the credit balance of a trust in which borrower is trustee. If loan is in joint names, set off
can be exercised on credit balance in joint account as well as credit balance in individual accounts of
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joint borrowers. If loan is in the name of a partnership firm then set off can be exercised on credit
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balance in the name of firm, partners and any other partnership firm which has just same partners as
are in the borrowing firm. For exercising right of set off, all branches of a bank are considered as one.
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POSITION OF AVAILABILITY OF RIGHT OF SET-OFF TO BANK
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Deposit in the name of Loan in the name of Status of availability of right
Single person Jointly with others Available
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Partner in a firm Partnership Firm Available

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Single name Same name Available

Proprietor Proprietorship firm Available
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Joint Account One of joint holder Not available

Partnership Firm One of partners Not available
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Trust Trustee Not available

Trustee Trust Not available
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Dividend a/c of Co. Loan a/c of co. Not available

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Minor (u/g,ship a/c) Guardian Not available

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Single person Single person but different capacity say Not available
trustee
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Right of Appropriation : Section 59,60,61 of Indian Contract Act, deal with appropriation of payments.
Clayton's Rule is related to appropriation of payments. This rule is applicable in case of death,
insolvency, insanity of a joint borrower or partner or guarantor or retirement of a partner or revocation
of guarantee by guarantor. Clayton's rule is applicable in case of running borrowal accounts like cash
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credit or overdraft. As per Clayton's rule, credit entry will set off debits in the chronological order of
time. This means that first item on the debit side will be discharged first by a credit and so on.
Garnishee Order : A Garnishee Order is an order issued by court under section 60 (Order 21, Rule 46) of
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the Code of Civil Procedure, 1908. Through this order the court attaches the deposit of a particular
depositor with the bank. The bank upon whom the order is served is called Garnishee. The depositor
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who owes money to another person is called judgement debtor while the person to whom money is due
is called judgement creditor. The court first issues order Nisi requiring the bank to explain as to why the
funds in the account not be utilised to meet the judgement creditor's claim. After this order, the order
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Absolute is issued directing the bank to freeze the entire balance or a portion of credit balance in the
account of the judgement debtor. Upon receipt of Garnishee Order Nisi, the operation in the account
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are suspended, the bank has to earmark desired balance in the account of the judgement debtor.
Garnishee Order applies to existing debts as also debts accruing due i.e. SB/CD/RD/FD.
Garnishee Order applies only to those accounts of Judgement Debtor which have credit balance. The
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relationship between bank and judgement debtor is of debtor and creditor. Bank is the debtor of
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Judgement Debtor who is a creditor of the bank. Garnishee order does not apply to money deposited
subsequent to receipt of Garnishee order. It also does not apply to cheques sent for collection but yet to
be realized. But if credit was allowed in the account before realization with power to withdraw to
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customer, GO will be applicable on this amount. Garnishee order does not apply to unutilized portion of
overdraft or cash credit account of the borrower as no debt is due to judgement debtor. Bank can
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exercise right of set off before applying Garnishee Order. Garnishee order is-applicable only if both
debts are in same right and same capacity. Garnishee order issued in a single name does not apply to
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accounts in the joint names of judgement debtor with other person(s). But if Garnishee order is issued in
joint names, it will apply to individual accounts also of the same debtors. When Garnishee Order is in
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the name of a partner it will not apply to partnership account but when Garnishee order is in the name
of firm, accounts of individual partners are covered. Garnishee Order can be served on Head Office of
the bank and it can take reasonable time to communicate the same to its branches, If amount is not
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specified in the order, then it will be applicable on the entire balance in the account. However, if it is for
specific amount, the cheques can be paid from the balance available after setting aside the amount as
mentioned in the Garnishee order. Garnishee order is applicable on accounts of deceased persons but
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not applicable if depositor declared insolvent. Garnishee order not applicable on fixed deposit taken as
collateral security.
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Income Tax Attachment Orders : Income Tax Authorities issue Attachment Orders in terms of Section
226(3) of Income Tax Act, 1961. On receipt of this order, banker is required to remit the desired amount
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to income tax authorities. An order without mentioning the amount is not a valid order. Attachment
Order is different from Garnishee order in following respects (i) Attachment order applies to money
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deposited in the account after receipt of order also till it is fully satisfied whereas Garnishee order does
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not apply to subsequent deposits. (ii) Attachment Order in single name applies to joint accounts also
proportionately unless the contrary is proved whereas Garnishee order in single name does not apply to
joint accounts. In case banker fails to comply with Attachment Order, it will be liable for the amount of
order and deemed as an assessee in default. However, right of set off is available to bank before
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applying the order. When both Garnishee order and Attachment Order are received simultaneously,
priority should be given to attachment order.
NOMINATION PROVISIONS
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 Nomination is compulsory for single name accounts. If customer does not want nomination, he has
to give in writing.
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 Name of nominee - If customer requests for name of nominee to be written on FDR or pass book,
banks to follow his instruction.
 2 Witnesses in nomination - Only for thumb impression. Not for signatures.
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 Nomination is allowed for all types of Deposits—domestic and foreign currency (Section 45-ZA&ZB
of Banking Regulation Act, for safe deposit of articles (Sec 45-ZC&ZD) and lockers (Sec ZE &ZF).
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 Legal Status of nominee: A trustee for legal heirs.
 Nomination can be for individual accounts only (not for firms, companies, trusts, societies etc.)
 Who can be nominee: Only an individual can be a nominee. He can be Resident or Non-resident,
minor or even insolvent person.
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 Nomination can be made any time from. opening of account to closure of account. It can be
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cancelled and changed any time.
 No. of nominee: One only in case of (a) Deposit accounts (b) Safe deposit of article accounts, (c)
locker accounts in single name and joint locker either or survivor. For joint operation locker account,
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as per IBA, max no. of nominees in joint lockers can be 2.
 On death of account holder bank to make the payment or deliver the articles to nominee only
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(except in case of Court Orders). Objection from legal heirs or any other person to be ignored.
 In case of FDR, if renewal is within same account, previous nomination continues.
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 In case of joint deposit account, all persons to sign the nomination.

 In case of death of one, in joint deposit accounts, payment shall be made to survivor and legal heirs.
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The nominee can be entertained only when all account holders have died.
 In case of death of one, in case of jointly operated locker, the articles will be delivered to survivors
and the nominee.
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LOCKERS (SAFE DEPOSIT VAULT)

 Relationship in case of locker is that of lessor (bank) and lessee (customer).
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 Banks to maintain wait list for locker allotment, if demand exceeds availability.
 Banks cannot insist on keeping deposit, as a pre-condition for locker.
 Locker rent for 3 years and locker breaking charges, can be got deposited in the form of term
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deposit
 If locker is not operated for 1 year in case of High risk customers and 3 years in case of medium risk
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customer, notice to customer to be sent asking him to explain reasons for non-operation. If bank is
not satisfied with the reasons, locker to be surrendered by the customer. If customer does not
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surrender the locker, it is to be broken open after notice to customer, in the presence of 2
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independent witnesses.
 If loss of key is reported in joint EIS locker and one of them comes to operate the locker, operation
to be allowed on joint basis only.
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Joint accounts
 Joint accounts can be opened with various types of operating instructions like Either or Survivor,
Joint Operation or Former or Survivor or Either or Joint or Survivor. The position in such cases as
under:
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 Either or Survivor (E or S): It means anyone can operate the account till both are alive. After the
death of either of them, the bank can pay the balance to the survivor without any formality.
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 To be operated jointly: Account will be operated by both jointly till both are alive and, if one of the
two expires, the bank would pay the final balance to the survivor, along with all the legal heirs of the
deceased.
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 Jointly or by Survivors: Account can be operated by both / all the person jointly during their lifetime
and, in the event of death of any one, the balance is payable to the surviving persons jointly.
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 Former or Survivor: Till the first named person is alive, the second named person has no right to
withdraw/operate the account. After the death of the first named person, the payment will be made
to second named person.
 In case of "either" or "either or survivor" or "joint" operation any one of the account holders can
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stop payment of the cheque. The revocation in case of either or either or survivor can be done by
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either but in case of joint operation, revocation has to be done by all jointly. In case of Former or
Survivor accounts, stop payment of cheque can be done by Former and revocation of stop payment
can also be done by Former.
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 In case of "either of survivor" alteration on the cheque can be confirmed by any of the account
holders.
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 Any authority to a third party has to be with the consent of all joint account holders.
 Joint accounts are joint property. Therefore, unless there is clear mandate in the account opening
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form that anyone can undertake the following functions, these should be done by all joint account
holders jointly under signatures of all (a) opening the account (b) closure of account (c) making or
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altering nomination (d) raising loan against term deposit (e) premature payment of term deposit (1)
addition or deletion of names.
 In case of joint accounts with either or survivor instruction, if any of the account holders becomes
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insane, the balance will be paid jointly to the account holders other than who has become insane
and guardian of the insane minor appointed by court.
 In all types of joint accounts, Garnishee order issued in joint names will be applicable on joint
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accounts but Garnishee order issued in the name of one of the account holders will not be
applicable on joint account.
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Bank accounts of minor : Minor can open 2 kinds of bank a/cs i.e. self operated and guardian operated.
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For self operated account :

 Age min 10 years
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 He should be able to sign.

 Minor can obtain premature payment of FDR. No loan against security of FDR.
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As per RBI (6.5.14)

 minor's mother can open SB, RD, FD account
 banks can decide age limit and max balance limit, at discretion
 banks can extend cheque book, ATM/Debit card facility
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Features of Self Operated account :

 Account can be in single name or *In joint name with his guardian OR other minor of the same
family.
 No nomination, no power of attorney, no mandate, no agent.
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 In joint account with guardian, guardian can make nomination.
 In joint account with another minor, only joint operation to be allowed. No either/survivor OR
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former/survivor operation to be allowed.
 If minor dies, balance shall be paid as a claim case.
 In joint account with guardian, if guardian dies, payment to minor and legal heir of guardian. If
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minor dies, guardian to withdraw the money and account closed.
 On attaining majority, he is to confirm the balance. Fresh Photo on becoming major to be obtained.
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Features of under guardianship a/c :
 During minority account to be operated by guardian. Guardian can make nomination.
 On majority account to be operated not by guardian but the account holder (who has become major
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now).
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 During minority if guardian dies, next guardian to operate.
 During minority if minor dies, balance to be withdrawn by guardian.
 Account by mother during life time of father - She can open the account as per Supreme Court
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judgement (Githa Hariharan VS RBI).
 Father not to intervene.
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In-Operative Accounts
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 Banks to make an annual review of deposit accounts in which there are no operations for more than
one year.
 In these accounts, letter to be sent to customer for operations. If on an enquiry, the reply given by
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the account holder is satisfactory, banks can continue classifying the same as an operative account
for one more year
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 Savings /current account to be treated as inoperative / dormant if there are no transactions for over
a period of two years.
 For classifying an account as 'inoperative', debit & credit transactions induced at the instance of
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customers as well as third party should be considered.

 Accounts opened for the beneficiaries under various Central/State Government schemes are
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exempted.
 Interest: Interest on savings bank accounts should be credited on regular basis whether the account
is operative or not. If a Fixed Deposit Receipt matures and proceeds are unpaid, the amount left
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unclaimed with the bank will attract savings bank rate of interest.
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In-Operative (10 Years and Over) — Unclaimed Deposits

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Except for drafts, cash orders, RIU/Ciitt cheques all other accounts in in-operative (others) category
remaining in-operative for further period of 7 years or more, are to be transferred to In-operative (10
years and over) on 1st day of December each year. An annual report also required to be submitted to
RBI as on Dec 31, u/s 26 of Banking Regulation Act.
(Banks to display names/addresses of customers of inoperative/unclaimed accounts, at their website)
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Settlement of claims of missing persons

Settlement of claims would be governed by the provisions of Section 107 / 108 of the Indian Evidence
Act, 1872. As per the provisions of Section 108 of the Indian Evidence Act, presumption of death can be
raised only after a lapse of 7 years from the date of his/her being reported missing. As such, the
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nominee / legal heirs have to raise an express presumption of death before a competent court. If the
court presumes that he/she is dead, then the claim in respect of a missing person can be settled on the
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basis of the same.
Deceased Accounts
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 In case of deceased accounts, the payment be made within 15 days from date of receipt of complete
papers.
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 Credit received after death (called pipe-line credit), can be credited with permission of survivor,
legal heirs or nominee only.
 Pre-mature payment of term deposit can be allowed with out any penalty, but no loan can be
allowed.
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 Interest in case of current account and saving bank account to be paid as per saving bank rate till
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date of payment from date of death.
 Interest in case of Term Deposit, if matured before death to be paid at contracted rate till maturity
and at SB rate after maturity till date of payment.
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 Interest in case of Term Deposit, if matured after death to be paid at contracted rate till maturity
and from date of maturity till date of payment to be paid at rate applicable (on date of maturity) for
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the period the deposit was with bank.
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Non Resident Indians – Products

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Non-Resident Accounts can be opened and maintained by Person Resident outside India, Non-Resident
Indians (NRI) and Persons of Indian Origin (PIO). Person Resident outside India means a person who is
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not resident in India. It also defined as a person who has gone out of India, or who stays outside India
for the purpose of employment, carrying on business or vocation or for any other purpose under the
circumstances indicating an uncertain period of stay. Person includes Individual, HUF, Firm, Company
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and Association.
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Non-Resident Indian :
A person resident outside India, who is a citizen of India or is a person of Indian Origin. Persons who visit
India for temporary visit are treated as Non-Resident Indian. Students going abroad for studies are
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treated as Non-Resident Indians.

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Person of Indian Origin:

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A Foreign Citizen (Other than citizen of Pakistan or Bangladesh) is deemed to be a person of Indian
Origin if, he/she at any time held an Indian Passport or he/she or either of their Parents or Grand
Parents was citizen of India by virtue of the constitution of India or Indian Citizen Act 1955 or he/she is a
spouse of Indian Citizen or a person referred as above.
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NRO – Non Resident Ordinary Account

Who Can Open Any NRI can open NRO account Singly or Jointly with Residents.
However, individuals / entities of Bangladesh and Pakistan
nationals require prior approval of RBI.
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Nomination Nominee can be a Resident or a Non Resident.
Claim Settlement – Resident Nominees – In INR,
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NRI Nominee – Repatriable to that Country as per RBI Norms.
Repatriation Remittances of Balances held in NRO accounts can be allowed
up to USD one million per financial year, for all bona fide
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purposes to the satisfaction of Authorized Dealer(AD)
Foreign Tourists visiting India – the balance amount in the
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account (other than local credits) can be repatriated at the time
of departure from India provided the account has been
maintained for a period not exceeding six months.
Type of account Current, Savings, Recurring, Term Deposits.
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Period of Deposits As applicable to Domestic Deposits
Rate of Interest
Deposit Loans
Foreign Currency Loans
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As applicable to Domestic Deposits
As applicable to Domestic Deposits
Not Permitted
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Margin Not Permitted
Interest on Dep. Loans Dep. Rate + 2 %
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Applicability of Local Taxes TDS on Int. earned @ 30% + Edn. Cess + Service Tax., including
Interest on SB Deposits, irrespective of the amount of Interest.
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Wealth Tax, as applicable.

Transfer of funds Permitted to NRE account within the overall ceiling of USD one
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million per financial year

Premature Cancellation of Deposits As applicable to Domestic Deposits
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NRE – Non Resident External Rupee account

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Who Can Open NRI can open NRE account Singly or Jointly with their resident
close relatives. With regard to joint account with resident, the
operation of the account should invariably be “Former or
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Survivor” and the former should be NRI. However, individuals /

entities of Bangladesh and Pakistan nationals require prior
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approval of RBI.
Nomination Nominee can be a resident or a Non Resident
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Claim Settlement – Resident Nominees – In Indian Rupee

Non Resident Nominee – Repatriable as per RBI Norms
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Repatriation Balances in the account are Fully Repatriable

Type of account Current, Savings, Recurring, Term Deposits.
Period of Deposits Minimum one year and Maximum 10 years
Rate of Interest Saving Deposits – Deregulated
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Term Deposit – As applicable to Domestic Deposits

Deposit Loans Rupee loans to be allowed to depositor / third party without
any ceiling.
Margin 15%
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Interest on Dep. Loans Dep. Rate + 2 %
Applicability of Local Taxes No TDS on Int. earned
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No Wealth Tax. Free from all Taxes
Transfer of amount to other types Permitted to NRO / FCNR
Premature Cancellation of Deposits Penalty 1% on premature cancellation is applicable. No Interest
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is payable, in case of cancellation before 1 year. Conversion
from NRE to FCNR or vice versa, before maturity is subject to
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Penalty. No penalty in case the amount is placed in RFC.
The recent RBI guidelines allowed Non-Resident Indians (NRIs) to operate resident bank accounts on
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“either or survivor” basis. Banks may include an NRI close relative in existing/new resident bank
accounts as joint holder with the resident account holder on “either or survivor” basis, subject to
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fulfillment of a few conditions. An NRI can be a joint holder in more than one account. Cheques,
instruments, remittances, cash, card or any other proceeds belonging to the NRI relative shall not be
eligible for credit to this account.
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Besides, the NRI relative shall operate such account only for and on behalf of the resident for domestic
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payment and not for creating any beneficial interest for himself. Due to any eventuality, if the NRI
becomes the survivor of such an account, it shall be categorized as Non-Resident Ordinary Rupee (NRO)
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account.
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The joint account holder facility may be extended to all types of resident accounts including savings
bank accounts. While extending this facility, the banks should satisfy itself about the actual need for
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such a facility and also obtain a declaration, duly signed by the NRI account holder.
FCNR(B) - Foreign Currency Non Resident account

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Who Can Open Any Non Resident Indian (Individuals of Bangladesh / Pakistan
Nationality require approval from RBI) Singly or jointly with
another Non Resident only.
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Nomination Nominee can be a resident or a Non Resident. Claim Settlement

– Resident Nominees – In Indian rupees Non Resident Nominee
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– Repatriable as per RBI Norms.

Type of account Term Deposits only (FDR / Reinvestment)
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Repatriation Fully Repatriable without any limits.

Period of Deposits Minimum one year and Maximum 5 years
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Rate of Interest Linked to LIBOR. Not exceeding LIBOR + 125 basis points. 360
days is taken for a year for the purpose of interest calculation.
Simple interest is paid for one year deposit. However,
compound interest (half-yearly, 180 days) is paid for deposits
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beyond one year.

Deposit Loans Foreign Currency loans to be allowed to depositor / third party
without any ceiling.
Applicability of Taxes No TDS on Interest earned and No Wealth Tax.
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A/c can be opened at Designated branches. (C Category Branches)
Amount Transfer Permitted to NRO and NRE accounts
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Foreign Currency Exchange Risk No Exchange Risk to the customer, in case of repatriation, as
account is maintained in Foreign Currency only.
Designated Currency Account can be opened in any freely convertible currency.
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Premature Cancellation No interest payable and no SWAP cost to be recovered for the
deposits up to USD 10000 or equivalent, where the deposit is
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cancelled before the expiry of one year. However, SWAP cost to
be recovered in case of deposits above USD 10000 or its
equivalent. Cancellation of the deposit for the purpose of
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renewal in the same currency, same type of deposit/RFC, no
SWAP cost is to be recovered. If the deposit is cancelled after
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one year, applicable rate is to be paid without Penalty. If the
withdrawal for any other reason applicable interest with 1%
penalty is to be levied.
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RFC – Resident Foreign Currency Accounts

Who Can Open Non Resident Indians (NRI) returning to India who have been
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NRIs for a continuous period of not less than one year.

NRIs returning to India for permanent stay in India.
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Nomination Nominee can be a resident or a Non Resident

Claim Settlement – Resident Nominees – In Indian rupees
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Non Resident Nominee – Repatriable as per RBI Norms

Sources of funds Foreign Exchange received as pension / superannuation / other
benefits from employers abroad. Realization of assets held
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abroad. Foreign Exchange acquired as gift or inheritance from

person who was a NRI. Foreign Exchange acquired or received
or any income arising or accruing there on which is held outside
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India by any person in terms of general or specific permission

granted by RBI.
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Types of accounts Savings, Current, Term Deposits

Joint Accounts Allowed with another eligible person/s or with resident close
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relative (Former or Survivor)

Period of Term Dep As applicable to FCNR B Accounts. Min 1 year Max 5 years
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Currency Pound Sterling, US Dollar, Euro, Australian Dollar, Canadian

Dollar
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RFC – Resident Foreign Currency Domestic Account

Who Can Open Any person resident in India
Joint Accounts Not permitted
Sources of funds  Foreign Exchange acquired in the form of currency notes,
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bank notes, cheques, drafts, and traveller cheques.
 Payment / honorarium / gift for services rendered in India /
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abroad.
 Unspent amount of foreign exchange acquired by him from
an authorized person for travel abroad.
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 Gift from close relatives as defined in sec. 6 of the company
act 1956.
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 Proceeds of Insurance policy claims / maturity / surrender
values settled in foreign currencies.
Types of accounts Current Account / Savings Bank
Interest No Interest on Current Account. Banks have discretion to fix
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their own interest rates on Savings Deposits
Currency
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Pound Sterling, US Dollar, Euro, Australian Dollar, Canadian
Dollar
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EEFC - Exchange Earner’s Foreign Currency Accounts
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Who Can Open All Categories of Foreign Exchange Earners such as Individuals,
Companies etc., who are resident in India, may open EEFC
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account with 100% of their Forex earnings. Resident Individuals

are permitted to include his close relative as a joint holder,
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however, the joint holder is not allowed to operate the account

during the life time ofaccount holder
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Purpose Authorized Dealers (AD) are allowed to open, hold and maintain
foreign currency denominated accounts for the purpose of
transacting foreign exchange business and other matters of the
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account holder. The accounts can be maintained with one or

more Ads.
Currency The account may be maintained in the currency of the
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remittance or any other permitted currency at the option of the

depositor.
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Credit facility No credit facility, either fund or non-fund based should be

permitted against the security of the balances held in the EEFC
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accounts.
Type of account EEFC accounts should be in the form of non-interest bearing
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current accounts only. Cheque book facility is permitted.

Interest No Interest is payable
Nomination Nomination facility is permitted like any domestic account.
Nominee can be Resident Indian only
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Limit up to which foreign currency A person resident in India may credit to the EEFC account 100%
may be credited from out of the foreign exchange earnings
Permissible credits to EEFC accounts Inward remittance through normal banking channels, other
than the remittance received pursuant to any undertaking given
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to the Reserve Bank or which represents foreign currency loan
raised or investment received from outside India, or those
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received for meeting specific obligations by the account holder.
Payment received in foreign exchange by a unit in Domestic
Tariff Area (DTA) for supplying goods to a unit in Special
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Economic Zone out of its foreign currency account.
Payment received by an exporter from an account maintained
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with AD for the purpose of counter trade, in accordance with
the approval granted in terms of regulation 14 of FEMA (Export
of goods & Services) Regulations 2000.
Advance remittances received towards export of goods /
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services. Payments received towards export of goods/ services
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from India, out of funds representing repayment of state credit
in USD held in the account of Bank for foreign economic affairs,
Moscow with an AD in India.
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Professional Earnings including Director’s fees, consultancy
fees, lecture fees, honorarium and similar other earnings
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received by a professional by rendering services in his individual

capacity.
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Interest earned on the funds in the account.

Re credit of unutilized foreign currency earlier withdrawn.
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However, the amount withdrawn in rupees shall not be eligible

for conversion into foreign currency and for re-credit to the a/c.
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Amount representing repayment of loans/ advances granted to

the account holder’s importer customer.
Representing the disinvestments proceeds received by the
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resident account holder on conversion of shares held by him to

ADRs / GDRs under the sponsored ADR / GDR scheme approved
by the Foreign Investment Promotion Board of Govt. of India.
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Permissible debits to EEFC account Payment outside India towards any current account
transactions in terms of FEMA Current Account Transaction
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Rules 2000 and towards a capital account transaction

Permissible under FEMA (Permissible Capital Account
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Transactions) Regulations 2000.

Payment in foreign exchange towards cost of goods purchased
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from 100% EOU or a Unit in EPZ/STP/Electronic Hardware

Technology Park. Payment of Customs Duty in accordance
within the provisions of Export Import Policy of Central
Government.
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Trade related loans/ advances, by an exporter holding such

account to his importer customer outside India subject to
compliance with FEMA (Borrowing & Lending in Foreign
Exchange) Regulations 2000.
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Payment in foreign exchange to resident Indian for supply of
goods / services including payment for airfare and hotel
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expenditure.
Branches may permit their export constituents to extend trade
related loans / advances to overseas importers out of their EEFC
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balance without any ceiling subject to compliance of provisions
of Notification no. FEMA 3 / 2000 as amended from time to
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time.
Branches may permit exporters to repay packing credit
advances whether availed in rupee or in foreign currency from
balances in their EEFC accounts and / or rupee resources to the
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extent exports have actually taken place.
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The balances in EEFC accounts may be allowed to be credited to
NRE / FCNR – B account at the option / request of the account
holders consequent upon change of their residential status to
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Non – Resident.
Conversion into Rupee Funds There is no restriction on withdrawal in rupees of funds held in
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EEFC account. Branches should send the request to Investment

& International Banking (IIB), Mumbai by e-mail / fax, for
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conversion of rupee funds and can take the conversion rate

along with reference no.
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Diamond Dollar Account Scheme

Diamond Dollar Account Scheme in terms of which firms and companies dealing in purchase/sale of
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rough or cut and polished diamonds/precious metal jewellery plain, minakari and/or studded
with/without diamond and/or other stones, with a track record of at least 2 years in import/export of
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diamonds/coloured gemstones/ diamond and coloured gemstones studded jewellery/plain gold

jewellery, and having an average annual turnover of `3 crore & above during preceding three licensing
years, are allowed to open Diamond Dollar Accounts (DDA). RBI issue DDA on a case-to-case basis,
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subject to the following terms and conditions:
 Opened in the name of the exporter and maintained in US Dollars only.

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 It should be in the form of current account and no interest should be paid on the balance held in the
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account.
 No intra-account transfer should be allowed between the DDAs.
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 Not permitted to open and maintain more than 5 DDAs.

 The balances held in the accounts shall be subject to CRR SLR requirements.
 Exporter firms and companies maintaining foreign currency accounts (excluding EEFC accounts) are
not eligible to open Diamond Dollar Accounts.
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Banking Codes and Standards Board of India (BCSBI)
RBI has set up BCSBI with an objective of evolving standards for bank services to depositors, borrowers
and common persons at affordable and reasonable price and monitoring the same in effective manner.
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It covers Deposit Accounts (Current/Savings/Recurring/Term/PPF), Collection of cheques, Lockers, Safe
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custody services, Remittances (DD/PO/TT/NEFT/RTGS), Government transactions and Pension
payments, Demat Accounts, Equity and Government Bonds, Loans and Advances / Foreign Exchange /
Money Changing and Card products (Credit / ATM / Debit / Smart / Pre-paid / Travel).
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It is an independent and autonomous watchdog to monitor and ensure that the services are delivered as
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promised. Banks are required to register themselves with BCSBI as members and have the code of
commitment to customers adopted by their respective Boards. BCSBI has revised “The Code of Bank’s
Commitment to Customers” and the important changes are as under:
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 Advise the customer about change in minimum balance to be maintained in Savings/Current
the higher minimum balance prescribed.

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accounts 30 days in advance during which period, no charges will be levied for non-maintenance of
 Provide an option to customer for giving nomination at the time of account opening itself with due
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acknowledgement. On request from the depositor name of the nominee will also be indicated on
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the Passbook/Term Deposit Receipt.
 Acknowledge receipt of loan applications and convey in writing the reasons for rejection of loan.
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Return all documents/securities title deeds to mortgaged property to the borrower within 15 days
from the full payment of the dues, without waiting for request from the borrower.
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 Compensate the customers for delayed collection of cheques without waiting for a request from
customer.
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 No charges will be levied for activation of inoperative account.

 In case a credit facility/credit card is issued without customer’s consent and charges levied for the
same would be reversed along with compensation.
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Banks are advised to disclose the commission/fee details to the customers while selling third party
products viz., Mutual Funds / Insurance policies.
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Fair Practices code for Lender’s liability

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Loan application forms should be comprehensive to include information about rate of interest, interest
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application intervals, penal interest, processing charges, up-front fee, prepayment charges etc.
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Loan applications are to be processed within reasonable time and communicate the terms and
conditions in writing to the borrowers. Banks should give notice to the borrower about the subsequent
changes in interest rate / charges, if any.
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Credit Card – Fair practices

All credit card issuers should provide Most Important Terms and Conditions (MITC) to customers and
prospective customers. MITC should include information such as admission fee; cash advance charges,
default charges, annualized percentage rate and grace period. Further, card issuers should maintain “Do
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Not Call Registries” and should not provide unsolicited calls/SMS/Cards/Credit facilities unilaterally. Card
issuing banks are responsible for any omission or commissions of their agents.
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(Sales/Marketing/Recovery agents).
As per revised code, banks are advised to introduce simplified process for opening of Basic Savings bank
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accounts and extend Doorstep service to the disabled customers and senior citizens. In case of
electronic frauds, if the customer incurs any direct loss due to a security breach of the internet banking
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system that is not contributed or caused by the customer, the bank will bear the loss, unless it is able to
establish that the customer is guilty. However, the onus of responsibility lies on the bank that the
customer compromised the passwords, leading to the fraud.
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Customer Service & BCSBI
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The Government and the regulator (RBI) have been emphasizing the importance and the need to extend
speedy, efficient, fair and courteous customer service in banking industry. In this direction, the following
committees were set up:
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 1975 – Talwar Committee
 1990 – Goiporia Committee
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 2004 – Tarapore Committee

 2006 – Working group under chairmanship of Sri N Sadasivan
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In addition to the guidelines framed based on the recommendations of the committees, RBI had been
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giving instructions to banks as and when required. Over the years, the customer service in banks has
improved considerably with the introduction of technology based products. Further, the Government of
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India introduced the concept of Citizens’ Charter at all bank branches with an objective to exercise in
setting benchmarks for prompt delivery of banking services, including the pricing thereof. In the year
2010, RBI constituted a committee under the chairmanship of Sri.M.Damodaran to look into the
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customer service aspects in Banks. The recommendations of the committee are as under:
 Bank should offer a basic bank account with privileges such as certain number of transactions,
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cheque facility, ATM/Debit Card etc., without any prescription of minimum balance.
 The Passbook/Statement of accounts should indicate the account number, name, address and ID of
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the customer, MICR Code, IFSC Code, Toll free customer care number, Ombudsman contract details,
instrument number and payee name on all debit entries and the full details of TDS (Gross Interest
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credited and TDS debited).

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 Before marking the account as inoperative, the banks must intimate the account holder by SMS.
Banks should introduce Uniform Account Opening forms and Account Number Portability across the
banks.
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 Banks should take Unique Identification Number (issued under Aadhar project) as KYC compliance
for opening of accounts.
 The term deposit renewal notices should be sent to customers preferably in electronic form. A single
Form 15G/H linked to a customer ID across the branches in a bank should be issued.
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 Service charges should be reasonable. No charges are to be levied on Non-Home Branch
transactions.
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 The users of electronic bank platforms for making collections may offer small discounts to their
customers to favour electronic payments.
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 Cheque Drop Box should provide receipt/acknowledgement along with the image of the cheque.
 Reason for penal interest on loan accounts, rate of interest charged should be mentioned in
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Passbook/Statement of Account.
 Banks must ensure that loan statements are issued to the borrowers periodically giving full details
including demand, repayments, interest component and charges.
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 The title deeds should be returned to the customers within a period of 15 days after the loan
closure.
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 Bank should provide Most Important Terms and Conditions (MITC) of the product explicitly in Arial
font and size 12 for better readability.
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 All home loans should permit a switchover between fixed to floating or viceversa at least once
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during the loan tenure at an appropriate and reasonable fee. Home loans backed by insurance
products, the procedure should be explained upfront to the customers.
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 Banks should provide prioritized service to the senior citizens/physically handicapped persons.
 Banks should put a system in a place for Automatic updation of the customers to the senior citizen
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category based on the date of birth.

 Pensioner may be allowed to submit the annual life certificate at any of the branches of the bank.
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Bank should make arrangements to disburse pension to sick and disabled pensioners at their door
steps.
 SHG members should not be forced to take insurance products.
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 Banks should ensure that at least one of the staff members in Tribal / North-East areas is conversant
with local language.
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 The staff manning Customer Service Departments in banks should receive specialized training so
that customer complaints are professionally handled.
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 With regard to “one-man branches” – Banks should place Proper systems for safety of cash and also
continuity of services in case of leave etc.
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 In case of frauds in the accounts of the customers, bank is required to credit the amount to their
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accounts after obtaining due affidavit.

 Banks should put in place secure systems like Multi-factor Authentication to minimize the fraud
instances.
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 Frauds involving cloned cards, unauthorized online transactions, ATM transactions not done by the
customers etc., cannot be valid transactions as they are not authorized by the customers. The onus
should be on the bank to prove that the customer has done the transaction.
 Banks to install CCTV at all ATMs. For Debit/Credit cards at POS, PIN based authorization should be
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made mandatory.
 Banks should ensure that ECS Mandate Management System is working effectively to comply with
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the mandate given by the customer.
 For transaction deficiencies, there should be in-built mechanism to pay compensation to the
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customers.
 Bank should provide for online registration of grievance in its website.
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Minority community.
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 Sikhs
 Muslims
 Christians
 Zoroastrians ne
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 Buddhists
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High risk customers.

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 Politically exposed persons.

 NRIs
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 NGOs(Not promoted by United nations)

 Trusts, Charities.
 Firms with sleeping partners.
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 Companies having close family share holding or beneficial ownership.

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Banking Ombudsman Scheme

Banking Ombudsman is a quasi judicial authority functioning under India’s Banking Ombudsman Scheme
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2006, and the authority was created pursuant to a decision made by the Government of India to enable
resolution of complaints of customers of banks relating to certain services rendered by the banks.
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The Banking Ombudsman Scheme was first introduced in India in 1995, and was revised in 2002. The
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current scheme became operative from 1 January 2006, and replaced and superseded the banking
Ombudsman Scheme 2002. There are 17 regional offices of Banking Ombudsmen in India. The latest
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office is opened in Dehradun in December 2016.
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Know Your Customer (KYC)

It is the process of a business identifying and verifying the identity of its clients. Banks should frame
their KYC policies incorporating the following four key elements:
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 Customer Acceptance Policy;
 Customer Identification Procedures;
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 Monitoring of Transactions; and
 Risk Management.
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KYC FAQ
Q1. What is KYC? Why is it required?
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KYC means “Know Your Customer”. It is a process by which banks obtain information about the identity
and address of the customers. This process helps to ensure that banks’ services are not misused. The
KYC procedure is to be completed by the banks while opening accounts. Banks are also required to
periodically update their customers’ KYC details.
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Q2. What are the KYC requirements for opening a bank account?
To open a bank account, one needs to submit a ‘proof of identity and proof of address’ together with a
recent photograph.
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Q3. What are the documents to be given as ‘proof of identity’ and ‘proof of address’?
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The Government of India has notified six documents as ‘Officially Valid Documents’ (OVDs) for the
purpose of producing proof of identity. These six documents are Passport, Driving Licence, Voters’
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Identity Card, PAN Card, Aadhaar Card issued by UIDAI and NREGA Job Card. You need to submit any
one of these documents as proof of identity. If these documents also contain your address details, then
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it would also be accepted as ‘proof of address’. If the document submitted by you for proof of identity
does not contain address details, then you will have to submit another officially valid document which
contains address details.
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Q4. If I do not have any of the documents listed above to show my ‘proof of identity’, can I still open a
bank account?
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Yes. You can still open a bank account known as ‘Small Account’ by submitting your recent photograph
and putting your signature or thumb impression in the presence of the bank official.
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Q5. Is there any difference between such ‘small accounts’ and other accounts
Yes. The ‘Small Accounts’ have certain limitations such as:
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 balance in such accounts at any point of time should not exceed Rs.50,000
 total credits in one year should not exceed Rs.1,00,000
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 total withdrawal and transfers in a month should not exceed Rs.10,000

 Foreign remittances cannot be credited to such accounts.
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Such accounts remain operational initially for a period of twelve months and thereafter, for a further
period of twelve months if the holder of such an account provides evidence to the bank of having
applied for any of the officially valid documents within twelve months of the opening of such account.
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Q6. Would it be possible, if I do not have any of the officially valid documents, to have a bank account,
which is not subjected to any limitations as in the case of ‘small accounts’?
A normal account can be opened by submitting a copy of any one of the following documents as Proof
of Identity (PoI):
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(i) Identity card with person’s photograph issued by Central/State Government Departments,
Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, and Public
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Financial Institutions;
or
(ii) letter issued by a gazetted officer, with a duly attested photograph of the person.
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For Proof of Address (PoA), you may submit the following documents:
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 Utility bill, which is not more than two months old, of any service provider (electricity,
telephone, post-paid mobile phone, piped gas, water bill);
 Property or Municipal Tax receipt;
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 Bank account or Post Office savings bank account statement;
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 Pension or family Pension Payment Orders (PPOs) issued to retired employees by Government
Departments or Public Sector Undertakings, if they contain the address;
 Letter of allotment of accommodation from employer issued by State or Central Government
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departments, statutory or regulatory bodies, public sector undertakings, scheduled commercial
banks, financial institutions and listed companies. Similarly, leave and license agreements with
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such employers allotting official accommodation; and
 Documents issued by Government departments of foreign jurisdictions or letter issued by
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Foreign Embassy or Mission in India.

This, however, is not a general rule and it is left to the judgement of the banks to decide whether this
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simplified procedure can be adopted in respect of any customer.
Q7. If my name has been changed and I do not have any OVD in the new name, how can I open an
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account?
A copy of the marriage certificate issued by the State Government or Gazette notification indicating
change in name together with a certified copy of the ‘Officially Valid Documents’ in the prior name of
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the person is to be furnished for opening of account in cases of persons who change their names on
account of marriage or otherwise.
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Q8. Are banks required to categorise their customers based on risk assessment?
Yes, banks are required to classify their customers into ‘low’, ‘medium’ and ‘high’ risk categories
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depending on their AML risk assessment.

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Q9. Do banks inform customers about this risk categorisation?

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No
Q10. If I refuse to provide requested documents for KYC to my bank for opening an account, what may
be the result?
If you do not provide the required documents for KYC, the bank will not be able to open your account.
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Q11. Can I open a bank account with only an Aadhaar card?

Yes, Aadhaar card is accepted as a proof of both identity and address.
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Q12. Is it compulsory to furnish Aadhaar Card for opening an account?
No. you may furnish Aadhaar card or any of the other five OVDs for opening an account.
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Q13. What is e-KYC? How does e-KYC work?
e-KYC refers to electronic KYC.
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e-KYC is possible only for those who have Aadhaar numbers. While using e-KYC service, you have to
authorise the Unique Identification Authority of India (UIDAI), by explicit consent, to release your
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identity/address through biometric authentication to the bank branches/business correspondent (BC).
The UIDAI then transfers your data comprising your name, age, gender, and photograph electronically
to the bank. Information thus provided through e-KYC process is permitted to be treated as an ‘Officially
Valid Document’ under PML Rules and is a valid process for KYC verification.
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Q14. Is introduction necessary while opening a bank account?
No, introduction is not required.
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Q15. If I am staying in Chennai but if my proof of address shows my address of New Delhi, can I still
open an account in Chennai?
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Yes. You can open a bank account in Chennai even if the address in the “Officially Valid Document” is
that of New Delhi and you do not have a proof of address for your Chennai address. In such case, you
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can submit the officially valid document having your New Delhi address, together with a declaration
about your Chennai address for communication purposes.
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Q16. Can I transfer my existing bank account from one place to another? Do I need to undergo full KYC
again?
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It is possible to transfer an account from one branch to another branch of the same bank. There is no
need to undergo KYC exercise again for such transfer. However, if there is a change of address, then you
will have to submit a declaration about the current address. If the address appearing in the ‘Officially
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Valid Documents’ (OVDs) submitted for proof of address is no longer your valid address (i.e. neither
your permanent address nor your current address), you need to get an Officially Valid Document for
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Proof of Address containing the current or the permanent address and furnish the same within six
months. In case of opening an account in another bank, however, you will have to undergo KYC exercise
afresh.
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Q17. Do I have to furnish KYC documents for each account I open in a bank even though I have
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furnished the documents of proof of identity and address?

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No, if you have opened a KYC compliant account with a bank, other than a ‘small account’, then for
opening another account with the same bank, furnishing of documents is not necessary.
Q18. For which banking transactions do I need to quote my PAN number?
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PAN number needs to be quoted for transactions such as account opening, transactions above
Rs.50,000 (whether in cash or non-cash), etc. A full list of transactions where PAN number needs to be
quoted can be accessed from website of Income Tax Department at the following URL:
http://www.incometaxindia.gov.in/_layouts/15/dit/pages/viewer.aspx?grp=rule&cname=CMSID&cval=
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103120000000007541&searchFilter=&k=114b&IsDlg=0
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Q19. Whether KYC is applicable for Credit/Debit cards?
Yes. KYC exercise is necessary for Credit/ Smart Cards and also in respect of add-on/ supplementary
cards. Since debit cards are issued only to account holders and accounts are opened only after the KYC
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procedure is completed, there is no need for separate KYC for issuing debit card.
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Q20. I do not have a bank account. But I need to make a remittance. Is KYC applicable to me?
Yes. KYC exercise needs to be done for all those who want to make domestic remittances of Rs. 50,000
and above and all foreign remittances.
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Q21. Can I purchase a Demand Draft/Payment Order/Travellers Cheque against cash?
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Yes, Demand Draft/Payment Order/Travellers Cheques for below Rs.50,000/- can be purchased against
cash and such instruments for Rs. 50000/- and above can be issued only by way of debiting the
customer's account or against cheques.
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Q22. Do I need to submit KYC documents to the bank while purchasing third party products (like
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insurance or mutual fund products) from banks?
Yes, all customers who do not have accounts with the bank (known as walk-in customers) have to
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produce proof of identity and address while purchasing third party products from banks if the
transaction is for Rs.50,000 and above.
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Q23. My KYC was completed when I opened the account. Why does my bank insist on doing KYC again?
Banks are required to periodically update KYC records. This is a part of their ongoing due diligence on
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bank accounts. The periodicity of such updation varies from account to account depending on its risk
categorisation by the bank. Periodic updation of records also helps prevent frauds in customer
accounts.
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Q24. What are the rules regarding periodic updation of KYC?

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Different periodicities have been prescribed for updation of KYC records depending on the risk
perception of the bank. KYC is required to be done at least once in two years for high risk customers,
once in eight years for medium risk customers and once in ten years for low risk customers. This
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exercise would involve all formalities for KYC normally taken at the time of opening the account.
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Q25. What if I do not provide the KYC documents at the time of periodic updation?
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If you do not provide your KYC documents at the time of periodic updation, bank has the option to close
your account. Before closing the account, the bank may, however, impose ‘partial freezing’ (i.e. initially
allowing all credits and disallowing all debits while giving an option to you to close the account and take
your money back). Later, even credits also would not be allowed. The ‘partial freezing’ however, would
be exercised by the bank after giving you due notice.
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Q26. How is partial freezing imposed? Partial freezing is imposed in the following ways:
 Banks have to give due notice of three months initially to the customers before exercising the
option of ‘partial freezing’.
 After that a reminder for further period of three months will be issued.
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 Thereafter, banks shall impose ‘partial freezing’ by allowing all credits and disallowing all debits
with the freedom to close the accounts.
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 If the accounts are still KYC non-compliant after six months of imposing initial ‘partial freezing’
banks shall disallow all debits and credits from/to the accounts, classifying them inoperative.
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Money Laundering
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Money laundering is the process of creating the appearance that large amounts of money obtained
from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source.
There are three steps involved in the process of laundering money: placement, layering, and
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integration.
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 Placement refers to the act of introducing "dirty money" (money obtained through illegitimate,
criminal means) into the financial system in some way;
 "layering" is the act of concealing the source of that money by way of a series of complex
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transactions and bookkeeping gymnastics; and
 integration refers to the act of acquiring that money in purportedly legitimate means.
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Anti Money Laundering - AML

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Anti-money laundering (AML) refers to a set of procedures, laws or regulations designed to stop the
practice of generating income through illegal actions. AML laws and regulations target activities that
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include market manipulation, trade of illegal goods, corruption of public funds and evasion of tax, as
well as all activities that aim to conceal these deeds.
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Maintenance of records of transactions

Banks should introduce a system of maintaining proper record of transactions prescribed under Rule 3
of PML Rules, 2005, as mentioned below:
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 all cash transactions of the value of more than Rupees Ten Lakh or its equivalent in foreign
currency;
 all series of cash transactions integrally connected to each other which have been valued below
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Rupees Ten Lakh or its equivalent in foreign currency where such series of transactions have taken
place within a month and the aggregate value of such transactions exceeds Rupees Ten Lakh;
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 all transactions involving receipts by non-profit organisations of value more than rupees ten lakh or
its equivalent in foreign currency [Ref: Government of India Notification dated November 12, 2009-
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Rule 3,sub-rule (1) clause (BA) of PML Rules]

 all cash transactions where forged or counterfeit currency notes or bank notes have been used as
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genuine and where any forgery of a valuable security or a document has taken place facilitating the
transaction and
 All suspicious transactions whether or not made in cash and by way of as mentioned in the Rules.
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Business Correspondents / Business Facilitators (BCBF) Model

BCs are permitted to carry out transactions on behalf of the bank as agents.
BFs can refer clients, pursue the clients' proposal and facilitate the bank to carry out its transactions,
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but cannot transact on behalf of the bank.
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Products offered by Business Correspondents:
The following products are to be offered by the CSPs to their clients.
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a. No Frills Savings Bank accounts
b. Recurring Deposit Accounts
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c. Remittances
d. Fixed Deposit
e. Overdraft/Retail loans
f. KCC/GCC (Kisan Credit Card/ General Credit Card)
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g. Third party financial products
Who is Eligible for BC?

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 NGOs/ MFIs set up under Indian Societies/ Trust Acts. (Care: excluding NBFC)
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 Societies registered under mutually aided co-op. societies (MACs) Act or the Coop. Acts of
States.
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 Section 25 companies.
 Post Offices.
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 Retired Bank employees

 Ex-Service men.
 Retired Govt. Employees.
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 Individual kirana/ medical/fair price shop owners.

 Individual Public Call Office (PCO) operators.
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 Agents of small savings schemes of Government of India/ Insurance Companies.

 Individual who own petrol pumps.
 Retired teachers.
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 Authorized functionaries of well run Self Help Groups (SHGs) linked to banks.
 Individual member of Farmer's Clubs.
 Individual operators of Rural Multipurpose kiosks/ Village Knowledge Centres
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 Individuals/ proprietors/ owners who manage Agri Clinics/ Agri Business Centres.
 Retired Post Masters.
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 Individuals such as auto dealers, tractor dealers and FMCG stockiest.

 Insurance agents including of private insurance companies (IRDA certified) and postal agents.
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 Individuals operating Common Services Centres (CSCs) established by Service Centre Agencies
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(SCAs) under the National e-Governance Plan (NeGP).

 For profit companies
 Any other individual considered suitable by the selection committee.
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Functions / Activities of Business Facilitators

(i) Identification of borrowers and fitment of activities
(ii) Collection and preliminary processing of loan applications including verification of primary
information/data
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(iii) Creating awareness about savings and other products and education and advice on managing
money and debt counseling
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(iv) Processing and submission of applications to banks
(v) Promotion and nurturing Self Help Groups/Joint Liability Groups
(vi) Post-sanction monitoring
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(vii) Monitoring and handholding of Self Help Groups/Joint Liability Groups/Credit Groups/others
(viii) Follow-up for recovery.
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Who is Eligible for Business Facilitator (BFs)
 Under the "Business Facilitator" model, banks may use the services of intermediaries such as:
 NGOs/SHGs
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 Farmers Clubs
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 Cooperatives
 Community based organizations
 IT enabled rural outlets of corporate entities
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 Post Offices
 Insurance agents
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 Well functioning Panchayats
 Village Knowledge Centres
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 Agri Clinics
 Agri Business Centres
 Krishi Vigyan Kendras
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 KVIC/KVIB units
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The products that can be canvassed by the BC acting also as Business facilitator are:
a. Loans against Valuable securities/own deposits
b. Gold Loans
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c. General purpose Credit card (GCC)

d. Kisan Credit Card (KCC)
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e. Loans to SHGs/JLGs
f. Current Account
g. Savings Bank account (other than No Frills Account)
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h. Term Deposits
I. Recurring Deposits
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j. Mutual funds on a referral basis

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k. Insurance (Life and Non Life), Pension and any other third party financial product.
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Basel III
Basel III is an extension of the existing Basel II Framework, and introduces new capital and liquidity
standards to strengthen the regulation, supervision, and risk management of the whole of the banking
and finance sector. It was agreed upon by the members of the Basel Committee on Banking Supervision
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in 2010–2011, and was scheduled to be introduced from 2013 until 2015. However, changes made from
April 2013 extended implementation until March 31, 2018. The Basel III requirements were in response
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to the deficiencies in financial regulation that is revealed by the 2000’s financial crisis. Basel III was
intended to strengthen bank capital requirements by increasing bank liquidity and decreasing bank
leverage.
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Capital requirements
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The Basel III rule introduced the following measures to strengthen the capital requirement and
introduced more capital buffers:
 Capital Conservation Buffer is designed to absorb losses during periods of financial and economic
stress. Financial institutions will be required to hold a capital conservation buffer of 2.5% to
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withstand future periods of stress, bringing the total common equity requirement to 7% (4.5%
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common equity requirement and the 2.5% capital conservation buffer). The capital conservation
buffer must be met exclusively with common equity. Financial institutions that do not maintain the
capital conservation buffer faces restrictions on payouts of dividends, share buybacks, and bonuses.
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 Countercyclical Capital Buffer is a countercyclical buffer within a range of 0% and 2.5% of common
equity or other fully loss absorbing capital is implemented according to national circumstances. This
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buffer serves as an extension to the capital conservation buffer.
 Higher Common Equity Tier 1 (CET1) constitutes an increase from 2% to 4.5%.
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 Minimum Total Capital Ratio remains at 8%. The addition of the capital conservation buffer
increases the total amount of capital a financial institution must hold to 10.5% of risk-weighted
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assets, of which 8.5% must be tier 1 capital. Tier 2 capital instruments are harmonized and tier 3
capital is abolished.
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Leverage ratio
Basel III introduced a minimum "leverage ratio". The leverage ratio was calculated by dividing Tier 1
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capital by the bank's average total consolidated assets; the banks were expected to maintain a leverage
ratio in excess of 3% under Basel III. In July 2013, the US Federal Reserve Bank announced that the
minimum Basel III leverage ratio would be 6% for 8 SIFI banks and 5% for their bank holding companies.
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Liquidity requirements
Basel III introduced two required liquidity ratios:
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 Liquidity Coverage Ratio (LCR) ensures that sufficient levels of high-quality liquid assets are
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available for one-month survival in a severe stress scenario.

 Net Stable Funding Ratio (NSFR) promotes resilience over long-term time horizons by creating more
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incentives for financial institutions to fund their activities with more stable sources of funding on an
ongoing structural basis.
Changes to Counterparty Credit Risk (CCR) : Basel III introduced capital requirements to cover Credit
Value Adjustment (CVA) risk and higher capital requirements for securitization products.
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Elements of Common Equity component of Tier 1 capital Elements of Common Equity

component of Tier 2 capital
(i) Common shares (paid-up equity capital) issued by the Tier-II capital can be said to be
bank. subordinate capitals. Elements of Tier
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(ii) Stock surplus (share premium) resulting from the issue of 2 Capital
common shares;
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(iii) Statutory reserves; (i) General Provisions and Loss
(iv) Capital reserves representing surplus arising out of sale Reserves
proceeds of assets; (ii) Debt Capital Instruments issued by
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(v) Other disclosed free reserves, if any; the banks;
(vi) Balance in Profit & Loss Account at the end of the (iii) Preference Share Capital
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previous financial year; Instruments [Perpetual Cumulative
(vii) Banks may reckon the profits in current financial year Preference Shares (PCPS) /
for CRAR calculation on a quarterly basis provided the Redeemable Non-Cumulative
incremental provisions made for non-performing assets at Preference Shares (RNCPS) /
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the end of any of the four quarters of the previous financial Redeemable Cumulative Preference
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year have not deviated more than 25% from the average of Shares (RCPS)] issued by the banks;
the four quarters (iv) Stock surplus (share premium)
(viii) Common shares issued by consolidated subsidiaries of resulting from the issue of
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the bank and held by third parties (i.e. minority interest) instruments included in Tier 2 capital;
which meet the criteria for inclusionin Common Equity Tier 1 (v) Tier 2 capital instruments issued by
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capital; and consolidated subsidiaries of the bank
(ix) Less: Regulatory adjustments / deductions applied in the and held by third parties which meet
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calculation of Common Equity Tier 1 capital [i.e. to be the criteria for inclusion in Tier 2
deducted from the sum of items (i) to (viii)]. capital;
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(vi) Any other type of instrument

Elements of Additional Tier 1 Capital generally notified by the Reserve Bank
(i) Perpetual Non-Cumulative Preference Shares (PNCPS); from time to time for inclusion in Tier
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(ii) Stock surplus (share premium) resulting from the issue of 2 capital; and
instruments included in Additional Tier 1 capital; (vii) Less: Regulatory adjustments /
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(iii) Debt capital instruments eligible for inclusion in deductions applied in the calculation
Additional Tier 1 capital; of Tier 2 capital [i.e. to be deducted
(iv) Any other type of instrument generally notified by the from the sum of items (i) to (vii)]
.b
Reserve Bank from time to time for inclusion in Additional

Tier 1 capital;
(v) Additional Tier 1 instruments issued by consolidated
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subsidiaries of the bank and held by third parties which

meet the criteria for inclusion in Additional Tier 1 capital and
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(vi) Less: Regulatory adjustments / deductions applied in the

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calculation of Additional Tier 1 capital [i.e. to be deducted

from the sum of items (i) to (v)].
(vii) Revaluation reserves at a discount of 55%;
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Startup India
First of all we need to understand what Startup is according to Startup India scheme.
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 Any entity incorporated or registered and headquarters in India not prior to seven years (up to 10
years for biotechnology startups from its date of incorporation / registration).
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 Turnover for any fiscal year should not be exceeding INR 25 crore.
 Should be working towards innovation, development/improvement of products/processes/services.
 A scalable business model with a high potential of employment generation or wealth creation.
s.
 Entity should not have been formed by splitting up or reconstruction a business already in existence
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Salient features of Startup India scheme
 In case of Labour Laws, no inspection will be conducted for a period of first 3years and in case of
environment laws, Startups which fall under the ‘white category’ would be able to self-certify
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compliance and only random checks would be carried out in such cases.
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 Startup India Hub is created to help startups to provide information related to technology, Finances,
Management, etc at a single platform.
For more info click: https://www.startupindiahub.org.in/content/sih/en/home-page.html
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 Special developed Mobile App is there to provide the instant status of Fresh or Pending Registration,
Compliances and also obtaining clearances information and other approval status as required. App
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link: https://play.google.com/store/apps/details?id=com.startupindia&hl=en
 Under this scheme startups can claim an 80% rebate in patent costs E.g. if a startup applies for a
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patent, the government will fund the defence of the patent, and give rebate of 80% in the fees. The
government will also pay fees of the facilitator for helping the startup obtain the patent.Patent filing
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procedures to be simplified and there is significant reduction in fees for filing Patents.
 Startups in the manufacturing sector are exempted from the criteria of prior ‘experience and
turnover’ but without any relaxation in quality standards. But at the time of applying for a
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Government Tendering Project, prescribed eligibility criteria needs to be fulfilled.

 Apart from providing handholding for procedures, StartUp India scheme will assist startups in
offering financial assistance. Government has set up Rs10,000 crore fund and 2,000 crore of credit
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guarantee fund for startups through National Credit Guarantee Trust Company / SIDBI.
 Income Tax exemption will be there for first three years with a condition of obtaining certificate
.b
from the Inter-Ministerial Board, setup for this purpose.

 There a provision for easy exit if a startup fails to succeed, within 90 days under insolvency &
Bankruptcy code.
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 If an investor invests in fund of funds recognized by the government, the investor can claim capital
gains tax exemptions. In addition, existing capital gain tax exemption for investment in newly
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formed MSMEs by individuals will be extended to all startups.

 To support the logistical needs of startups and other requirements which can help a startup to
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function smoothly several Incubator have been set up under Public Private Partnership concept. The
Funding pattern of incubators will be modeled on the basis of Atal Innovation Mission launched by
Government. List of incubators under startup India: https://goo.gl/E6opDT
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Make in India
Make in India is an initiative of the Government of India to encourage multi-national, as well as
domestic, companies to manufacture their products in India.
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Scope
Through Make in India the scope for the job seeking students will rise in coming months. It is assumed
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that there will be plenty of job opportunities through Make in India by boosting the various job sectors.
Objectives
s.
 Designed to do facilitate Investment
 Foster Innovation
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 Enhance skill development
 Protect Intellectual property rights
 Build Best-In-Class Manufacturing Infrastructure
 Providing employment
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 To make healthy relationships with worldwide nations
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 To make India digital
Advantages Disadvantages
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1. Develop Job Opportunity 1. Negligence of Agriculture
2. Ameliorate the Vicinity 2. Depletion of Natural Resources
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3. Expand GDP 3. Loss for Small Entrepreneurs
4. Fortify the Rupee 4. Disruption of Land
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5. Increase in Brand Value 5. Manufacturing based Economy

6. Up-gradation of Technology 6. Interest in International Brands
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7. Ease of Business 7. Pollution

8. Availability of Young Minds
9. Development of Rural Areas
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10. Flow of Capital

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Challenges
1. Creating healthy business environment will be possible only when the administrative machinery is
efficient, India has been very stringent when it comes to procedural and regulatory clearances.
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2. India should also be ready to tackle elements that adversely affect competitiveness of manufacturing.
To make the country a manufacturing hub the unfavorable factors must be removed. India should also
be ready to give tax concessions to companies who come and set up unit in the country.
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3. India must also encourage high-tech imports; research and development (R&D) to upgrade “Make in
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India” give edge-to-edge competition to the counterpart’s campaign allover world. To do so, India has to
be better prepared and motivated to do world class R&D. The government must ensure that it provides
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platform for such research and development.

4. India’s small and medium-sized industries can play a big role in making the country taken the next big
leap in manufacturing. India should more focused to words novelty and innovation for these sectors.
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Stand up India
Features
1. Facility of bank loans worth Rs. 10 lakh and up to Rs. 1 crore will be provided to at least one SC/ST and
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one woman by every scheduled commercial bank branch to assist them in setting up of their businesses.
The loan amount represents a maximum of 75 percent of the total business cost. This percentage will
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not apply in case the contribution of the borrower and other support from other schemes exceeds 25
percent of the total business cost.
2. Facility of debit card (RuPay) for the withdrawal of working capital.
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3. Credit history of the borrower is yet to be developed.
4. Refinance window through Small Industries Development Bank of India (SIDBI) with an initial amount
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of Rs.10,000 crore.
5. Creation of a corpus of Rs. 5,000 crore for credit guarantee through NCGTC.
6 Handholding support for borrowers with extensive support for pre-loan training requirements,
facilitating loan, factoring, marketing, etc.
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7. Availability of web portal for the online registrations and support services.
Objective
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The scheme aims to influence and extend the institutional credit system to the undeserved strata of
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society like the Scheduled Caste and Scheduled Tribes, and women entrepreneurs. The facility of bank
loans between Rs. 10 lakh and Rs. 1 crore is provided to at least one SC/ST and woman entrepreneurs
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willing to start their own businesses. The enterprises may belong to trading, manufacturing, or service
sectors. The person availing loan under this scheme should hold at least 51 percent of the shareholding
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and control in the enterprises.

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Eligibility
1. Applicants of the loan under this scheme should be at least 18 years of age.
2. Loans under this scheme can only be availed for a greenfield project. This means the business for
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which a person applying the loan should be his first business venture in the trading, manufacturing, or
service sector.
3. At least 51 percent of the shareholding and control should be owned by the borrower of the loan
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under this scheme.

4. There should not be any default on the borrower’s end in any bank or financial institutions.
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Rate of Interest on Loan under Stand-Up India scheme

The interest rate to be charged on the loan will be lowest of rates charged by the respective banks.
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Security under Stand-Up India scheme

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Apart from the primary security, the loan taken under this scheme can be secured by a collateral
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security or guarantee of Credit Guarantee Fund Scheme for Stand-Up India Loans a the banks direct.
Repayment of Loans under Stand-Up India scheme

The loan taken under the scheme can be repaid in seven years with a maximum suspension period of 18
months.
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How to apply for loan under Stand-Up India scheme?

An SC, ST, or a woman willing to start a new enterprise can avail a bank loan facility under this scheme in
three ways-
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1. By directly applying at the bank branch
2. By applying through the Stand-Up India portal
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3. With the help of Lead District Manager (LDM)
Documents Required to apply for loan under Stand-Up India scheme
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Identity Proof : Voter’s ID Card / Driving License/ Passport / PAN Card / Signature identification from
present bankers of a proprietor, partner or director ( if a company)
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Residence Proof : Recent electricity bill, telephone bills, or property tax receipt / Passport/voter’s ID
Card of Proprietor, partner of Director (if a company)
Business address proof
Memorandum and Articles of Association of the Company, Partnership Deed of the partners
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Assets and liabilities statement of the promoters and guarantors along with latest income tax returns.
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SSI / MSME registration if applicable.
Rent Agreement (if business premises on rent) and clearance from pollution control board if applicable.
Photocopies of lease deeds/ title deeds of all the properties being offered as primary and collateral
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securities.
Certificate of incorporation from Registrar Of Companies to establish whether majority stake holding in
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the company is in the hands of a person who belongs to SC/ST/Woman category.
Last three years balance sheets of the Associate / Group Companies (if any).
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Certificates to prove whether the applicant belongs to SC/ST Category, wherever applicable.
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Real Estate Investment Trusts (REITs) Funds

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Real Estate Investment funds hold inevitable significance to investors who are willing to invest in the
real estate sector and reap profits through their investments. Real Estate Investment Trust (REIT) is
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created with the prime purpose of channelizing the funds that could be invested into operational
functioning or ownership of real estate that could further generate income for the investors. REIT gives
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investors, big or small, the golden opportunity to hold shares of the real estate investment trust by
investing in it thereby benefitting them through good returns on the investment. It provides the
advantage of portfolio diversification and long-term capital appreciation. REIT’s are a legitimate way of
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investing in the real estate sector as they have the provision of getting enlisted in the known stock
exchanges.
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Eligibility of REITs
For a company to be qualified as REIT, the following criteria need to be satisfied:-
 90% of the income must be distributed as a dividend to the investors
 80% of the investment must be in properties that generate revenue
 Only 10% of the total investment must be in real estate under-construction
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 The company must have an asset base of 500 Crores

 NAVs need to be updated twice in each financial year
How do REIT’s work
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 REIT industry boasts of a diverse profile that offers investors a chance to make investments in real
estate-related funds. REIT’s could be classified as Equity REIT and MREIT
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 Equity REIT’s hold in their vicinity properties such as offices, hotels, shopping centers,
condominiums and draw most of their revenues from the rent of these properties
 MREIT’s look over the financing of the properties that may be residential or commercial in nature
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thereby drawing income from interest earned on the investment in mortgages or mortgage-backed
securities
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 REIT’s provide quick and easy liquidation of the investments in the real estate markets. The growth
story of the country dependent on the infrastructure developments contributes highly to the
economy and related growth. The idea of REIT backed investments is to ensure the concrete
structuring of the real-estate financing industry so that the investments made in the sector are
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channelized in the most legitimate manner. It is with this purpose that the REIT’s function in India to
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make the industry-backed financing more structured
Structure Formation and Implementation

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REIT funds structured formation and implementation ensure that the investors of all financial capacity
get to invest in the funds that contribute to the growth and development of the real estate thereby
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owing the right to hold a stake in the funds through their investments.
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In India government is taking necessary steps to ensure solidification of such funds so created to include
common citizens’ participation in the investment formation of such funds. There have been some
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developments in this regard by way of the government passing Real Estate Regulation Bill. The
Government also ensured the removal of Dividend Distribution Tax associated with the REIT funds which
were up until the given development posing an obstacle in the implementation of the Real Estate
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Investment Trusts.
Advantages of Investing in REITs

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 REITs are not as capital intensive as a direct investment in property. Moreover, there are not many
profitable investment opportunities left at present
 It is easier to invest in real estate using REITs
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 Compared to direct investment in real estate, REITs have lower liquidity risk
 REITs are regulated by SEBI; hence chances of fraud are very rare
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 These are transparent as they disclose the capital portfolio annually and semi-annually
 These offer a relatively higher dividend as approximately 90% of income is paid as a dividend to the
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REIT investors
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Objectives of REITs
The main crux of REITs is to give investors dividends generated from capital gains that are accrued from
the selling of commercial assets. The REIT allocates 90 percent of its income as dividends to its
investor’s. It provides a safe and diversified investment opportunity.
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 The REITs are transparent. There is a full valuation of the REIT on a yearly basis along with a half-
yearly update
 Diversification: As per the guidelines, REITs have to invest in at least two projects with the value of
one asset comprising 60 percent of the investment
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 Low Risk: There is low risk involved in REITs as a minimum of 80 percent of the assets are invested in
revenue-generating projects that are completed. The rest 20 percent are allocated to investments in
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equity shares of properties that are listed, mortgage-based securities, equity shares deriving at least
75 percent of income from real estate activities, government securities, money market instruments,
cash equivalents, etc
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Types of REITs
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a. Equity REITs
They are owners of the real estate properties and lease it to companies or individuals to make money.
The income is then distributed among the REIT investors as a dividend.
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b. Mortgage REITs
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They are not the owners but get EMIs against the property from the owners and builders. The earnings
are via Net Interest Margin (difference of interest earned on mortgage and cost of funding the loan)
which they distribute among the REIT investors as a dividend.
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c. Hybrid REITs
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Invest in both Equity and Mortgage REITs.
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Difference Between REITs and Real Estate Mutual Funds

REITs and real estate mutual funds are different but they are similar as they both offer liquidity and a
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cheap way to get exposure to diversified & large capital real estate assets.
a. Real Estate Mutual funds offer wider diversification than the REITs based on the investment strategy
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and have the benefit of experts and professionals managing their portfolio, unlike the REITs
b. REITs distribute a higher amount of dividend each year to its shareholders or investors than the real
estate mutual funds
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c. The value of real estate has a tendency to increase during times of inflation as property prices and
rents go up, thus giving a better return to the REIT investor
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d. REIT or the Real estate mutual fund investment should be spread across several real estate categories
or funds so as to minimize the risk and it should not be more than 10% of the portfolio
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The RBI’s proposal to allow banks to invest in REITs will propel a lot of companies to bring in their REITs
and get it listed on the exchange. REITs have also been approved by SEBI and thus are looked upon as a
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sure measure by the Indian government to pool in greater investments in India’s realty sector. Once the
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REITs are up and ready for the investment we can hope to see an increase in the retail sector
participation.
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Payment Banks
A payments bank is like any other bank, but operating on a smaller scale without involving any credit
risk. In simple words, it can carry out most banking operations but can't advance loans or issue credit
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cards. It can accept demand deposits (up to Rs 1 lakh), offer remittance services, mobile payments /
transfers / purchases and other banking services like ATM / debit cards, net banking and third party fund
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transfers.
What they can and can’t do
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 They can’t offer loans but can raise deposits of upto Rs. 1 lakh, and pay interest on these
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balances just like a savings bank account does.
 They can enable transfers and remittances through a mobile phone.
 They can offer services such as automatic payments of bills, and purchases in cashless,
chequeless transactions through a phone.
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 They can issue debit cards and ATM cards usable on ATM networks of all banks.
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 They can transfer money directly to bank accounts at nearly no cost being a part of the gateway
that connects banks.
 They can provide forex cards to travellers, usable again as a debit or ATM card all over India.
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 They can offer forex services at charges lower than banks.
 They can also offer card acceptance mechanisms to third parties such as the ‘Apple Pay.’
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The Payments Bank will be set up as a differentiated bank and shall confine its activities to further the
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objectives for which it is set up. Therefore, the Payments Bank would be permitted to undertake only
certain restricted activities such as
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Acceptance of demand deposits (current and savings bank deposits). Payments Banks will initially be
restricted to holding a maximum balance of Rs. 1 lakh per customer. After the performance of the
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Payments Bank is gauged by the RBI, the maximum balance can be raised. However, the payments bank
cannot undertake lending activities. However, as per the recent RBI guidelines, Payment Banks are
allowed to accept deposits beyond Rs. 1 lakh with sweep arrangements with other Scheduled
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Commercial Bank or Small Finance Bank. This arrangement should be activated with prior written
consent of the customer.
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The Payments banks will provide small savings accounts and payments/remittance facilities to migrant
labour workforce, low income households, small businesses, other unorganized sector entities and other
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users through various channels including Branches, BCs, and ATMs. Cash-out can also be permitted at
Point-of-Sale terminal locations as per extant instructions issued under the PSS Act. In the case of walk-
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in customers, the bank should follow the extant KYC guidelines issued by the RBI. However, these banks
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are not allowed to issue credit cards.
No Pass book will be issued to the customer. However, account information will be provided to the
customers through multiple user friendly modes viz., SMS, E-mail, Internet Banking etc. They may
provide a statement of account in paper form on request on chargeable basis.
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Opening of physical access points require prior permission from RBI for the initial five years period.
A Payments Bank may choose to become a BC of another bank for credit and other services which it
cannot offer. The Payments Bank cannot set up subsidiaries to undertake non-banking financial services
activities. The other financial and non-financial services activities of the promoters, if any, should be
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kept distinctly ring-fenced and not comingled with the banking and financial services business of the
Payments Bank.
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The minimum paid up capital for Payments Bank shall be Rs. 100 crore. The promoter’s minimum initial
contribution to the paid up voting equity capital of Payments Bank shall be at least 40 per cent which
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shall be locked in for a period of five years from the date of commencement of business of the bank.
Shareholding by promoters in the bank in excess of 40 per cent shall be brought down to 40 per cent
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within three years from the date of commencement of business of the bank. Further, the promoter’s
stake should be brought down to 30 per cent of the paid-up voting equity capital of the bank within a
period of 10 years, and to 26 per cent within 12 years from the date of commencement of business of
the bank. Foreign Direct Investors (FDIs) are allowed to invest up to 74 per cent of the paid up capital of
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the bank.
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The Payments Bank shall be required to maintain a minimum capital adequacy ratio of 15 per cent of its
risk weighted assets (RWA) on a continuous basis, subject to any higher percentage as may be
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prescribed by RBI from time to time. The minimum Tier-I & Tier-II capital should be 7.50% each. The
capital adequacy ratio will be computed under simplified Basel-I standards.
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RBI has mandated that these banks are required to invest a minimum of 75% deposits collected from
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the public in government securities up to one year maturity. They are allowed to hold a maximum of
25% in current / fixed deposits with other scheduled commercial banks for operational and liquidity
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management purposes. These banks are required to maintain CRR and SLR as applicable to the existing
commercial banks. The Payments Bank should have a leverage ratio of not less than 3.3 per cent, i.e., its
outside liabilities should not exceed 33 times its net-worth / paid-up capital and reserves.
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List of Payment Banks and Their Headquarters

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Name of the Payments bank Headquarters

Airtel Payments Bank Limited New Delhi
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Paytm Payments Bank Noida

Fino Payments Bank Navi Mumbai
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Indian Post Payments Bank New Delhi

Jio payments Bank Navi Mumbai
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Aditya Birla Idea payments Bank Mumbai

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The main objective of payments bank is to widen the spread of payment and financial services to small
business, low-income households, migrant labour workforce in secured technology-driven environment.
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Small Finance Banks
Majority of residents of Rural areas are deprived of basic banking services on account of non availability
of bank branches due to high cost operations and low volume. To address this issue RBI permitted
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private players to set up Local Area Banks (LAB) in the year 1996. At present four LABs are functioning
satisfactorily and playing an important role in the supply of credit to micro and small enterprises,
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agriculture and banking services in the unbanked and under-banked regions. To strengthen the existing
system further, RBI issued fresh guidelines for licensing of Small Finance Banks in the private sector in
the month of July 2014.
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The objective of the Banks will be for furthering financial inclusion by extending basic banking services
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to underserved and unserved sections of the population and also to extend credit facilities to small
business units, small farmers, micro and small industries and other unorganized sector entities in their
limited areas of operations through high technology & low cost operations.
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Important features of Small Banks:
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 They can accept any deposit (savings, current, fixed deposits, recurring deposits) like commercial
banks.
 Unlike payment banks, small finance banks will be allowed to lend money also.
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 For the initial 3 years, prior approval will be required for branch expansion.
 To give the feel of local bank, their area of operation will be restricted.
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 NBFC’s , any individual with 10 years of experience in banking can apply for licenses.
 Their target are small businesses and MSMEs.
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 They are not allowed to lend the deposited money to big businesses or industries.
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Some of the conditions for setting up Small Bank:

 Minimum paid-up equity capital requirement of Rs 100 crore.
 Every small finance bank must have the words “small finance bank” in its name.
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 They cannot set up subsidiaries to undertake non-banking financial service activities.

 75% of its Adjusted Net Bank Credit (ANBC) should be advanced to the priority sector as categorized
by RBI.
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 Maximum loan size to a single person cannot exceed 10% of total capital funds; cannot exceed 15%
in the case of a group.
 At least 50% of its loans should constitute loans and advances of up to 25 lakh.
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 Small banks can undertake financial services like distribution of mutual fund units, insurance
products, pension products, and so on, but not without prior approval from the RBI.
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 A small bank can transform into a full-fledged bank, but only after RBI’s approval.
 A fundamental requirement is that it must have 25% of its branches set up in unbanked areas.
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Difference between Small Finance Bank & Payment Banks
Small Finance Banks

 Small Finance Banks can accept deposits as well as can offer loan products
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 Small Finance banks can accept fixed deposits (FDs), term deposits, recurring deposits (RDs) and any
non-resident Indian deposits.
 Small Finance Banks will provide banking services to small farmers, micro and small industries, the
unorganized sector.
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Payment Banks
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 Payment banks can open small savings accounts and accept deposits of up to Rs.1 lakh per
individual.
 Payment banks can issue debit cards but they are not eligible to provide credit card facilities.
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 Payment Banks are allowed to set up their own ATMs (automated teller machines).
 Payment Banks cannot lend money to the people.
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 Payment banks can’t accept fixed deposits (FDs), term deposits, recurring deposits (RDs) and any
non-resident Indian deposits.
 Payment Banks will provide banking services to migrant labor workforce, low-income households,
small businesses, other unorganized sector entities and other users.
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List of Small Financial banks and Their Headquarters
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Name of the Small Financial bank Head quarters
Au Small Finance Bank Limited(AUBANK) Jaipur, Rajasthan

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Capital Lab Small Finance Bank Jalandar ,Punjab

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Equitas Small Finance Bank Chennai, Tamilnadu

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ESAF Small Finance Bank Thrissur , Kerala

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FINCARE Small Finance Bank Limited (formed from Disha Bengaluru , Karnataka
Microfin Limited)
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Janalakshmi Small Finance Bank Bengaluru , Karnataka
North East Small Finance Bank(NESFB)-RGVN Micro Finance Ltd. Guwahati , Assam
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Suryoday Small Finance Bank Navi Mumbai

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Ujjivan Small Finance Bank Bengaluru, Karnataka

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Utkarsh Small Finance Bank Varanasi , U.P

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Licensing of New Banks in the Private Sector

The guidelines for “Licensing of New Banks in the Private Sector” are:
 Eligible Promoters: Entities/groups in the private sector, entities in public sector and Non-Banking
Financial Companies (NBFCs) shall be eligible to set up a bank through a wholly-owned Non-
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Operative Financial Holding Company (NOFHC).
 ‘Fit and Proper’ criteria: Entities/groups should have a past record of sound credentials and
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integrity, be financially sound with a successful track record of 10 years. For this purpose, RBI may
seek feedback from other regulators and enforcement and investigative agencies.
 Corporate structure of the NOFHC: The NOFHC shall be wholly owned by the Promoter/Group. The
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NOFHC shall hold the bank as well as all the other financial services entities of the group.
 Minimum Voting Equity capital requirements for banks and shareholding by NOFHC: The initial min
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paid-up voting equity capital for a bank shall be Rs. 5 billion. The NOFHC shall initially hold a min of
40 per cent of the paid-up voting equity capital of the bank which shall be locked in for a period of
five years and which shall be brought down to 15 per cent within 12 years. The bank shall get its
shares listed on the stock exchanges within 3 years of the commencement of business by the bank.
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 Regulatory framework: The bank will be governed by the provisions of the relevant Acts, Statutes,
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Directives, Prudential regulations and other Guidelines / Instructions issued by RBI and other
regulators. The NOFHC shall be registered as a non-banking finance company (NBFC) with the RBI
and will be governed by a separate set of directions issued by RBI.
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 Foreign shareholding in the bank: The aggregate non-resident shareholding in the new bank shall
not exceed 49% for the first 5 years after which it will be as per the extant policy.
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 Corporate governance of NOFHC: At least 50% of the Directors of the NOFHC should be independent
directors. The corporate structure should not impede effective supervision of the bank and the
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NOFHC on a consolidated basis by RBI.

 Prudential norms for the NOFHC: The prudential norms will be applied to NOFHC both on stand-
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alone as well as on a consolidated basis and the norms would be on similar lines as that of the bank.
 Exposure norms: NOFHC and the bank shall not have any exposure to the Promoter Group. The bank
shall not invest in the equity/debt capital instruments of any financial entities held by the NOFHC.
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 Business Plan for the bank: The business plan should be realistic and viable and should address how
the bank proposes to achieve financial inclusion.
 Other conditions for the bank:
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 The bank shall open at least 25 per cent of its branches in unbanked rural centres (population up
to 9,999 as per the latest census)
 The bank shall comply with the priority sector lending targets and sub-targets as applicable to
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the existing domestic banks.

 Banks promoted by groups having 40 per cent or more assets/income from non-financial
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business will require RBI’s prior approval for raising paid-up voting equity capital beyond `10
billion for every block of `5 billion.
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 Any non-compliance of terms and conditions will attract penal measures including cancellation
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of licence of the bank.

 Additional conditions for NBFCs promoting/converting into a bank:
 Existing NBFCs, if considered eligible, may be permitted to promote a new bank or convert
themselves into banks.
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Goods & Services Tax (GST)
GST is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a
national level. It is a part of proposed tax reforms in India having an extensive base that instigate the
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applicability of an efficient and harmonized consumption tax system. The system of GST is commonly
accepted in more than 140 countries across the world.
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Structural Tax Reforms: The GST will reshape the indirect tax structure by subsuming majority of
indirect taxes like excise, sales and services levies. This will do away with the complex indirect tax
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structure of the country, thus improving the ease of doing business in the country.
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Cost Competitiveness: Exports will become competitive as the GST regime will eliminate the cascading
impact of taxes. GST is a key 'brahmastra' for India's gross domestic product in times of challenging
global environment.
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Unified Market: GST will lead to the creation of a unified market, which would facilitate seamless
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movement of goods across states and reduce the transaction cost of businesses.
Increased Tax Collections: Under the GST, manufacturers will get credits for all taxes paid earlier in the
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goods/services chain, thus incentivizing firms to source inputs from other registered dealers. This could
bring in additional revenues to the government as the unorganized sector, which is not part of the value
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chain, would be drawn into the tax net.
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Combating Corruption: Documentation is a prerequisite to claim input tax credit. Thus, the new tax
regime is seen as less intrusive, more self-policing, and hence more effective way of reducing corruption.
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Tax compliance: The supplier, because of the paper trail left by the GST, knows that his evasion will be
more likely to be detected once his client is audited. It improves tax compliance in the long run.
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Impact on Exports: The GST system mandates that all duties must be paid at the time of a transaction
while refund for these can be obtained after exports. This means the exporter will have to arrange funds
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for the inputs, manufacturing and payment of duties and taxes. This may warrants increased working
capital requirement which need to be resolved.
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The macroeconomic impact of a change to the introduction of the GST is significant in terms of growth
effects, price effects, current account effects and the effect on the budget balance. Further, in a highly
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developed open economy with a high and growing service sector, a change in the tax mix from income
to consumption-based taxes is likely to provide a fruitful source of revenue. Implementation of GST
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could facilitate a much needed correction in fiscal deficit.

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The GST council agreed to implement rate structure with four slabs viz., 5, 12, 18 and 28%.
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Universal Banking
 Universal bank is one in which all types of banking facilities are available
 Universal banks apart from acceptance of various deposits, lend different kinds of loans
 They also provide services namely – opening demat accounts, provision of safe deposit locker
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facilities, providing safe custody service facilities; selling gold coins, mutual fund products and selling
insurance products etc.
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 They provide remittance services and products under retail banking and wholesale banking
Retail Banking & Whole Sale Banking
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Retail banking refers to dealing with individuals for comparatively small amount for both deposits as
well as advances. Typical retail banking products in deposits are savings / current accounts, fixed
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deposits etc. In advances, retail banking products include home loans, vehicle loans, personal loans etc.
In contrast to retail banking, Whole Sale Banking refers to large scale banking with corporate,
institutions etc. It covers large loans to corporate, channel financing, institutional accounts.
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Islamic banking
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 They do not provide interest for deposits
 They also do not collect any interest for the loans granted to the borrowers
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Narrow banking
 They accept deposits and invest the amount received from the public in government securities
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 They do not engage themselves in lending activities
 On account of the above, the profit available to them is found to be very low
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Para Banking
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Traditionally, banks were into the business of accepting deposits and making loans. With the changing
times, banks have taken up a variety of other functions such as selling insurance products, mutual funds,
accepting variety of fees, earnest money etc. All these activities form part of para banking.
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Merchant Banking
The merchant bankers are those financial intermediaries who arrange for transfer of capital funds to
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those borrowers who are who are looking for loans. Some common merchant banking activities are:
 Management of the customers’ securities
 Management of investment portfolio,
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 Appraisal/Management of projects
 Issue management and underwriting of shares
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 Syndication of loans
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Bancassurance (Banking + Insurance)

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Bancassurance is the selling of insurance and banking products through the same channel, most
commonly through bank branches. The banks cannot sell their own insurance products as they do not
have the license for this. Hence, they become the corporate agent of some insurance company and sell
that company’s products. Insurance products offer very good scope for earning fee based income.
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Risk Management
What is Risk?
Risk refers to ‘a condition where there is a possibility of undesirable occurrence of a particular
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result which is known or best quantifiable and therefore insurable’ . A risk can be defined as an
unplanned event with financial consequences resulting in loss or reduced earnings.
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Type of Risks
The major risks in banking business as commonly referred can be broadly classified into:
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 Liquidity Risk
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 Interest Rate Risk
 Market Risk
 Credit or Default Risk
 Operational Risk
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Liquidity Risk
The liquidity risk of banks arises from funding of long-term assets by short-term liabilities, thereby
making the liabilities subject to rollover or refinancing risk.
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The liquidity risk in banks manifest in different dimensions -
(a) Funding Risk: Funding Liquidity Risk is defined as the inability to obtain funds to meet cash flow
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obligations. For banks, funding liquidity risk is crucial. This arises from the need to replace net outflows
due to unanticipated withdrawal/ non-renewal of deposits (wholesale and retail).
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(b) Time Risk: Time risk arises from the need to compensate for non-receipt of expected inflows of
funds i.e., performing assets turning into non-performing assets.
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(c) Call Risk: Call risk arises due to crystallisation of contingent liabilities. It may also arise when a bank
may not be able to undertake profitable business opportunities when it arises.
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Interest Rate Risk

Interest Rate Risk arises when the Net Interest Margin or the Market Value of Equity (MVE) of an
institution is affected due to changes in the interest rates.
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IRR can be viewed in two ways – its impact is on the earnings of the bank or its impact on the economic
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value of the bank’s assets, liabilities and Off-Balance Sheet (OBS) positions. Interest rate Risk can take
different forms.
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Market Risk
The risk of adverse deviations of the mark-to-market value of the trading portfolio, due to market
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movements, during the period required to liquidate the transactions is termed as Market Risk. This risk
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results from adverse movements in the level or volatility of the market prices of interest rate
instruments, equities, commodities, and currencies. It is also referred to as Price Risk.
The term Market risk applies to (i) that part of IRR which affects the price of interest rate instruments,
(ii) Pricing risk for all other assets/ portfolio that are held in the trading book of the bank and (iii)
Foreign Currency Risk.
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(a) Forex Risk: Forex risk is the risk that a bank may suffer losses as a result of adverse exchange rate
movements during a period in which it has an open position either spot or forward, or a combination of
the two, in an individual foreign currency.
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(b) Market Liquidity Risk: Market liquidity risk arises when a bank is unable to conclude a large
transaction in a particular instrument near the current market price.
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Default or Credit Risk
Credit risk is more simply defined as the potential of a bank borrower or counterparty to fail to meet its
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obligations in accordance with the agreed terms. For most banks, loans are the largest and most
obvious source of credit risk. It is the most significant risk, more so in the Indian scenario where the
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NPA level of the banking system is significantly high.
Two variants of credit risk :

(a) Counterparty Risk: This is a variant of Credit risk and is related to non-performance of the trading
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partners due to counterparty’s refusal and or inability to perform. The counterparty risk is generally
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viewed as a transient financial risk associated with trading rather than standard credit risk.
(b) Country Risk: This is also a type of credit risk where non-performance of a borrower or
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counterparty arises due to constraints or restrictions imposed by a country. Here, the reason of non-
performance is external factors on which the borrower or the counterparty has no control
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Credit Risk depends on both external and internal factors.

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The internal factors include Deficiency in credit policy and administration of loan portfolio, Deficiency in
appraising borrower’s financial position prior to lending, Excessive dependence on collaterals and
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Bank’s failure in post-sanction follow-up, etc.
The major external factors are the state of Economy, Swings in commodity price, foreign exchange rates
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and interest rates, etc.

Credit Risk can’t be avoided but can be mitigated by applying various risk-mitigating processes –
 Banks should assess the credit-worthiness of the borrower before sanctioning loan i.e., Credit rating
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of the borrower should be done beforehand. Credit rating is the main tool of measuring credit risk
and it also facilitates pricing the loan.
 By applying a regular evaluation and rating system of all investment opportunities, banks can reduce
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its credit risk as it can get vital information of the inherent weaknesses of the account.
 Banks should fix prudential limits on various aspects of credit – benchmarking Current Ratio, Debt-
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Equity Ratio, Debt Service Coverage Ratio, Profitability Ratio etc.

 There should be maximum limit exposure for single/ group borrower.
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 There should be provision for flexibility to allow variations for very special circumstances.
 Alertness on the part of operating staff at all stages of credit dispensation – appraisal, disbursement,
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review/ renewal, post-sanction follow-up can also be useful for avoiding credit risk.
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Operational Risk
Basel Committee for Banking Supervision has defined operational risk as ‘the risk of loss resulting from
inadequate or failed internal processes, people and systems or from external events’. Managing
operational risk has become important for banks due to the following reasons:
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 Higher level of automation in rendering banking and financial services
 Increase in global financial inter-linkages
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 Scope of operational risk is very wide because of the above-mentioned reasons.
Two of the most common operational risks are :
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(a) Transaction Risk: Transaction risk is the risk arising from fraud, both internal and external, failed
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business processes and the inability to maintain business continuity and manage information.
(b) Compliance Risk: Compliance risk is the risk of legal or regulatory sanction, financial loss or
reputation loss that a bank may suffer as a result of its failure to comply with any or all of the applicable
laws, regulations, codes of conduct and standards of good practice. It is also called integrity risk since a
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bank’s reputation is closely linked to its adherence to principles of integrity and fair dealing.
Other Risks
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Apart from the above-mentioned risks, following are the other risks confronted by Banks in course of
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their business operations –
(a) Strategic Risk: Strategic Risk is the risk arising from adverse business decisions, improper
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implementation of decisions or lack of responsiveness to industry changes.
(b) Reputation Risk: Reputation Risk is the risk arising from negative public opinion. This risk may
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expose the institution to litigation, financial loss or decline in customer base.

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Risk Management
Risk Management is actually a combination of management of uncertainty, risk, equivocality and error.
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Uncertainty – where the outcomes cannot be estimated even randomly, arises due to lack of
information and this uncertainty gets transformed into risk (where the estimation of outcome is
possible) as information gathering progresses.
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Initially, the Indian banks have used risk control systems that kept pace with legal environment and
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Indian accounting standards. But with the growing pace of deregulation and associated changes in the
customer’s behaviour, banks are exposed to mark-to-market accounting.
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Therefore, the challenge of Indian banks is to establish a coherent framework for measuring and
managing risk consistent with corporate goals and responsive to the developments in the market. As the
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market is dynamic, banks should maintain vigil on the convergence of regulatory frameworks in the
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country, changes in the international accounting standards and finally and most importantly changes in
the clients’ business practices.
Therefore, the need of the hour is to follow certain risk management norms suggested by the RBI and
BIS.
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Role of RBI in Risk Management in Banks
Here, we will discuss the role of RBI in Risk Management and how the tools called CAMELS was used by
RBI to evaluate the financial soundness of the Banks. CAMELS is the collective tool of six components
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namely
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Capital Adequacy
Asset Quality
Management
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Earnings Quality
Liquidity
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Sensitivity to Market risk
The CAMEL was recommended for the financial soundness of bank in 1988 while the sixth component
called sensitivity to market risk (S) was added to CAMEL in 1997.
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In India, the focus of the statutory regulation of commercial banks by RBI until the early 1990s was
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mainly on licensing, administration of minimum capital requirements, pricing of services including
administration of interest rates on deposits as well as credit, reserves and liquid asset requirements.
RBI in 1999 recognised the need of an appropriate risk management and issued guidelines to banks
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regarding assets liability management, management of credit, market and operational risks. The entire
supervisory mechanism has been realigned since 1994 under the directions of a newly
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constituted Board for Financial Supervision (BFS), which functions under the aegis of the RBI, to suit
the demanding needs of a strong and stable financial system.
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A process of rating of banks on the basis of CAMELS in respect of Indian banks and CACS (Capital, Asset
Quality, Compliance and Systems & Control) in respect of foreign banks has been put in place from
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1999.
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Asset Liability Management (ALM)
It is “a risk management technique designed to earn an adequate return while maintaining a

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comfortable surplus of assets beyond liabilities. It takes into consideration interest rates, earning power
and degree of willingness to take on debt.
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The ALM process rests on three pillars:

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1) ALM information systems

2) Management Information System
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3) Information availability, accuracy, adequacy and expediency

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ALM involves identification of Risk parameters, Risk identification, Risk measurement and Risk
management and framing of Risk policies and tolerance levels.
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Important Committees on Banking
 A C Shah Committee: NBFC

 A Ghosh Committee: Final Accounts
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 A Ghosh Committee: Modalities Of Implementation Of New 20 Point Programme
 A Ghosh Committee: Frauds & Malpractices In Banks
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 AbidHussain Committee: Development Of Capital Markets
 Adhyarjuna Committee: Changes In NI Act And Stamp Act
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 AK Bhuchar Committee: Coordination Between Term Lending Institutions And Commercial
Banks.
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 B Eradi Committee: Insolvency And Wind Up Laws
 B Sivaraman Committee: Institutional Credit For Agricultural & Rural Development
 B Venkatappaiah Committee: All India Rural Credit Review
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 BD Shah Committee: Stock Lending Scheme
 BD Thakar Committee: Job Criteria In Bank Loans (Approach)

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Bhagwati Committee: Unemployment
Bhagwati Committee: Public Welfare ne
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 Bhave Committee: Share Transfer Reforms
 Bhide Committee: Coordination Between Commercial Banks And SFC’s
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 Bhootlingam Committee: Wage, Income & Prices.

 C Rao Committee: Agricultural Policy
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 CE Kamath Committee: Multi Agency Approach In Agricultural Finance

 Chatalier Committee: Finance To Small Scale Industry
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 Chesi Committee: Direct Taxes

 Cook committee (On Behalf Of BIS – Under Basel Committee ):Capital Adequacy Of Banks.
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 D R Mehta Committee: Review Progress And Recommend Improvement Measures Of IRDP

 Damle Committee: MICR
 Dandekar Committee: Regional Imbalances
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 Dantwala Committee: Estimation Of Employments

 Dave Committee: Mutual Funds (Functioning)
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 Dharia Committee: Public Distribution System

 DR Gadgil Committee: Agricultural Finance
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 Dutta Committee: Industrial Licensing.

 G Lakshmai Narayan Committee: Extension Of Credit Limits On Basis Of Consortium
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 G Sundaram Committee: Export Credit

 Gadgil Committee (1969): Lead Banking System
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 Godwala Committee: Rural Finance

 Goiporia Committee: Customer Service In Banks
 GS Dahotre Committee: Credit Requirements Of Leasing Industry
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 GS Patel Committee: Carry Forward System On Stock Exchanges.

 Hathi Committee: Soiled Banknotes
 Hazari Committee (1967): Industrial Policy.
 IT Vaz Committee: Working Capital Finance In Banks.
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 J Reddy Committee: Reforms In Insurance Sector
 James Raj Committee: Functioning Of Public Sector Banks
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 Jankiramanan Committee: Securities Transactions Of Banks & Financial Institutions.
 JV Shetty Committee: Consortium Advances.
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 K Madhav Das Committee: Urban Cooperative Banks
 Kalyansundaram Committee: Introduction Of Factoring Services In India
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 Kamath Committee: Education Loan Scheme
 Karve Committee: Small Scale Industry
 KB Chore Committee: To Review The Symbol Of Cash Credit Q
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 Khanna Committee: Non Performing Assets
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 Khusrau Committee: Agricultural Credit
 KS Krishnaswamy Committee: Role Of Banks In Priority Sector And 20 Point Economic
Programme.
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 L K Jha Committee: Indirect Taxes
 LC Gupta Committee: Financial Derivatives.
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 Mahadevan Committee: Single Window System

 Mahalanobis Committee: Income Distribution
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 Marathe Committee: Licensing Of New Banks

 ML Dantwala Committee: Regional Rural Banks
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 Mrs. KS Shere Committee: Electronic Fund Transfer.

 Nadkarni Committee: Improved Procedures For Transactions In PSU Bonds And Units
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 Nariman Committee: Branch Expansion Programme

 Narsimham Committee: Financial System.
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 OmkarGoswami Committee: Industrial Sickness And Corporate Restructuring.

 P R Nayak Committee: Institutional Credit To SSI Sector
 P Selvam Committee: Non Performing Assets Of Banks
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 PC Luther Committee: Productivity, Operational Efficiency & Profitability Of Banks

 PD Ojha Committee: Service Area Approach
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 Penderkar Committee: Review The System Of Inspection Of Commercial, RRB And Urban
Cooperative Banks
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 Pillai Committee: Pay Scales Of Bank Officers

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 PL Tandon Committee: Export Strategy

 PR Khanna Committee: Develop Appropriate Supervisory Framework For NBFC
 Purshottam Das Committee: Agricultural Finance And Cooperative Societies.
 R Jilani Banks: Inspection System Of Banks
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 R S Saria Committee: Agricultural Finance And Cooperative Societies

 Raghavan Committee: Competition Law
 Raja Chelliah Committee: Tax Reforms
 Rajamannar Committee: Centre – State Fiscal Relationships
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 Rajamannar Committee: Changes In Banking Laws , Bouncing Of ChequesEtc
 Rakesh Mohan Committee:Petro Chemical Sector
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 Ram NiwasMirdha Committee (JPC): Securities Scam
 Rangrajan Committee: Computerization Of Banking Industry
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 Rangrajan Committee: Public Sector Disinvestment
 Rashid Jilani Committee: Cash Credit System
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 Ray Committee: Industrial Sickness
 RG Saraiya Committee (1972): Banking Commission
 RH Khan Committee: Harmonization Of Banks And Ssis
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 RK Hajare Committee: Differential Interest Rates Scheme
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 RK Talwar Committee: Customer Service
 RK Tlwar Committee: Enactment Having A Bearing On Agro Landings By Commercial Banks
 RN Malhotra Committee: Reforms In Insurance Sector
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 RN Mirdha Committee: Cooperative Societies
 RV Gupta Committee: Agricultural Credit Delivery.
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 S Padmanabhan Committee: Onsite Supervision Function Of Banks

 S Padmanabhan Committee: Inspection Of Banks (By RBI)
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 Samal Committee: Rural Credit

 SC Choksi Committee: Direct Tax Law
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 Shankar LalGauri Committee: Agricultural Marketing

 SK Kalia Committee: Role Of NGO And SHG In Credit
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 SL Kapoor Committee: Institutional Credit To SSI

 Sodhani Committee: Foreign Exchange Markets In NRI Investment In India
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 SS Kohli Committee: Rehabilitation Of Sick Industrial Units

 SS Kohli Committee: Rationalization Of Staff Strength In Banks
 SS Kohli Committee: Willful Defaulters
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 SS Nadkarni Committee: Trading In Public Sector Banks

 SS Tarapore Committee: Capital Account Convertibility
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 SukhmoyChakravarty Committee: To Review The Working Of Monetary System

 Tambe Committee: Term Loans To SSI
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 Tandon Committee: Follow Up Of Bank Credit

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 Tandon Committee: Industrial Sickness

 Thakkar Committee: Credit Schemes To Self Employed
 Thingalaya Committee: Restructuring Of RRB
 Tiwari Committee: Rehabilitation Of Sick Industrial Undertakings.
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 UK Sharma Committee: Lead Bank Scheme (Review)

 UshaThorat Panel: Financial Inclusion.
 Vaghul Committee: Mutual Fund Scheme
 Varshney Committee: Revised Methods For Loans (>2 Lakhs)
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 Venketaiya Committee: Review Of Rural Financing System
 Vipin Malik Committee: Consolidated Accounting By Banks
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 VT Dehejia Committee: To Study Credit Needs Of Industry And Trade Likely To Be Inflated
 Vyas Committee: Rural Credit.
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 Wanchoo Committee: Direct Taxes
 WS Saraf Committee: Technology Issues in Banking Industry.
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 Y H Malegam Committee: Disclosure Norms For Public Issues
 YV Reddy Committee: Reforms in Small Savings.
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Ultra Small Branches (USBs)
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They are 'ultra small branches' in rural centres from where Business Correspondents (BCs) can conduct
operations on behalf of banks. The base branch will have to provide oversight to the BC outlets which
will include periodic visits by officers of the base branch to these outlets and to other places of
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functioning of BCs.
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USBs may be set up between the base branch and BC locations to provide support to about 8-10 BC
units at a distance of 3-4 km.
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Direct Benefit Transfer (DBT)

Direct Benefit Transfer or DBT is an attempt to change the mechanism of transferring subsidies launched
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by Government of India on 1 January 2013. This program aims to transfer subsidies directly to the
people through their bank accounts. In DBT, benefit or subsidy will be directly transferred to citizens
living below poverty line. Central Plan Scheme Monitoring System (CPSMS), being implemented by the
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Office of Controller General of Accounts, will act as the common platform for routing DBT.
Programs part of DBT

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National Child Labour Project

Student Scholarship
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LPG subsidy
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Subprime Lending
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Subprime Lending means making loans to people who may have difficulty maintaining the repayment
schedule, sometimes reflecting setbacks, such as unemployment, divorce, medical emergencies, etc. The
term subprime refers to the credit quality of particular borrowers, who have weakened credit histories
and a greater risk of loan default than prime borrowers.
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Subprime borrowers have credit ratings that might include:
 limited debt experience (so the lender's assessor simply does not know, and assumes the worst), or
 no possession of property assets that could be used as security (for the lender to sell in case of
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default)
 excessive debt (the known income of the individual or family is unlikely to be enough to pay living
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expenses + interest + repayment),
 a history of late or sometimes missed payments so that the loan period had to be extended,
 failures to pay debts completely (default debt), and
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 any legal judgments such as "orders to pay" or bankruptcy (sometimes known in Britain as county
court judgments or CCJs).
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Money Market Instruments
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A money market is a segment of the financial market in which financial instruments with high liquidity
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and very short maturities are traded. The money market is used by participants as a means for
borrowing and lending in the short term, from several days to just under a year.
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Types of Money Market Instruments
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 Treasury Bills (T-Bills)
 Certificates of Deposit
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 Commercial Papers
 Bankers' Acceptances

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Repurchase Agreements
Certificates of Deposit (CDs)

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 CD can be issued by scheduled commercial Bank (excluding RRBs & LAB) & select all India financial
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institution
 Bank is free to issue any amount depending on the requirement
 Minimum 1 lakh & multiple of 1 lakh
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 Can be purchased by Individuals, corporate, trusts, associations /NRI on non repatriation basis (NRI
cannot endorse it in secondary market)
 Banks can issue for minimum 7 days & not more than 1 year
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 It can be fixed rate & floating rate

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 It attracts SLR/CRR
 No loan can be given against CD. Bank cannot by back CD before maturity
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 If maturity date is holiday it will be payable immediate preceding working day

 Duplicate can be issued subject to condition in physical form
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Commercial Papers (CPs)
 Unsecured money market instrument issued in the form of promissory note in terms of RBI Act Sec-
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 Can be issued by corporate/primary dealers /all India financial institutions
 Corporate can issue
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 If tangible net worth is not less than 4 crores as per latest Balance sheet
 Company is sanctioned working capital limit by Bank or All India financial institutions
 Borrowal account is standard asset
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 All eligible people (including corporate) must obtain credit rating from any one of the CRAs
registered with SEBI
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 Minimum rating of A3
 Minimum 7 days maximum upto 1 year
 Maturity date should fall within the period of credit rating
 Minimum 5 lakhs & multiple of 5 lakhs
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 Total CP proposed to be raised within 2 weeks
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 Only a scheduled Bank can act at issuing & paying agent (IPA)
 Individuals, Banking companies, other corporate bodies, NRI /FII (within the limit prescribed by SEBI)
 Either a promissory or dematerialized form
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Call Money, Notice Money and Term Money

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Call Money, Notice Money and Term Money markets are sub-markets of the Indian Money Market.
These refer to the markets for very short term funds. Notice Money is also known as Short Notice
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Money.
 Call Money refers to the borrowing or lending of funds for 1 day.

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 Notice Money refers to the borrowing and lending of funds for 2-14 days.
 Term money refers to borrowing and lending of funds for a period of more than 14 days.
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Ways and Means Advances (WMA)

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All state Governments are required to maintain a minimum reserve balance with RBI, but it depends
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upon the size of the economy of the state and its budget.
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However, there are times, when there is a temporary mismatch in the cash flow of the receipts and
payments of the State Governments. To handle this mismatch, there is a WMA scheme / facility which
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refer to Ways and Means Advances. RBI makes WMA to the state governments for a period of 90 Days.
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Bank Rate
Bank rate is the rate at which central bank (RBI) lends money to commercial banks for meeting shortfall
for a long period without selling or buying any security.
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Repo rate
Rate at which central bank (RBI) lends money to commercial bank for short term liquidity needs. This
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involves bank selling securities to RBI to borrow the money with an agreement to repurchase
(repurchase agreement) them at a later date and at a predetermined price.
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Reverse Repo Rate
This is exact opposite of Repo rate. Reverse repo rate is the rate at which Central bank (RBI) borrows
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money from commercial banks by selling securities. This involves RBI selling securities to banks to
borrow the money with an agreement to repurchase (repurchase agreement) them at a later date and
at a predetermined price.
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Marginal Standing Facility Rate (MSF)
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Marginal Standing Facility (MSF) rate refers to the rate at which the scheduled banks can borrow funds
overnight from RBI against government securities. MSF is a very short term borrowing scheme for
scheduled commercial banks.
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Cash Reserve Ratio (CRR)
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Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which
commercial banks have to hold as reserves in the form of cash with the central bank(RBI). CRR serves
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two purposes. It ensures that a portion of bank deposits is totally risk-free and secondly it enables that
RBI control liquidity in the system.
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Statutory Liquidity Ratio (SLR)

SLR is the percentage of total net demand and time liabilities (NDTL) that commercial banks need to
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maintain in the form of gold, government approved securities before providing credit to the customers.
Net demand and Time Liability (NDTL)

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Demand Liabilities
Demand Liabilities of a bank are liabilities which are payable on demand. These include Saving account
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deposits,Currents account deposits,Matured fixed deposits,Demand Drafts (DDs) etc..
Time Liabilities
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Time Liabilities are the liabilities a commercial bank is liable to pay to the customers after a specific time
period.This includes fixed deposits, cash certificates, cumulative and recurring deposits ect..
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NDTL= (Demand Liablities + Time Liabilities) - Interbanks Deposits.

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Liquidity adjustment facility (LAF)

Liquidity adjustment facility (LAF) is the monetary policy tool by which RBI controls the liquidity in
money market. LAF allows banks to borrow money through repurchase agreements. Two components of
LAF are repo rate and reverse repo rate.
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 While repo injects liquidity into the system, the Reverse repo absorbs the liquidity from the system.
 To inject more money in to the market RBI lowers Repo rate and to absorb money from money
market RBI increases the Repo rate.
 Reverse repo rate is usually 1% less than repo rate.
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 CRR and SLR are also used by RBI for liquidity control.
 As CRR and SLR goes high, funds available with banks for providing credit to customers lower and
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thus reduces money flow which in turn reduces liquidity.
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Derivatives
Derivatives are instruments that derive their value from an underlying security like a share, debt
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instrument, currency or commodity. Futures and options are the two type of derivatives commonly
traded.
Futures
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A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the
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future at a certain price.
Such an agreement works for those who do not have the money to buy the contract now but can bring it
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in at a certain date. These contracts are mostly used for arbitrage by traders. It means traders buy a
stock at a low price in the cash market and sell it at a higher price in the futures market or vice versa.
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The idea is to play on the price difference between two markets for the same stock. In case of futures
contracts, the obligation is on both the buyer and the seller to execute the contract at a certain date.
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Futures contracts are special types of forward contracts.

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Options
An Option gives the buyer the right but not the obligation. As a buyer, you may choose to let the option
to buy call or put option lapse. The seller has an obligation to comply with the contract. In the case of a
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futures contract, there is an obligation on the part of both the buyer and the seller.
Options are of two types - Calls and Puts options:

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'Calls' give the buyer the right, but not the obligation to buy a given quantity of the underlying asset, at a
given price on or before a given future date.
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'Puts' give the buyer the right, but not the obligation to sell a given quantity of underlying asset at a
given price on or before a given future date.
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Mortgage-backed Securities (MBS): any kind of asset-backed security where the underlying assets are
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mortgages. May have one class (tranche), as in the case of pass-through securities, or many classes.
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Collateralized Debt Obligations (CDO): the underlying assets can be any kind of debt (bonds, mortgages,
even other ABS). Always has multiple tranches with different priority of payments.
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An MBS with a CDO-like structure is called a CMO (collateralized morgage obligation). There is a big
difference in the typical purpose of CMOs vs other CDOs though:
CDOs are mainly about apportioning credit risk -- the low-priority tranches buffer the high-priority
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tranches from the risk that some underlying credits will default.
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CMOs, on the other hand, are largely about apportioning prepayment risk. Unlike most other kinds of
debt, mortgages usually give the borrower the right to repay early. Early repayment is usually a bad
thing from the point of view of the mortgage note holder. In CMOs, the lower tranches get repaid first.
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Swap
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A swap is a derivative contract through which two parties exchange financial instruments. These
instruments can be almost anything, but most swaps involve cash flows based on a notional principal
amount that both parties agree to. Usually, the principal does not change hands. Each cash flow
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comprises one leg of the swap. One cash flow is generally fixed, while the other is variable, that is, based
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on a benchmark interest rate, floating currency exchange rate or index price.
The most common kind of swap is an interest rate swap. Swaps do not trade on exchanges, and retail
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investors do not generally engage in swaps. Rather, swaps are over-the-counter contracts between
businesses or financial institutions.
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Non Banking Financial Company (NBFC)

A Non Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 of
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India, engaged in the business of loans and advances, acquisition of shares, stock, bonds hire-purchase,
insurance business or chit business but does not include any institution whose principal business
includes agriculture, industrial activity or the sale, purchase or construction of immovable property.
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Micro Finance Institutions (MFI)

Micro Finance Institutions, also known as MFIs, a microfinance institution is an organization that offers
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financial services to low income populations. Almost all give loans to their members, and many offer
insurance, deposit and other services. A great scale of organizations are regarded as microfinance
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institutes. They are those that offer credits and other financial services to the representatives of poor
strata of population (except for extremely poor strata)
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Mutual Funds
A mutual fund is an investment vehicle, which pools money from investors with common investment
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objectives. It then invests their money in multiple assets, in accordance with the stated objective of the
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scheme. The investments are made by an ‘asset management company’ or AMC.
Merchant Bank
A merchant bank is a financial institution providing capital to companies in the form of share ownership
instead of loans. A merchant bank also provides advisory on corporate matters to the firms in which
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they invest. A merchant bank may perform some of the same services as an investment bank, but it does
not provide regular banking services to the general public.
External commercial borrowing (ECB)
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 As the name suggest, it is when Indian company borrows money from external (non-Indian / foreign)
sources for minimum average 3 years.
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 Money is borrowed from foreign lenders via bank loans, fixed rate bonds, non-convertible shares,
optionally convertible or partially convertible preference shares etc.
 ECB money cannot be used to trade in share market or real-estate speculation or to acquire another
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company
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American Depository Receipt (ADR)
 ADR is method of trading non-U.S. stocks on U.S. exchanges
 Suppose, Indian company wants to raise money from America, by issuing shares in American stock
exchange
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 But then Indian company will have to maintain accounts according to American standards
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 Hence to prevent this problem, Indian company gives its shares to American bank
 American bank gives Indian company certain receipts, called ADR in return of those shares
 Now Indian company can trade those ADR receipts in American share market, to raise money
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 But Indian company will have to pay dividends to investors in Dollars
 ADR is two way fungible, Meaning, (from American investor’s point of view) if you’ve ADR, you can
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convert it into the underlying shares of that (foreign / Indian) company
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Global Depositary Receipt (GDR)

 Serve as same function like ADR, but on Global scale
 Helps third world countries to raise money from the stock exchanges of developed countries
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 Several international banks such as JPMorgan, Citigroup, Deutsche Bank, Bank of New York issue
GDRs
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Indian Depository Receipt (IDR)

 As ADR (American depository receipt) is from America’s point of view, Similarly, IDR (Indian
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depository receipt) is from India’s point of view

 It allows a foreign company to raise money from Indian financial market
 As part of financial reforms, IDR (Indian depository receipts) are also made two ways fungible
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Take-Out Financing
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The largest pool of India's savings are bank deposits, which are necessarily short-term in nature, no
longer than five years. While infrastructure projects in the very least are 7 to 20 years, takeout financing
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is a means to marry short-term funding sources to long-term funding requirements.

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The first five years of the loan are provided by the bank and for the balance years the loan is sold to
government owned institutions like IDFC or IIFCL which can raise long-term resources from the market.
This arrangement enables banks to avoid asset liability mismatches arising due to lending long-term.
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Bill Discounting
In bill discounting, the seller of goods draws up a bill of exchange on the buyer of the goods and then
discounts the said bill of exchange with a bank or financial company. The seller is able to get immediate
finance minus the fee charged by the finance firm. Bill discounting lets the seller recover their
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receivables faster thereby improving cash flow. Before purchasing the bill, the bank or financial
institution has to consider a number of factors including the risk of non-payment associated with the bill
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and the amount of time remaining for the bill to become due.
Factoring
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Factoring is the non-recourse sale of accounts receivables of a business on a daily, weekly, or monthly
basis in exchange for payment. It is a more short term financing based on accounts receivables of a
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business
Forfaiting
It is a new form of post shipment financing to promote exports from the country. It is the sale by an
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exporter of export trade receivables, usually bank guaranteed, without recourse to the exporter. Such
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receivables include Letters of Credit (with or without Bills of Exchange) Promissory Notes with Aval
(guarantee), Bill of Exchange with Aval, Bank Guarantees Payable to an Exporter in one country from an
Importer in another country.
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Bombay Stock Exchange (BSE) - BSE's popular equity index - SENSEX
BSE (formerly known as Bombay Stock Exchange Ltd.), is Asia's first & the Fastest Stock Exchange in
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world with the speed of 6 micro seconds and one of India's leading exchange groups. BSE provides an
efficient and transparent market for trading in equity, debt instruments, derivatives, mutual funds. It
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also has a platform for trading in equities of small-and-medium enterprises (SME).
More than 5500 companies are listed on BSE making it world's No. 1 exchange in terms of listed
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companies. The companies listed on BSE command a total market capitalization of USD 1.64 Trillion as
of Sep 2015. It is also one of the world's leading exchanges (5th largest in September 2015) for Index
options trading. BSE also provides a host of other services to capital market participants including risk
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management, clearing, settlement, market data services and education.

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National Stock Exchange (NSE) - NSE's popular equity index - NIFTY

The National Stock Exchange (NSE) is the leading stock exchange in India and the fourth largest in the
world by equity trading volume in 2015, according to World Federation of Exchanges (WFE). It began
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operations in 1994 and is ranked as the largest stock exchange in India in terms of total and average
daily turnover for equity shares every year since 1995, based on annual reports of SEBI.
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NSE has a fully-integrated business model comprising our exchange listings, trading services, clearing
and settlement services, indices, market data feeds, technology solutions and financial education
offerings. NSE also oversees compliance by trading and clearing members and listed companies with the
rules and regulations of the exchange.
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Balance Sheet Analysis
A balance sheet provides a picture of a company's assets and liabilities, as well as the amount owned by
shareholders. A balance sheet can help you determine what a business is really worth. When reviewed
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with other accounting records and disclosures, it can warn of many potential problems and help you to
make sound investment decisions.
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The balance sheet shows if company's activity is mainly financed by:
 owners’ equity: capital stock, retained earnings, reserve,
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 liabilities: accounts payable, loans payable, tax payable.
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Balance Sheet Elements - Assets
Current Assets
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 To be converted to cash within one Operating Cycle
 Cash & Bank balances
 Investments (as per RBI guidelines)
 Receivables, Sundry Debtors (up to 6 months)
 Bills Receivable
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 Inventory- R.M., SFG, FG (excluding obsolete)
 Advances to Suppliers for R.M.
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 Prepaid Expenses- Tax, Rent, Insurance

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Other Current Assets

 Fixed Assets
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 Plant & Machinery

 Land & Building
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 Furniture & Fixtures

 Vehicles
 To be shown as Gross block less depreciation.
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 No depreciation on land
 (Depreciation to be charged by same method i.e. either Straight Line Method or Written Down
Value Method)
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Other Non- Current Assets

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 Investment for specific purpose

 Debtors beyond 6 months
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 Obsolete Stock
 Investment in Subsidiaries
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 Investment in quoted shares (not connected to business) –RBI guidelines

 Tender/ Security Deposits
 Deferred receivables
 Advance to staff, Directors
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Intangible Assets
 Goodwill (reputation associated with business)
 Copyright (amount paid to author to obtain copyright of book)
 Patents (amount paid for obtaining patent over a new product)
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 Trade Marks, franchise ( amount paid for getting exclusive right for using a brand)
 Preliminary Expenses (company formation expenses capitalised)
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 Losses (Debit balance in P & L a/c)
 Bad Debts not provided
 Deferred Revenue expenditure
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 Pre-operative expenses (before production)
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Balance Sheet Elements - Liabilities
Current Liabilities
 Due within one year from date of Balance Sheet
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 Short term bank Borrowing ( CC/ OD)
 Sundry creditors for trade, Bills Payable
 Advance from customers for supply of goods
 Outstanding/Accrued expenses (rent, insurance) ne
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 Unsecured loans
 Provision for taxation
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 Installments of term Loan (due within 1 year)

 Debentures, Preference Shares due in 1 year
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 Other current Liabilities payable within 1 year

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Term Liabilities
 Due after one year from date of Balance Sheet
 Term Loans
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 Deferred payment credits

 Debentures, Deposit from public
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 Advance from Dealers (payable after termination of dealership) Unsecured loans

 Preference shares ( due after 1 year to 12 years)
 Other term liabilities
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Net Worth
 Paid-up Capital
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 Preference share Capital (due after 12 years)

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 General Reserve
 Capital Reserve (excluding revaluation reserve)
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 Capital Redemption Reserve

 Dividend Equalisation Reserve
 Unsecured loans with undertaking & conditions as Quasi Capital
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IRAC Norms & Recovery of NPA
 NPA-TL-Installments, interest remain unpaid for 90 days

 CC/OD-Account remains out of order for 90 days or limits not renewed for more than 180 days.
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 AGRI- 2 crop seasons for short duration crops 1 crop season for long duration crops.
 Net NPA= Gross NPA less (Provisions, DICGC/ECGC Claims, Part payment received held in sundry,
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other provisions)
Provisions
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 Standard-General-0.40%
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 Agri/SME-0.25%
 CRE-1
 CRE HOUSING- 0.75%
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Provisions for NPA Accounts
Sub Standard - Secured - 15%

Sub Standard - unsecured - 25% ne
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Sub Standard - unsecured - Infrastructure accounts - 20%
Doubtful (Secured) - upto 12 months - 25%(D1)
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Doubtful (Secured) - 12 months to 3 years - 40% (D2)
Doubtful (Secured) - More than 3 years - 100% (D3)
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Doubtful (UnSecured) - 100%

Loss -100%
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IRAC
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 Sub Standard - 4
 Doubtful -D1- 5
 Doubtful -D2-6
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 Doubtful -D3-7
 Loss-8
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SMA
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SMA 0- Interest and Principal not overdue for more than 30 days but showing stress(Return of cheques
more than 3 times within 30 days, Delay in submission of stock statement for more than 90 days,
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Frequent excess in current accounts, Actual turnover and Net profit falling short of projections by 40%.
 SMA 1- Over due between 31-60 days
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 SMA 2- Over due between 61-90 days.
RLB = LB + PWO + unrecovered amount of URI – subsidy / FD / any credit kept in nominal a/cs
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Notional due = RLB as on date of NPA + Int at the rate of 10%(simple) from the date of NPA to the date
of following month of submission of proposal + Add Legal expenses - Less Recovery after NPA
Sacrifice = Notional due - OTS offered
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Wilful Defauters
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A "wilful default" is deemed to have occurred if any of the following events is noted :
 Default in repayment obligations by the unit to the lender even when it has the capacity to
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honour the said obligations.
 Default in repayment obligations by the unit to the lender and has not utilized the finance from
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the lender for the specific purposes for which finance was availed of but has diverted the funds
for other purposes.
 Default in repayment obligations by the unit to the lender and has siphoned off the funds so
that the funds have not been utilized for the specific purpose for which finance was availed of,
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nor are the funds available with the unit in the form of other assets.
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 Default in repayment obligations by the unit to the lender and has also disposed off or removed
the movable fixed assets or immovable property given by it for the purpose of securing a term
loan without the knowledge of the bank/lender.
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Non-Cooperative Borrower
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A non-cooperative borrower is one -

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 who does not engage constructively with his lender by defaulting in timely repayment of dues while
having ability to pay
 thwarting lenders’ efforts for recovery of their dues by not providing necessary information sought
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 denying access to assets financed / collateral securities

 obstructing sale of securities, etc.
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In effect, a non-cooperative borrower is a defaulter who deliberately stone walls legitimate efforts of
the lenders to recover their dues.
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SARFAESI - SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORSEMENT OF

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SECURITY INTEREST.
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Not applicable to
 Loans with outstanding upto Rs 1.00 lac
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 Agrilands
 Where the O/s amount is less than 20% of the outstanding. Where security is not charged and
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limitation period has expired.
Notice served under 13(2)-60 days

Sale notice-30 days notice in public newspaper
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Under Sarfaesi Act-For making an Appeal to DRAT-Deposit of 50% of the due amount should be made,
DRAT may reduce it to 25%
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DRT- DEBT RECOVERY TRIBUNAL-COVERS LOANS OF RS. 20.00 LACS AND ABOVE
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 Presiding officer appointed by Central Govt for 5 years maximum age of 62
 Disposal of application within 180 days from the date of receipt.
 Appeal can be made to DRAT(DEBT RECOVERY APPELATE TRIBUNAL) within 45 days from the date
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Order subject to deposit of 75% of the due amount.
 DRAT to dispose the case within 180 days
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CERSAI-CENTRAL REGISTRY OF SECURITISATION ASSET RECONSTRUCTION AND SECURITY INTEREST OF

INDIA
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 EM to be registered within 30 days with CERSAI from the date of creation of mortgage.
 Appeal can be made to DRAT(DEBT RECOVERY APPELATE TRIBUNAL) within 45 days from the date
Order subject to deposit of 75% of the due amount.
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LOK ADALAT
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 Account should be classified as Doubtful and Loss category.

 Cases involving upto Rs 20.00 lacs.

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Lok Adalat if conducted by DRT no ceiling is applicable.

 Supreme court has suggested that personal loans upto Rs 10.00 lacs should be settled through Lok
Adalats
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CGTMSE-CREDIT GUARANTEE FUND TRUST FOR MICRO AND SMALL ENTERPRISES.

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WOMEN AND NORTH EASTERN MICRO ENTERPRISES OTHERS

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STATES
UPTO RS 5.00 LACS – 80 % UPTO RS 5.00 LACS – 85 % UPTO RS 5.00 LACS – 75 %
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Rs. 5.00 TO Rs. 50.00 Lakhs - Rs. 5.00 TO Rs. 50.00 Lakhs – Rs. 5.00 TO Rs. 50.00 Lakhs –
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80% - Rs. 40.00 Lakhs 75% - Rs. 37.50 Lakhs 75% - Rs. 37.50 Lakhs
Rs. 50.00 TO Rs. 100.00 Lakhs – Rs. 50.00 TO Rs. 100.00 Lakhs – Rs. 50.00 TO Rs. 100.00 Lakhs –
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(Maximum Rs. 10.00 Lakhs) (Maximum Rs. 13.50 Lakhs) (Maximum Rs. 13.50 Lakhs)
Maximum Cover – Rs. 50 Lakhs Maximum Cover – Rs. 50 Lakhs Maximum Cover – Rs. 50 Lakhs
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ANNUAL GUARANTE FEE
 Women, Microenterprises, North Eastern Regions

 Upto Rs 5.00 lacs - 0.75 %
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 Rs 5.00 to Rs 100.00 lacs - 0.85 %
 Others Irrespective of loan amount – 1 %
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 Marginal Farmer: A farmer cultivating (owner/tenant) agriculture land upto 1 hectare or 2.50 acres.
 Small farmers: A farmer cultivating(owner/tenant) agriculture land above 1 hectare but upto 2
hectare(5 acres)
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PERIOD OF LIMITATION AT A GLANCE
Sr.
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TYPE OF DOCUMENT PERIOD OF LIMITATION
1. 3 years from the date of debit in the account
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Temporary O.D. (as per ledger)
2. D.P. Note 3 years from the date of execution
Bill of Exchange or Promissory Note
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3.
payable at a fixed time after date 3 years from the date when it falls due
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Bill of Exchange payable at sight or after 3 years from the date when the Bill is presented
4.
sight
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Promissory Note or Articles of Agreement 3 years from the date when the default is made.
payable by instalments, which provide
that, if default is made in payment of one
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5.
or more instalments the whole shall be
due.
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To redeem or recover, possession of 30 years, When the right to redeem or to recover

immovable property mortgaged possession accrues.
12 years from the date of mortgage
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Money payable on Demand if the amount

12 years from the date when the default is made
6. is payable by installments personal liability 3 years from the date of execution of
on a mortgage Mortgage Deed.
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3 years from the date of demand on the

7.
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Letter of Guarantee guarantor

Agreements (like Pledge Hypothecation) 12 years from the date of execution
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8.
not related to D.P. Notes
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Restrictions on loans and advances
No banking company shall -

 grant any loans or advances on the security of its own shares, or
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 enter into any commitment for granting any loan or advance to or on behalf of-
 any of its Directors,
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 any firm in which any of its Directors is interested as Partner, Manager, Employee or Guarantor,
or
 any company (not being a subsidiary of the banking company or a company registered under
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section 25 of the Companies Act, 1956 (1 of 1956), or a government company, of which 15[or
the subsidiary or the holding company of which] any of the Directors of the banking company is
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a Director, Managing Agent, Manager, Employee or Guarantor or in which he holds substantial
interest,
 any individual in respect of whom any of its Directors is a partner or guarantor.
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Selective Credit Control Methods of RBI
Under this method, extension of credit to essential purposes is encouraged and to non-essential
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purposes is discouraged. Hence these methods not only prevent the flow of credit into undesirable
channels but also direct the flow of credit to useful channels.
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The following are the different methods of selective credit control methods adopted by the RBI.
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 Ceiling on Credit
 Margin Requirements
 Discriminatory Interest Rate (DIR)
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 Directives
 Direct Action
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 Moral Suasion
 Rationing of Credit
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Fair Practice Code

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The Indian Banks’ Association has drafted and circulated a voluntary code which sets the standards for
fair practice standards when dealing with individual customers. Though voluntary, the standards set by
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the IBA in the Fair Practice Code provide valuable guidance to Banks in dealing with customers setting
higher standards in our dealings with customers and promotes competition and market forces.
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It is, and shall be, the Bank's policy to make credit products available to all qualified applicants without
discrimination on the basis of race, caste, colour, religion, sex, marital status, age (over that of majority),
or handicap.
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Credit Information Companies (CIC’s)
They are third-party institutions which collect and maintain records pertaining to loans and credit cards
payments of individuals’ and commercial entities from various lenders. In order for a lender to get
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access to such information, it has to choose to become a member of the CIC first. Then, it needs to share
its customers’ loan/ and/or credit card information with all other members. The individual’s consent is
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not required. The CIC’s provide the members a summary of the credit information (Credit Score and / or
Credit Information Report) of the applicant.
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The core purpose of establishing CIC’s is promoting healthy credit penetration while boosting
sustainable retail credit growth in the economy. The lenders benefit by taking informed credit decisions
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leading to effective risk management.
A Credit Information Company is licensed by the Reserve Bank of India and governed by The Credit
Information Companies (Regulation) Act, 2005 and various Rules and Regulations issued by RBI. Foreign
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Ownership in CIC’s is restricted to 74%.
Credit Syndication
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A syndicated loan, also known as a syndicated bank facility, is a loan offered by a group of lenders –
referred to as a syndicate – that work together to provide funds for a single borrower. The borrower
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could be a corporation, a large project or a sovereignty, such as a government. The loan can involve a
fixed amount of funds, a credit line or a combination of the two.
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Syndicated loans arise when a project requires too large a loan for a single lender or when a project
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needs a specialized lender with expertise in a specific asset class. Syndicating the loan on a project
allows lenders to spread risk and take part in financial opportunities that may be too large for their
individual capital base. Interest rates on this type of loan can be fixed or floating.
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Consortium Financing
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Like a loan syndication, consortium financing occurs for transactions that might not take place with a
single lender. Several banks may agree to jointly supervise a single borrower with a common appraisal,
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documentation and follow-up.
Consortiums are not built to handle international transactions such as a syndication loan; instead, a
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consortium may arise because the size of the project at hand is simply too large or too risky for any
single lender to assume. Sometimes the participating banks form a new consortium bank that functions
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by leveraging assets from each institution and disbands after the project is complete.
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Multiple Financing:
Under Multiple Lending Arrangement, the borrower avails finance from two or more banks by applying
directly. But the banks are not bound to observe common norms. But the borrower has to submit the
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quarterly statement related to the limits availed from various banks and charges on securities &
certificate from the company’s auditor.
MCLR
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 MCLR (Marginal Cost of Fund based Lending Rate) is the internal benchmark rate for banks used
for benchmarking floating rate loans effective from 1st April 2016
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 MCLR is based on cost of funds for banks and is derived as sum of marginal cost of funds,
negative carry on account of CRR, operating costs of banks and tenor premium
 As MCLR is closely linked to repo rate, it will improve the transmission of RBI’s repo rate cut to
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the end borrower
 Banks publish MCLR for at least five durations which are overnight MCLR, 1 month MCLR, 3
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month MCLR, 6 month MCLR and 1 year MCLR. However banks may publish MCLR base rates for
more than five periods. The banks may revise the MCLR rate every month.
 Interest rate on each floating rate loan would be reset on based on the duration of the MCLR to
which it is linked
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Contracts of Indemnity
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A Contract of Indemnity is a contract by which one party promises to save the other from loss likely to
be caused to him. This loss can be, either by the conduct of the promisor himself or by the conduct of
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any other person. The indemnity holder (i.e. the promisee or the person who is indemnified) has the
following rights when sued (i.e. when a legal action is taken against the person who has indemnified).
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The promisee is entitled to recover from the promisor, in respect of the matter to which the promise to
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indemnify applies:
 All damages which he may be compelled to pay in any suit.
 All costs which he may be compelled to pay in any suit.
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 All sums paid in compromise, not contrary to indemnity.

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Contracts of Guarantee
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A 'Contract of Guarantee' is a contract to perform the promise, or discharge the liability, of a third
person in case of latter's default. A guarantee may be either oral or written. The question whether a
particular contract is a contract of indemnity or guarantee has to be decided by examining the language
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of the documents entered into between the parties and the nature of transaction.
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Parties of Contract of Guarantee

 The person who gives the guarantee is called the 'surety'.
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 The person in respect of whose default the guarantee is given is called the 'principal debtor'.
 The person to whome the guarantee is given is called 'creditor/beneficiary'.
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Contracts of Bailment
A 'bailment' is the delivery of goods by one person to another for some purpose. When the purpose is
accomplished, the goods are to be returned or otherwise disposed of according to the direction of the
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person delivering them.
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The person delivering the goods is called the 'bailor'.
The person to whom they are delivered is called the 'bailee'.
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The bailor is bound to disclose to the bailee faults in the goods bailed
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 of which the bailor is aware,
 and which materially interfere with the use of them,
 or expose the bailee to extraordinary risk;
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and if he does not make such disclosure, he is responsible for damage arising to the bailee directly from
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such faults. If the goods are bailed for hire, the bailor is responsible for any damage whether he was
aware of the existence of such faults in the goods bailed or not.
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Pledge
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The bailment of goods as security for payment of a debt or performance of a promise is called 'pledge'.
Pledge is used when the lender (pledgee) takes actual possession of assets (i.e. certificates, goods ).
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Such securities or goods are movable securities. In this case the pledgee retains the possession of the
goods until the pledgor (i.e. borrower) repays the entire debt amount.
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In case there is default by the borrower, the pledgee has a right to sell the goods in his possession and
adjust its proceeds towards the amount due (i.e. principal and interest amount). Some examples of
pledge are Gold /Jewellery Loans, Advance against goods,/stock, Advances against National Saving
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Certificates etc. The bailor is in this case called 'pawnor'. The bailee is called 'pawnee'.
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Nature of Pledge
 If the pawnor makes default in payment of the debt in respect of which the goods were pledged,
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the pawnee may bring a suit against the pawnor and retain the goods pledged as a security (or)
he may sell the goods pledged, after giving notice of the sale to the pawnor.
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 If the proceeds of such sale are less than the amount due, in respect of the debt, the pawnor is
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still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the
pawnee shall pay over the surplus to the pawnor.
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Difference between Indemnity and Guarantee

Basis for
Comparison Indemnity Guarantee
Meaning A contract in which one party A contract in which a party promises to
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promises to another that he will another party that he will perform the
compensate him for any loss contract or compensate the loss, in case
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suffered by him by the act of the of the default of a their person, it is the
promisor or the third party contract of guarantee
Defined in Section 124 of Indian Contract Act, Section 126 of Indian Contract Act, 1872
s.
1872
Parties Two, indemnifier and indemnified Three, creditor, principal debtor, surety
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Number of Contracts One Three
Degree of liability of Primary Secondary
the promisor
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Purpose To compensate for the loss To give assurance to the promisee
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Maturity of Liability When the contingency occurs Liability already exists
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Difference Between Bailment and Pledge
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Basis for
Comparison Bailment Pledge
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Meaning When the goods are temporarily When the goods are delivered to act as
handed over from one person to security against the debt owed by one
another person for a specific person to another person, it is known as
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purpose, it is known as bailment the pledge

Defined in Section 148 of the Indian Contract Section 172 of the Indian Contract Act,
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Act, 1872 1872

Parties The person who delivers the goods is The person who delivers the goods is
known as the Bailor while the person known as Pawnor while the person to
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to whom the goods are delivered is whom the goods are delivered is known
known as Bailee as Pawnee
Consideration
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May or may not be present Always present

Right to sell the The party whom goods are being The party whom goods are being
goods delivered has no right to sell the delivered as security has the right to sell
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goods the goods if the party who delivers the

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goods fails to pay the debt

Use of Goods The party whom goods are being The party whom goods are being
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delivered can use the goods only, for delivered has no right to use the goods
the specified purpose
Purpose Safe keeping or repairs, etc As security against payment of debt
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Hypothecation
Hypothecation is used for creating charge against the security of movable assets, but here the
possession of the security remains with the borrower itself. Thus, in case of default by the borrower,
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the lender (i.e. to whom the goods / security has been hypothecated) will have to first take possession
of the security and then sell the same.
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The best example of this type of arrangement are Car Loans. In this case Car / Vehicle remains with the
borrower but the same is hypothecated to the bank / financer. In case the borrower, defaults, banks
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take possession of the vehicle after giving notice and then sell the same and credit the proceeds to the
loan account. Other examples of these hypothecation are loans against stock and debtors. [Sometimes,
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borrowers cheat the banker by partly selling goods hypothecated to bank and not keeping the desired
amount of stock of goods.
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Assignment
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An assignment constitutes an action taken with a contract. Assignment occurs when the owner of a
contract, known as the assignor, gives a contract to another party, known as the assignee.
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The assignee assumes all responsibilities and benefits of the contract. When it comes to loans,
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assignment can relate to life insurance policies and mortgage contract from one party to another.
Mortgages and other contracts sometimes contain provisions limiting or stipulating conditions for
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assignment.
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Mortgage of Security
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 As per Section 58 a of Transfer of Property Act 1882 “ A mortgage is the transfer of an interest in
specific immovable property for the purpose of securing the payment of money advanced or to be
advanced by way of loan, an existing or future debt, or the performance of an engagement which
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amy give rise to a pecuniary liability.

 In the transaction of mortgage, the person who is transferring the property (transferor/borrower or
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the person providing the security on behalf of the borrower) is called mortgagor and the person or
entity in whose favour the mortgage is created is the mortgagee ( the lender or the bank)
 The principal and the interest involved in the transaction is called mortgage money and the
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instrument by which the transaction is taking place is called mortgage deed.

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Important parts of Mortgage

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 Mortgagor who provides the security

 Mortgagee in whose favour mortgage is done
 There should be a debt, which may be existing or future
 The immovable property offered as security
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Types of mortgage
Simple Mortgage
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 Simple mortgage is also called registered mortgage. In Simple Mortgage, without delivering the
possession of the mortgaged property the mortgagor binds himself personally to pay the mortgage
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money. In case if the mortgagor fails to make payment as per the agreed terms and conditions, the
mortgagee will have a right to get the property sold and to adjust for the mortgaged money.
 The simple mortgage is to be created before the sub-registrar after duly stamping the same and
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registering under Indian Registration Act 1908.
 This method of mortgaging is very much necessary if the mortgagor has the ownership of the
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property and could not produce all the relevant documents.
Mortgage by conditional sale
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In a mortgage by conditional sale, the mortgagor ostensively sells the mortgaged property, on a
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condition that, the sale will become absolute on a certain agreed date if the mortgagor fails to repay the
mortgage money. And the sale will become void if the money is repaid as per the terms and conditions.
Sometimes, the condition would such that in case of payment of mortgaged money as per the
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agreement, the buyer (Lender) will resale the property to the seller (Borrower).
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Usufructuary Mortgage
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In this type of mortgage the creditor (Mortgagee) is placed in possession of the property and he is
entitled to enjoy the income generated by the property (e.g., rent) and appropriate the same towards
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the interest and principal of the mortgage money. In this mortgage the physical possession is given to
the mortgagee and the mortgagee can retail the possession until the payment of mortgage money.
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English Mortgage
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English Mortgage is a registered mortgage by which the entire property gets transferred in the name of
the mortgagee and upon repayment of the debt on certain date appointed date, the property will be re-
conveyed to the Mortgagor.
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Mortgage by deposit of title deeds

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 Most popular method in India is ‘Mortgage by Deposit of Titles’ which is commonly known as
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Equitable Mortgage.
 As per Transfer of Property Act ‘Equitable Mortgage’ is a mortgage by Deposit of Title Deeds of
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Immovable Property with the mortgagee or his agents with an intention to create a security
thereon. There is no necessity to register the Equitable Mortgage. But, as the housing loan frauds
are mounting, many states have made it compulsory to register the mortgage.
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The three basic requirements for creating Equitable Mortgage are as follows:
 The place of deposit of Document of Title to the Property with the creditor or his agent must be one
among the notified areas under Section 58 (f ) of Transfer of Property Act. (Notified area)
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 The deposit of title is necessarily made to secure a debt
 Deposits of Title Deeds must be made with an intention to create a security on the property
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intended to be mortgaged.
Notified Area
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Kolkatta, Chennai, Mumbai and any other town which the State Government concerned may by
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notification in the Official Gazatte, under the provisions of Sec 58 f of Transfer of Property Act.
Anomalous Mortgage
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An Anomalous Mortgage is the one which is not falling under any of the categories discussed above. This
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type of mortgage is almost non-existent.
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Attributes of Good Security
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A secured advance is not really secured, unless the security deposited satisfies certain requirements.
There must be critical appraisal of security. Let’s discuss about attributes of good security.
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There are two angles to appraisal of the security. One is the legal angle regarding the validity and
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enforce ability of the security. The second angle is the economic one, involving consideration of
marketability, valuation and other economic considerations.
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1. Legal Aspects
Ascertainment of title: It should be possible for the banker to know that the borrower’s title to the
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security is clear and undisputed. It has, therefore, to be verified if there are any other interests in the
security such as poor charges or encumbrances thereon. The solicitors have to verify the title of the
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borrower to the property.
Validity of title: The banker cannot enforce the security unless he obtains a valid title form the borrower.
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If there is any defect in the title of the borrower, the banker can obtain only a defective title. The rule is
that no one can convey a better title than what he has.
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So, the banker will not be in a position to sell the security if he himself about the title of the borrower.
The legal interest must be properly conveyed to the banker by executing the appropriate instrument.
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2. Economic aspects
Marketability: The security taken must be readily sale-able with the minimum of expenses and without
this essential attribute of ready reliability, the security is worthless.
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Easy ascertainment of value: The security must be capable of being valued with ease.
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Stability of price: The value of security must be fairly stable. Banker must also make sure that value of
the security does not fluctuate violently over short periods. Where such heavy variation in prices of
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security is apprehended, banker may accept such security only with a higher margin.
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Easy storability: Where goods are pledged, the banker must keep them under his custody when it is
possible for him to supervise.
Durability
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A security should be reasonably durable. Perishable commodities like vegetable, fruits, fish as securities.
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Some of the commodities like chilies, woolen garments etc. require special care in storage; otherwise
they depreciate in quality and value.
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Transportability: A security should be of such a nature that it can be moved from one place to another
without much difficulty.
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Cost consideration
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Certain securities are very costly to keep. For example, if an advance is given by obtaining a pledge of
the goods, the banker has to maintain godowns, appoint store keepers, insure the goods etc. Instead of
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advancing against goods, it may be preferable to advance against reliable warehouse-keeper

transferable receipt as security.
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Absence of contingent liability

A security which carries with it an onerous liability as in the case of partly paid shares where unpaid
amount on the share money has to be paid to the company, when calls are made, cannot be considered
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a suitable security. Therefore, a banker should prefer fully-paid shares to partly-paid shares as security
because it is free from such disabilities.
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Yield
A security which provides a steady income is most welcome to the banker, since such income enhances
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the value of the security and also facilitates the repayment of capital and interest; for example securities
like gilt-edged securities and highly marketable shares on which substantial dividend is regularly
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received.
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In practice, hardly any security possesses all the desirable attributes mentioned above and such defects
as exist in the security are sometimes covered by taking a higher margin.
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Margin
As a rule, the banker should not lend full value of the security. The borrower must have substantial stake
and only then he will take proper interest in the business to make it a more success than may be in the
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case when he is dealing entirely with borrowed funds.
 In banking terminology, margin means the difference between the market value of security and
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the amount of advance granted against it.
 Banker must keep a cushion against possible fluctuation in prices, shortage and depreciation in
storing, for increase due to application of interest.
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 There has always to be some margin to cover cost of realizing the dues by sale of the assets in
the value of the securities and the amount up to which the borrower can draw is known as
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margin.
 The percentage of margin to be kept differs from one security to another because of several
factors such as price fluctuation, marketability, deterioration in storage, possible loss from such
hazards as fire, burglary etc.
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 Finally it is the business integrity of the borrower. i.e., his overall character which ranks above
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everything else for a banker to determine the margin to be kept.
Documentation
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In granting secured advances, a task of practical importance is the execution of legal documents.
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Although there are no hard and fat rules about the documents to be taken and each bank has its own
set of forms, there is agreement on fundamentals.
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Apart from the promissory note given under the signature/seal of the borrower, the usual document
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associated with secured advances is:
 Letter of pledge/hypothecation duly signed by the borrower;

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 Letter of continuity;
 Letter of declaration, bearing appropriate stamps, by the borrower that the goods are according
to specifications, and he has got the right and title to pledge them; and
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 Letter of lodgement-take delivery order. These documents should preferably be in writing so

that in case of any disagreement, the terms and conditions therein could be referred to.
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Types of Collateral
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There are normally five main types of collateral :

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 Consumer goods are products purchased by the mainstream consumer, such as an automobile.
 Equipment includes items predominantly used in business or government operations.
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 Farm products include livestock and crops.

 Inventory consists of raw materials or work in progress.
 Property on paper includes stocks, bonds, and even funds held in a savings or checking account.
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Contracts of Agency
An agent, is a person employed to do any act for another person or to represent another person in
dealings with some third person. The person for whom such act is done (or who is represented) is called
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the principal.
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The contract between the principal and his agent is a contract in itself and that is also governed by the
normal rules of contract. Any person who is a major according to the law of which he is subject, and who
is of sound mind, may employ an agent.
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Any person can become an agent, if he is a major and of sound mind. No consideration is necessary to
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create an agency. The authority of an agent may be expressed or implied. An authority is said to be
expressed, when it is given by words spoken or written. An authority is said to be implied when it is to
be inferred from the circumstances of the case.
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Restructured loan
New loan that replaces the outstanding balance on an older loan, and is paid over a longer period,
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usually with a lower installment amount. Loans are commonly rescheduled to accommodate a borrower
in financial difficulty and, thus, to avoid a default.
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Corporate Debt Restructuring (CDR)

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Corporate Debt Restructuring (“CDR”) mechanism is a voluntary non statutory mechanism under which
financial institutions and banks come together to restructure the debt of companies facing financial
difficulties due to internal or external factors, in order to provide timely support to such companies.
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The CDR Mechanism covers only multiple banking accounts, syndication/consortium accounts, where all
banks and institutions together have an outstanding aggregate exposure of Rs.100 million and above. It
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covers all categories of assets in the books of member-creditors classified in terms of RBI's prudential
asset classification standards. Even cases filed in Debt Recovery Tribunals/Bureau of Industrial and
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Financial Reconstruction/and other suit-filed cases are eligible for restructuring under CDR.
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Asset Reconstruction Companies (ARC)

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It purchases the bad loans or non performing assets (NPA) issued by commercial and other banks.
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Example: Suppose a bank has issued a loan worth 100 crore to a company which has turned out to be
bad, an asset reconstruction company purchases that loan from bank for less than 100 crore.
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Credit Appraisal
Banks use the credit appraisal services for themselves before providing loan to a borrower. The Credit
Appraisal process is based on careful analysis of various facts and data provided by the borrower to the
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bank. After the proper credit appraisal process, banks takes a decision to either fund the project or
reject the proposal. This in-depth study is called the pre-sanction credit appraisal which helps the
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approver to sanction the loan to the borrower.
Credit appraisal takes care of
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 Borrower’s ability to complete the project and its intention to re-pay the loan after
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commissioning of the project
 All the technical details related to the project like project requirement, end product,
maintenance, project specifications, quality etc.
 All the financial details related to the project like Cash Inflow, Cash Outflow, NPV, Break Even
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period, growth opportunity etc.
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 Financial appraisal to determine whether the company will be able to repay the loan from
incremental cash flows or not.
 Market Appraisal to determine whether the project is viable or not and what are chances of
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being successful
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Advantages
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 Reduces risk involved in the loans provided for a project

 Increase confidence among the corporate bankers and improved sales decision

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Reduces NPA (Non-Performing Assets) and possibility of financial loss

 Proper assessment is done with different options
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Pre- sanction appraisal
It is concerned with measurement of risk of a loan proposal.

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Requirements:
 Financial data of past and projected working results
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 Detailed credit report is compiled on the borrower/surety

 Market reports, Financial/ audited accounts
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 Income tax and other tax returns/assessments

 Confidential reports from banks and other FIs
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 Appraisal should reveal whether the proposal is a fair banking risk.

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Post sanction appraisal
Depends to a large extent on the pre sanction appraisal
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Requirements:
 Documentation of the facility and after care follow up
 Supervision thro monitoring of transactions in loan account
 Scrutiny of periodical statements submitted by borrower
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 Physical inspection of securities and books of accounts of the borrower
 Periodical reviews and renewals
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Need for post sanction supervision
s.
 Lending decisions are based on sound appraisal and assessment of credit worthiness
 Past record of satisfactory performance and integrity are no guarantee for future though they
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serve as a useful guide to project the trend in performance,
 Credit assessment is made based on promises and projections
 A loan granted on the basis of sound appraisal may go bad because the borrower did not carry
out his promises regarding performance.
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Objectives of post sanction supervision
 To ensure compliance with the terms and conditions of sanction

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 To ensure that the assumptions on the basis of which the credit decisions were made were
correct.
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 To ensure end use of funds
 To ensure adequacy of credit on an ongoing basis depending upon the actual requirement of the
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borrower
 To monitor health of the unit and detect signals of weaknesses in the financial position of the
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borrower.
 The process of the supervision and follow up starts immediately after the limit is sanctioned.
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Indicative activities of post sanction follow up
 Conveying sanction of advances to the borrower detailing the terms and conditions and
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acceptance thereof.
 Completion of appropriate documentation before disbursement of loans/ advances
 Keeping the documents in effective custody and maintaining validity by periodic revival of
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documents during the currency of loans

 Creation of charge over security and completion of relevant formalities
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 Creation of charge
 Registration with ROC
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 Periodic search of charge with the authority should be done to protect the bank’s interest
 Ensuring compliance by borrower of all pre-disbursal activities and requirements and continued
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compliance with the terms till the loan is liquidated

 Conducting periodic inspections/visits at stipulated intervals
 Obtaining from the borrowers and scrutiny /analysis of the following financial statements and
non financial statements
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 Stock statements
 Annual and mid term financial statements
 Ongoing scrutiny of transactions in various accounts by perusal of ledgers, registers, vouchers,
to watch proper conduct of loan accounts, healthy turnover therein and end use of funds
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 Maintaining ongoing contact with the borrower and co-lenders
 Timely recognition of unsatisfactory features in the conduct of advance such as:
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 Delays in project implementation
 Unusual developments / changes in the business environs
 Shortfall in achievement of production/sales as compared to projections
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 Non-fulfilment of financial obligations to the bank, co-lenders, and creditors and non payment
of statutory dues.
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 Any other deficiency noted during the periodic visit
 Advising the borrowers to initiate the corrective action and submitting reports to the controlling
authority on further developments in the matter
 Follow up of and rectification of irregularities pointed out in various inspection / audit reports
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including
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 RBI Inspection report
 Central office inspection report
 Concurrent audit report
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 Statutory audit report
 Recovery of applicable charges/fees/penalties
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 Preparation of review of IRAC identification of deteriorating assets/potential NPAs and initiation
of corrective action
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Documentation - Needed
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 Evidence of bank having given money/ advance

 Receipt of borrower having received money/facility
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 Details the terms and conditions on which the money/facility are sanctioned
 Purpose for which the money /facility was sanctioned
 Defines security
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 Creates charge on the security

 Defines default clauses

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Decides and facilitates legal action

 Specifies the rights and obligations of each of the parties
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Properly executed document

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 Fully completed without blanks


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Signed
 Stamped
 Registered , if required
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Supervision
 Ensure proper follow up of advances and observance of systems laid down by the bank at the
operating level.
 Periodic and random examination of registers, accounts and books at the branch
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 Ensuring that the security documents are kept current and that officials observe all related
documentation facilities
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 Ensuring that (i) proper arrangements are in place for recovery of applicable charges /fees/
penalties and income leakage is checked
 Ensure timely reviews / renewals of credit facilities
s.
Monitoring
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 Ensuring that effective supervision is maintained on loans/ advances by the lower level
functionaries. Scrutiny of returns / reports received from these line functionaries, interaction
with them feed back from customers , observations in audit / inspection reports will assist this
process.
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 Monitoring of high value advances through specific focus on these in returns / reports received
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 Ensuring non recurrence of commonly noticed lapses /irregularities pointed out in various
reports
 Examination of NPAs with a view to recognizing problem assets, drawing up recovery/
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upgradation path for these and monitoring recovery process
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Net present value (NPV)

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Net present value (NPV) is the difference between the present value of cash inflows and the present
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value of cash outflows. NPV compares the value of a dollar today to the value of that same dollar in the
future, taking inflation and returns into account. NPV analysis is sensitive to the reliability of future cash
inflows that an investment or project will yield and is used in capital budgeting to assess the profitability
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of an investment or project.
If the NPV of a prospective project is positive, the project should be accepted. However, if NPV is
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negative, the project should probably be rejected because cash flows will also be negative.
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Internal rate of return (IRR)
Internal rate of return (IRR) is the discount rate often used in capital budgeting that makes the net
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present value of all cash flows from a particular project equal to zero. Generally speaking, the higher a
project's internal rate of return, the more desirable it is to undertake the project. As such, IRR can be
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used to rank several prospective projects a firm is considering. Assuming all other factors are equal
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among the various projects, the project with the highest IRR would probably be considered the best and
undertaken first.
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Fund based lending
Fund based lending, where the lending bank commits the physical outflow of funds. The various forms in
which fund based lending may be made by banks:
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1) Loan
2) Overdraft
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3) Cash Credit
4) Bills Purchased/Discounted
5) Working Capital Term Loans
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6) Packing Credit
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Non-fund based lending
Non fund based lending, where the lending bank does not commit any physical outflow of funds. The
funds position of the lending bank remains intact. The non-funding based lending can be maid in two
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forms:
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 Bank Guarantees
 Letter of Credit
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Bank Guarantee
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Bank Guarantee is a non fund based lending given by the bank to ensure that the liabilities of a debtor
will be met. This facility enables the customer to acquire goods, buy equipment and thereby expand
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business activity
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Letter of Credit
Letter of Credit is a non fund based lending which is very regularly found in international trade. This
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facility is given when the exporter and importer are unknown to each other. In this case, the importer
applies to his bank (Issuing Bank) in his country to open a letter of credit in favour of exporter whereby
the importers’ bank undertakes to pay the exporter on fulfilling the terms and conditions specified in
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the letter of credit.

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Following are the parties involved in a letter of credit :

 Importer
 Issuing Bank, Bank of Importer
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 Advising Bank, which is in Exporter’s country, which notifies the exporter about opening of letter
of credit.
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 Confirming Bank, confirms the letter of credit in case the exporter is not satisfied about the
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security offered by the importer.

 Exporter, who is the beneficiary
 Negotiating Bank, whom the exporter submits the documents.
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Working Capital
A company can be endowed with assets and profitability but may fall short of liquidity if its assets
cannot be readily converted into cash. Positive working capital is required to ensure that a firm is able to
continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and
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upcoming operational expenses. The management of working capital involves managing inventories,
accounts receivable and payable, and cash. Working capital is calculated as:
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Working Capital = Current Assets - Current Liabilities
s.
The working capital ratio (Current Assets/Current Liabilities) indicates whether a company has enough
short term assets to cover its short term debt. Anything below 1 indicates negative W/C (working
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capital). While anything over 2 means that the company is not investing excess assets.
Short term business finance and working capital solutions

 Bank overdraft
x
 Invoice discounting
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 Factoring
 Income received in advance
 Advances received from customers
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 Instalment credit
 Commercial papers
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 Trade finance
 Letter of credit
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Long term sources of working capital financing

 Equity capital
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 Loans
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Management of working capital

 Cash management. Identify the cash balance which allows for the business to meet day to day
expenses, but reduces cash holding costs.
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 Inventory management. Identify the level of inventory which allows for uninterrupted production
but reduces the investment in raw materials—and minimizes reordering costs—and hence increases
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cash flow. Besides this, the lead times in production should be lowered to reduce Work in Process
(WIP) and similarly, the Finished Goods should be kept on as low level as possible to avoid
overproduction—see Supply chain management; Just In Time (JIT); Economic order quantity (EOQ);
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Economic quantity
 Debtors management. Identify the appropriate credit policy, i.e. credit terms which will attract
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customers, such that any impact on cash flows and the cash conversion cycle will be offset by
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increased revenue and hence Return on Capital (or vice versa); see Discounts and allowances.
 Short-term financing. Identify the appropriate source of financing, given the cash conversion cycle:
the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to
utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring".
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Prompt Corrective Action (PCA) Framework for Commercial Banks
The RBI has specified the following regulatory trigger points to commercial banks, as a part of prompt
corrective action (PCA) Framework.
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CRAR less than 9%, but equal or more than 6% - Banks are required to submit capital restoration plan
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to RBI. Further, there will be restrictions on RWA expansion, entering into new lines of business,
accessing / renewing costly deposits, and making dividend payments, borrowing from inter-bank
s.
market, reduction of stake in subsidiaries, reducing its exposure to sensitive sectors like capital market,
real estate or investment in non-SLR securities, etc. In case where CRAR less than 6%, but equal or more
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than 3%, RBI could take steps to bring in new Management/Board, appoint consultants for
business/organizational restructuring, take steps to change ownership. In case CRAR less than 3%,
impose moratorium on the bank and also initiate steps to merge / amalgamate / liquidate the bank.
x
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Net NPAs over 10% but less than 15% - Special drive to reduce NPAs and contain generation of fresh
NPAs; review loan policy and take steps to strengthen credit appraisal skills, follow-up of advances and
suit-filed/decreed debts, put in place proper credit-risk management policies; reduce loan
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concentration; restrictions in entering new lines of business, making dividend payments and increasing
its stake in subsidiaries. Where Net NPAs 15% & above, Bank’s Board is called for discussion on
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corrective plan of action.

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ROA less than 0.25% - Restrictions on accessing costly deposits, entering into new lines of business,
bank’s borrowings from inter-bank market, making dividend payments and expanding its staff; steps to
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increase fee-based income; contain administrative expenses; special drive to reduce NPAs and contain
generation of fresh NPAs; and restrictions on incurring any capital expenditure other than for
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technological up-gradation and for some emergency situations.

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The salient features of revised PCA Framework for Banks
 Capital, asset quality and profitability continue to be the key areas for monitoring in the revised
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framework.
 Indicators to be tracked for Capital, asset quality and profitability would be CRAR/ Common Equity
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Tier I ratio1, Net NPA ratio2 and Return on Assets3 respectively.

 Leverage would be monitored additionally as part of the PCA framework.
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 Breach of any risk threshold (as mentioned in RBI circular -

https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=10921) would result in invocation of
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PCA.
 The PCA framework would apply without exception to all banks operating in India including small
banks and foreign banks operating through branches or subsidiaries based on breach of risk
thresholds of identified indicators.
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 A bank will be placed under PCA framework based on the audited Annual Financial Results and the
Supervisory Assessment made by RBI. However, RBI may impose PCA on any bank during the course
of a year (including migration from one threshold to another) in case the circumstances so warrant.
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Common menu for selection of discretionary corrective actions
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1. Special Supervisory interactions
 Special Supervisory Monitoring Meetings (SSMMs) at quarterly or other identified frequency
 Special inspections/targeted scrutiny of the bank
s.
 Special audit of the bank
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2. Strategy related actions
RBI to advise the bank’s Board to:
 Activate the Recovery Plan that has been duly approved by the supervisor
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 Undertake a detailed review of business model in terms of sustainability of the business model,
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profitability of business lines and activities, medium and long term viability, balance sheet
projections, etc.
 Review short term strategy focusing on addressing immediate concerns
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 Review medium term business plans, identify achievable targets and set concrete milestones for
progress and achievement
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 Review all business lines to identify scope for enhancement/ contraction
 Undertake business process reengineering as appropriate
 Undertake restructuring of operations as appropriate
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3. Governance related actions

 RBI to actively engage with the bank’s Board on various aspects as considered appropriate
 RBI to recommend to owners (Government/ promoters/ parent of foreign bank branch) to bring in
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new management/ Board

 RBI to remove managerial persons under Section 36AA of the BR Act 1949 as applicable
 RBI to supersede the Board under Section 36ACA of the BR Act 1949/ recommend supersession of
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the Board as applicable

 RBI to require bank to invoke claw back and malus clauses and other actions as available in
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regulatory guidelines, and impose other restrictions or conditions permissible under the BR Act,
1949
 Impose restrictions on directors’ or management compensation, as applicable.
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4. Capital related actions

 Detailed Board level review of capital planning
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 Submission of plans and proposals for raising additional capital

 Requiring the bank to bolster reserves through retained profits
 Restriction on investment in subsidiaries/associates
 Restriction in expansion of high risk-weighted assets to conserve capital
 Reduction in exposure to high risk sectors to conserve capital
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 Restrictions on increasing stake in subsidiaries and other group companies
5. Credit risk related actions

 Preparation of time bound plan and commitment for reduction of stock of NPAs
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 Preparation of and commitment to plan for containing generation of fresh NPAs
 Strengthening of loan review mechanism
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 Restrictions on/ reduction in credit expansion for borrowers below certain rating grades
 Reduction in risk assets
 Restrictions on/ reduction in credit expansion to unrated borrowers
s.
 Reduction in unsecured exposures
 Reduction in loan concentrations; in identified sectors, industries or borrowers
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 Sale of assets
 Action plan for recovery of assets through identification of areas (geography wise, industry segment
wise, borrower wise, etc.) and setting up of dedicated Recovery Task Forces, Adalats, etc.
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6. Market risk related actions
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 Restrictions on/reduction in borrowings from the inter-bank market
 Restrictions on accessing/ renewing wholesale deposits/ costly deposits/ certificates of deposits
 Restrictions on derivative activities, derivatives that permit collateral substitution
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 Restriction on excess maintenance of collateral held that could contractually be called any time by
the counterparty
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7. HR related actions
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 Restriction on staff expansion

 Review of specialized training needs of existing staff
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8. Profitability related actions

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 Restrictions on capital expenditure, other than for technological upgradation within Board approved
limits
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9. Operations related actions

 Restrictions on branch expansion plans; domestic or overseas
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 Reduction in business at overseas branches/ subsidiaries/ in other entities

 Restrictions on entering into new lines of business
 Reduction in leverage through reduction in non-fund based business
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 Reduction in risky assets

 Restrictions on non-credit asset creation
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 Restrictions in undertaking businesses as specified.

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Any other specific action that RBI may deem fit considering specific circumstances of a bank.
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Ratio Analysis
Financial ratios are mathematical comparisons of financial statement accounts or categories. These
relationships between the financial statement accounts help investors, creditors, and internal company
management understand how well a business is performing and areas of needing improvement.
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Financial ratios are the most common and widespread tools used to analyze a business' financial
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standing. Ratios are easy to understand and simple to compute. They can also be used to compare
different companies in different industries.
s.
Ratios allow us to compare companies across industries, big and small, to identify their strengths and
weaknesses. Financial ratios are often divided up into seven main categories:
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 Liquidity Ratios
 Solvency Ratios
 Efficiency Ratios
 Profitability Ratios
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 Market Prospect Ratios
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 Financial Leverage Ratios
 Coverage Ratios
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Liquidity Ratios
Liquidity ratios analyze the ability of a company to pay off both its current liabilities as they become due
ot
as well as their long-term liabilities as they become current. In other words, these ratios show the cash
levels of a company and the ability to turn other assets into cash to pay off liabilities and other current
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obligations.
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Most common liquidity ratios are :

 Quick Ratio or Acid Test Ratio
 Current Ratio or Working Capital Ratio
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 Times Interest Earned Ratio

 Net Working Capital = CA-CL
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Quick Ratio or Acid Test Ratio

The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a company to pay its
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current liabilities when they come due with only quick assets. Quick assets are current assets that can be
converted to cash within 90 days or in the short-term. Cash, cash equivalents, short-term investments or
marketable securities, and current accounts receivable are considered quick assets.
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Short-term investments or marketable securities include trading securities and available for sale
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securities that can easily be converted into cash within the next 90 days. Marketable securities are
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traded on an open market with a known price and readily available buyers.
Formula
Quick Ratio or Acid Test Ratio = (Cash + Cash Equivalents + Short Term Investments + Marketable
Securities + Accounts Receivable) / Current Liabilities
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or
Quick Ratio = (Current assets – Inventory - Advances - Prepayments Current Liabilities) / Current
Liabilities
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Example :
M/s Raj&co's balance sheet included the following accounts:
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Cash: 10,000
Accounts Receivable: 5,000
s.
Inventory: 5,000
Stock Investments: 1,000
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Prepaid taxes: 500
Current Liabilities: 15,000
Find the Quick Ratio
x
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Quick Ratio = Cash + Cash Equivalents + Short Term Investments + Marketable Securities + Accounts
Receivable) / Current Liabilities
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= (10000+5000+1000) / 15000
= 16000 / 15000
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= 1.07
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Current Ratio or Working Capital Ratio

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The current ratio is a liquidity and efficiency ratio that measures a firm's ability to pay off its short-term
liabilities with its current assets. The current ratio is an important measure of liquidity because short-
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term liabilities are due within the next year.
The current ratio helps investors and creditors understand the liquidity of a company and how easily
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that company will be able to pay off its current liabilities. This ratio expresses a firm's current debt in
terms of current assets. So a current ratio of 4 would mean that the company has 4 times more current
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assets than current liabilities. A higher current ratio is always more favorable than a lower current ratio
because it shows the company can more easily make current debt payments.
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Formula
Current Ratio or Working Capital Ratio = Current Assets / Current Liabilities
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Example :
XYZ shoes sells shoes. It is applying for loans to help fund to increase the inventory. The bank asks for its
balance sheet so they can analysis the current debt levels. According to XYZ shoes's balance sheet it
reported 10,00,000 of current liabilities and only 2,50,000 of current assets. Will the loan get approved?
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Current Ratio = Current Assets / Current Liabilities

= 250000 / 1000000
= 0.25
XYZ shoes only has enough current assets to pay off 25 percent of his current liabilities. This
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shows that XYZ shoes is highly leveraged and highly risky. Banks would prefer a current ratio of at least 1
or 2, so that all the current liabilities would be covered by the current assets. Since XYZ shoes's ratio is
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so low, it is unlikely that it will get approved for his loan.
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Solvency Ratios
Solvency ratios, also called leverage ratios, measure a company's ability to sustain operations
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indefinitely by comparing debt levels with equity, assets, and earnings. In other words, solvency ratios
identify going concern issues and a firm's ability to pay its bills in the long term. Many people confuse
solvency ratios with liquidity ratios.
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Solvency ratios show a company's ability to make payments and pay off its long-term obligations to
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creditors, bondholders, and banks. Better solvency ratios indicate a more creditworthy and financially
sound company in the long-term.
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The most common solvency ratios include:
 Debt to Equity Ratio
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 Equity Ratio
 Debt Ratio
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Debt Equity Ratio = Long term debt/Equity

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DSCR - Debt Service Coverage ratio = NP after tax + depreciation + Int on TL/Int on TL + Installment.
Tangible net worth = Networth-Intangible assets
kp
Debt to Equity Ratio

The debt to equity ratio shows the percentage of company financing that comes from creditors and
investors. A higher debt to equity ratio indicates that more creditor financing (bank loans) is used than
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investor financing (shareholders).

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Formula
Debt to Equity Ratio = Total Liabilities / Total Equity
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Example :
A company has 1,00,000 of bank lines of credit and a 5,00,000 mortgage on its property. The
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shareholders of the company have invested 12,00,000. Calculate the debt to equity ratio.
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DER = TL / Total Equity

= (100000+500000) / 1200000 = 600000 / 1200000
= 0.5
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Equity Ratio
The equity ratio is an investment leverage or solvency ratio that measures the amount of assets that are
financed by owners' investments by comparing the total equity in the company to the total assets.
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The equity ratio is calculated by dividing total equity by total assets.
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Formula
Equity Ratio = Total Equity / Total Assets
s.
Example :
A company has total assets at 1,50,000 and its total liabilities are 50,000. Based on the accounting
am
equation, we can assume the total equity is 1,00,000. Find the Equity Ratio.
ER = Total Equity / TA
= 100000 / 150000
x
= 0.67
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Debt Ratio
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Debt ratio is a solvency ratio that measures a firm's total liabilities as a percentage of its total assets. In a
sense, the debt ratio shows a company's ability to pay off its liabilities with its assets. In other words,
ot
this shows how many assets the company must sell in order to pay off all of its liabilities.
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This ratio measures the financial leverage of a company. Companies with higher levels of liabilities
compared with assets are considered highly leveraged and more risky for lenders.
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This helps investors and creditors analysis the overall debt burden on the company as well as the firm's
ability to pay off the debt in future, uncertain economic times.
kp
The debt ratio is calculated by dividing total liabilities by total assets.

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Formula
Debt Ratio = Total Liabilities / Total Assets
.b
Example:
A company has total assets at 1,50,000 and its total liabilities are 50,000. Based on the accounting
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equation, we can assume the total equity is 1,00,000. Find the Debt Ratio.
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DR = TL / TA
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= 50000 / 150000
= 0.33
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Efficiency Ratios
Efficiency ratios also called activity ratios measure how well companies utilize their assets to generate
income. Efficiency ratios often look at the time it takes companies to collect cash from customer or the
time it takes companies to convert inventory into cash—in other words, make sales.
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Efficiency ratios go hand in hand with profitability ratios. Most often when companies are efficient with
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their resources, they become profitable.
Here are the most common efficiency ratios are :
s.
Accounts Receivable Turnover Ratio
am
It's an efficiency ratio or activity ratio that measures how many times a business can turn its accounts
receivable into cash during a period. In other words, the accounts receivable turnover ratio measures
how many times a business can collect its average accounts receivable during the year. A turn refers to
each time a company collects its average receivables. This ratio shows how efficient a company is at
x
collecting its credit sales from customers. Some companies collect their receivables from customers in
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90 days while other take up to 6 months to collect from customers.
Formula
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Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable
ot
The reason net credit sales are used instead of net sales is that cash sales don't create receivables. Only
credit sales establish a receivable, so the cash sales are left out of the calculation. Average receivables is
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calculated by adding the beginning and ending receivables for the year and dividing by two. In a sense,
this is a rough calculation of the average receivables for the year.
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Example
Babu's Ski Shop is a retail store that sells outdoor skiing equipment. Babu offers accounts to all of his
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main customers. At the end of the year, Babu's balance sheet shows 20,000 in accounts receivable,
75,000 of gross credit sales, and 25,000 of returns. Last year's balance sheet showed 10,000 of accounts
receivable. Find the Accounts Receivable Turnover Ratio.
an
The first thing we need to do in order to calculate Babu's turnover is to calculate net credit sales and
.b
average accounts receivable. Net credit sales equals gross credit sales minus returns (75,000 – 25,000 =
50,000). Average accounts receivable can be calculated by averaging beginning and ending accounts
receivable balances ((10,000 + 20,000) / 2 = 15,000).
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Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable
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= 50000 / 15000
= 3.33
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Asset Turnover Ratio or Total Asset Turnover Ratio

The asset turnover ratio is an efficiency ratio that measures a company's ability to generate sales from
its assets by comparing net sales with average total assets. In other words, this ratio shows how
efficiently a company can use its assets to generate sales.
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The total asset turnover ratio calculates net sales as a percentage of assets to show how many sales are
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generated from each dollar of company assets. For instance, a ratio of .5 means that each dollar of
assets generates 50 cents of sales.
s.
Formula
Asset Turnover Ratio or Total Asset Turnover Ratio = Net Sales / Average Total Assets
am
Example
Seela's Tech Company is a tech start up company that manufactures a new tablet computer. Seela is
currently looking for new investors and has a meeting with an angel investor. The investor wants to
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know how well Seela uses her assets to produce sales, so he asks for her financial statements.
Here is what the financial statements reported:

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Beginning Assets: 50,000
Ending Assets: 1,00,000
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Net Sales: 25,000
The total asset turnover ratio is ......
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Asset Turnover Ratio or Total Asset Turnover Ratio = Net Sales / Average Total Assets
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= 25000 / ((50000+100000)/2)
= 25000 / (150000/2)
= 25000 / 75000
kp
= 0.33
As you can see, Seela's ratio is only 0.33. This means that for every Rupee in assets, Sally only generates
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33 Paisa. In other words, Seela's start up is not very efficient with its use of assets.
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Inventory Turnover Ratio

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The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is managed by
comparing cost of goods sold with average inventory for a period. This measures how many times
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average inventory is "turned" or sold during a period. In other words, it measures how many times a
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company sold its total average inventory dollar amount during the year.
This ratio is important because total turnover depends on two main components of performance. The
first component is stock purchasing. If larger amounts of inventory are purchased during the year, the
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company will have to sell greater amounts of inventory to improve its turnover. If the company can't sell
these greater amounts of inventory, it will incur storage costs and other holding costs.
The second component is sales. Sales have to match inventory purchases otherwise the inventory will
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not turn effectively. That's why the purchasing and sales departments must be in tune with each other.
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The inventory turnover ratio is calculated by dividing the cost of goods sold for a period by the average
inventory for that period.
s.
Formula
Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
am
Example
Govind's Furniture Company sells industrial furniture for office buildings. During the current year,
Govind reported cost of goods sold on its income statement of 10,00,000. Govind's beginning inventory
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was 30,00,000 and its ending inventory was 40,00,000. Govind's turnover is ......
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Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
= 1000000 / ((3000000+4000000)/2)
= 1000000 / (7000000/2)
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= 1000000 / 3500000
= 0.29 Times
ot
This means that Govind only sold roughly a third of its inventory during the year. It also implies that it
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would take Govind approximately 3 years to sell his entire inventory or complete one turn. In other
words, Govind does not have very good inventory control.
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Profitability Ratios
kp
Profitability ratios compare income statement accounts and categories to show a company's ability to
generate profits from its operations. Profitability ratios focus on a company's return on investment in
inventory and other assets. These ratios basically show how well companies can achieve profits from
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their operations.
.b
Investors and creditors can use profitability ratios to judge a company's return on investment based on
its relative level of resources and assets. In other words, profitability ratios can be used to judge
whether companies are making enough operational profit from their assets. In this sense, profitability
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ratios relate to efficiency ratios because they show how well companies are using thier assets to
generate profits. Profitability is also important to the concept of solvency and going concern.
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Here are some of the key ratios that investors and creditors consider when judging how profitable a
company should be:
 Gross Margin Ratio

 Profit Margin
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 Return on Assets
 Return on Capital Employed
 Return on Equity
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Market Prospect Ratios
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Market Prospect ratios are used to compare publicly traded companies' stock prices with other financial
measures like earnings and dividend rates. Investors use market prospect ratios to analyze stock price
trends and help figure out a stock's current and future market value.
s.
In other words, market prospect ratios show investors what they should expect to receive from their
am
investment. They might receive future dividends, earnings, or just an appreciated stock value. These
ratios are helpful for investors to predict how much stock prices will be in the future based on current
earnings and dividend measurements. For instance, a downward trend in earnings per share and
dividend yield point to profitability problems and could even raise going concern issues. All of these
x
issues point to a lower stock evaluation.
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Here are some of the basic market prospect ratios that investors tend to analyze.
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 Earnings Per Share
 Price Earnings Ratio or P/E Ratio
ot
 Dividend Payout Ratio
 Dividend Yield
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Coverage Ratios
Coverage ratios are comparisons designed to measure a company's ability to pay its liabilities. On the
surface, coverage ratios might sound a lot like liquidity and solvency ratios, but there is a distinct
kp
difference. Coverage ratios analyze a company's ability to service its debt and other obligations.
In other words, these ratios measure how well companies can afford to make the interest payments
an
associated with their debt. Some ratios also include obligations that are not typical liabilities like regular
dividend payments to stockholders. Here are the main coverage ratios used to analyze companies.
.b
 Times Interest Earned Ratio

 Fixed Charge Coverage Ratio
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 Debt Service Coverage Ratio

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Profitability
 Gross Profit Ratio= Gross Profit / Net sales x100
 Operating Profit Ratio = Operating Profit/ Net sales x 100
 Net Profit Ratio = Net Profit/Net Sales x 100
 Return on Net Worth = Net profit after tax / Tangible Net Worth x 100
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 Return On Capital Employed = PBIT / Total Capital Employed x 100

 (Capital Employed = Tangible NW + TL + CL)
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Activity Ratios
Fixed assets turnover -Sales/Fixed assets.
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Inventory turnover-Sales/Average stock
Debtor turnover- sales/average debtors.
Sales (-) VC(Variable cost) = Contribution
s.
Contribution (-) FC(Fixed cost) = PROFIT.
BEP in units-FC/CONT PER UNIT
am
PV Ratio(Profit volume)-Contribution/Sales.
Preliminary expenses / Preoperative expenses / goodwill / patents / copyrights are examples of
intangible assets.
x
Break even sales=Fixed cost+ variable cost.
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Margin of safety-Sales –Break even sales.
Working capital gap= CA-(CL-BANK FINANCE).
Shows turnover of inventory during a period
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Debtors Velocity= Average Receivables/ Credit Sales x12 or 52 or 365
Shows debt collection period from debtors
ot
Creditors Velocity= Average Creditors / Credit Purchases x12 or 52 or 365
Shows time taken to pay the creditors
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Holding Period- As per Past Practice

Raw Materials = Average Stock of R.M. .
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Raw Materials consumed p.m.

Semi Finished goods = Average Stock of SFG
Cost of Production p.m.
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Finished Goods = Average Stock of F.G.

Cost of Sales p.m.
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Turn Over Ratios

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Capital Turn Over Ratio = Cost of Sales/ Sales

Capital Employed
Fixed Assets Turnover = Cost of Sales/Sales
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Fixed Assets
Total Assets T.O. = Cost of Sales / Sales
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Total tangible Assets

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Working Capital T.O. = Cost of Sales/ Sales

Gross Working Capital
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Priority Sector Lending

 Committee under the Chairmanship of Sri. M V Nair was set up by The Reserve Bank of India in
August 2011
 To re-examine the existing classification and suggest revised guidelines with regard to Priority Sector
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lending and related issues
 RBI has issued revised Priority Sector Classification guidelines on 20.07.2012 vide their circular
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RBI/2012-13/138.RPCD.CO.plan.BC 13/04.09.01/2012-13 operational with immediate effect.
 The priority sector loans sanctioned under the guidelines issued prior to the date of the above RBI
circular dated 20.07.2012, will continue to be classified under priority sector till the maturity /
s.
renewal of the said loan.
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Categories under priority sector
(i) Agriculture
(ii) Micro and Small Enterprises
(iii) Education
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(iv) Housing
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(v) Export Credit
(vi) Others
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Targets
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Total Priority Sector:
40% of ANBC or Credit equivalent to off balance sheet exposures as on 31st March of the preceding year.
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Agriculture:
18% of ANBC orCredit equivalent to off balance sheet exposures as on 31st March of the preceding year.
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Direct agriculture
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13.5% of ANBC or Credit equivalent to off balance sheet exposures as on 31st March of the preceding
year.
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Micro & Small Enterprises

40 percent of total advances to micro and small enterprises sector should go to Micro
.b
(manufacturing) enterprises having investment in plant and machinery up to 5 lakh and micro
(service) enterprises having investment in equipment up to 2 lakh
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20 percent of total advances to micro and small enterprises sector should go to Micro
(manufacturing) enterprises with investment in plant and machinery above 5 lakh and up to 25 lakh,
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and micro (service) enterprises with investment in equipment above 2 lakh and up to 10 lakh
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The remaining 40% may be lent to Small (manufacturing) enterprises with investment in plant and
machinery above 25 lakh and up to 500 lakh, and Small (service) enterprises with investment in
equipment above 10 lakh and up to 200 lakhs
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Weaker section:
10% of ANBC or Credit equivalent to off balance sheet exposures as on 31st March of the preceding year.
Description of the Categories under priority sector:
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Agriculture:
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Loans to individual farmers [including SHGs or JLGs, i.e. groups of individual farmers, provided banks
maintain disaggregated data on such loans] engaged in Agriculture and Allied Activities, viz., dairy,
fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage).
s.
i) Short-term loans to farmers for raising crops, i.e. for crop loans.
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This will include traditional/non-traditional plantations, horticulture and allied activities.
(ii) Medium & long-term loans to farmers for agriculture and allied activities (e.g. purchase of
agricultural implements and machinery, loans for irrigation and other developmental activities
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undertaken in the farm, and development loans for allied activities).
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(iii) Loans to farmers for pre-harvest and post-harvest activities, viz., spraying, weeding, harvesting,
sorting, grading and transporting of their own farm produce.
(iv) Loans to farmers up to 25 lakh against pledge/hypothecation of agricultural produce (including
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warehouse receipts) for a period not exceeding 12 months, irrespective of whether the farmers were
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given crop loans for raising the produce or not.
(v) Loans to small and marginal farmers for purchase of land for agricultural purposes.
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(vi) Loans to distressed farmers indebted to non-institutional lenders.

(vii) Bank loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and
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Large-sized Adivasi Multi Purpose Societies (LAMPS) ceded to or managed/ controlled by such banks for
on lending to farmers for agricultural and allied activities.
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(viii) Loans to farmers under Kisan Credit Card Scheme.

(ix) Export credit to farmers for exporting their own farm produce.
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Indirect agriculture
Loans to corporates, partnership firms and institutions engaged in Agriculture and Allied Activities
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[dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage)] above Rs.2
crore. ( upto Rs. 2 crore to corporates and firms are treated as Direct Agriculture)
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 Export credit to corporate, partnership firms and institutions for exporting their own farm produce.
 Loans upto 5 crore to Producer Companies set up exclusively by only small and marginal farmers
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under Part IXA of Companies Act, 1956 for agricultural and allied activities.
 Bank loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and
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Large-sized Adivasi Multi Purpose Societies (LAMPS) other than those covered under paragraph III
(1.1) (vii) of this circular.
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Other indirect agriculture loans

 Loans up to 1 crore per borrower to dealers /sellers of fertilizers, pesticides, seeds, cattle feed,
poultry feed, agricultural implements and other inputs.
 Loans for setting up of Agriclinics and Agribusiness Centres.
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 Loans up to 5 crore to cooperative societies of farmers for disposing of the produce of members.
 Loans to Custom Service Units managed by individuals, institutions or organisations who maintain a
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fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and undertake farm
work for farmers on contract basis.
 Loans for construction and running of storage facilities (warehouse, market yards, godowns and
s.
silos), including cold storage units designed to store agriculture produce/products, irrespective of
their location. If the storage unit is a micro or small enterprise, such loans will be classified under
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loans to Micro and Small Enterprises sector.
 Loans to MFIs for on-lending to farmers for agricultural and allied activities as per the conditions
specified.
 Loans sanctioned to NGOs, which are SHG Promoting Institutions, for on-lending to members of
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SHGs under SHG-Bank Linkage Programme for agricultural and allied activities. The all inclusive
bank plus eight percent per annum.

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interest charged by the NGO/SHG promoting entity should not exceed the Base Rate of the lending
 Loans sanctioned to RRBs for on-lending to agriculture and allied activities.

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2. Micro and small enterprises
The limits for investment in plant and machinery/equipment for manufacturing / service
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enterprise, as notified by Ministry of Micro Small and Medium Enterprises, vide, S.O.1642(E)
dated September 29, 2006 are as under:-
Manufacturing sectorEnterprises Investment in plant and machinery
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Micro Enterprises Do not exceed twenty five lakh rupees

Small Enterprises More than twenty five lakh rupees but does not
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exceed five crore rupees

Service Sector
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Enterprises Investment in equipment

Micro Enterprises Does not exceed ten lakh rupees
Small Enterprises More than ten lakh rupees but does not exceed
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two crore rupees

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Service Enterprises
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Bank loans up to 2 crore per unit to Micro and Small Enterprises engaged in providing or rendering of
services and defined in terms of investment in equipment under MSMED Act, 2006.
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Export credit to MSE units (both manufacturing and services) for exporting of goods/services produced
by them.
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Khadi and Village Industries Sector (KVI)

All loans sanctioned to units in the KVI sector, irrespective of their size of operations, location and
amount of original investment in plant and machinery. Such loans will be eligible for classification under
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the sub-target of 60 percent prescribed for micro enterprises within the micro and small enterprises
segment under priority sector.
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Indirect Finance
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(i) Loans to persons involved in assisting the decentralised sector in the supply of inputs to and
marketing of outputs of artisans, village and cottage industries.
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(ii) Loans to cooperatives of producers in the decentralised sector viz. artisans village and cottage
industries.
(iii) Loans sanctioned by banks to MFIs for on-lending to MSE sector as per the conditions specified in
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paragraph VIII of this circular.
Education
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Loans to individuals for educational purposes including vocational courses upto 10 lakh for studies in
India and 20 lakh for studies abroad.
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Housing
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Loans to individuals for

 up to 25 lakh in metropolitan centres with population above ten lakh and
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 15 lakh in other centres for purchase/construction of a dwelling unit per family

** excluding loans sanctioned to bank’s own employees.
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Loans for repairs to the damaged dwelling units of families

 up to 2 lakh in rural and semi- urban areas and
 up to 5 lakh in urban and metropolitan areas.
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Bank loans to any governmental agency for construction of dwelling units or for slum clearance and
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rehabilitation of slum dwellers subject to a ceiling of 10 lakh per dwelling unit.

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The loans sanctioned by banks for housing projects exclusively for the purpose of construction of houses
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only to economically weaker sections and low income groups, the total cost of which do not exceed 10
lakh per dwelling unit.
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For the purpose of identifying the economically weaker sections and low income groups, the family
income limit of 1,20,000 per annum, irrespective of the location, is prescribed.
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Others
 Loans, upto 50,000 per borrower or Overdraft upto Rs.50,000/- (against No Frills or Basic SB)
provided directly by banks to individuals and their SHG/JLG, provided the borrower’s household
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annual income in rural areas does not exceed 60,000/- and for non-rural areas it should not exceed
1,20,000/-.
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 Loans to distressed persons [other than farmers] not exceeding 50,000 per borrower to prepay their
debt to non-institutional lenders.
 Loans outstanding under loans for general purposes under General Credit Cards (GCC).
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 Loans sanctioned to State Sponsored Organisations 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
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beneficiaries of these organisations.
 Loans sanctioned by banks directly to individuals for setting up off-grid solar and other off-grid
renewable energy solutions for households.
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Weaker Sections:
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Priority sector loans to the following borrowers will be considered under Weaker Sections category:-
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 Small and marginal farmers;
 Artisans, village and cottage industries where individual credit limits do not exceed 50,000;
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 Beneficiaries of Swarnjayanti Gram Swarozgar Yojana (SGSY), now National Rural Livelihood Mission
(NRLM);
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 Scheduled Castes and Scheduled Tribes;

 Beneficiaries of Differential Rate of Interest (DRI) scheme;
 Beneficiaries under Swarna Jayanti Shahari Rozgar Yojana (SJSRY);
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 Beneficiaries under Scheme for Rehabilitation of Manual Scavengers (SRMS);

 Loans to Self Help Groups;
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 Loans to distressed farmers indebted to non-institutional lenders;

 Loans to distressed persons other than farmers not exceeding 50,000 per borrower to prepay their
debt to non-institutional lenders;
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 Loans to individual women beneficiaries upto 50,000 per borrower;

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Small and Marginal Farmers:
Farmers with landholding of up to 1 hectare is considered as Marginal Farmers. Farmers with a

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landholding of more than 1 hectare but less than 2 hectares are considered as Small Farmers. For the
purpose of priority sector loans ‘small and marginal farmers’ include landless agricultural labourers,
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tenant farmers, oral lessees and share-croppers, whose share of landholding is within above limits
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prescribed for “Small and Marginal Farmer”.
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Pradhan Mantri Suraksha Bima Yojana (accident insurance)

 Under the accident insurance scheme, a person will be provided cover of Rs.200,000 for an annual
premium of Rs.12. The cover is for accidental death or permanent total disability.
 The scheme will be available to people in the age group of 18 to 70 years with a savings bank
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account, who give their consent to join and enable auto-debit on or before May 31 for the coverage
period - June 1 to May 31 - on an annual renewal basis.
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Pradhan Mantri Jeevan Jyoti Bima Yojana (life insurance)
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 The life insurance scheme will offer a renewable one year life cover of Rs.200,000 to all savings bank
account holders in the age group of 18 to 50 years, covering death due to any reason, for a premium
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of Rs.330 per annum per subscriber.
 However people who have joined the scheme before attaining the age 50 may continue till the age
of 55 years.
 It is important to note, even in case where one is already covered through other life insurance from
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term insurance, endowment plans, ULIPs or under any group life insurance schemes, he/she still be
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eligible to be a member of this scheme.
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Atal Pension Yojana (APY)
 The scheme focuses on the unorganised sector and provides subscribers a fixed minimum pension of
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Rs.1,000, Rs.2,000, Rs.3,000, Rs.4,000 or Rs.5,000 per month starting at the age of 60 years,
depending on the contribution option exercised on entering at an age between 18 and 40 years.
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 Thus, the period of contribution by any subscriber under APY would be 20 years or more.
 The benefit of fixed minimum pension enjoys sovereign guarantee.
 While the scheme is open to bank account holders in the prescribed age group, the central
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government would also co-contribute 50 percent of the total contribution or Rs. 1,000 per annum,
whichever is lower, for five years.
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 The government contribution will be for those joining the scheme before Dec 31, 2015, are not
members of any statutory social security scheme and are not income tax payers.
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MUDRA – Micro Units Development & Refinance Agency Ltd

.b
Under the aegis of Pradhan Mantri MUDRA Yojana (PMMY), MUDRA has already created its initial
products / schemes. The interventions have been named 'Shishu', 'Kishor' and 'Tarun' to signify the
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stage of growth / development and funding needs of the beneficiary micro unit / entrepreneur and also
provide a reference point for the next phase of graduation / growth to look forward to :
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 Shishu : covering loans upto 50,000/-

 Kishor : covering loans above 50,000/- and upto 5 lakh
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 Tarun : covering loans above 5 lakh and upto 10 lakh
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Pradhan Mantri Fasal Bhima Yojana (PMFBY) & Weather Based Crop Insurance Scheme (WBCIS)
GOI introduced a new crop damage insurance scheme titled “PMFBY/WBCIS” during the current year
2016-17 starting from Khariff-2016. The scheme aims at supporting sustainable production in agriculture
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sector by way of:
 Support farmers suffering crop loss/damage arising out of unforeseen events.
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 Stabilizing the income of farmers to ensure their continuance in farming.
 Encouraging farmers to adopt innovative & modern agricultural practices and
 Ensuring flow of credit to the agriculture sector and protecting farmers from production risks.
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Pradhan Mantri Fasal Bima Yojana (PMFBY)
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 PMFBY will provide a comprehensive insurance cover against failure of the crop thus helping in
stabilising the income of the farmers and encourage them for adoption of innovative practices.
 The Scheme can cover all Food & Oilseeds crops and Annual Commercial/Horticultural Crops for
which past yield data is available and for which requisite number of Crop Cutting Experiments (CCEs)
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will be conducted being a part of the General Crop Estimation Survey (GCES).
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 The scheme is compulsory for loanee farmer obtaining Crop Loan /KCC account for notified crops.
However, voluntary for Other/non loanee farmers who have insurable interest in the insured
crop(s).
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 The Maximum Premium payable by the farmers will be 2% for all Kharif Food & Oilseeds crops, 1.5%
for Rabi Food & Oilseeds crops and 5% for Annual Commercial/Horticultural Crops.
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 The difference between premium and the rate of Insurance charges payable by farmers shall be
shared equally by the Centre and State.
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 The seasonality discipline shall be same for loanee and non-loanee farmers.
 The scheme will be implemented by AIC and other empanelled private general insurance companies.
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Selection of Implementing Agency (IA) will be done by the concered State Government through
bidding.
 The existing State Level Co-ordination Committee on Crop Insurance (SLCCCI), Sub-Committee to
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SLCCCI, District Level Monitoring Committee (DLMC) shall be responsible for proper management of
the Scheme.
 The Scheme shall be implemented on an ‘Area Approach basis’. The unit of insurance shall be
an
Village/Village Panchayat level for major crops and for other crops it may be a unit of size above the
level of Village/Village Panchayat.
 The Loss assessment for crop losses due to non-preventable natural risks will be on Area approach.
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 In case of majority of insured crops of a notified area are prevented from sowing/planting the
insured crops due to adverse weather conditions that will be eligible for indemnity claims upto
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maximum of 25% of the sum-insured.

 However losses due to localised perils (Hailstorm, landslide & inundation) and Post-Harvest losses
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due to specified perils, (Cyclone/Cyclonic rain & Unseasonal rains) shall be assessed at the affected
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insured field of the individual insured farmer.

 Three levels of Indemnity, viz., 70%, 80% and 90% corresponding to crop Risk in the areas shall be
available for all crops.
 The Threshold Yield (TY) shall be the benchmark yield level at which Insurance protection shall be
given to all the insured farmers in an Insurance Unit Threshold of the notified crop will be moving
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average of yield of last seven years excluding yield upto two notified calamity years multiplied by
Indemnity level.
 In case of smaller States, the whole State shall be assigned to one IA (2-3 for comparatively big
States). Selection of IA may be made for at least 3 years.
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 The designated / empanelled companies participating in bidding have to bid the premium rates for
all the crops notified / to be notified by the State Govt. and non-compliance will lead to rejection of
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company’s bid
 Crop Cutting Experiments (CCE) shall be undertaken per unit area /per crop, on a sliding scale, as
prescribed under the scheme outline and operational guidelines. Improved Technology like Remote
s.
sensing. Drone etc will be utilised for estimation of yield losses.
 State governments should use Smart phone apps for video/image capturing CCEs process and
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transmission thereof with CCE data on a real time basis for timely, reliable and transparent
estimation of yield data
 The cost of using technology etc. for conduct of CCEs etc will be shared between Central
Government and State/U.T. Governments on 50:50 basis.
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 There will be a provision of on account claims in case of adverse seasonal conditions during crop
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season viz. floods, prolonged dry spells, severe drought, and unseasonal rains.
 On account payment upto 25% of likely claims will be provided, if the expected yield during the
season is likely to be less than 50% of normal yield.
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 The claim amount will be credited electronically to the individual Insured Bank Account.
 Adequate publicity needs to be given in all the villages of the notified districts/areas
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Weather Based Crop Insurance Scheme (WBCIS)

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 The structure of farmer’s premium under WBCIS will be at par with the proposed PMFBY.
 The Criteria of selection of Implementing Agency and area allocation will be same as PMFBY.
 The other broad features will remain same.
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Unified Package Insurance Scheme (UPIS)

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 Unified Package Insurance Scheme will be implemented in selected 45 districts on pilot basis to
provide financial protection & comprehensive risk coverage of crops, assets, life, and student safety
to farmers.
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 Pilot will include seven section Viz., crop Insurance (PMFBY/WBCIS), Loss of Life (PMJJBY), Accidental
Death & Disability (PMSBY), Student Safety, Household, Agriculture implements & Tractor.
 Crop Insurance will be compulsory. However, farmers can choose atleast two section from
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remaining.
 Farmers may be able to get all requisite insurance products for farmers through one simple
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proposal/ application Form.

 Two flagship schemes of the Government viz PMSBY & PMJJBY have been included apart from
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insurance of assets.
 Pilot scheme will be implemented through single window.
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 Premium of PMSBY & PMJJBY is to be transferred to insurance companies which have tie up with
the concerned banks.
 Processing of claims (other than Crop Insurance) on the basis of individual claim report.
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Foreign Exchange
 Irrevocable LC-Cancelled only with the consent of beneficiary, applicant Bank, confirming bank.
Nothing mentioned means it is an irrevocable LC.
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 Red clause LC-PRESHIPMENT FINANCE for packing
 Green clause LC- Advance for storage of goods in warehouse.
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 Standby LC- Performance/Bid Guarantee.
 Documentary LC-Bill drawn under Document of title to goods.
 Revolving LC-Reinstatment of credit.
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 Examination of documents by issuing bank-5 banking days
 Documents to be presented not later than 21 calendar days after shipment.
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 FEMA (Foreign exchange management act)-2/12/1999.
 Forex released by Ads-Business-USD 25000, Medical, Education, employment – USD-100000,
Remittance under liberalised remittance scheme-USD 200000
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 Balance of trade=Exports-imports
 Value date-date of credit to nostro

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 Direct quotation –Buy low sell high, Foreign currency is fixed, variable unit of home currency
 TOM-Settled on next working day, spot-within 48 hours.

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 Forwards-Predetermined future date
 Gold card scheme for exporters-for worthy exporters without any default, additional stand by limit
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of minimum 20% will be given apart from regular limit with auto renewal for 3 years.
 Deemed exports-trade and supplies made within India. Ex sale to foreign tourists.
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 R RETURN-ONCE IN 15 DAYS,
 XOS -6 MONTHS
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 BEF-IMPORTS-6 MONTHS TO BE SUBMITTEDTO RBI.

 Bills discount-Bill buying rate to be applied
 Encashment of TC-TT Buying rate to be applied.
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 Retirement of bill-Bill selling rate to be applied.

 Direct quotation- 1 $= Say Rs 61.93
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 Indirect Quotation- Rs 61.93= 1$

 Rules for purchase/sales.- Direct Rate- Buy low sell high Indirect rate-Buy high sell low
 NRI-No need to obtain permission from RBI for opening account for Bangladesh Nationality
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 FCNR –Any permitted currency(Pound Sterling, US Dollar, Japanese yen, Euro, Canadian Dollar and
Australian Dollar),Only term deposit permitted, period 1 to 5 years-Amount repatriable, Joint
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account permitted with NRIs or close relative in India

 NRE-Can be opened in SB/CD/TD, INR, Repatriable (For TD period will be 1 to 10 Years)
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 NRO –Can be opened by any person resident outside India in Indian Rupee. Amount is not
repatriable-Can be opened in the form of SB/CD/TD. Foreign nationals visiting India can also open
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NRO accounts for a maximum period of 6 months, loans permitted.

 Incoterms-International commercial terms.(FOB-Free on board, C&f- Cost and freight, CIF- Cost,
Insurance, Freight)
 Period of credit for packing credit- 360 days Post shipment- 365 days.
 Transit period- 25 days.
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Types of Foreign Exchange Transactions
 Inter-Bank Transactions: Forex transaction between two banks/institutions.

 Merchant Transactions : Sale or purchase transactions with the Customers.
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Types of Accounts
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 NOSTRO ACCOUNTS :` OUR ACCOUNT WITH YOU` It is a foreign currency account maintained by a
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bank in domestic country with a bank in foreign country.
 VOSTRO ACCOUNTS : `YOUR ACCOUNT WITH US` Rupees account of a foreign bank in India.
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 LORO ACCOUNT : `THEIR ACCOUNT WITH YOU` Account of a third bank abroad.
Foreign Exchange Management Act (FEMA)
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 FEMA was implemented in India w.e.f 1/6/2000 : FEMA defines certain terms such as :
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 Capital account transactions: One that alter the assets or liabilities outside India of a person resident
in India or assets or liabilities in India, of a person resident outside India.
 Current account transactions : Other than capital account transactions and includes payments due in
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connection with foreign trade, other current business services and short term banking and credit
facilities in ordinary course of business.
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 Resident as per FEMA : Any person resident in India for more than 182 days during the course of
preceding financial year will be taken as resident in India.
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Exchange Rate Mechanism

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 Direct Method: A given number of units of local currency per unit of foreign currency example: US
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dollar 1=Rs.49 - 49.20

 Indirect Method: A given number of units of foreign currency per given units of local in India, w e f
02/08/1993 direct quotations are being used.
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Method of Delivery of Forex

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Ready/Cash The transaction on the same date. Also known as ‘value today’
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The delivery of foreign exchange/currency to be made on the day next to the

TOM date of transaction.
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SPOT Exchange of currencies take place two days after the date of contract- Spot Rate.
When the delivery has to take place at a date farther than the spot date, then it
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FORWARD is a forward transaction - Forward Rate
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Digital Banking : Uses of Information Technology in Banking Sector

 Real Time Gross Settlement (RTGS)
 National Electronic Funds Transfer (NEFT)
 Immediate Payment Service (IMPS)
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 Internet Banking
 Mobile Banking
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 Any where Banking
 Automated Teller Machine (ATM)
 Cash Dispensers
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 Electronic Clearing Service
 Chip/Credit/Debit Card
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 Phone Banking
 Tele-banking
Real Time Gross Settlement (RTGS)
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 RTGS is based on the gross settlement where the transaction is settled on an instruction by
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instruction basis.
 In RTGS the minimum amount should be above Rs 2 lakh and maximum amount is Rs 10 Lakh.
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National Electronic Funds Transfer (NEFT)
 National Electronic Funds Transfer (NEFT) is transfer of funds online by a financial institution,
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mainly for the banks in India.
 NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS)
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basis which settles transactions in batches.

 NEFT has no limit either minimum or maximum - on the amount of funds that could be
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transferred using NEFT.
Immediate Payment Service (IMPS)

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IMPS basically involves a transfer mechanism using the mobile phone. A host of banks allow the transfer
through this mechanism including the reputed banks like State Bank of India, ICICI Bank and Axis Bank.
Here is the limit is set by the bank. For example, State Bank of India permit only one beneficiary in a
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calendar day. Which means one cannot send money through IMPS for more then one beneficiary in a
day.
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Aadhaar Enabled Payment System(AEPS)

AEPS is a bank led model which allows online interoperable financial inclusion transaction at PoS
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(MicroATM) through the Business correspondent of any bank using the Aadhaar authentication.
The four Aadhaar enabled basic types of banking transactions are as follows:-
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 Balance Enquiry
 Cash Withdrawal
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 Cash Deposit
 Aadhaar to Aadhaar Funds Transfer
The only inputs required for a customer to do a transaction under this scenario are:-
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 IIN (Identifying the Bank to which the customer is associated)

 Aadhaar Number
 Fingerprint captured during their enrollment
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National Payments Corporation of India (NPCI)
National Payments Corporation of India (NPCI) is an umbrella organization for all retail payments system
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in India. It was set up with the guidance and support of the Reserve Bank of India (RBI) and Indian
Banks’ Association (IBA).
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The core objective was to consolidate and integrate the multiple systems with varying service levels into
nation-wide uniform and standard business process for all retail payment systems. The other objective
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was to facilitate an affordable payment mechanism to benefit the common man across the country and
help financial inclusion. NPCI has ten promoter banks namely, State Bank of India, Punjab National Bank,
Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank and
HSBC.
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Bharat Bill Payment System (BBPS)
Bharat Bill Payment System (BBPS) is an integrated bill payment system which will offer interoperable
bill payment service to customers online as well as through a network of agents on the ground. The
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system will provide multiple payment modes and instant confirmation of payment. With a need of bill
payments system, various organizations decided to provide a single platform to make all these
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payments. So an integrated bill payment system called BBPS was proposed for which the policy
guidelines were issued by the Reserve Bank of India on November 28, 2014.
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National Payment Corporation (NPCI) had been identified to act as Bharat Bill Payment Central Unit
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(BBPCU) which will be a single authorized entity for operating the BBPS. The biggest advantage is that
the bill can be paid anywhere and anytime. The system will provide multiple payment modes and
instant confirmation of payment. Payments may be made through the BBPS using cash, transfer
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cheques, and electronic modes. The BBPS outlets would include banks, ATMs, business correspondents,
kiosks etc.
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Bharat Interface for Money (BHIM)

It is an app which enables the users to make quick payment transactions using Unified Payment
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Interface (UPI) of National Payment Corporation of India (NPCI). It can be used to make direct bank
payment and collect money using Mobile No, or Payment Address (PA is an address which uniquely
identifies a person's bank account). BRIM can be used by installing BRIM app in the smart phone or by
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dialing99#, in case of a feature phone. The phone no. should be linked to bank account and bank should
be live on UPI. UPI-PIN is used in BRIM, which is a 4-6 digit code created by the customer at the time of
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registration.
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Unified Payments Interface (UPI)

UPI is a unique payment solution as the recipient is now empowered to initiate the payment request
from a smart phone. It facilitates "virtual address" as a payment identifier for sending and collecting
money and works on single click Two factor authentications without knowing the recipient's name,
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mobile number, bank account number and IFSC code. It allows the user to pay directly to different
merchants without the hassle of typing card details or net banking password. It also provides an option
for scheduling push and pull transactions for various purposes like sharing bills among peers. One can
use UPI app instead of paying cash on delivery on receipt of product from online shopping websites and
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can perform miscellaneous expenses like paying utility bills, over the counter payments, barcode (scan
& pay) based payments, donations, school fees and other such unique and innovative use cases. The
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interface is the advanced version of NPCI's Immediate Payment Service (IMPS) which is a 24*7*365
funds transfer service. In order to make use the UPI services both the bank customer and the
beneficiary is required to register with the bank and get the virtual ID.
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National Automated Clearing House (NACH)
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National Payments Corporation of India (NPCI) has implemented the NACH, a web based solution for
Banks, Financial Institutions, Corporates and Government to facilitate interbank, high volume, electronic
transactions which are repetitive and periodic in nature. It is a centralized system, launched with an aim
to consolidate multiple ECS systems running across the country leveraging robust technology platform
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with a single set of rules. It supports the financial inclusion measures through Aadhaar based
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transactions and Mobile based ACH transactions. The system is covering all core banking enabled bank
branches spread across the country. It is used for making bulk transactions towards distribution of
subsidies, dividends, interest, salary, pension etc. and also for bulk transactions towards collection of
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payments pertaining to telephone, electricity, water, loans, investments in mutual funds, insurance
premium etc.
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Mobile Wallet
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It is another payment channel independent of bank account. Recently, RBI has permitted the telecom
service providers to enter into this space through collaboration. These entities can undertake host of
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services - Deposit, transfer of funds, utility payments and cash withdrawal. Under this the funds can be
transferred from mobile to mobile and mobile to bank account. Companies that have launched mobile
wallet in India are Paytm, Chillr, Buddy, mPay, Airtel money, Zip cash, Mobi cash etc.
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National Financial Switch

NFS was initially launched by Institute for Development and Research in Banking Technology (IDRBT).
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The objective was to make ATM deployment economical and viable to members, by pooling resources
and increase use of ATM, through out the country. The operations were taken over by NPCI during Dec
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2009. NFS is a shared ATM network which interconnects NFS members at ATM switches. The network is
operational on 24 x 7 basis. There are 3 types of members (1) direct members (2) sub-members and (3)
White Label ATM Operators. The members joining NFS network have to pay one time fee of Rs.3 lac.
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99# service
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This service has been launched to take the banking services to every common man across the country.
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Banking customers can avail this service by dialing 99#, a "Common number across all Telecom Service
Providers (TSPs)" on their mobile phone and transact through an interactive menu displayed on the
mobile screen. Key services offered under 99# service include, interbank account to account fund
transfer, balance enquiry, mini statement besides host of other services. 99# service is currently offered
by most of the leading banks & all GSM service providers and can be accessed in 12 different languages
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including Hindi & English. 99# service is a unique interoperable direct to consumer service that brings
together the diverse ecosystem partners such as Banks & TSPs (Telecom Service Providers).
Debit Cards
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Debit cards are different from credit cards. Credit card is a way to “Pay Later” whereas debit card is a
way to “Pay Now.” In case of debit card, bank account of the customer will be debited immediately on
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completion of transaction. Debit cards are accepted at many locations, including retail stores, petrol
pumps, and restaurants. The liberalized norms coupled with ease of usage have led to increase debit
card base over the years. Of late, banks are consciously driving the customers to alternate delivery
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channels by issuing debit cards on the day of opening of the account itself to reduce the work load and
to enable them to pay focused attention on core banking activities. In order to make Credit/Debit Card
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transactions more secure, RBI mandated the card holders to enter PIN while transacting at POS
terminals. As per recent RBI guidelines, all banks are mandated to issue only Chip enabled Cards
w.e.f.01.10.16.
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Credit Cards
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The concept of credit card was used in 1950 with the launch of charge cards in USA by Diners Club and
American Express. Credit card became more popular with use of magnetic strip in 1970. The first Credit
Card was issued in 1981 and Gold Card in 1986 by VISA. Credit cardholder need not carry cash and
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purchase goods and services at any approved Merchant Establishments/Point of sale Terminals by
tendering the card duly signing the charge slip. Further, cardholders can make online purchases through
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internet using the card and PIN. Added to this, cardholder can withdraw cash at any ATM across the
globe. However, cash advance attracts charge i.e. transaction fee as well as service fee/interest charge.
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Charge Card
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Charge Card is like any Credit or Debit Card. These cards neither offer revolving credit like the Credit
Card nor debit the account instantaneously like Debit Card. However, the cardholder is required to
settle the bill in full by the due date each month. Charge cards make a good option to develop financial
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discipline which likely to enable the cardholders to improve their credit history. Further, charge card
offers a dynamic limit, while rewarding good payment record.
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Prepaid Card
Prepaid Card looks like a credit card and works like a debit card. These cards resemble credit and debit
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cards in appearance and allow users to load any amount up to ?100000/- and can be used at any
ATM/Point of Sale Terminal. On use of card, funds are directly debited from the card. Cardholders
preload the cards with funds via a cash deposit or wire transfer. There are no finance fees or interest
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payments as charges are deducted from the prepaid balance. It is an opportunity for people who have
had little or no access to the mainstream financial system by loading funds onto a prepaid card. It is a
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secure and convenient alternative to cash. The issuers of prepaid cards should ensure KYC compliance
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while issuing cards to the customers/public. Various types of Prepaid Cards are – Re-loadable Cards
(value is replenished once it is used), Disposable Cards (discarded once the value is used), Closed Cards
can be used for a specific purpose (Phone Cards) and Open Cards (multi-purpose). Re-loadable cards are
most popular among “under-banked” individuals, or those who tend not to possess conventional bank
accounts.
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Gift Card
Gift Card is one of the paperless payment systems and is highly popular in card industry. It is a card with
predetermined limit and value is loaded through cash or transfer from the account. Maximum value of
each prepaid gift instrument shall not exceed Rs.10000/-.However, these instruments shall not be
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reloadable.
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Forex Card
It is similar to a normal prepaid card with a special feature meant for the students going to abroad for
higher studies. It can be used at POS terminals, ATMs and for online transactions. Parents can
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load/reload the card using the login credentials issued while buying the card. The banks are levying
reasonable charges for cash withdrawal and some banks waiving the charges too. Another advantage of
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the card is that it can be used to pay fees instead of paying through wire transfer from India. The
withdrawals or payments are allowed in five currencies viz., USD,GBP, EUR, CAD and AUD. The card
validity ranges up to five years and the maximum permissible limit by RBI under Liberalized Remittance
Scheme is $2.50 lakh. At present, ICICI and HDFC banks are issuing forex cards and other banks may
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follow.
RuPay Debit Cards

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It is a domestic card payment network established by National Payment Corporation of India (NPCI)
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having more than 100 Banks in India as members with its ATM network spread across the country.
These cards can be used at all ATMs of NPCI network and POS terminals & e-com transactions (Internet)
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enabled for RuPay acquiring.
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Money Transfer Service Scheme (MTSS)

The Reserve Bank has issued Master Directions relating to Money Transfer Service Scheme (MTSS),
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which is a quick and easy way of transferring personal remittances from abroad to beneficiaries in India.
 MTSS can be used for inward personal remittances into India, such as, remittances towards family
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maintenance and remittances favouring foreign tourists visiting India and not for outward
remittance from India.
 The system envisages a tie-up between reputed money transfer companies abroad known as
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Overseas Principals and agents in India known as Indian Agents who would disburse funds to
beneficiaries in India at ongoing exchange rates. The Indian Agents can in turn also appoint sub-
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agents to expand their network. The Indian Agent is not allowed to remit any amount to the
Overseas Principal. Under MTSS, the remitters and the beneficiaries are individuals only.
 The Reserve Bank of India may accord necessary permission (authorisation) to any person to act as
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an Indian Agent under the Money Transfer Service Scheme. No person can handle the business of
cross-border money transfer to India in any capacity unless specifically permitted to do so by the
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RBI.
 To become MTSS agent, min net owned funds Rs.50 lac. MTSS cap USD 2500 for individual
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remittance. Max remittances 30 received by an individual in India in a calendar year. Min NW of

overseas principal USD 01 million, as per latest balance sheet.
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Automated Teller Machine (ATM)

 What is ATM: ATM is a computerised machine that provides the customers of banks the facility of
accessing their accounts for dispensing cash and other financial transactions without the need of
actually visiting a bank branch.
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 Non receipt of cash from ATM: In case during the cash withdrawal process, cash is not disbursed but
the account gets debited for the amount, the customer may lodge a complaint with the card issuing
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bank. This process is applicable even if the transaction was carried out at another banks ATM. As
per the RBI instructions, banks should re-credit such wrongly debited amounts within a maximum
period of 7 working days from the date of complaint. If there is a delay, customer is eligible for
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compensation for delayed period at the rate of Rs 100/- per day. This amount should be be credited
to the account of the customer without any claim being made by the customer. However, if
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customer does not make complaint within 30 days of the transaction, he will not be entitled to
compensation.
 Free transactions at bank's own ATM: At least five free transactions (inclusive of financial and non
financial transactions) per month should be permitted to the savings bank account customers for
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use of own bank ATMs at all locations.
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 Free transactions at ATMs of other banks: With effect from November 1, 2014, the number of
mandatory free ATM transactions (inclusive of both financial and non-financial transactions) at
other banks' ATMs has been reduced to three transactions per month for transactions carried out at
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the ATMs located in six metro centres, viz. Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and
Hyderabad. This reduction will, however, not apply to small / no frills / Basic Savings Bank
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 Deposit account holders who will continue to enjoy five free transactions. At other locations i.e.
other than the six metro centres mentioned above, the facility of five free transactions for savings
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bank account customers shall remain unchanged.

 Charges for ATM transactions: Beyond free transactions, there will be a ceiling / cap on customer
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charges of Rs.20/- per transaction (plus service tax, if any).

 ATMs for visually challenged: Banks should make ATMs friendly to physically handicapped persons
by constructing ramps and cash dispensation at lower height. The ATM should be accessible to
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visually challenged persons also by providing brail key board. From July 1, 2014 all new ATMs to be
installed should be friendly to blind persons.
 Banks have been permitted to install Off site ATMs without RBI permission subject to reporting to
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RBI.
 White Label ATMs are purely managed by third party service providers and have their label. These
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are branded non bank ATM machines. Cash handling, management and logistics are provided by
third party. Debit cards of all banks can be operated through these machines. The role of the
concerned bank is only limited to provide account information and back end money transfers to the
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third parties managing these ATM machines. This initiative will enable the excluded segments to
avail ATM services as at present majority ATMs are confined to Urban/Metro areas only. However,
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service provider levy charges which are to be either bear by the Bank or the customer. RBI has
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allowed white label ATM's in India to have more penetration of ATM machines. Tata
Communications Payment Solutions has become the first company to launch this service in India
under the brand name "Indicash". It has a tie up with majority commercial banks and now you will
soon see branded non bank third party white label ATM machines in your vicinity.
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 Brown Label ATM - We always think that the bank branded ATM machines operated by the bank
concerned, but this is not the case. Banks only handle part of the process that is cash handling and
back-end server connectivity. The ATM machine is owned by the third party service provider along
with the physical infrastructure. This type ATM is called as "Brown Label ATM" and acts as
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intermediate between Banks owned ATM and White Label ATM.
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Electronic Clearing Service (ECS)
Electronic Clearing Service is a mode of electronic funds transfer from one bank account to another
bank account using the services of a Clearing House. There are two types of ECS called ECS (Credit) and
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ECS (Debit). ECS (Credit) is used for affording credit to a large number of beneficiaries by raising a single
debit to an account, such as dividend, interest or salary payment. ECS (Debit) is used for raising debits to
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a number of accounts of consumers/ account holders for crediting a particular institution. Amount:
There is no Minimum or maximum limit on the amount of individual transactions.
Speed Clearing
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 Speed Clearing refers to collection of outstation cheques through the local clearing. It facilitates
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collection of cheques drawn on outstation core-banking-enabled branches of banks, if they have a
net-worked branch locally.
 When will the beneficiary get funds under Speed Clearing?: The local cheques are processed on T+1
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working day basis and customers get the benefit of withdrawal of funds on a T+1 or 2 basis. 'T
denotes transaction day viz. date of presentation of cheque at the Clearing House. So, the
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outstation, cheques under Speed Clearing will also be paid on T+1 or 2 basis.
 Availability and charges: Speed Clearing is currently available in 41 MICR centres. Collecting banks
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will not charge any charges for collection of cheques up to Rs 1 lac in saving bank accounts. For
cheques of more than Rs 1 lac, bank discretion. For collection in current accounts, bank discretion
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irrespective of amount of chque. The charges are inclusive of all charges other than Service Tax.
Magnetic Ink Character Recognition (MICR)

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MICR stands for Magnetic Ink Character Recognition. It is a technology which allows machines to read
and process cheques enabling thousands of cheque transactions in a short time. MICR code is usually a
nine digit code comprising of some important information about the transaction and the bank.
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Indian Financial System Code (IFSC)

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IFSC Code is Indian Financial System Code, which is an eleven character code assigned by RBI to identify
every bank branches uniquely, that are participating in NEFT system in India. This code is used by
electronic payment system applications such as RTGS, ,National Electronic Fund Transfer and CFMS.
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Cheque Truncation System (CTS)

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Cheque Truncation System (CTS) is a cheque clearing system undertaken by the Reserve Bank of India
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(RBI) for faster clearing of cheques. As the name suggests, truncation is the process of stopping the flow
of the physical cheque in its way of clearing.
MONEY GRAM
 Account holder should be from GULF
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 Maximum remittance permitted-USD 2500, 8 Digit numerical number is necessary for the receiver.
 Done through ThomasCook agent of Money Gram International Inc..
 Maximum transaction by receiver is 30 per calendar year. Purpose-Family, Personal maintenance.
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Express Money Scheme (Account holder should be from Gulf)
 Maximum amount that can be paid-Rs 50000
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 16 digit numerical reference to be provided by the receiver (not Mandatory)
 Maximum transaction-30 per year
 Purpose-Family, Personal maintenance.
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 Organisation- UAE Exchange centre.
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General Credit Card
 A Non farm entrepreneurial credit to individuals.
 Eligible for Priority sector classification.
 No ceiling as regard quantum of credit.
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Prepaid Payment Instruments (PPI)

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Eligibility : Banks who comply with the eligibility criteria would be permitted to issue all categories of
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pre-paid payment instruments. Non-Banking Financial Companies (NBFCs) and other persons would be
permitted to issue only semi-closed system payment instruments.
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Capital requirements : Banks and Non-Banking Financial Companies which comply with the Capital
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Adequacy requirements prescribed by Reserve Bank of India from time-to-time, shall be permitted to
issue pre-paid payment instruments. All other persons shall have a minimum paid-up capital of Rs 100
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lakh and positive net owned funds.
Safeguards against money laundering (KYC/AML/CFT) provisions

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1. The maximum value of any pre-paid payment instruments (where specific limits have not been
prescribed including the amount transferred) shall not exceed Rs 100,000/-.
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Deployment of Money collected: Non-bank persons issuing payment instruments are required to
maintain their outstanding balance in an escrow account with any scheduled commercial bank subject
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to the following conditions:-

1. The amount so maintained shall be used only for making payments to the participating merchant
establishments.
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2. No interest is payable by the bank on such balances.

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Validity: All pre-paid payment instruments issued in the country shall have a minimum validity period of
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six months from the date of activation/issuance to the holder. The outstanding balance against any
payment instrument shall not be forfeited unless the holder is cautioned at least 15 days in advance as
regards the expiry of the validity of the payment instrument.
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Latest Schemes And Programmes Launched By Indian Government – As per category
Sl No Category of scheme Scheme Name
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1 Pro Poor  Pradhan mantri Jan Dhan Yojana (World’s largest Financial Inclusion
programme)
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 Pandit Deen Dayal Upadhyaya Shramev Jayate Karyakram
 Deen Dayal Upadhyaya Antyodaya Yojana
 Mission Housing for all
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 Micro Units Development and Refinance Agency Bank (MUDRA Bank)
 Pradhan mantri Ujjawala yojana
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2 Pro Youth  My Gov Online Platform
 Digital India
 Make In India
 Deen Dayal Upadhyaya Grameen Kaushal Yojana
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 National Policy for Skill Development and Entrepreneurship
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 National Sports Talent Search Scheme
 Swachh Vidyalaya Abhiyan
 Padhe Bharat Badhe Bharat
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 Pandit Madan Mohan Malviya National Mission on Teachers and
Teacher Training
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 Rashtriya Avishkar Abhiyan

3 Pro Farmer  Enhanced Compensation for distressed Farmers due to crop damage
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 Deen Dayal Upadhyaya Gram Jyoti Yojana

 Soil Health Card Scheme
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 Pradhan Mantri Krishi Sinchai Yojana

 Jan Suraksha Schemes (PMJJBY, PMBSY, APY)
 Rashtriya Gokul Mission
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4 Pro Women  Beti Bachao, Beti Padhao Abhiyaan

 Sukanya Samriddhi Account
 Himmat App
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 PAHAL-Direct Benefits Transfer for LPG (DBTL) Consumers Scheme

 Swachh Bharat Mission
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 Gold Monetisation Scheme

5 Pro Senior Citizen  Pradhan Mantri Suraksha Bima Yojana
 Pradhan Mantri Jeevan Jyoti Bima Yojana
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 Atal Pension Yojana

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6  The National Institution for Transforming India (NITI AAYOG)

Pro Development
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 Make In India
 Digital India
 Smart City Programme
 The National Urban Development Mission
 Deen Dayal Upadhyaya Gram Jyoti Yojana
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 Pragati Platform
 Mission Housing for all
 Pradhan Mantri Ujjawala yojana
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Latest Schemes And Programmes Launched By Indian Government
Sl No Govt Scheme Details
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1 Make in India It was Launched on 25th September 2014
To make India a manufacturing hub.
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Make in India is an initiative of the Government of India to encourage
multinational, as well as domestic, companies to manufacture their
products in India.
The major objective behind the initiative is to focus on job creation and
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skill enhancement in twenty-five sectors of the economy
2 Digital India
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Launched on 1st July 2015
To transform India’s economy
Digital India has three core components.
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These include:
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The creation of digital infrastructure

Delivering services digitally
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Digital literacy
3 Skill India Launched on 15th July 2015)
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To create jobs for youth of the Country

Skill Development in Youth
Making Skill available to All Youth of India
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4 Smart Cities Launched on 29th April 2015

In first Government of india Will Develop 100 Smart cities in India
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Under this Scheme Cities from all States Are Selected

5 Unearthen Black Bill Passed on 14th May 2015
Money Disclosing Black Money
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Punishment for The Black Money holders

6 Namami Gange Namami Gange Project or Namami Ganga Yojana is an ambitious Union
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Government Project which integrates the efforts to clean and protect the
Ganga river in a comprehensive manner.
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It its maiden budget, the government announced Rs. 2037 Crore towards
this mission.
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The project is officially known as Integrated Ganga Conservation Mission

project or ‘Namami Ganga Yojana’.
This project aims at Ganga Rejuvenation by combining the existing
ongoing efforts and planning under it to create a concrete action plan for
future.
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7 Swachh Bharat Launched on 2nd October 2014)

Abhiyan To have clean India by 2nd October 2019
Eliminate open defecation by constructing toilets for households,
communities
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Eradicate manual scavenging
Introduce modern and scientific municipal solid waste management
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practices
Enable private sector participation in the sanitation sector
Change people’s attitudes to sanitation and create awareness
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8 Swadesh Darshan Integrated Development of Theme Based Buddhist tourist circuit
Under Swadesh Darshan, the following five circuits have been identified
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for development:-
North East Circuit
Buddhist Circuit
Himalayan Circuit
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Coastal Circuit
9 Sukanya Samridhi
Account
Krishna Circuit
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Launched on 22nd January 2015
The scheme was launched by Prime Minister Narendra Modi on 22
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January 2015 as a part of the Beti Bachao, Beti Padhao campaign.
The scheme currently provides an interest rate of 9.2% and tax benefits.
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The account can be opened at any India Post office or a branch of some
authorised commercial banks
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10 Bal swachta mission Launched on 14th November 2014)

Awareness about the cleanliness of the children
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Bal Swachhta Mission Was Launched on 14 November 2014 on The Birth

Anniversary of Late Pandit Jawahar Lal Nehru .
On this Day We celebrate – National Bal Diwas
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The six main themes chosen for the Bal Swachhta Mission are,
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Clean school and anganwadis

Clean surroundings like playgrounds
Clean self (personal hygiene/ child health)
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Clean food
Clean drinking water
Clean toilets.
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11 Pradhan Mantri Jan Launched on 28th August 2014

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Dhan Yojana AIM: Financial inclusion

National Mission for Financial Inclusion to ensure access to financial
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services, namely, Banking Savings & Deposit Accounts, Remittance,

Credit, Insurance, Pension in an affordable manner
Under the scheme Account holders will be provided zero-balance bank
account with RuPay debit card, in addition to accidental insurance cover
of Rs 1 lakh.
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Those who open accounts by January 26, 2015 over and above the Rs1
lakh accident, they will be given life insurance cover of Rs 30,000.
After Six months of opening of the bank account, holders can avail Rs
5,000 loan from the bank.
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With the introduction of new technology introduced by National
Payments Corporation of India (NPCI), a person can transfer funds, check
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balance through a normal phone which was earlier limited only to smart
phones so far.
Mobile banking for the poor would be available through National Unified
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USSD Platform (NUUP) for which all banks and mobile companies have
come together
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Documents required for opening account
By 28 January 2015, 12.58 crore accounts were opened, with around
Rs.10590 crore
12 Pradhan Mantri Launched on 9th May 2015
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Suraksha Bima Eligibility: Available to people in age group 18 to 70 years with bank
Yojana account.
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Premium: Rs.12 per annum.
Payment Mode: The premium will be directly auto-debited by the bank
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from the subscribers account. This is the only mode available.
Risk Coverage: For accidental death and full disability – Rs.2 Lakh and for
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partial disability – Rs.1 Lakh.
13 Pradhan Mantri It was Launched on 9th May 2015
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Jeevan Jyoti Bima Life insurance scheme by Government

Yojana Eligibility: Available to people in the age group of 18 to 50 and having a
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bank account. People who join the scheme before completing 50 years
can, however, continue to have the risk of life cover up to the age of 55
years subject to payment of premium.
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Premium: Rs.330 per annum. It will be auto-debited in one instalment.

Payment Mode: The payment of premium will be directly auto-debited
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by the bank from the subscribers account.

Risk Coverage: Rs.2 Lakh in case of death for any reason.
Terms of Risk Coverage: A person has to opt for the scheme every year.
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He can also prefer to give a long-term option of continuing, in which case

his account will be auto-debited every year by the bank.
Who will implement this Scheme?: The scheme will be offered by Life
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Insurance Corporation and all other life insurers who are willing to join
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the scheme and tie-up with banks for this purpose.

14 Atal Pension Atal Pension yojana was Launched on 9th May 2015
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Scheme It was Launched for unorganised sector ‘s workers

15 Beti Bachao Beti It was Launched on 22nd January 2015
Padhao Yojana Main aim -To generate awareness of welfare service meants for girl child
and women
16 HRIDAY (National HRIDAY was Launched on 21st January 2015
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Heritage City Main objective – To develop heritage cities

Development and
Augmentation
Yojana) scheme
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17 MUDRA Bank It was Launched on 8th April 2015
Yojana Main objective is to provide loan to small businesses
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18 Krishi Amdani Bima To give an impetus to the dying agricultural practice
Yojana There is 14 crore hectares of agricultural land in India, of which only 44
per cent in under irrigation
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Pradhan Mantri Gram Sinchai Yojana would be introduced so that more
agricultural land is irrigated.
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Talking about the plight of small and marginal farmers he said that most
of them were leaving the agricultural practice because of the uncertainty
over the produce and returns.
Krishi Amdani Beema Yojana so that the farmers don’t bear any financial
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burden if their produce gets destroyed due to unexpected weather or for
19 Pradhan Mantri
Gram Sinchai Yojana
any other reason.
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To provide water to all field in the Country.
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20 Pradhan Mantri Accelerated Irrigation Benefit Programme (AIBP) of Ministry of Water
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Krishi Sinchayee Resources, River Development & Ganga Rejuvenation;

Yojana (PMKSY) PMKSY is to be implemented in an area development approach, adopting
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decentralized state level planning and projectised execution, allowing the

states to draw their irrigation development plans based on district/blocks
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plans with a horizon of 5 to 7 years.

21 Deen Dayal Launched on 25th September 2014
Upadhyaya To provide employment to youth residing in rural area.
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Grameen Kaushalya
Yojana
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22 Deendayal To provide power (electricity) to rural area of the country.

Upadhyaya Gram
Jyoti Yojana
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23 Mahatma Gandhi Mahatma Gandhi Pravasi Suraksha Yojana is a special social security
Pravasi Suraksha scheme which includes Pension and Life Insurance, introduced by
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Yojana Ministry of Overseas Indian Affairs for the overseas Indian workers in
possession of Emigration Check Required (ECR) passports.
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It is a voluntary scheme designed to help workers to meet their three

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financial needs: saving for retirement, saving for their return and
resettlement, and providing free life insurance offering coverage for
death from natural causes.
24 Indradanush The Mission Indradhanush, depicting seven colours of the rainbow, aims
Scheme to cover all those children by 2020 who are either unvaccinated, or are
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partially vaccinated against seven vaccine preventable diseases which

include diphtheria, whooping cough, tetanus, polio, tuberculosis,
measles and hepatitis B.
25 Rani Laxmi Bai For victims of Muzazafar nagar riot.
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Pension scheme
26 Udaan Scheme To provide skill to youth of India
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27 Kisan (Relaunched in 2014) – Saving certificate Scheme
Vikas Patra
28 AMRUT Atal Mission for Rejuvenation and Urban Development (earlier name
s.
JNNURM)
29 PRASAD Pilgrimage Rejuvenation and Spiritual Augmentation-To improve the
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infrastructure at pilgrimage places.
Under PRASAD, initially twelve cities have been identified namely Ajmer,
Amritsar, Amravati, Dwarka, Gaya, Kedarnath, Kamakhaya, Kanchipuram,
Mathura, Puri, Varanasi and Velankanni.
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30 Pradhan Mantri The Union Cabinet has approved Pradhan Mantri Fasal Bima Yojana
Fasal Bima Yojana
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It is a new crop insurance scheme to boost farming sector in the country.
It is farmers’ welfare scheme
The Scheme aims to reduce the premium burden on farmers and ensure
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early settlement of crop Insurance claim for the full insured sum.We Will
cover this Scheme In details in Separate Article
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31 National RU URBAN This Is The Latest Scheme Launched By PM Narendra Modi

Mission National RU URBAN Mission Was Launched In Chhattisgarh
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The mission also dubbed as Shyama Prasad Mukherjee Rurban mission

(SPMRM) aims to spur social, economic and infrastructure development
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in rural areas by developing a cluster of 300 Smart Villages over the next
3 years across the country.
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32 Stand up India The Stand up India Scheme is being launched to promote

scheme entrepreneurship among people from schedule caste/schedule tribe and
woman who will be provided loans starting from Rs 10 lakhs to Rs 100
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lakhs.
Composite loan between Rs 10 lakh and upto Rs 1 crore will be provided
to entrepreneurs for setting up new enterprise.
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Debit Card (RuPay) for withdrawal of working capital.

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33 Gram Uday Se Improve rural livelihoods and promote rural development

Bharat Uday Strengthen the Panchayati Raj across the country
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Abhiyan Increase ‘social harmony’

Create Awareness – information regarding agriculture schemes will be
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shared
Foster farmers’ progress
34 Pradhan Mantri It is a Scheme for Providing Free LPG connections to Women from BPL
Ujjwala Yojana Households.
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Under the scheme, Rs 8000 crore has been earmarked for providing five
crore LPG connections to BPL households.
The Scheme provides a financial support of Rs 1600 for each LPG
connection to the BPL households.
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The identification of eligible BPL families will be made in consultation
with the State Governments and the Union Territories.
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35 SEEMA DARSHAN SEEMA DARSHAN an initiative to provide an opportunity for the children
to experience the border environment and to encourage patriotism and
nationalism among the students.
s.
It aims to provide the students the experience of the current security
environment in the border areas.
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This Initiative Will Help in Developing Patriotic Feeling In Children.
36 Start up India, Stand To create a strong ecosystem for enhancing innovation and startups in
up India India, Department of Industrial Policy and Promotion (DIPP) has
organised Startup India, Standup India initiative along with other key
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Indian startup ecosystem players. Here are some key features:
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Financing & Incentives – It is basically to promote bank financing for
start-ups and offer incentives to boost entrepreneurship and job
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creation. Government will set up a fund with an initial corpus of Rs 2,500
crore and a total corpus of Rs 10,000 crore over a period of 4 years.
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37 Pradhan Mantri Under this scheme, incentive will be given by the government to build
Awaas Yojana Pucca house
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Financial assistance of 1,20,000 in plain areas and 1,30,000 in hill areas

will be given to all houseless and people those who live in dilapidated
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houses
The cost will be shared between the centre and states in the ratio of
60:40 in plain areas
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For north eastern and Hilly areas, the ratio will be 90:10
The beneficiary is entitled to 90 days of unskilled labour from MGNREGA.
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This will be ensured through a server linkage between PMAY and

MGNREGA.
38 Swadhar Greh Project of construction of a special Home for 1000 widows at Vrindavan,
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scheme Mathura, Uttar Pradesh.

39 Science and To strengthen research in the areas of yoga and meditation
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Technology of Yoga
and Meditation
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(SATYAM)
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Banking Terms
RBI – The Reserve Bank of India is the apex bank of the country, which was constituted under the RBI
Act, 1934 to regulate the other banks, issue of bank notes and maintenance of reserves with a view to
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securing the monetary stability in India.
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Demand Deposit – A Demand deposit is the one which can be withdrawn at any time, without any
notice or penalty; e.g. money deposited in a checking account or savings account in a bank.
s.
Time Deposit – Time deposit is a money deposit at a banking institution that cannot be withdrawn for a
certain "term" or period of time. When the term is over it can be withdrawn or it can be held for
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another term.
Fixed Deposits – FDs are the deposits that are repayable on fixed maturity date along with the principal
and agreed interest rate for the period. Banks pay higher interest rates on FDs than the savings bank
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account.
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Recurring Deposits – These are also called cumulative deposits and in recurring deposit accounts, a
certain amounts of savings are required to be compulsorily deposited at specific intervals for a specified
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period.
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Savings Account – Savings account is an account generally maintained by retail customers that deposit
money (i.e. their savings) and can withdraw them whenever they need. Funds in these accounts are
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subjected to low rates of interest.

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Current Accounts – These accounts are maintained by the corporate clients that may be operated any
number of times in a day. There is a maintenance charge for the current accounts for which the holders
enjoy facilities of easy handling, overdraft facility etc.
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FCNR Accounts – Foreign Currency Non-Resident accounts are the ones that are maintained by the NRIs
in foreign currencies like USD, DM, and GBP etc. The account is a term deposit with interest rates linked
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to the international rates of interest of the respective currencies.

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NRE Accounts – Non-Resident External accounts are the ones in which NRIs remit money in any
permitted foreign currency and the remittance is converted to Indian rupees for credit to NRE accounts.
The accounts can be in the form of current, saving, FDs, recurring deposits. The interest rates and other
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terms of these accounts are as per the RBI directives.

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Hot Money - Money held in one currency that is liable to switch to another currency, in a flash, in
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response to better returns or in apprehension of adverse circumstances. Such a flight of money might
cause the currency’s exchange rate to plunge.
Reserve Money (M0) - Currency in circulation + Bankers’ deposits with the RBI + ‘Other’ deposits with
the RBI = Net RBI credit to the Government + RBI credit to the commercial sector + RBI’s claims on banks
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+ RBI’s net foreign assets + Government’s currency liabilities to the public – RBI’s net non-monetary
liabilities. M1 – Currency with the public + Demand deposits with the banking system + ‘Other’ deposits
with the RBI. M2 – M1 + Savings deposits with Post offices. M3 – M1+ Time deposits with the banking
system = Net bank credit to the Government + Bank credit to the commercial sector + Net foreign
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exchange assets of the banking sector + Government’s currency liabilities to the public – Net non-
monetary liabilities of the banking sector. M4 – M3 + Deposits with post office (excluding NSCs).
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Inflation - It is termed as the continual rise in the general level of prices. It is commonly expressed as an
annual percentage rate of change on an index number.
s.
Hyper Inflation - An express growth in the rate of inflation whereby, money loses its value to the extent
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where other mediums of exchange like barter or foreign currency come into vogue.
Cheque Book - A small, bound booklet of cheques. A cheque is a piece of paper produced by your bank
with your account number, sort-code and cheque number printed on it. The account number
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distinguishes your account from other accounts; the sort-code is your bank's special code which
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distinguishes it from any other bank.
Cheque Clearing - This is the process of getting the money from the cheque-writer's account into the
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cheque receiver's account.
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Clearing Bank - This is a bank that can clear funds between banks. For general purposes, this is any
institution which we know of as a bank or as a provider of banking services.
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Bounced Cheque - when the bank has not enough funds in the relevant account or the account
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holder requests that the cheque is bounced (under exceptional circumstances) then the bank will return
the cheque to the account holder.
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Consumer Price Index (CPI) - CPI is an inflationary indicator that measures the change in the cost of a
fixed basket of products and services, including housing, electricity, food, and transportation. The CPI is
published monthly and it is also called cost-of-living index.
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Stagflation - A condition in the economy that is characterized by the twin economic problems viz., slow
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economic growth and rising prices.
Deflation - A sustained fall in the general price level of goods and services, usually accompanied by fall
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in output and jobs.

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Recession - A phase of dismal economic activity, usually accompanied by rising unemployment. It is

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defined by two successive quarters of negative GDP growth and is considered to have a cyclic character.
Stagnation - It is a period during which economy does not grow or grows very slowly. As a result,
unemployment increases and consumer spending slows down.
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Devaluation - A fall in the fixed official rate at which one currency is exchanged for another in a fixed
exchange rate system. While it is mostly by a deliberate act of government policy, in recent years,
financial speculation has also been identified as a responsible factor.
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Demonetization - Withdrawal of currency from circulation with an aim to strike at counterfeiting of
currency and unaccounted money.
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Credit Rating - This is the rating which an individual (or company) gets from the credit industry. This is
obtained by the individual's credit history, the details of which are available from specialist organisations
s.
like CRISIL in India.
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Credit-Worthiness - This is the judgement of an organization which is assessing whether or not to take a
particular individual on as a customer. An individual might be considered credit-worthy by one
organisation but not by another. Much depends on whether an organization is involved with high risk
customers or not.
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Interest - The amount paid or charged on money over time. If you borrow money interest will be
charged on the loan. If you invest money, interest will be paid (where appropriate to the investment).
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Overdraft - This is when a person has a minus figure in their account. It can be authorized (agreed to in
advance or retrospect) or unauthorized (where the bank has not agreed to the overdraft either because
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the account holder represents too great a risk to lend to in this way or because the account holder has
not asked for an overdraft facility).
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Payee - The person who receives a payment. This often applies to cheques. If you receive a cheque you
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are the payee and the person or company who wrote the cheque is the payer.
Payer - The person who makes a payment. This often applies to cheques. If you write a cheque you are
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the payer and the recipient of the cheque is the payee.
Security for Loans

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Where large loans are required the lending institution often needs to have a guarantee that the loan will
be paid back. This takes the form of a large item of capital outlay (typically a house) which is owned or
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partly owned and the amount owned is at least equivalent to the loan required.
Internet Banking - Online banking (or Internet banking) allows customers to conduct financial
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transactions on a secure website operated by the bank.

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Credit Card - A credit card is one of the systems of payments named after the small plastic card issued to
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users of the system. It is a card entitling its holder to buy goods and services based on the holder's
promise to pay for these goods and services.
Debit Card – Debit card allows for direct withdrawal of funds from customers bank accounts. The
spending limit is determined by the available balance in the account.
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Loan - A loan is a type of debt. In a loan, the borrower initially receives or borrows an amount of
money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of
money to the lender at a later time. There are different kinds of loan such as the house loan, auto loan
etc.
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Bank Rate - This is the rate at which central bank (RBI) lends money to other banks or financial
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institutions. If the bank rate goes up, long-term interest rates also tend to move up, and vice-versa.
CRR - Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI
s.
decides to increase the percent of this, the available amount with the banks comes down. RBI is using
this method (increase of CRR rate), to drain out the excessive money from the banks.
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SLR - SLR stands for Statutory Liquidity Ratio. This term is used by bankers and indicates the minimum
percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities.
Thus, we can say that it is ratio of cash and some other approved to liabilities (deposits). It regulates the
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credit growth in India.
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Repo Rate - Under repo transaction the borrower places with the lender certain acceptable securities
against funds received and agree to reverse this transaction on a predetermined future date at agreed
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interest cost. Repo rate is also called (repurchase agreement or repurchase option).
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Reverse Repo Rate - is the interest rate earned by the bank for lending money to the RBI in exchange of
govt. securities or "lender buys securities with agreement to sell them back at a predetermined rate".
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Over Draft - It is the loan facility on customer current account at a bank permitting him to overdraw up
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to a certain agreed limit for a agreed period ,interest is payable only on the amount of loan taken up.
Shadow Banking
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 The shadow banking system is a network of financial institutions consisting of non-depository banks
like investment banks, non-bank financial institutions and money market funds.
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 In other words, Shadow banking is a system of Non-Financial Institution, which borrow funds in
short term and invest the money in long term assets. Shadow banking entities generally serve as
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mediators between investors and borrowers, providing credit and capital for investors, institutional
investors, and corporations, and profiting from fees and/or from the arbitrage in interest rates.
Because shadow banking institutions don’t receive traditional deposits like a depository bank, they
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are escaping from most regulatory limits and laws enforced on the traditional banking system.
 The shadow banking is said to be the major reason for 2008 US Sub-prime Crisis.
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Latest Developments in Indian Banking
Improved Risk Management Practices

 Indian banks are increasingly focusing on adopting integrated approach to risk management.
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 Banks have already embraced the international banking supervision accord of Basel II.; interestingly,
according to RBI, majority of the banks already meet capital requirements of Basel III, which has a
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deadline of March 31, 2019.
 Most of the banks have put in place the framework for asset-liability match, credit & derivatives risk
management.
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Diversification of Revenue Stream
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 Total lending has increased at a CAGR of 10.94 per cent during FY07-18 and total deposits has
increased at a CAGR of 11.66 per cent, during FY17-18 & are further poised for growth, backed by
demand for housing and personal finance
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Technological Innovations
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 As of May 2018, total number of ATMs in India increased to 210,312 and is further expected to
increase to 407,000 ATMs in 2021.
 The digital payments system in India has evolved the most among 25 countries, including UK, China
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and Japan, with the IMPS being the only system at level 5 in the Faster Payments Innovation Index
(FPII)
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Focus on Financial Inclusion

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 RBI has emphasised the need to focus on spreading the reach of banking services to the un-banked
population of India.
 Indian banks are expanding their branch network in the rural areas to capture the new business
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opportunity. According to RBI, Under Financial Inclusion Plan, 598,093 banking outlets were
provided in villages as on March 2017.
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Derivatives and Risk Management Products

 The increasingly dynamic business scenario & financial sophistication has increased the need for
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customised exotic financial products.

 Banks are developing innovative financial products & advanced risk management methods to
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capture the market share.

 Bank of Maharashtra tied up with Cigna TTK, to market their insurance products across India.
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Consolidation
 With entry of foreign banks, competition in the Indian banking sector has intensified.
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 Banks are increasingly looking at consolidation to derive greater benefits such as enhanced synergy,
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cost take-outs from economies of scale, organisational efficiency & diversification of risks.
Know Your Client

 RBI mandated the Know Your Customer (KYC) Standards, wherein all banks are required to put in
place a comprehensive policy framework in order to avoid money laundering activities.
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 The KYC policy is now mandatory for opening an account or making any investment such as mutual
funds
Demonetisation
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 The effects of demonetisation are also visible in the fact that bank credit plunged by 0.8 per cent
from November 8 to November 25, 2016, as US$ 9.85 billion were paid by defaulters. As per RBI, a
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total of US$ 237.17 billion was deposited in banks till August 30, 2017.
 Debit cards have radically replaced credit cards as the preferred payment mode in India, after
demonetisation. As of May 2018, debit cards garnered a share of 86.79 per cent of the total card
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spending
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Focus towards Jan Dhan Yojana
 Key objective of Pradhan Mantri Jan Dhan Yojana (PMJDY) is to increase the accessibility of financial
services such as bank accounts, insurance, pension, credit facilities, etc. mostly to the low income
groups.
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 Under the Jan Dhan Yojana, Rs 80,674.82 crore (US$ 12.03 billion) were deposited and 32.25 million
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accounts were opened in India.
 247.7 million ‘Rupay’ debit cards were issued to users.
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Wide usability of RTGS, NEFT and IMPS Real Time Gross Settlement (RTGS) and National Electronic
Funds Transfer
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 (NEFT) are being implemented by Indian banks for fund transaction.
 Securities Exchange Board of India (SEBI) has included NEFT & RTGS payment system to the existing
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list of methods that a company can use for payment of dividend or other cash benefits to their
shareholders & investors.
 Funds transferred through IMPS increased to Rs 3.23 lakh crore (US$ 48.18 billion) between April -
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June 2018 from Rs 1.74 lakh crore (US$ 25.95 billion) between April to June 2018.
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Digital influence in the Indian banking sector has been growing faster due to the rising digital
footprint.
 India’s digital lending stood at US$ 75 billion in FY18.
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 Digital lending is estimated to reach US$ 1 trillion by FY2023 driven by the five-fold increase in the
digital disbursements.
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Banking penetration in rural India picking pace

 Of the 600,000 village habitations in India only 5 per cent have a commercial bank branch.
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 Only 40 per cent of the adult population has bank accounts.

 Debit card holders constitute only 13 per cent of the population & only 2 per cent have a credit card.
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 51.4 per cent of nearly 89.3 million farm households do not have access to any credit either from
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institutional or non-institutional sources.

 Only 13% of farm households are availing loans from the banks in the income bracket of < US$ 1000.
 Only one-eighth of farm households avail bank credit.
 Local money-lending practices involve interest rates well above 30 per cent therefore making bank
credit a compelling alternative.
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Soaring Rural Tele-Density Opens Avenue of Mobile Banking
 Tele-density in rural India soared at a CAGR of nearly 6.70 per cent during 2011 to 2018.
 Banks, telecom providers & RBI are making efforts to make inroads into the un-banked rural India
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through mobile banking solutions.
 Rural tele density reached 57.18 per cent by May 2018.
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Robust Asset Growth
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 Mobile banking allows customers to avail banking services on the move through their mobile
phones. The growth of mobile banking could impact the banking sector significantly.
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 Mobile banking is especially critical for countries like India, as it promises to provide an opportunity
to provide banking facilities to a previously under-banked market.
 RBI has taken several steps to enable mobile payments, which forms an important part of mobile
banking; the central bank has recently removed the transaction limit of INR 50,000 (US$ 745.82) &
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allowed banks to set their own limits.
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 Mobile wallet transactions, volume grew at 16 per cent month-on-month to 326.02 million in May
2018 from 279.29 million in April 2018.
 Value of mobile wallet transactions grew at 4.2 per cent month-on-month to Rs 14,632 crore (US$ 2
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billion) in June 2018 from Rs 14,047 crore (US$ 2 billion) in May 2018
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Housing and Personal Finance have been Key Drivers
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 Rapid urbanisation, decreasing household size & easier availability of home loans has been driving
demand for housing.
 Personal finance, including housing finance provide an essential cushion against volatility in
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corporate loans.
 The recent improvement in property value have reduced the ratio of loan to collateral value.
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 Credit to housing sector increased at a CAGR of 12.14 per cent during FY09–18, wherein, value of
credit to housing sector increased from to US$ 114.1 billion in FY16 to US$ 151.2 billion in FY18 and
stood at Rs 9,983 billion (US$ 148.9 billion) in FY19.
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Demand in the low & mid-income segments exceeds supply 3 to 4 fold.

 This has propelled demand for housing loan in the last few years Growth in disposable income has
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been encouraging households to raise their standard of living & boost demand for personal credit.
 Credit under the personal finance segment (excluding housing) rose at a CAGR of 9.89 per cent
during FY09–18, and stood at US$ 144.9 billion in FY18 and stood at Rs 9,353 billion (US$ 139.51
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billion) in FY19.
 Unlike some other emerging markets, credit-induced consumption is still less in India.
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Some Important Things to Remember
 Cheque truncation-Electronic Image

 Notice of dishonour waived mentioned in an endorsement - Facultative endorsement
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 Endorsement without recourse-Sans recourse endorsement
 In crossing where banks name is included-Special crossing
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 Not negotiable crossing indicates that payee has got a better title.
 Difference in words and figures-Amount in words to be paid.
 As per CTS 2010- Amount in words is called as legal amount and amount in figures is called as
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courtesy amount.
 Cheque drawn in different inks-Pass the cheque
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 Cheque having impossible date like 31/11/2012 presented on 30/11/2012 - Pass the cheque.
 Cheque dated prior to date of account opening – Pass the cheque.
 Bearer cheques - Pass the cheque.
 Validity of a Cheque - 3 months, Immediate credit of outstation cheques - Rs 15000
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 Minor becomes major at the age of 18
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 Minor can endorse but will not be liable
 Missing person-A person is presumed to be died only after of lapse of 7 years from date of report to
be missing.
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 For individuals, Joint accounts (not survivor, if issued by survivor, pass the cheque), partnership-
Death of individual/partner- Payment of the cheque to be stopped
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 For Trust, Company, POA-Death of Trustee, Director, Agent-Pass the cheque.
 In joint account, Partnership account, any person, partner can give stop payment notice, but
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revocation to be done by all.

 E or S, death of one amount to be paid to survivor.
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In joint operation account, if any one dies then amount will be paid to legal heirs of the deceased
plus survivor.
 In former or survivor only former has got all the rights, survivor can’t give stop payment.
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 In case of locker operated jointly, if any person dies then access will be given to survivors along with
nominee. In case of E OR S, then articles will be taken by the survivor.
 Banks will issue notice for operation or surrender if Locker is not operated for one year in high risk
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accounts Locker is not operated for three years for medium risk accounts.
 Break open of lockers to be done in front of the Branch officials, locker hirer, and two independent
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witnesses.
 In HUF Senior coparcener is Karta.
 A blind person can open a current account but an illiterate cannot open a current account.
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 Inland bills-Drawn in India, Payable in India by a foreigner or resident, payable abroad by an Indian.
 Foreign bill other than the above.
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 Partnership firm (Members) - Minimum 2, Maximum 200


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PVT Ltd CO (Members) - Min 2 Maximum 200

 Public Ltd Co (Members) - Min 7 Maximum Unlimited
 Certificate of Commencement of Business is required only for Public Ltd Co.
 Ultra vires – Beyond the powers of the company.
 Maximum Remittance under Liberalised Remittance scheme is USD 125000
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 Single documentary proof for both ID and Address can be accepted.

 A ‘small account’ can be opened on the basis of a self-attested photograph and putting her/his
signature or thumb print in the presence of an official of the bank
 In case of KYC for SHG, KYC verification for office bearers would suffice.
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 For Foreign students, one month time is allowed to submit proof of local address.
 In case Low risk customers are not able to submit KYC for Genuine reasons, then 6 months time
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from the date of opening can be given to them to submit documents.
 In case of any address change, proof of new address to be submitted within 6 months.
 Maturity period of Certificate of Deposits issued by Financial Institutions- 1 year to 3 years.
s.
 For cases of detection of counterfeit notes upto 4 pieces, in a single transaction, a consolidated
report should be sent by the Nodal Bank Officer to the police authorities or the Nodal Police
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Station, along with the suspect counterfeit notes, at the end of the month.
 For cases of detection of counterfeit notes of 5 or more pieces, in a single transaction, the
counterfeit notes should be forwarded by the Nodal Bank Officer to the local police authorities or
the Nodal Police Station for investigation by filing FIR
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 Maximum value of prepaid instruments by Banks to Govt Organsiations for onward issuance to
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beneficiaries of Govt sponsored schemes shall be Rs 50000 with validity of 1 year.
 Wrong billing of credit card, protest by customer-Banks to submit documentary evidence within 60
days.
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 Banks can open minor accounts with mother as guardian although father is alive.
 ATM failed transactions-Non reversal of entry within 7 days-Penal interest to be paid by banks-Rs
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100 per day.
 Opening an account of a person who has lost both his hands-Toe mark can be accepted as signature.
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 Dishonoured cheque to be returned to the customer within 24 hours.

 As regards lockers hired jointly, on the death of any one of the joint hirers, the contents of the
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locker are only allowed to be removed jointly by the nominees and the survivor(s) after an inventory
was taken in the prescribed manner
 Settlement of deceased claim- Within 15 days from the date of application.
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 Removal on foreclosure charges on housing loans-Damodharan committee.

 Banks are bound to share information of credits more than Rs 50 million (SMA) to CRILC (Credit
repository of information on large credits-Set up by RBI) failing which accelerated provisioning will
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be charged.
 Statement of Liquidity coverage ratio – Monthly (Within 15 days)
 Statement of available encumbered assets - Quarterly (Within 21 days)
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 LTV to be maintained for Loan against Jewels for Non Agri purpose-75%
 External Commercial Borrowings (ECB) refer to commercial loans *in the form of bank loans, buyers’
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credit, suppliers’ credit, securitised instruments (e.g. floating rate notes and fixed rate bonds)]
availed from non-resident lenders with minimum average maturity of 3 years.
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 The maximum amount of ECB which can be raised by a corporate other than those in the hotel,
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hospital and software sectors, and corporate in miscellaneous services sector is USD 750 million or
its equivalent during a financial year.
 Corporates in the services sector viz. hotels, hospitals and software sector and miscellaneous
services sector are allowed to avail of ECB up to USD 200 million.
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 Distance between base branch and Retail outlet of Business correspondents should not be more
than 30 kms in rural, urban and semi-urban. For metros it should not be more than 5 kms.
 Any person resident in India or outside India shall take or bring in currency notes issued by Gov of
India, RBI to the extent of Rs 25000.
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 A credit card account will be treated as non-performing asset if the minimum amount due, as
mentioned in the statement, is not paid fully within 90 days from the next statement date.
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 Official language implementation committee meets once in 3 months.
 Fraud cases involving more than Rs 300 lacs and above if primafacie staff involvement is there-To be
Reported to CBI ANTI CORRUPTION WING.
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 Fraud cases involving more than RS 300 lacs and above if primafacie staff involvement is not there-
To be reported to CBI ECONOMIC OFFENCES WING.
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 Fraud cases of more than Rs 1.00 lac but less than Rs 300 lacs shall be reported to State CID/
Economic offence wing of state police.
 Fraud cases of more than Rs 10000 but less than Rs 1.00 lac can be referred to local police.
 Time limit for filing FIR to police/CBI- 15 days from the detection of fraud.
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 All fraud cases should be reported to RBI in FMR-1 within 3 weeks from the date of detection of
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fraud.
 FMR-2 and FMR- 3- Quarterly Reporting to RBI regarding Frauds outstanding and progress report in
fraud related cases.
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 Lock in period for Margin/Subsidy under PMEGP is 3 years.
 Green shoe option: Where the underwriter sells the shares more than the original determined by
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the issuer. In simple terms it refers to Over allotment option. It provides additional price stability
 Limitation period for Term deposits which has already got matured- 3 years from the date of
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demand.
 If the maturity date of Certificate of Deposit happens to be holiday, it should be paid on immediate
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preceding working day.

 Presentment of forged DD- Paying banker has to lodge complaint.
 Syndication of loan- J V SHETTY Committee.
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 Only lawfully appointed guardian can give nomination for a Minor Account
 Hypothecation-Sarfaesi act-Sec 2(n) Charge on movable property
 Under CTS, only alteration in date of a cheque is permitted.
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 Validity of cheque will be computed monthwise. For example date of cheque is 10/03/2014. It will
expire on 09/06/2014.
 TDS certificate will be downloaded from Traces portal.
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 3 pillar concept is applicable to Basel 2 & Basel 3.

 Interest rate on FCNR should not exceed –LIBOR/SWAP 200 basis points( Maturity 1 to 3 years) and
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300 basis points(3 to 5 years)

 Excess money supply leads to –Inflation.
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 Digits in IFSC- 11
 Deposits received invested in Govt securities- Narrow banking
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 Mixed farming: Cultivation and allied activities.

 Organic farming: Crop rotation, Green Manure, Compst and Biological Pest control
 Blue revolution-Acuaculture.
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 Resident returning from India need not surrender any currency on arrival-Only CDF to be given
(Currency-$5000,TC-$ 10000).
 Export bill O/S reversed by debiting account- Crystallisation
 Period for loan to farmers against ware house receipts- 12 months.
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 XOS statement- June to Dec.
 Difference between DPG and TL- Outlay of funds.
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 Borrower died-Role of Guarantor- To pay amount.
 Preservation of records- 10 years.
 ATM card can be issued to- Illiterates, Minor, Joint account holders
s.
 Rabi season- OCT to MARCH, Kharif season- JULY to OCTOBER.
 Housing loan under DRI- 20000.
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 Scale of Finance decided by- SLBC.
 Training cost for PEMGP borne by Ministry of MSE.
 Cheque discounted by bank-Bank becomes holder for value.
 Loan to women beneficiaries to be classified as weaker section under priority-Rs 50000.
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 Studies in India under Education loan more than 10 lacs- Non priority.
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 Rearing of honey bee- Apiculture.
 Gold/Gems dealer- High risk accounts.
 Bank loans to Govt agencies for constructing dwelling units under priority sector-Rs 10.00 lacs.
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 FATF- Financial action task force.
 Long term assets procured from short term liability- Liquidity risk.
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 Non functioning of computers- Operational risk.
 Medium term loan- 36 to 84 months.
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 Rule in claytons case- Bankers right- Right of set off.

 Hindi meeting report to RBI-Quarterly.
 Members in Asian clearing union- 9
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 Periodicity of customer meet- Monthly.

 Loan to dealers of poultry feed, cattle feed under Indirect agri- Upto Rs 5.00 crores
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 PAN not given-TDS will be- 20%.

 Selling rate of foreign currency is higher than TC- Holding cost of currency is high.
 Sale of NPA- The accounts will remain as a PA in the books of purchasing bank for 90 days.
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 Which one is not a material alteration- Converting bearer into order.

 Cheque dishonour- Payee should give notice within 30 days.
 Validity of cheque-As per RBI guidelines.
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 Working capital cycle as per nayak committee- 3 months.

 NRLM loan without security-Rs 10.00 lacs
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 Cheque to a customer will be stopped if cheques returned in his account for 4 times.
 No of digits in Aadhar- 12
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 Maximum withdrawal per month in BSBDA- Rs 10000(4 withdrawal)

 Unspent foreign currencies to be returned within 180 days.
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 Parri passu charge: Security will be shared in the ratio of outstanding amount in banks.
 ALCO-ASSET LIABILITY COMMITTEE-Decides pricing of both deposits and advances.
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Major Ratios of Your Bank (As per Latest Available Data)
Ratio How to Calculate Ratio as on

(Fig in bracket is
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of previous year)
Net Interest Margin Total interest earned minus total interest paid
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divided by average interest earning assets
Cost Income Ratio Operating Expenses Divided by (Non interest
income plus interest spread)
s.
Return on Average Assets Net Profit divided by AWF
Return on Assets Net Profit divided by total assets
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Cost of Deposit Interest Paid on Deposits divided by Average
Deposits
Capital Adequacy Ratio Total Capital including Tier I plus Tier II
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multiplied by 100 and then this figure is
divided by total Risk Weighted Assets of the
Interest Spread/Average
Bank
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(Total interest income minus total interest
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Working Funds(AWF) expenses) divided by AWF
Operation Expenses/AWF Operating expenses divided by AWF
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Return on Net Worth Net Profit Divided by NW
Dividend Payout Ratio Dividend including corporate dividend tax
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divided by Net Profit

Credit Deposit Ratio Total Advances divided by Customer
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Deposit(Total deposits minus inter bank

deposits)
Net Profit/AWF Net Profit divided by AWF
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Interest Income/AWF Total Interest income divided by AWF

Interest Expenses/AWF Total interest expenses divided by AWF
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Business per employee Total Deposits plus total advances divided by

No. of employees
Average Business per Average Deposits plus average advances
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employee divided by No. of employees

Net Profit per employee Net Profit divided by No. of employees
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Net Profit per Branch Net Profit divided by No. of branches

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 Average Working funds(AWF) - Fortnightly Average of Total Assets

 Average Deposits – Fortnightly Average of Total Deposits
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 Average Advances – Fortnightly Average of Total Advances

 Average Business – Total of Average Deposits plus total of Average Advances
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Business Performance Data of Your Bank
Parameter March 2016 March 2017 March 2018 March 2019

Total Business (Global)
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Total Business
(Domestic)
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Deposit (Global)
Deposit (Domestic)
s.
Advances (GLOBAL)
Advances (Domestic)
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NET PROFIT
CASA %
CAR - %
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(under Basel III)
NIM (Global)
ROE (%) (Global)
ROA (%)
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GNPA (%)
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NNPA (%)
PCR (%)
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No. of Branches
Foreign Branches
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No of ATMs
Staff Strength
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Bank Specific Deposit Products – Update yourselves with your Bank’s Deposit Products
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Retail Schemes / MSME Schemes – Update yourselves with your Bank’s Retail / MSME Schemes
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Loan Policy / Recovery Policy – Update yourselves with your Bank’s Loan / Recovery Policy
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ALL THE VERY BEST FOR YOUR EXAMS
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s.
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COMMON NOTES FOR ne
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BANK PROMOTION EXAMS
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SCALE - I, II & III

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kp
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Though we had taken enough care to go through the notes provided here, we shall not be
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responsible for any loss or damage, resulting from any action taken on the basis of the contents.
We request everyone to go through the RBI / individual bank’s website and other internal
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circulars and update yourself with the latest information through RBI website and other
authenticated sources. In case you find any incorrect/doubtful information, kindly update us
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also (along with the source link/reference for the correct information).
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January 2019 K Murugan, MCA MBA CAIIB

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SCALE - I, II & III

January 2019 K Murugan, MCA MBA CAIIB

Bank Promotion Exams – Index

17 Small Finance Banks 61

19 Goods & Services Tax (GST) 64

23 USBs / Direct Benefit Transfer (DBT) / Subprime Lending 73

25 Ways and Means Advances (WMA) 75

28 Derivatives / Futures / Options / MBS / CDO / Swap 77

30 ADR / GDR / IDR 79

33 Balance Sheet Analysis 81

53 Foreign Exchange 124

55 Latest Schemes And Programmes Launched By Indian Government 134

57 Latest Developments in Indian Banking 145

59 Major Ratios of Your Bank 152

62 Retail Schemes / MSME Schemes 153

Key Highlights of Union budget 2018-19

Agriculture and Rural Economy

 Loans to self-help groups will increase to Rs75,000 crore.

Education, Health and Social Protection

Medium, Small and Micro Enterprises (MSMEs) and Employment

changes in employer contribution.

Infrastructure and Financial Sector Development

 Increase of budgetary allocation on infrastructure for 2018-19 to Rs.5.97 lakh crore

cost of Rs.5,35,000 crore has been approved.

 In Railways, 18,000 kms of doubling of tracks would eliminate capacity constraints.

Finance & Digital Economy

 A comprehensive Gold Policy will be formulated to develop gold as an asset class

the activities leading to the commemoration programme.

Fiscal Management, Direct & Indirect Taxes

 FM projected a Fiscal Deficit of 3.3% of GDP for the year 2018-19.

Committee to bring down Central Government’s Debt to GDP ratio to 40%.

2014-15 to 8.27 crore at the end of 2016-17.

Relief to Senior Citizens proposed in the Budget

Other Important Highlights from the Budget

launch of Galvanizing Organic Bio-Agro Resources Dhan (GOBAR-DHAN).

Key Highlights of Union budget 2018-19

 The cluster-model approach will be adopted for agricultural production.

Allocation in food production sector doubled to Rs 1400 crore.

 Rs. 600 crore for nutritional support to all TB patients.

Loans to women self-help groups of women to be increased to 75,000 cr by March 19.

Jan Dhan Yojana will be extended to all 60 crore bank accounts.

 The government will announce measures to address non-performing assets of MSMEs.

 UDAN will connect 56 unserved airports and 36 unserved heliports.

 Department of Science will launch a national program for cyberspace.

 Disinvestment target of Rs. 80,000 crore for 2018-19.

 24 Public Sector Units to be divested.

 Employment-based tax incentives will be extended to footwear and leather industry.

 Railway Capital Expenditure is set at Rs. 1.48 lakh crore.

 Customs duty increased on mobile phones from 15% to 20%.

Highlights of latest monetary policy announced by RBI on December 5, 2018:

speech last month.

Policy Rates as on 01.01.2019

Policy Rates As on 12.02.2017 Update Yourselves

Repo rate 6.50 %

Reverse repo rate 6.25 %

Bank Rate 6.75 %

THE BANKING REGULATION ACT, 1949

Preamble of regulatory Act

Different provisions of Banking regulations Act

3. IIA Control over management 36AA to 36AC

8. IIIB Provision relating to certain operation of Banking Companies 45Y to 45ZF

Applicability of the Banking Regulation Act, 1949

 Banks are prohibited to do any other business