Escolar Documentos
Profissional Documentos
Cultura Documentos
R S T C MUMBAI
Preface
Dear Friends,
Banking/Financial sector in our country has witnessed a sea change in last few years &
banking business has become more complex & difficult in the driven era of knowledge &
technology. An official working in the Banking sector has to keep pace with Updated
knowledge, skills & attitude. This is required everywhere. Promotion is nothing but a
reward/transformation that brings changes in the status and dignity of individual &
society at large.
This book on Capsule of Banking has many unique features to its credit & consists of
all topics/syllabus required for Promotion Test / Knowledge with clear concept & simple
language. At the end of each topic, latest Policy changes during 2014-15 have
incorporated. The Last Topic is on Recalled Questions of various Promotion Tests
conducted during 2014-15.
I have taken special care to present the various concepts and textual information with
salient features like (i) more emphasis on clarity on topics (ii)complete coverage on the
subject matter for Promotion test as well as interview (iii )the knowledge requirement at
Promotion taken care ( iv ) Simple Language , easy to understand & (v ) updates with
recent policy guidelines correct information & relevant topics. I am confident that it will
be much helpful for the Promotion aspirants to have success in their test as well as
interview.
During preparation of this book, I have received tremendous support from many friends
& colleagues especially my wife Mrs Renu, who is also a banker, my son Master Ritwiz
Aryan & our clerk Mr Sanjeev V Karamchandani.
Any suggestions to improvement of this book qualitatively ( Including Printing Error, if
any ) will be most welcomed and these will be incorporated in next issues very soon. I
shall be grateful if any feedback is provided for improvement in contents of the book .
I wish you all the best for the Written test & hope the study material will help in
achieving the goal.
Mumbai
11.04.2015
SANJAY TRIVEDY
RSTC, MUMBAI
CONTENTS
TOPIC
PAGE NO.
1.
................. 03
2.
................ 11
3.
................. 33
4.
............... 42
5.
.............. 59
6.
............... 64
7.
GENERAL BANKING
.............. 71
8.
FOREX
................ 79
9.
BANKING TECHNOLOGY
............... 93
10.
11.
............... 100
............. 110
amount is not mentioned is called as inchoate or incomplete instrument. Incomplete cheque can
be completed by the Holder and the completion will not be treated as material alteration.
17. An instrument without signatures is not treated as an instrument at all.
18. Ambiguous instruments: As per section 17 of the NI Act, an instrument which can be bill of
exchange or promissory note. Holder can treat it either of these.
19. Presumption: U/s-118 Nis are presumed to be (a) made for consideration, (b) bear date on
which they are made. (c) Every holder is a holder in due course.
20. Holder: defined in section 8 of the NI Act. Holder of a promissory note, bill of exchange or cheque
means any person entitled in his own name to the possession thereof and to receive the amount
due thereon from parties thereto.
21. Holder in Due Course: defined in Section 9 pf the NI Act. Holder in due course is a person who
became possessor of a NI for valuable consideration, in good faith, before becoming due, and
without having any reason to believe that the person transferring the instrument was not entitled
thereto.
Transfer of a Negotiable Instrument and Endorsement
a. Transfer of a Negotiable instrument: by assignment (under Transfer of Property Act) or by
Negotiation (under NI Act).
b. Negotiation of a Bearer instruments: A bearer instrument is negotiated by mere delivery and
no endorsement is required.
c. Negotiation of an order instrument: An order instrument can be negotiated by endorsement
followed by delivery. It may be noted that legal heirs cannot complete the negotiation of a
negotiable instrument with endorsement by the deceased merely by delivery.
d. Endorsement: Signing of an instrument on the back or face thereof or on a slip of paper annexed
thereto for the purpose of negotiation is called endorsement (Section 15). The person who
transfers the instrument is called endorser and the person to whom it is transferred is called
endorsee.
e. Blank Endorsement: In a blank endorsement the endorser just signs his name without indicating
endorsee. It can be converted into full by writing name of a person above signatures. The effect of an
endorsement in blank is that it makes an instrument dawn originally payable to order to bearer
instrument for the purpose of negotiation which can be further negotiated by mere delivery.
f.
Endorsement in Full: When, the endorser indicates the name of the endorsee it is called full
endorsement.
g. Sans Recourse Endorsement: An endorsement in which endorser excludes his liability is termed
'sans
recourse' or without recourse endorsement. In case of dishonour of instrument, the amount
cannot be
recovered from such endorser.
h. Facultative: An endorsement in which endorser waives the notice of dishonour is called
Facultative endorsement But this is not applicable to other parties to the instrument.
i. Restrictive endorsement: An endorsement which restricts further right of negotiation is called
as restrictive endorsement. For example if it is written in the endorsement as "Pay to Hari for my
use" it is restrictive endorsement.
j. Conditional Endorsement: When along with endorsement, condition is imposed by endorser.
For example, pay to C on completion of studies. Paying bank not to ensure compliance of
condition. Condition binds endorser and endorsee only.
k. Back to Back Endorsement: An endorsement in which the endorser himself becomes endorsee
is called as back to back endorsement and in such a case, the endorsee can recover the amount
only from parties prior to his own endorsement.
l. Negotiation Back: When the drawer of a cheque himself becomes endorsee, it is called
4
l)
p.
q.
r.
s.
t.
u.
v.
Impossible Date: A cheque with impossible date like 31.11.12 should be paid on the last day of
the month or within six months of the last day of the month.
m) Cheque dated prior to opening the account: A cheque dated prior to the date of
opening the account or issue of cheque book can be paid if otherwise in order.
n) Amount of Cheque : The amount should be written both in words and figures.
As per Sec 18 of the NI Act, if the amount written in words and figures differ, the amount
written in words should be paid.
The amount written in words is called legal amount and amount written in figures is called courtesy
amount.
If the balance in the account is just equal to the amount of the cheque, the cheque will be paid.
If the balance in the account is insufficient to pay the cheque, it should not be paid relying on
the balance in some other account or transferring the amount from other account unless there
is an arrangement to that effect.
If the number of cheques are presented at the same time and the balance is not sufficient to
pay all the cheques, but normally priority is given to cheques favouring revenue authorities,
then to cheques favouring public authorities. If balance is left, maximum number of cheques
should be passed taking care that cheque of very small amount is not dishonoured.
Banking Hours: The payment of a cheque should be made only during banking hours otherwise
it will not be a payment in due course. However, the payment of a reasonable amount can be
made to drawer even after banking hours.
Mutilation: if there is any mutilation of cheque, it should be confirmed by drawer or by collecting
banker.
Alteration in Cheque
w. Material alteration: Any change in date, amount or name of payee is called material alteration.
x.
The change from order to bearer, or cancellation of crossing or converting special crossing to
general crossing is also material alteration.
y.
However, bearer to order or crossing a cheque or converting general crossing to special
crossing or completing an incomplete cheque is not material alteration.
z.
If there is any material alteration on a cheque it can be paid only after confirmation from
drawer under his full signatures.
aa. In the case of joint accounts with "either or survivor" clause any of the account holders can
confirm material alteration but in jointly operated accounts signatures of all are required.
bb. Under Section 89 of the NI Act, 1881 paying banker gets protection in case of payment of materially
altered cheques if the alteration is not apparent at the time of payment and payment has been made in
due course.
cc. W.e.f. 31.12.10, CTS cheques with material alteration except in date will not be collected even if
confirmed by drawer.
dd. Payee: if the payee is fictitious person then the cheque can be paid to bearer if it is payable to
bearer but if the cheque is payable to order, it can be paid only to the drawer.
ee. Bearer or Order: if a cheque is payable to bearer or order, it can be paid to bearer. However, if
neither bearer nor order is written it is payable to order.
ff.
Forged signatures: If there is a forgery in the signatures, such an instrument is null and void. Paying
banker will not get protection if it pays such a cheque even though the drawer might have been
careless in
custody of the cheque book or bank might have sent statement of accounts and the customer did not
point out the mistake. However, if the cheque has been signed by the drawer himself but in a
different fashion, the banker will not be liable.
6
writing the words crossing cancelled. In such cases, the payment is made in cash to a person known to
the bank
Paying bank gets protection on payment of crossed cheques Ws 128 by ensuring that the payment is
made in due course
When payment should not be made : Payment cannot be made in case of (a) death, insolvency,
insanity of customer or insolvency of partner or firm or liquidation of company (b) stop payment (c)
receipt of garnishee/attachment order (d) post dated cheque and (e) stale cheque. However, payment
can be made in case of death of agent (authorized signatory of a company, agent appointed by a
customer, trustee, office bearer of society or club etc.) where cheque is not dated prior to date of
authority to the agent and subsequent to date of death.
Protection to Collecting Banker
Protection to collecting banker is available under Section 131 of the N I Act. For
collection of demand drafts, this is as per section 131A of N I Act.
The protection is against risk of conversion i.e. dealing with others property without his consent
Protection will be available only if (i) the cheque/draft is crossed (ii) the bank receives the
payment for its customer (iii) the bank acts as agent for collection and not holder for value (iv)
it receives the payment in good faith and without negligence.
To get protection as a collecting banker the bank must ensure that Vr .'s o negligence involved.
Examples of negligence could be opening of accounts without proper, ignoring not negotiable
or 'account payee' crossing, collecting cheques payable to firm, Ltd Co, Trust, Institutions in the
personal accounts of partner, director, trustee or the office bearer.
PROTECTION TO BANKERS
85-1 Paying banker protected by payment in due course of order cheque that bears regular
endorsement. Genuineness of endorsement is not to be ensured by.the paying bank.
85-2 Protection to paying banker in case of a bearer cheque. Endorsement on a bearer cheque to be
ignored.
85-A Protection to paying banker in case of Bank drafts.
89 Protection to paying bank for materially altered instrument.
128 Protection for payment in due course of crossed cheques
131 Protection to collecting bank for crossed cheques subject to compliance of conditions
131-A Protection to collecting bank for crossed bank drafts.
Dishonour of Cheques due to Insufficient balance
As per Section 138 of the Act, if any cheque drawn by a person is returned by the bank
unpaid, either with the reason funds insufficient or exceeds arrangement or similar reason such
person shall be deemed to have committed an offence.
As per judgements of the Supreme Court, the cheques which are dishonoured on account of
stop payment by the drawer or Account being closed will attract penalty prescribed under Sec 138
of the Act.
Penalty as per section 138: in case of dishonour of cheque due to reasons stated above,
punishment can be imprisonment up to two year, or maximum fine up to twice the amount of the
cheque, or both.
Conditions for invoking section 138: (a) the cheque has been presented to the bank within
a period of six months from the date on which it is drawn or within the period of its validity,
whichever is earlier. (b) the cheque had been received for consideration i.e. to discharge a liability
or debt.
Notice to Drawer: should be sent by the payee or the holder in due course within thirty days
8
If a bill after being accepted is not paid on due date, it is said to have been dishonoured due to
non payment.
When a promissory note or bill of exchange has been dishonoured by non-acceptance or nonpayment, it may be got noted or protested with Notary Public.
Provisions relating to noting and protesting applicable only in case of dishonor of promissory
note or bill of exchange whether payable on demand or usance bill or usance promissory note.
Noting and protest is optional in case of Inland bills.
If a bill is dishonoured by non acceptance, then the drawer will be primarily liable on the bill.
If a bill is dishonoured due to non-payment (it means it was accepted), acceptor (drawee) will be
primarily liable on the bill and drawer's liability will be secondary.
Statutory Reserve: As per section 17 of B R Act, a bank should transfer to Reserve Fund 20%
of its net profits before declaring dividend or
bonus. As per current guidelines of RBI, a scheduled bank is required to transfer 25% of
the profit before providing for bonus and declaring dividend.
As per Section 19 (2), a bank can not hold shares in a company either as owner or as pledge
more than 30% of the paid up share capital of that company or 30% of its own paid up share
capital and reserves, whichever is less. RBI has reduced this to 10%.
As per section 20, a bank can not grant loans or advances on the security of its own shares.
As per section 24, banks are required to maintain SLR (Statutory Liquidity Ratio)
Banks should submit a return of all deposit accounts which have not been operated for the
last 10 years. The return is submitted as on 31st December and within one month (Section
26).
Section 45 Y: Power granted to Central Govt. to make rules for preservation of records.
Section 45Z: Return of paid instruments to customers after keeping a true copy of such
instruments.
Section 45ZA to 45 ZF relate to Nomination in deposits, safe custody and locker accounts
45Z Return, the paid instruments, to a customer by keeping a true copy. Customers
obtaining original instruments have to undertake to preserve the instruments as prescribed
by Central Govt. u/s 45Y.
47A RBI can impose penalty for various kinds of violations.
49A Other than a banking company/RBI/SBI, no person can accept deposits of money
withdrawable by cheque 52 Central Govt. can make rules for all matter.
SCHEDULED BANK
As per Sec 2(e) of RBI Act, a scheduled bank means a bank whose name is included in the 2nd
schedule of RBI Act 1934. A scheduled bank should satisfy the conditions laid down in Sec 42(6),
which include paid-up capital and reserves requirement of not less than Rs.5 lac, satisfaction of
RBI that the affairs will not be conducted by the bank in a way to jeopardise the interests of the
depositors. It may be a State Cooperative bank, a company defined in Companies Act 1956, an
institution notified by Central Govt. and a corporation or a company incorporated by or under any
law in force. (commercial, rural and many State Coop Banks are classified as Scheduled Banks). A
bank that is not included in the 2nd Schedule of RBI is called Non-scheduled Bank.
Reserve Bank of India Act, 1934 : Reserve Bank of India Act, 1934 came into force on
01.04.1935.,RBI was established on the recommendations of the Hilton Young Commission,Section
24: RBI can issue bank notes of the denomination of 2, 5, 10, 20, 50, 100, 500, 1000,
10
5000,10000.,Section 31: No person other than RB1/Central Govt. can draw, accept, make/issue Bill
of Exchange, Hundi or promissory note payable to bearer on demand,Section 42(1) deals with cash
reserves ratio to be maintained by scheduled commercial banks.Section 49 requires RBI to publish
bank rate from time to time.
The Banking Law (Amendment) Act, 2012 was notified on Jan 18, 2013 to amend the Banking
Regulation Act, 1949 (Act), the Banking Companies (Acquisition and Transfer of Undertakings) Act,
1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980.
Salient features : 1. Enhanced Regulatory Power to supersede Board of Directors: in consultation
with the Central Government, RBI can order to supersede the Board of directors up to 6 months.
(can be extericfei to a maximum of 12 months).
2. Inspection of associate enterprise: section 29 A confers power upon the RBI to call for
information and records relating to business of the company and/or its associate enterprises.
3. Investment limits: As per amended Section 3
of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 & 1980
Nationalized Banks can issue bonus shares and rights issue and increase the authorized capital with
the approval from Central Govt. and RBI, without being limited by the ceiling of a maximum of
Rs.3000 cr.
4. Depositor Education and Awareness Fund: Section 26 A provides to establish the Depositor
Education and Awareness Fund to create awareness among the customers.
5. Acquisition of Shares and Voting Rights: Prior approval of RBI is mandatory to hold 5% or
more of share capital or voting rights in a banking company. The RBI shall take a decision on the
application within 90 days.
6. Cooperative Societies: The cooperative societies should mandatorily obtain license from RBI to
carry on the banking business.
7. Penalties: It increases the penalty for contravening the provisions of the ActFor providing false Information to RBI, the penalty would be INR 10 million;
or failure to provide account books or any requested information to RBI, the penalty would be INR
200,000 and if the default continues then an additional fine of INR 50,000 shall be imposed;
Defaults in complying with any of the requirement/obligation under the Act, a penalty up to INR
10 million or twice the amount involved in such contravention whichever is more; and
(iv) failure to furnish account books or any requested information, up to INR 2 million.
8. Voting rights : Private Sector Banks: It increases shareholders' voting rights from 10% to 26% in
private sector banks, making investment attractive for foreign players. Public Sector Banks: It
enables the government to raise voting rights in Public Sector Banks to 10% from the current 1%.
Bank
11
Customer
Debtor
Creditor
Lessor (Licensor)
Bailee
Debtor
Trustee
Agent
Trustee
Holder for value
Agent
Agent
Trustee
Creditor
Debtor
Lessee (Licensee)
Bailor
Creditor
Beneficiary
Principal
Beneficiary
Endorser
Principal
RBI is principal
Beneficiary
A bank has duty to maintain secrecy of customer's account as per implied Contract.
The duty to maintain secrecy continues even after closure of account.
Balance in the account of an employee should not be disclosed to employer. Similarly balance in
the account of wife not to be disclosed to husband and vice versa.
If bank discloses customer's affair (e.g. in case of insufficient balance in the account advising the
presenter of cheque to deposit deficit amount), bank will be liable to customer for resultant loss.
Exceptions to rule of secrecy: When information sought by Court for evidence or by In-charge of
a Police Station, or by revenue authorities like Income Tax Authority, or RBI or to 8 bank as per
general practice (without any liability) or as per consent of customer (based only on records).
Duty to honour cheques
As per section 31of N I Act, a bank is under obligation to pay cheques issued by customer provided
(i) there is a sufficient balance in the account (ii) the cheque is otherwise in order (iii) the funds
are properly applicable i.e. not attached by Garnishee order or attachment order. If a bank
dishonour a cheque drawn by a customer despite satisfaction of aforesaid conditions, bank will be
liable to Drawer (and not to payee or true owner) for damages suffered by him.
Banker's Rights: Bank has three rights namely (i) Right of Lien (ii) Right of Set Off (iii) Right of Appropriation.
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_
o
This right is available only on goods and securities and not on balances in the accounts.
o
Lien can be Particular lien (Sec 170 of the Indian Contract Act) or General Lien (Section 171 of the
Indian Contract Act). In the case of General Lien, creditor has right to retain the goods and securities
belonging to the debtor for all dues payable by him_ This right is available only to bankers, factors,
wharfingers, attorneys.
o
Banker's Lien is also a general lien but it is an implied pledge because the banker has right
to retain as well as sell goods of the borrower after giving him reasonable notice.
o
For exercising right of lien, (a) the goods or securities and debt should be in the same right
and same capacity (b) Loan should be due or overdue and lawful (iii) Reasonable notice is given.
Further, Right of Lien is available on the goods and securities received in the ordinary course of
business.
o It is not available when the goods or securities have been deposited for a specific purpose;
goods
o received for safe custody or lying in safe deposit vault or goods left by the debtor negligently.
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 advance is outstanding.Law of limitation does not apply to Lien.
12
o . 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 clean advance.
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. It is available due to implied contract.
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. 4_ For
banks, this right arises when wants to combine its loan due from a borrower with
his deposit accounts.
For 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 (iii)
Reasonable notice should be sent to the depositor before exercising set off.
Law of limitation does not apply and set off can be exercised even in case of loans which are
time barred.
It cannot be applied on fixed deposit which is not due as yet but can be exercised when FOR
matures. Similarly it cannot be applied for adjusting term loan or CC or overdraft which are
regular and not overdue.
8. 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 cannot be exercised on deposit accounts
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 joint borrowers.
lf loan is in the name of a partnership firm then set off can be exercised on credit balance in the
name of firm, partners and any other partnership firm which has just same partners as are in
the borrowing firm.
Available for the deposit of guarantor (after serving a recall notice on him).
For exercising right of set off, all branches of a bank are considered as one.
Position of Availability of Right of Sef Off
Deposit in the name of
Loan in the name of
Status of availability of right
Single person
Jointly with others
Available
Partner in a firm
Partnership Firm
Available
_
Single name
Same name
Available
Proprietor
Proprietorship firm
Available
Joint Account
One of joint holder
Not available
Partnership Firm
One of partners
.
Not available
Trust
Trustee
Not available
Trustee
Trust
Not available
Dividend a/c of Co.
Loan a/c of co.
Not available
Minor (ulg.ship a/c)
Guardian
Not available
Right of Appropriation : Section 59,60,61 of Indian Contract Act, deal with appropriation of
payments. If a customer maintains more than one account with a bank and he deposits some amount
then he has the first right to indicate to which account the amount should be credited. If he does not
13
exercise this right, then bank can credit the amount to any of his accounts including an account
which is time barred by limitation.
Clayton's rule is related to appropriation of payments and is applicable in case of running
borrowal accounts like cash credit or overdraft. 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.
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. For
example in a firm's cash credit account, there was a debit balance of Rs 5 lac when one of the
partners died. The bank continued operations in the account. Rs 4 lac were deposited and Rs 3
lac were withdrawn. The estate of deceased partner is liable only for one lac i.e 5 lac minus Rs
4 lac.
Garnishee Order
A Garnishee
Order is an order issued by court under provisions of Order 21, Rule 46 of the
Code of Civil Procedure, 1908. The bank upon whom the order is served is called
Garnishee. The depositor who owes money to another person is called judgement debtor.
Garnishee Order applies to existing debts as also debts accruing due i.e. SB/CD1RD/FD.
Garnishee Order applies only to those accounts of Judgement Debtor which have credit balance.
The relationship between bank and judgement debtor is of debtor and creditor. Bank is the
debtor of 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 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. For example, if limit is Rs 4 crore and
outstanding is Debit Rs 3 crore, Garnishee order is not applicable on the balance Rs 1 crore.
Bank can 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 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 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.
If amount is not 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.
Not applicable on fixed deposits taken as security for some loan.
if loan given against FD, applicable on the amount after adjusting the loan.
Income Tax Attachment Orders
o 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
to income tax authorities.
o A order without mentioning the amount is not a valid order.
o Attachment Order is different from Garnishee order in following respects (a)
Attachment order applies to money deposited in the account after receipt of order also
till it is fully satisfied whereas Garnishee order does 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
14
to joint accounts.
However, right of set off is available to bank before applying the order.
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.
o When both Garnishee order and Attachment Order are received simultaneously,
priority should be given to attachment order.
TYPES OF CUSTOMERS
Accounts of Minors
A minor is a person who has not attained the age of 18 years. A person will become
major at the age of 18 whether guardian is natural or appointed by a court of law.
Guardians: There can be three types of guardians.
Natural guardians like father, mother.
Testamentary Guardian: A Guardian appointed by Will (Vasiyat). Natural guardian may
appoint somebody to act as guardian after his or her death through will. But such guardian will
come into picture only on the death of natural guardian (in case of Hindus on the death of
father as well as mother). Legal guardians: A Guardian appointed by Court. If neither
natural or testamentary guardian then appointed by court.
o
o
Minor
Guardian
Hindu son, unmarried
Father and after father's death mother
Hindu Married daughter
Husband. If husband is minor or has died, father in law and after
Mohammdan minor
Father After death of father, executor of fathers will. If no will,
Christian or Parsi
Father After death mother.
When guardian of a Hindu minor ceases to be a Hindu or he becomes a hermit or sanyasi he
ceases to be natural guardian.
As per section 11 of the Indian Contract Act, 1872 a minor is not competent to enter into a
contract and the contract entered into by him is void ab-initio.
Loan to minor. Banks do not grant overdraft / loan to a minor, even if security is provided
because a contract with minor is void, and the
bank will not be able to recover the loan.
Loan against FD: No loan if account self operated. If under guardianship, loan can be granted to
guardian for benefit of minor.
Premature payment of FD: If account self operated, it is allowed as minor can give valid
discharge.
Addition of name: Even when loan has been raised on a term deposit in the name of a major
person, the request for addition of the name of the minor cannot be entertained till loan is
adjusted.
Ratification of agreement by minor: A minor cannot ratify an agreement after attaining
majority.
Loan for education: A contract for the supply of necessities of life like food, clothes, education to a
minor is a valid contract.
Loan to minor against Guarantee: Cannot be recovered even from guarantor.
Minor as Agent Minor cannot appoint an agent. However, a minor can be appointed as an agent
and he can make principal liable by his actions. A minor cannot delegate authority in his self
operated account.
Issue of cheques etc: According to Section 26 of NI Act, a minor can draw or endorse or negotiate a
cheque or a bill. He can make everybody liable except himself.
Appointment of Nominee: A minor cannot appoint nominee. However, minor can be a- ppointed
nominee.
15
Minor as a partner: A minor cannot be full fledged partner in a partnership concern as he can
not enter into a valid contract and partnership is created by agreement.
A minor may be admitted to benefits of partnership with the consent of all partners. However, the
liability of the partner will be limited to his share in the business of the firm and he will not liable
personally for the acts of the firm.
On attaining majority, a minor has to give public notice within six months of attaining majority or when
it comes to his knowledge after becoming major which ever is later, whether he wants to continue as a
partner. if he remains silent, it amounts to his implied consent. If he chooses to become a partner, he
will be held liable as a partner from the date he has been admitted to the benefit of the partnership
firm.
As minor is not partner, he cannot give stop payment instructions on a cheque issued by partnership.
Accounts of a minor: A minor can have account under guardianship as well as self operated
account.
Accounts under guardianship: The account will be operated by the guardian during minority
of the child and once the minor becomes major, the debit in the account will be allowed only
with the consent of minor who has become major even though the cheques might have been
issued prior to his attaining majority. in case of death of minor; next guardian to operate the
account.
Minor's Account with Mother as Guardian: RBI has allowed mother to open and operate all
types of deposit accounts even though the father is alive and no consent of father is required for
such accounts.
Self operated account of minor: A minor can open self-operated deposit account provided he has
completed the age of 10 years and is literate. He cannot appoint nominee in this account. On his
behalf nomination will be done by a person legally competent to act on his behalf. Joint account is
also allowed in
the name of two minors provided both are of 10 years of age, arebelong to the same family and
operation is jointly. In case of death of minor, payment to legal heirs of minor.
A bearer cheque presented for cash payment by a minor may be paid as a minor
can give a valid discharge in the capacity of the payee.
Accounts of Visually Challenged (Blind) Persons
1 A visually challenged person is competent to the contract like any other person.
2 Signature or thumb impression of the blind person should be attested by an independent witness
to the effect that all terms and conditions were properly explained to the blind person in his
presence.
3 Cash deposit and withdrawal by blind person should be handled by the officer of the bank.
4 RBI has advised banks to ensure that all the banking facilities such as cheque book facility
including third party cheques, ATM facility, Net banking facility, locker facility, retail loans, credit
cards etc. are invariably offered to the visually challenged without any discrimination.
Joint accounts
16
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.
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.
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.
Former or Survivor: in such accounts, 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
stop payment of the cheque. The revocation in case of either or either or survivor can be done
by either but in case of joint operation, revocation has to be done by all jointly.
In case of former or survivor cheque can be stopped by former and revocation of stop
payment can also be done by former only.
In case of either of survivor alteration on the cheque can be confirmed by any of the account
holders. In - case of former or survivor it can be confirmed only by former and in case of joint
operation by both.
If in a joint account any one becomes insane (Pagel), operation in the account will be
suspended and balance will be payable to the other account holders alongwith guardian of
insane appointed by court.
Any authority to a third party has to be with the consent of all joint account holders_
Premature payment of FDR: in all cases it will be consent of all account holders unless
mandate has already been taken that any one take premature payment_
Loan against FDR: In all cases it will be consent of all account holders unless mandate has
already been taken that any one take raise loan singly.
Joint accounts are joint property. Therefore, unless there is clear mandate in the account
opening form that any one 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 altering nomination (d) raising loan against term deposit (e) premature
payment of term deposit
JOINT ACCOUNTS
Transaction
Stop payment
Request for loan
Premature payment of
Payment on death SB/CA
Death - FDR Premature
Closure of account
Nomination
Payment in case of
Attachment order
Garnishee order
Either or survivor
Former or survivor
Any one
Former
All jointly
All jointly
All jointly
All jointly
Survivor
Survivor
Survivor with legal
Survivor with legal heirs
All jointly
All jointly
All to sign
All to sign
Survivor till any of them Survivor, till any of them
Each liable proportion- Each liable proportionOrder in joint names only-\ Order in joint names
Partnership Firms
17
Joint operations
Any one
All jointly
All jointly
Survivor with legal heirs
Survivor with legal heirs
All have to sign
All to sign
Survivor & legal heirs till
Each of them liable
Order in joint names
As per section 4 of the Indian Partnership Act, 1932 partnership is the relation between persons
who have agreed to share the profits of a business carried on by all or any of them acting for all.
2.
Minimum & Maximum Partners: A partnership firm should have minimum 2 partners.
As per Companies Act 2013, an association of more than 100 persons which is not registered as Company
or Society will be an illegal association. Therefore, maximum number of partners can be 100. (As per
Companies. Act 1956, maximum number of partners could be 20 for any business other than banking and
10 for banking business).
3.
In case of Limited Liability Partnerships, there is no limit on maximum number of partners.
4.
Who can become a partner?:. Only a person competent to contract can become partner.
Minor, insolvent, insane cannot become partners A company and a firm can become partner in
another firm.
5.
Who can not become a partner?: HUF can not become partner as per judgement of the Supreme
Court because HUF is neither a legal person nor a natural person and can not be liable for action of others.
6.
Partnership Deed: Partnership can be oral or in writing. Therefore, banks do not insist on
partnership deed while opening accounts of a partnership eencern.
7.
Registration of Partnership: A partnership firm is registered with registrar of firms.
Though, it is not necessary that the firm be registered yet registration is ,preferred because an
unregistered firm can not sue others in its own name for recovery of its dues while others can sue it
in its name. Therefore, while granting loans banks prefer that the firm should be registered one.
8.
Implied authority of partner: As per section 19 of the Partnership Act, 1932, a partner of a firm
has implied authority to act on behalf of the firm for the normal business of the firm and bind the firm. Alt
actions of the
partner in the ordinary course of business are actions of all partners. However, in the absence of any
usage
or custom of the trade to the contrary, a partner's implied authority does not cover '(a) admission of any
liability in a suit against the firm (b) withdrawal of any suit filed on behalf of the firm (c) acquire/transfer
any
immovable property on behalf of the firm (d) submitting a dispute relating to the business of the firm to
arbitration (e) opening a bank account on behalf of the firm in his own name (f) compromising on behalf
of a firm (g) entering into partnership on behalf of the firm. But if all partners agree for these issuesand
authorize any one in this regard, these jobs can be undertaken by the said partner.
10.Liability of partner: As per section 25 of the Indian Partnership Act, 1932 every partner is liable, jointly with
all other partners and also severally, for all acts of the firm while he is a partner. Thus, liability of a partner is
unlimited. In case of Limited Liability Partnership, the liability of partner is limited up to the amount agreed
to be contributed by him.
11.Account of Partnership firm: For opening account of a partnership firm, all partners are required to
sign Account opening form except minor who is admitted for benefits of firm.
12.00erational Authority: In Partnership accounts operation authority is given by all partners. Any change in
the operational authority is also with the consent of all partners including those who were earlier not
authorized to operate. Every partner including a sleeping partner has authority to stop payment of a
cheque issued by another partner of the firm. The revocation of stop payment of cheque will be as per
operational authority._
13.As per section 18, a partner is the agent of the firm for the purpose of business-of the firm. Being an agent,
he can't delegate his authority to an outsider without the written consent of all other partners.
14.Death, insolvency, insanity of partner: On the death, insolvency or insanity of a partner, the partnership is
dissolved and operations are stopped. The cheques signed by the deceased, insane or insolvent partner
will
not be paid. If the account is in credit, operations are allowed for winding up of the firm. In such
case operations are allowed on the basis of a fresh mandate. It the account is in debit, operations in
the account should be stopped to retain liability of the deceased /insolvent partner or his/her
estate and to avoid operations of the Clayton's rule.
1.
1.
2.
3.
4.
A limited company is an artificial person with perpetual succession incorporated under the
Companies Act.
2.
Number of members: As per Companies Act 2013, in the case of a private limited company,
minimum number of members should be 2 and maximum number of members excluding
employees can be 200. For public limited company minimum number of shareholders should be 7
and there is no ceiling on maximum number
3.
Number of Directors: Minimum Directors in a public limited company should be three, in a
private limited company 2 and in One Person Company one. Maximum directors in all types of companies
can be 15. However, company may appoint more than 15 directors by passing a special resolution. An
individual can not be director of more than 20 companies at one time out of which public co should not be
more than 10.
4.
Shareholders are owners of the company, directors are agents of the company and
debenture holders are creditors of the company.
5. Documents for opening_ account: For opening account of a limited company bank should obtain
the following:
(a) Memorandum of Association: It contains name of the Company, its authorised capital, registered office
and liability of shareholders, objects of the company etc. Anything done by the directors beyond the
objects stated in the memorandum of association is called ultra-vices the company and can't be ratified
even in a general body meeting. Directors can borrow only for the objects mentioned in the MOA. if
any loan is given for objects other than those mentioned in Memorandum of Association, company will
not be liable for such loans.
(b) Articles of Association: lays down the internal working of the company like rights and powers of
the directors, rules of conducting meetings, borrowing power of directors etc.
(c) Certificate of incorporation : It is equivalent to birth registration certificate of the company. This
is the most important document. A company does not exist without it.
(d) Certificate of commencement of business: used to be issued by Registrar of companies. Earlier it
was required by public limited companies only. Now it is not required by either public limited
company or private limited company.
(e) Resolution of Board of Directors which is passed by the Board of Directors authorising opening and
operation of the account by named officials of the company. A copy of the resolution should be attested
by its Company Secretary and / or Chairman of the meeting at which resolution was passed.
(f) While opening account of a limited company, no introduction is required as Certificate of incorporation
is sufficient for that purpose. However, KYC norms are required to be applied on all persons
authorized to operate the account of company.
6. As per doctrine of 'Constructive Notice' anybody dealing with company is assumed to have
knowledge of Memorandum and Articles of Association.
7. Operational Authority: The operational authority is decided by Board Resolution. Any change in
operational authority is also as per Board Resolution. Stop payment of a cheque and revocation of stop
payment will be as per operational authority. The directors can not delegate their authority to any
other person.
8. In case a director dies, the cheques signed by him presented for payment can be paid if these are
otherwise in order and are dated prior to his death.
9. Common Seal of the Company is to be affixed on documents as per Articles of Association or
Board Resolution.
10.Borrowing powers of Directors: The borrowing powers of company arise from Memorandum of
Association. The Borrowing powers of directors are given in the Articles of Association. If it is not
mentioned in Articles of Association, it is equal to paid up capital and reserves of the company. The
Board of Directors of a public limited company or a private limited company which is a subsidiary of
public limited company can't borrow in excess of its paid-up capital and free reserves. If the directors
want to borrow more than the paid up capital and reserves of the company, consent of the shareholders
is required in the General Body meeting.
11.Winding up of company: Winding up can be (a) voluntary (b) Compulsory by court (c) through
court supervision.
Registration of Charge
1. When to be registered: Under section 77 of the Companies Act, 1956, a charge other than created
by way of pledge or lien, by a company is required to be registered with Registrar of Companies
(ROC).
2. Modification: Whenever, there is a change in terms and conditions of the loan, then the
1.
19
Hindu Undivided Family (HUF) : HUF is neither a legal person nor a natural person. It is not created
by agreement_ It is not incorporated under any Act. It is from a common ancestor and membership
is by birth or adoption.
The eldest member of family is the Karta and others are co parceners. Daughter can also be Kerte.
Seniormost member continues to be Karta even when he/she lives outside India.
Operational authority to operate the account is with Karta
Karts can appoint any other coparcener or third party to conduct business of HUF and/or operate
the account.
Co parcener can not stop payment of the cheque unless he is authorized to operate the account.
Karta is personally liable.
The liability of a co parcener is limited up to his share in the firm. He is not liable personally.
HUF can not be partner as per Supreme Court Judgement.
Trusts :
Trusts can be of two types - private trusts where beneficiaries are certain specified individuals or
groups and public trusts where beneficiary is public at large.
Private trusts are governed by Indian Trust Act, 1882, public trusts are governed by Public Trusts
Act of the concerned state.
The docuinent creating a trust is called 'trust deed'. Public Trusts are registered with the Charity
Commissioner.
The operation and other aspects of the bank account are to be conducted as per the Trust Deed. If
trust deed is silent about operational authority, all trustees have to operate the account jointly.
Stop- payment will be as per operational authority. Revocation of stop payment as per operational
authority.
Trustees can't delegate their powers to an outsider even by mutual consent.
Loan to a trust Loan can be allowed provided it is permitted by Trust Deed and it is for the purposes
of Trust.
On the death of a trustee, the trust property is passed on to the next trustee while in the event of
death of sole trustee or last surviving trustee, the court can appoint a trustee.
Death or insolvency of a trustee does not affect the trust property and the bank can pay cheques
issued by the deceased trustee prior to his death.
20
For opening account of Clubs and Societies bank will require Certificate of Registration, Bye laws of
the Society, and resolution of Managing Committee or Executive Committee.
Operational Authority will be as per resolution of Managing Committee.
Change in Operational authority as per resolution of Managing Committee.
Stop payment and revocation of stop payment as per Operational Authority.
Cheque signed by the secretary or treasurer or president of society and presented after his death
can be paid if otherwise in order.
Account of Executors and Administrators
An executor is a person named by the deceased in his will to mange his estate whereas an administrator
is appointed by the court of law for the same purpose where the deceased dies without leaving behind
a will (intestate).
In the eyes of law, executors and administrators, unlike trustees are treated as one person. On
opening a bank account, therefore, executors/administrators can authorise any .one or more of
them to operate the account.
On the death of an executor or administrator, the surviving executor(s) or administrator(s) can
continue to operate the account unless otherwise provided for in the will or letter of
administration.
While opening the account of an executor, bank should obtain letter of probate, which is an official
confirmation of the will of the deceased by a court of law. For opening account in the name of
administrator(s), letter of administration is required which is issued by the court of law.
Mandate and Power of Attorney
When an account holder authorises another person through a simple letter of authority, it is called
mandate. On the other hand, power of attorney is executed on stamped paper and may cover any other
transactions besides opening/operation of an account. Bank generally accept mandates.
The account holder can revoke mandate or power of attorney any time even if it is stated to be
irrevocable.
Any cheque signed by the agent and presented after cancellation of authority shall not be paid.
Power of attorney or mandate is revoked by death, insanity, insolvency of the Principal. Any cheque
signed by the principal or agent presented after the death, insanity or insolvency of the principal will not
be paid.
In case Cheque issued by the agent is presented for payment after his death, insanity or insolvency,
the same can be paid so long as the principal is alive provided the cheque is otherwise in order and
is dated prior to the date of death or insanity of the agent.
Agent cannot delegate authority to a third party.
Death of a Customer and Settlement of Claims
In the case of death of individual customer, operation in the account should be stopped. Any cheque
presented after the death of individual account holder should not be paid as bank's authority to pay
the cheque is terminated in case of death, insanity or insolvency of individual customer.
The payment should be made to nominee if there is nomination. If there is no nominee but will has been
written by the account holder, then the person named in the will be required to bring Probate from
competent court. The person named in the will or probate is called Executor. In this case payment
should be made to executor.
When a person dies without writing will, he is said as having dies intestate. In this case, payment will
be made to legal heirs.
21
RBI has advised that for making payment of balance in the account of deceased customer to legal heirs of
the deceased, Succession certificate is not mandatory for any amount. Bank has to satisfy about legal heirs.
For delivering contents of locker or safe custody. Letter of Administration is required.
While delivering contents of locker or safe custody, inventory should be prepared. If some sealed
packet is found in the locker of safe custody, it should be delivered as it is without opening the same.
The claim should be settled and payment should be made within 15 days from the date of receipt of
completed papers.
If any credit is received in the account after death of customer, it should be credited to a separate
account in the name of customer with the permission of legal heir or nominee. Otherwise it should
be returned to remitter under intimation to the legal heir or nominee.
Pre-mature payment of term deposit can be allowed but no loan can be allowed.
Interest in case of current account should be paid at Saving rate from date of death till date of payment.
In case of term deposits, up to due date interest should be paid at contracted rate. For overdue
period, interest should be paid at applicable rate on date of maturity if the death was before
maturity and at saving rate if the depositor died after maturity.
proprietorship firm.
Who can not nominate:The facility of nomination is not available in partnership accounts, HUF, deposit
accounts of clubsfsocieties/limited companies/trusts. A minor can not appoint a nominee. On his behalf,
nomination facility can be exercised by the person legally competent to act on behalf of the minor.
Who can be nominee: Only an individual can be appointed nominee. He can be Resident or Non-residenL
He or She can be minor, very old
person or even an insolvent person. If nominee is a minor, the depositor has to appoint a major person to
receive deposit amount / articles in the safe custody / locker etc. on behalf of the minor nominee in the
event of death of the depositor_
Who can not be nominee: Trust, HUF, Ltd Co, Partnership, Society.
Number of nominess:In the case of deposit accounts there can be only one nominee irrespective of the
fact whether deposit account is in single name or joint names and also irrespective of operating
instructions in the joint accounts.
In the case of articles deposited for safe custody only one nominee is permitted if account is in the name
of a single person. In case articles are deposited by more than one person, nomination facility is not
available. Nomination not allowed in joint Safe Custody account.
In the case of locker accounts in single names or in joint names where under contract of hire, operation is
allowed to any one or more of locker holder(s)/survivor(s), nominee can be only one. However, in
locker accounts in joint names where operations are 'jointly', by 2 or more of such hirers, more than one
nominee can be appointed_
Nomination can be made any time from opening of account to closure of account. Nomination once
exercised can be changed, cancelled or modified by the depositor(s) at any time and any number of
times_ In case of more than one depositors, all such acts require their joint consent_
When does the right of nominee start?: Right of a nominee starts only after death of all depositors/locker
holders/safe custody article lodger. In case of either or survivor accounts payment should be made to
survivor and in case of jointly operated accounts, if one dies, payment to survivor alongwith legal heirs
of deceased. The only exception is the nominee(s) in case of jointly operated lockers. In that case; right of
nominee(s) starts immediately after the death of any of the hirers_
Witnessing of nomination: In the case of illiterate account holder nomination is required to be witnessed
by two persons but in case of account in the name of a literate person no witness required.
Status of nominee: The status of nominee is just like trustee of legal heirs. He does not become absolute
owner of the amount or items lying in safe custody or in safe deposit vault. Nominee can not get his
name added or get his name substituted or renew FDR. He can not raise any loan against FDR. However,
Nominee is entitled to prernture payment of deposit and no penalty is levied in effecting premature
payment to nominee.
Legal Heir versus nominee: When both nominee and legal heirs approach the bank for getting payment
after the death of depositor or locker holder, bank will make payment to the nominee and not to legal
heirs unless there is a court order to make payment to legal heirs. Bank gets a valid discharge by
payment to nominee.
Formalities for making payment to nominee: In case of death of depositor, nominee has to submit
following documents (a) Copy of death certificate (b) claim form (c) Identification which can be done by
1st class Magistrate or Gentled officer or by a bank officer or any two persons known to bank. While
delivering contents of locker or safe custody, if any sealed packet is found, the same should be delivered
without opening the same.
In case of term deposits, there is no need of fresh nomination in the case of renewal of FDR.
In the case of accounts in the name of single persons, nomination must be obtained. If the depositor does
not want to nominate any body, a written letter should be obtained from him in this regard. In case the
person opening the account declines to give such a letter, the bank should record the fact on the account
opening form open the account.
24
Banks should acknowledge the receipt of the duly completed form of nomination, cancellation and / or
variation of the nomination. Such acknowledgement should be given to all the customers irrespective of
whether the same is demanded by the customers.
Banks should incorporate the legend 'Nomination Registered' on every pass book or deposit receipt so as
to enable the relatives to know that the nomination facility was availed of by the deceased depositor.
In addition to the legend 'Nomination Registered", banks should also indicate the name of the Nominee in
the Pass Books I Statement of Accounts I FDRs, in case the customer is agreeable to the same.
In case of joint deposit account, all persons to sign the nomination.
Nomination forms: For nomination Deposit accounts DA1, Safe Custody SC1, Locker SL1; For
cancellation of nomination - Deposit accounts DA2, Safe Custody SC2, Locker 5L2; For change in
nomination - Deposit accounts DA3, Safe Custody SC3, Locker SL3.
The complainant should accept the award within 30 days of receipt of the-copy of the award. The
award shall not be binding on a bank unless the complainant gives acceptance within 30 days from the
date of receipt of copy of award.
If complainant accepts the award, the bank should implement the award within 1 month of
receipt of acceptance from the complainant and intimate compliance to the Banking Ombudsman.
If Ombudsman rejects the complaint or award is not acceptable to the complainant, he can can file
an appeal to the Appellate authority (Deputy Governor, RBI) within 30 days of the of the date of receipt
of communication regarding award or rejection of the complaint
Bank may also file appeal with Deputy Governor, RBI within thirty days from the date on which
the bank receives letter of acceptance of Award by complainant.
In the case of bank, appeal may be filed by a bank only with the previous sanction of the CMD or
ED or CEO of the bank.
Non-implementation: II award is not implemented, report to Customer service committee of the Board
and make disclosure in balance sheet of the bank.
25
themselves.
With effect from 1.4.2010, interest rate on saving bank is payable on daily product basis. It can be
credited net-earliec4har:upacterlic.
INOPERATIVE ACCOUNTS : A savings as well as current account should be treated as inoperative /
dormant if there are no transactions in the account for over a period of two years.
Both debit and credit transactions induced at the instance of customer or third party treated as operation.
Bank should review where no operation for more than one year.
Interest on FD credited to account due to standing instruction treated as Operation.
If an account is not operated for 10 years it is called unclaimed deposit and reported to RBI yearly as on
3151 Dec of every year.
TERM DEPOSITS : Minimum period as per RBI is 7 days. Maximum period as per IBA is 10 years.
Interest rate on term deposits is decided by Asset Liability Management Committee of the bank.
If due date of term deposit is on a holiday, banks will make payment on next working day or thereafter and
will pay the interest for the holiday to depositor at contracted rate irrespective of when the payment is
taken.
In case of renewal of overdue term deposits, bank may decide the rate of interest payable for the overdue
period. However, if the payment of a overdue term deposit is sought, interest for overdue period will be
paid at saving rate.
Depositor can request for addition or deletion of names in the deposit but at least one of the original
depositors must remain. if loan has been raised against term deposit, name of a minor can be added only
when loan has been adjusted
As per Section 269 T of income Tax Act, if the principal plus interest of term deposit is Rs 20,000 or above,
the payment should be made through credit to account or issuing account payee cheque or DD. It should
not be paid in cash. In case, bank pays such term deposit in cash, penalty will be equal to amount paid.
Similarly, payment of interest of Rs 10,000 and above should not be made in cash.
In case of premature payment of FOR, penalty will be decided by the bank. However, penalty can not be
charged in case of premature payment in case of death of depositor.
Banks have been allowed to charge penalty in case of premature renewal of term deposits.
In case of death of depositor, interest for overdue period will be paid at saving rate if depositor died after
maturity date. if depositor dies before maturity of FDR, interest for overdue period will be paid at FD rate
as on date of maturity for the period overdue amount remained with the bank.
Payment of interest on accounts frozen by banks: If term deposit account has been frozen by revenue
authorities, FDR can be renewed on due date even in the absence of FDR. It will be renewed for the period
indicated by customer. If no period is indicated, it will be renewed for a term equal to the original term. No
new receipt is required to be issued. Renewal of deposit may be advised by registered letter / speed post I
courier service to the concerned Government department under advice to the depositor.
COUNTERFEIT NOTES
Detection of counterfeit notes: Detection of counterfeit notes should be at the back office I currency chest
only. Banknotes when tendered over the counters may be checked for arithmetical accuracy and other
deficiencies like whether there are mutilated notes, and appropriate credit passed on to the account or
value in exchange given. Thereafter the notes should be passed over to the back office 1 currency chest, as
the case may be, for detailed verification and authentication through machines. The notes identified as
counterfeit should be kept separately with proper impounding stamp. In no case, the counterfeit notes
should be returned to the tenderer or destroyed by the bank branches / treasuries. Failure of the banks to
impound counterfeit notes detected at their end will be construed as willful involvement of the bank
concerned, in circulating counterfeit notes and penalty will be imposed by RBI.
Issue of Receipt to Tenderer. There is no requirement to issue acknowledgement to the tenderer. Notice to
27
this effect should be displayed prominently at the offices / branches for the information of the public.
Reporting to Police and other bodies: (i) 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 or the
Nodal Police Station, along with the suspect counterfeit notes, at the end of the month; (ii) 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 or the Nodal Police Station for investigation by
filing FIR.
The banks should ensure that cash receipts in the denominations of Rs 100 and above are not put into recirculation without the notes being machine processed for authenticity. The said instructions shall be
applicable to all bank branches, irrespective of the volume of daily cash receipt.
Dispensation of counterfeit notes through the ATMs would be construed as an attempt to circulate the
counterfeit notes by the bank concerned.
Detection of counterfeits in chest remittances is also liable to be construed as wilful involvement of the
chest branches concerned in circulating Counterfeit Notes.
Compensation: The banks will be compensated by RBI to the extent of 25 % of the notional value of the
counterfeit notes of Rs 100 denomination and above, detected and reported to RBI and Police authorities.
Preservation of Counterfeit Notes Received from Police Authorities: All Counterfeit Notes received back
from the police authorities/courts may be preserved in the safe custody of the bank for a period of three
years from the date of receipt from the police authorities. They may thereafter be sent to the concerned
issue Office of Reserve Bank of India.
OTHER TYPES OF NOTES/ CURRENCY CHEST
Soiled Notes: Notes which have become unusable due to constant use. The notes which are complete
and only torn in two pieces are also treated as Soiled notes.
Mutilated Notes: Notes which are torn in more than two pieces or where part of the note is missing
is called mutilated notes.
Star series notes: These notes are just like other bank notes and are issued by RBI for replacing
wrongly printed notes. Presently, these notes are issued in the denomination of Rs 10. Rs 20, Rs 50,
Rs 100.
Clean Note Policy: issued by RBI under section 35 A of B R Act_ Banks should not staple any note
packets and instead secure them with paper bands.
Currency Management: Banks should assign the responsibility of currency management to a nodal
official, who shall be a senior functionary at a level not less than that of a General Manager.
The cash kept in the current chest is the property of RBI and bank is an agent of RBI for the same.
Minimum withdrawal or deposit in currency chest can be for Rs 1,00,000 and in multiples of Rs
50,000.
REMITTANCES /CHEQUE COLLECTION
DD/TT/MT etc. are modes of remittances. DD is valid for 3 months and it requires revalidation
thereafter. if DD is for Rs 20,000 or above it should be crossed account payee only.
Duplicate DO has to be issued to the purchaser within 14 days (fortnight) of the request subject to
completion of formalities.
Duplicate DO up to Rs 5000 should be issued without awaiting non-payment advice from the
drawee branch.
In case duplicate DDs are not issued within the stipulated period, banks are required to pay interest
for the period of delay at rates applicable to term deposits of corresponding maturities.
When a duplicate DD has been issued at the request of purchaser/beneficiary, the original should
not be paid but returned with the remarks. "Duplicate since issued".
In case both original as well as duplicate DDs are presented to the drawee branch for payment it
should pay duplicate DD and return original wit the reason 'DD reported lost and duplicate since
issued and paid'
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Account
DEPOSIT INSURANCE
Deposit Insurance is provided by Deposit Insurance and Credit Guarantee Corporation.
Deposit Insurance is compulsory -for all banks in India including private, foreign and co-operative
banks except Primary Agricultural societies.
Each depositor in a bank insured to max extent of Rs.1 lac for principal and interest held in same
right same capacity (account of A& B are separate from account of B & A) on date of
liquidation/cancellation of bank's licence or date of amalgamation /merger I reconstruction.
If a customer has more than one account in a bank, all his accounts will be clubbed and maximum
claim will be Rs 1 lakh in case of liquidation or amalgamation of a bank.
Separate insurance cover for separate banks.
Premium is Rs 10 paise per Rs 100 per annum payable on half yearly basis as on 31st March (For
Apr to Sept) and 30th Sept ( Oct to Mar).
Thus, effectively insurance premium is 5 paise per half year. Insurance premium is payable in
advance within 2 months of beginning of the half year.
Deposits in the name of Central or State Govt. Banks and Foreign Govt not covered. However,
deposits in the name of quasi Govt bodies, local authorities like Municipal Corporation, Statutory
bodies, Govt owned corporations are covered.
Banks should submit return on DI-01 while paying premium.
USE OF HINDI IN PUBLIC SECTOR BANKS
Use of Hindi in Public Sector Banks is governed by the Official Languages Act (OLA), 1963 (as
amended in 1967) and the Official Language Rules (OLR). 1976 Official Languages
Implementation Committees: At Head Office and branches. The Committee should meet at least
once in a quarter.
As per Official Language Act, all circulars, resolutions, orders should be issued bilingually in Hindi &
English and it is the duty of the signing
official to ensure this.
All letters received in Hindi should be replied in Hindi and it is the duty of the signing official to ensure this.
Hindi Divas is celebrated on 14th September. On 14th September 1949, it was accepted that Hindi
will be the Official language of India.
Classification of Regions:
Region 'A': Himachal Pradesh, Haryana, Rajasthan, Madhya Pradesh, Bihar and Uttar Pradesh,
Uttaranchal,
Jharkhand, Chattisgarh and the Union Territories of Delhi and Andaman and Nicobar Islands.
Region 'B' Maharashtra, Gujarat and Punjab and the Union Territory of Chandigarh.
Region 'C': All other remaining States and Union Territories.
Under Rule 5, Letters received in Hindi to be replied in Hindi All Regions A,B&C uniformly - 100% Preparation of bilingual
training material All Regions A,B&C uniformly - 100%
Original correspondence in Hindi:
Region "A"
Region "B"
30
Region "C"
From
1. "A" to "A" - 100%
2. "A" to "B" - 100%
3. "A" to "C" - 65%
From
1. "B" to "A" - 90%
2. "B" to "B" - 90%
3. "B" to "C" - 55%
From
1. "C" to "A" - 55%
2. "C" to "B" - 55%
3. "C" to "C" - 55%
REPORTING OF FRAUDS
Frauds are to be reported to RBI and police/CBI and for non-reporting, RBI can impose penalty
uts 47-A of Banking Regulation Act. Definition of fraud is same as in Criminal Procedure Code.
Reporting to RBI
Frauds of Rs 1 lac & above should be reported to Regional Office of RBI on form FMR 1 within 3
weeks of the fraud.
Frauds of Rs 1 crore and above should be reported to Central Office of RBl on DO letter within one
week of the fraud and also to Regional Office of RBI on form FMR 1 within 3 weeks of the fraud.
Reporting to Police
Frauds less than Rs 3 crore should be reported to local police.
Frauds of Rs 3 crore and above should be reported to CBI.
If fraud is for Rs 3 crore and above but up to Rs 25 crore, then if there is staff involvement it should be
reported to Anti Corruption Cell of CBI and if there is no staff involvement then it should be reported to
Economic Offence Wing of CBI.
If fra u d i s for more t ha n Rs 25 cro re , t he n i t should b e re p ort e d t o Ba n ki n g
S e curi t y a n d F ra ud Ce ll of CB I whe t he r t he re i s st a ff i n volve me n t or no t .
O t h er As p ect s
In case a forged draft is paid reporting to RBI and Police will be done by paying bank.
Cash shortage up to Rs 5000 is not treated as fraud. Cash shortage of more than Rs 5000 but
up to Rs 10,000 is treated as fraud only if it is not reported by cashier but detected during
checking. Cash shortage of more than Rs 10,000 is treated as fraud.
TAX DEDUCTED AT SOURCE
Interest on deposits with banks:
No tax is deducted at source on interest payable on saving bank deposits and recurring deposits.
TDS on interest on deposits will be deducted only if the interest paid or payable credited or
to be credited in a financial year exceeds Rs 10,000.
Rate of TDS : 10%; if PAN No not submitted then 20%
Interest paid on NRE, FCNR accounts is exempt from income tax and therefore no deduction of tax at source.
On NRO, deduction to be made for all accounts and on all interest payments.
Submission of Form No.15G/15H : No deduction shall be made in the case of individual who is resident in India
who furnishes a declaration in writing on form 15G (in the case of other than senior citizens) or on 15H in
the case of senior citizens. However, if the depositor furnishes Form No. 15G or 15H but does not provide PAN,
TDS will be deductible 20% w.e.f 01.04.2010.
Senior Citizen means who is of 60 years or above.
One copy of form 15G/15H is to be delivered by the branch/office to the Income Tax Office on or
before the seventh day of the succeeding month.
Quarterly Return: The quarterly return u/s 206A shall have to be furnished if the payment of
interest to a resident does not exceed Rs. 10,000/-.
Payment to Resident Contractors:
When applicable: If bill amount is more than Rs 30,000 or more than Rs 75.000 in the aggregate
during the financial year.
Rate of TDS: 1% if the payment is to an individual or a HUF and 2% for payment to others.
Brokerage/Commission other than Insurance Commission
31
If the amount credited or paid or likely to be credited or paid exceeds Rs.5,000/- in a financial year.
Rate of TDS: 10%
R e n t : If the amount of rent credited/paid during the financial year exceeds Rs.180000.
Rate of TDS:(i) Plant or machinery or equipment: 2%; (ii) Land, building furniture or fittings: 10%
Fees for professional or technical services or Royalty:
if the payment in a Financial year is more than Rs 30.000; Rate of Tax: 10%
Time Limit For Depositing of TDS, Issuing TDS Cert. and Filing of Quarterly Return:
Tax deducted should be deposited within one week from the last day of the month in which tax
is deducted. If there is delay then interest will be charged at the rate of 16% p.a., penalty may be
equal to amount of tax and there is a provision for imprisonment from 3 months to 7 years.
The statement of TDS should be sent on form 24 Q in the case of salaries, on form 26 Q in all other
payments to residents and on form 27Q for all payments to non residents. The statement of TDS
should be sent within 15 days from the end of quarter i.e. 151h July. 15th October, 15th January. If there
is delay penalty is Rs 200 per day. If information in TDS statement is wrong, fine may be Rs 10.000
to Rs 1 lac.
TDS certificate On deduction, TDS certificate to be issued on Form No.16-A within 15 days
from the due date for furnishing the quarterly statement of TDS
No surcharge or Educational Cess on TDS.
If PAN is not submitted TDS rate is 20% wef 1.4.2010.
Advance tax is payable if the tax liability is Rs.10000 or more from 2009-10.
SERVICE TAX
Not applicable in J&K.
Being indirect tax, administered by Central Board of Excise & Customs. Applicable on all services
except 39 in negative list.
Applicable on all banking services except interest received on advances.
Rate of tax is 12% + 2% education cess + 1% secondary & higher education cess (total = 12.36%)
Tax to be paid on quarterly basis by individuals, proprietors, partnerships and on monthly basis by
others.
To be deposited by 5th (6th in case of electronic payments) of the next month. Compulsory electronic
payment if tax amount is Rs.50 lac or more.
Return HY on Form ST 3 to be sent by 25th of the next month after close of HY.
Ceiling
PLEDGE
Pledge is defined in section 172 of Indian Contract Act
Pledge is the bailment of goods as a security for payment of a debt or performance of a promise.
Bailment is defined in Indian Contract Act.
Bailment means delivery of goods with some purpose and with the condition that when the
purpose is accomplished the goods will be delivered back to the.bailor.
Pledge can be only in respect of movable goods like stocks. On Railway receipt also charge is
created by pledge.
In the case of pledge, ownership remains with the borrower; only possession is transferred to the
banker.
The bank as a pledgee must take care of the goods pledged as a person of ordinary prudence
would take of his own goods of the same value.
Bank can sell the goods without intervention of the court in case the pledgor fails to repay the
bank loan. But the sale can be done only after giving reasonable notice to the pledgor.
Bank as a pledgee has priority in right over the goods and Bank's right of sale under pledge
cannot be extinguished even by lawful seizure of goods pledged to it.
HYPOTHECATION
Hypothecation is defined in Section 2 of Sarfaesi Act.
Hypothecation is also done on moveable property like stocks.
In case of hypothecation both ownership as well as possession remains with the borrower i.e.
neither ownership nor possession is transferred to the bank.
The charge created in Hypothecation is equitable charge.
When stocks are hypothecated to the bank, the charge is floating charge.
Basic difference between pledge and hypothecation is on account of possession.
ASSIGNMENT
Provisions relating to Assignment in section 130 of Transfer of Property Act.
Assignment is transfer of right or interest to recover the debt.
The transferor of claim is called as the assignor and the transferee is called the assignee.
Assignment is done on Book Debts, Supply Bills, L1C policy, fixed deposit etc.
Assignment is possible through writing only.
Acknowledgment required to be acknowledged by original debtor uis 131.
Assignor cannot give better title to the assignee than what assignor has.
In case of default, the assignee can recover the actionable claim amount from the original debtor without
reference to assignor.
33
M O RT G AG E
Mortgage is defined in Section 58 of the Transfer of Property Act.
Mortgage is the transfer of interest in a specific immovable property, for the purpose of securing
an existing or future debt
The person creating the mortgage is called as the mortgagor and the person in whose favour
mortgage is created (bank) is called as the mortgagee.
Mortgage is created on immovable property like land and building.
Types of Mortgage: There are six types of mortgages namely (i) Simple Mortgage (ii) Mortgage by
Conditional Sale (iii) Usufructuary Mortgage (iv) English Mortgage (v) Mortgage by Deposit of title Deeds
(Equitable Mortgage) and (vi) Anamalous Mortgage. Of these, all mortgages except Equitable Mortgage
require registration with the Registrar of Assurances.
Registered Mortgage: In the case of registered mortgage (also called legal mortgage) first a mortgage deed
is written which is stamped as per Stamp Act of the concerned state. The deed is then executed in the
presence of two witnesses. Thereafter, in terms of the Indian Registration Act 1908, it is to be registered
with the Registrar of Assurances (Sub Registrar) within 4 months of the execution.
Equitable Mortgage:
Equitable Mortgage is created by mere deposit of title deeds of property with intention to borrow.
Title deeds may be deposited by the mortgagor himself or his agent.
Title deeds should be deposited with the bank at Mumbai, Kolkatta and Chennai or any other
town notified by the State Government in this regard.
Property may be situated anywhere in India. For property located in Lucknow, title deeds can
be deposited at Chennai.
It is not necessary that the title deeds should be deposited with the branch or at the place where the
loan is being raised. These can be deposited anywhere in India at a notified place.
The bank should not part with the title deeds even for a short duration at the request of the mortgagor
because if some other creditor is induced to finance on the basis of title deeds, the bank may lose
priority over the mortgaged property.
Equitable Mortgage does not require registration with Registrar of Assurances. But in case of a limited
company charge in respect of equitable mortgage under Section 125 of the Companies Act. 1956
must be registered with Registrar of Companies.
All mortgages in favour of bank require registration with CERSAI (established under
SARFAES1 Act) within 30 days.
Right of Foreclosure
Personal liability of mortgager
English Mortgage.
Equitable Mortgage.
Usufructory mortgage
English Mortgage
Usufructory mortgage
Charge
Mortgage
by/made in favour of a commercial bank/cooperative bank and representing a genuine transaction are
completely exempted from stamp duty. Usance export bills exempt from stamp duty,
c) Receipts: For money or property with value above Rs. 5000 Rs One.
4. If a document is unstamped or under stamped, it will not be admissible in a court of law.
Such documents can be validated by payment of deficit stamp duty and penalty. The amount
of penalty can be up to 10 times the deficiency subject to a minimum of Rs 5.
5. Document executed in different states: Where a document is to be executed by persons in
different States, it must bear the stamp duty as applicable in the State where the first person
signs the document In case the stamp duty is more in the second State then the difference is
to be paid before it is signed by the person in the second State_ Where one of the States is
Jammu & Kashmir, full stamp duty applicable to both the States are payable.
6. Documents executed outside India: If a document other than a promissory note or bill of
exchange is executed outside India, it should be stamped as per Indian Law within three
months after their first receipt in India. In the case of A promissory note or a usance bill of
exchange is executed outside India, it should be stamped by its first holder in India before
presenting the same for acceptance, payment, or negotiation.
LIMITATION OF LOAN DOCUMENTS
1. Period of Limitation:Time limit within which legal remedy can be sought in a court of law to enforce the
right.
2. There is no limitation period in case of pledge or lien or set off.
3. Date of execution of a document is excluded for the purpose of ascertaining limitation period of a
document. Thus, a suit based on a DPN dated 5.4.2010 can be filed latest by 5.4.2013.
4. If courts are closed on the day the limitation period expires, case can be filed on the day the court reopens.
5. In case documents are signed by various partners on different dates, limitation will start
from last date of signing the documents.
6. Extension of Period of Limitation:
a. Period of limitation can be extended by Acknowledgement of debt or part payment In
both cases, limitation period will start from the date of acknowledgement or part
payment
b. The acknowledgment or part payment should be by the borrower himself or his agent
specifically authorized for this purpose.
c. Acknowledgement or part payment should be before the expiry of limitation period.
Once the limitation expires it can not be extended by part payment or acknowledgement
of debt.
d. An admission of debt in the balance sheet, acknowledgement to third party, credits on
account of standing instruction also extends the period of limitation.
e. In case limitation expires in a particular case, the liability can be revived by obtaining fresh promise
to pay the outstanding debt. Limitation period of various documents is given below :
Description
Temporary Overdraft without DPN
Demand Loan
Demand Promissory Note
Bill of exchange_payable on demand
Usance bill of exchange or promissory note
-Suit for Money_ Decree
Term Loans payable by instalments
Mortgage
Right of foreclosure by the mortgagee
Period of Limitation
3 years from date of loan
3 years from the date of loan
3 years from date of DPN
3 years from date of Bill.
3 years from the due date of the bill or PN
3 years from the date right is due
3 years from due date of each instalment . .
12 years from the due date of the loan
30 years
36
Right of redemption
Cash credit against hypothecation or overdraft
Cash Credit Pledge
Any suit by State/Central Government
Deposit like SB, CA, FD with a bank
Execution of Decree
Recovery of loss caused by fraud
Claim under Consumer Protection Act
Dishonour of cheque under sec 138 of NI Act
Appeal to High Court against Lower court
Appeal to other courts on the decree at Lower court
Execution of Decree
30 years
3 years from the date of document.
Not applicable
30 years from the date when limitation would start
3 years from date of demand
12 years from the date of decree
3 years from the date of detection of fraud
2 year from the date light accrues
1 month from the date right accrues
90 days from date of decree
30 days from date of decree
12 Years from the date of Decree
creditors holding not less than 60% of the amount outstanding to a borrower as against 75%
hitherto.
6.NORMS FOR LENDING AGAINST GOLD JEWELLERY FOR NBFCS: In view of the moderation in the
growth of gold loan portfolios of NBFCs in the recent past, RBI has decided to raise the Loan-to-Value
(LTV) ratio to up to 75% for loans against the collateral of gold jewellery from the present limit of
60%. the Reserve Bank has clarified that the ownership verification need not necessarily be through
original receipts for the jewellery pledged but a suitable document may be prepared to explain how
the ownership was determined, particularly in each and every case where the gold jewellery pledged
by a borrower at any one time or cumulatively on loan outstanding is more than 20 grams. NBFCs
were directed to disburse high value loans of Rupees one lakh and above, only through cheque.
7.PRICING OF CREDIT DIRECTIONS FOR NBFC-MFIS: The Reserve Bank of India has decided that the
interest rates charged by an NBFC-MFI to its borrowers will be the cost of funds plus margin, or the
average base rate of the five largest commercial banks by assets multiplied by 2.75. The average of
the base rates of the five largest commercial banks shall be advised by the Reserve Bank on the last
working day of the previous quarter, which shall determine interest rates for the ensuing quarter.
8.NPA NORMS ON CREDIT CARD ACCOUNTS: RBI has advised banks that 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. The gap between two statements should not
be more than a month.
9.LOANS AGAINST GOLD ORNAMENTS & JEWELLERY: RBI decided to permit bullet repayment of
loans extended against pledge of gold ornaments jewellery for other than agricultural purposes
subject to the condition that the amount of loan should not exceed Rs.1.00 lakh at any point of time.
The period of loan shall not exceed 12 months from date of sanction. Interest be charged to the
account at monthly rests but will become due for payment along with principal only at the
maturity.Banks should prescribe a minimum margin to be maintained in case of such loans and
accordingly, fix the loan limit taking into account the market value of the security (gold ornaments),
expected price fluctuations, interest that will accrue during the tenure of the loan etc.The account
would be classified as Non-Performing Asset (sub-standard category) even before the due date of
repayment, if the prescribed margin is not maintained. Banks shall recognize interest income on such
loans in their profit and loss account only on collection.
10.NO FORECLOSURE CHARGES: The Reserve Bank has asked banks not to charge foreclosure
charges/pre-payment penalties on all floating rate term loans sanctioned to individual borrowers.
11.Kisan Vikas Patra, 2014 (February 09, 2015): The new Kisan Vikas Patra, 2014
Scheme, is
required to be implemented through the designated branches of the Agency banks, which have been
authorized ,for Public Provident Fund, 196B (PPF,1968) Scheme, together with Post Offices, doing
Savings Bank Work.
12.Dispensing with 'No Due Certificate' for lending by banks (January 28, 2015): RBI has advised
banks to dispense with obtaining 'No Da Certificate' from the individual borrowers (including SHGs
& JLGs) in rural and semi-urban areas for all types of loans including loans under Government
Sponsored Schemes, irrespective of the amount involved unless the Government Sponsored Scheme
itself provides for obtaining of 'No Dues Certificate'. While Service Area Approach continues to be
applicable for Government Sponsored Schemes, the borrower is free to approach any bank branch in
his service area for obtaining credit under Government Sponsored Schemes. Banks should use an
alternative framework of due diligence as part of credit appraisal exercise other than the `No Due
Certificate' which could, among others, consist of one or more of the following: (a) Credit history
38
check through credit information companies; (b) Self declaration or an affidavit from the borrower;
(c) CERSAI registration; (d) Peer monitoring; (e) Information sharing among lenders; (f) Information
search (writing to other lenders with an auto deadline)
13.Display of information by banks (January 22, 2015): In order to further enhance transparency in
pricing of credit, banks should make following additional disclosures: (a) Website: Banks should
display on their website the interest rate range of contracted loans for the past quarter for different
categories of advances granted to individual borrowers along with mean interest rates for such
loans. The total fees and charges applicable on various types of loans to individual borrower should
be disclosed at the time of processing of loan as well as displayed on the website of banks for
transparency and comparability and to facilitate informed decision making by customers. Banks
should publish Annual Percentage Rate (APR) or such similar other arrangement of representing the
total cost of credit on a loan to an individual . borrower on their websites so as to allow customers to
compare the costs associated with borrowing across products and/ or lenders; (b) Key Statement/
Fact Sheet: Banks should provide a clear, concise, one page key fact statement/fact sheet, as per
prescribed format in Annex, to all individual borrowers at every stage of the loan processing as well
as in case c,f any change in any terms and conditions. The same may also be included as a summary
box to be displayed in the credit agreement. The above additional guidelines will come into force
with effect from April 1, 2015.
14.Interest Rates on Advances (January 19, 2015): Computation of Base Rate: While computing Base
Rate, banks will have the freedom to calculate cost of funds either on the basis of average cost of
funds or on marginal cost of funds or any other methodology in vogue, which is reasonable and
transparent provided it is consistent and made available for supervisory review/scrutiny as and
when required. Where the card rate for deposits of one or more tenor is the basis, the deposits in the
chosen tenor-is should have the largest share in the deposit base of the bank; Review of Base Rate:
As hitherto, banks are required to review the Base Rate at least once in a quarter with the approval
of the Board or the Asset Liability Management Committee (ALCO) as per the bank's practice; Review
of Base Rate methodology: (i) With a view to providing banks greater operational flexibility, banks
have been allowed to review the Base Rate methodology after three years from date of its finalization
instead of the current periodicity of five years. Banks will, however, not be allowed to change their
methodology during the review cycle; Spread: (i) Banks should have a Board approved policy
delineating the components of spread charged to a customer. It should be ensured that any price
differentiation is consistent with bank's credit pricing policy; (ii) Bank's internal pricing policy must
spell out the rationale for, and range of, the spread in the case of a given category of borrower, as
also, the delegation of powers in respect of loan pricing. The rationale of the policy should be
available for supervisory review; (iii) The spread charged to an existing borrower should not be
increased except on account of deterioration in the credit risk profile of the customer or change in
the tenor premium. Any such decision regarding change in spread on account of change in credit risk
profile should be supported by a full-fledged risk profile review of the customer. The change in tenor
premiuM should not be borrower specific or loan class specific. In other words, the change in tenor
premium will be uniform for all types of loans for a given residual tenor. These guidelines are,
however, not applicable to loans under consortium/ multiple banking arrangements.
15.Membership of Credit Information Companies (CICs) (January 15, 2015): (i) All Credit Institutions
(Cis) shall become members of all CICs and submit data (including historical data) to them. Further,
CICs and Cis shall keep the credit informatian- collected/maintained by them, updated regularly on a
monthly basis or at such shorter intervals as may be mutually agreed upon between the CI and the
CIC; (ii) One-time membership fee charged by the CICs, for Cls to becoMe their members, shall not
exceed Rs.10,000 each. The annual fees charged by the CICs to Cis shall not exceed Rs.5000 each.
These guidirrITS-Stunrd-66 complied within three months from the dafrof RBI directive dated 15 Jan
2015.
39
16.Non-Cooperative Borrowers (Dec 22, 2014): A non-cooperative borrower is one who does not
engage constructively ith 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, denying access to assets financed / collateral securities, obstructing sale of securities, etc.
The cut off limit for classifying borrowers -as noncooperative would be those borrowers having
aggregate fund-based and non-fund based facilities of Rs.50 million (Rs 5 aore) from the concerned"
bank/FI. non-cooperative borrower in case of a company will include, besides the company, its
promoters and directors (excluding independent directors and directors nominated by the
Government and the lending institutions). The decision to classify the borrower-as non-cooperative
borrower should be entrusted to a Committee of higher functionaries headed by an Executive
Director and consisting of two other senior officers of the rank oileneral Managers/ Deputy
Managers. The order of threshold be reviewed by another Committee headed by the Chairman /CEO
and MD and consisting, in addition, of two independent directors of the bank/FI an the shall become
director Only. Banks/FIs should report information on their non-cooperative borrowers to CRILC
under CRILC-Mairi (Quarterly Submission return within 21 days from the close of the relevant
quarter. Any freirEccposure to non co operative borrower will require higher provisioning.
17.Flexible Structuring of Project Loans to Infrastructure and Core Industries (December 15, 2014):
As per extant guidelines, flexible structuring of project loans with the option of periodic refinancing
will be available only to new loans to infrastructure projects and core industries projects
sanctioned after July 15, 2014. RBI has now decided to allow the banks to flexibly structure the
existing project loans to infrastructure projects and core industries projects with the option to. p
riodically refinance the same.
18.REVITALISING DISTRESSED ASSETS: Distressed assets include loans/limits, mortgages or other
types of financial assets that are nonperforming for a variety of reasons such as non-viability or
malafide intentions. RBI has advised that if the banks/lenders refinance any existing infrastructure
and other project loans by way of take-out financing, even without a pre-determined agreement with
other banks/FIs, and fix a longer repayment period, the project loan refinancing would not be
considered as restructuring subject to certain conditions. To recover appropriate value in respect of
their NPAs promptly, banks can now reverse the excess provision on sale of NPA if the sale is for a
value higher than the net book value (NBV) (i.e., book value less provisions held) to its profit and loss
(P&L) account in the year the amounts are received.
19.The Reserve Bank has advised that banks will be permitted to sell their NPAs to other
banks/FIs/Non-Banking Finance Companies (NBFCs) (excluding SCs/RCs) without any initial
holding period. However, the non-performing financial asset should be held by the purchasing bank
in its books at least for a period of 12 months before it is sold to other banks/financial
institutions/NBFCs (excluding SCs/RCs). Banks can now use counter-cyclical/floating provisions for
meeting any shortfall on sale of NPA, i.e., when the sale is at a price below the NBV (i.e., book value
less provision held), which presently requires debit to the profit and loss account. Banks can now
extend finance to specialised entities subject to select guidelines applicable to advances against
shares / debentures / bonds and other regulatory and statutory exposure limits. The lenders should,
however, assess the risks associated with such financing and ensure that these entities are
adequately capitalised, and debt equity ratio for such entity is not more than 3:1.
20.DEFAULTERS / WILFUL DEFAULTERS: RBI has decided to implement the following measures
with regard to reporting and dissemination of information on defaulters / wilful defaulters:
a) Banks / FIs may continue to furnish the data on: a.Wilful defaulters (non-suit filed accounts) of Rs.
25 lakhs and above for the quarter ending June 30, 2014 and September 30, 2014 to RBI. b. In
40
respect of defaulters (non-suit filed a/cs) of Rs.1 crore and above, they may continue to submit the
data to RBI for the half year ending Sept. 30, 2014 in the existing format. c. In terms of Credit
Information Companies (Regulation) Act, banks / FIs are advised to furnish the aforementioned data
in respect of wilful defaulters (non-suit filed accounts) of Rs. 25 lakhs and above for the quarter
ending December 31, 2014 data on defaulters (non-suit filed a/cs) of Rs. 1 crore & above for the half
year ending Dec. 31, 2014 to CICs and not to RBI.
21.LOANS AGAINST GOLD JEWELLERY: For non-agricultural loans against pledge of gold ornaments
and jewellery, RBI has issued modified guidelines. These are: Banks, as per their Board approved
policy, may decide upon the ceiling with regard to the quantum of loans that may be granted against
the pledge of gold jewellery and ornaments for non-agricultural end uses; The tenor of the loans shall
not exceed 12 months from the date of sanction;Interest will be charged to the a/c at monthly rests
and may be recognised on accrual basis provided the a/c is classified as standard account. Such
loans shall be governed by extant norms pertaining to income recognition, asset classification and
provisioning which shall be applicable once the principal and interest become overdue.
RBI has also clarified that LTV of 75% shall be maintained throughout the tenure of the loan for all
loans extended against pledge of gold ornaments and jewellery for non-agricultural end uses. For the
purpose of valuation of gold, banks may use the historical spot gold price data publicly disseminated
by a commodity exchange regulated by the Forward Markets Commission in addition to the prices
disseminated by the India Bullion and Jewellers Association Ltd.
22.REFINANCING OF PROJECT LOANS: The Reserve Bank has permitted banks to refinance existing
project loans, by way of full or partial takeout financing, even without a pre-determined agreement
with other banks / FIs, fix a longer repayment period subject to following conditions:The aggregate
exposure of all institutional lenders to such project should be minimum Rs.1,000 crore;The project
should have started commercial operation after achieving Date of Commencement of Commercial
Operation;The repayment period should be fixed by taking into account the life cycle of and cash
flows from the project. Further, the total repayment period should not exceed 85 percent of the
initial economic life of the project / concession period in the case of Public-Private Partnership (PPP)
projects; Such loans should be standard in the books of the existing banks at the time of the
refinancing; In case of partial take-out, a significant amount of the loan (a minimum 25 percent of the
outstanding loan by value) should be taken over by a new set of lenders from the existing financing
banks / financial institutions; and the promoters should bring in additional equity, if required, so as
to reduce the debt to make the current debt-equity ratio and Debt Service Coverage Ratio (DSCR) of
the project loan acceptable to the banks. The above facility will be available only once during the life
of the existing project loans.
23.NBFCs - LENDING AGAINST SHARES: The Reserve Bank has advised all nonbanking finance
companies (NBFCs) with asset size of Rs.100 crore and above (excluding the primary dealers) to
maintain a Loan- To-Value (LTV) ratio of 50 percent in case of loans where shares are taken as
collateral. As per the guidelines issued to NBFCs on lending against shares, NBFCs can only offer
loans against a security of Group 1 shares (as specified by SEBI), where the loan is more than Rs.5
lakh. Further, all NBFCs with asset size of Rs.100 crore and above, shall report on-line to stock
exchanges, information on the shares pledged in their favour, by borrowers for availing loans.
24.WILFUL DEFAULTERS: The Reserve Bank has advised scheduled commercial banks (excluding
RRBs and LABs) and All India Notified Financial Institutions (FIs) that while dealing with wilful
default of a single borrowing company in a Group, the banks/FIs should consider the track record of
the individual company, with reference to its repayment performance to its lenders. However, in
41
cases where guarantees furnished by the companies within the Group on behalf of the wilfully
defaulting units are not honoured when invoked by the banks/FIs, such Group companies should
also be reckoned as willful defaulters.
25.ADVANCE AGAINST PLEDGE OF GOLD / SILVER ORNAMENTS: The RBI has prescribed a Loan to
Value (LTV) Ratio of not exceeding 75% for Urban Cooperative Banks (UCBs) lending against gold
jewellery (including bullet repayment loans against pledge of gold jewellery). To standardise the
valuation and make it more transparent to the borrower, the RBI has asked banks to value gold
jewellery accepted as security / collateral at average of the closing price of 22 carat gold for the
preceding 30 days as quoted by the India Bullion and Jewellers Association Ltd.If the gold is of purity
less than 22 carats, the bank should translate the collateral into 22 carat and value the exact grams of
the collateral.
26.RISK WEIGHTS - LOW INCOME HOUSING LOANS: For loans guaranteed by Credit Risk Guarantee
Fund Trust for Low Income Housing (CRGFTLIH), NBFC-MFIs may assign zero risk weight for the
guaranteed portion. The balance outstanding in excess of the guaranteed portion would attract a
risk-weight as per extant guidelines. In case advance covered by CRGFTLIH guarantee becomes nonperforming, no provision need be made towards the guaranteed portion. The amount outstanding in
excess of the guaranteed portion should be provided for as per the extant guidelines on provisioning
for non-performing advances.
minus bills rediscounted with RBI / other approved institutions. Amount on account of provisions, accrued
interest etc. not to be deducted from NBC. Deposits placed with RIDF / SEDF / NHB and shown in Schedule 8
of Balance sheet not to be taken for ANBC computation.
Data on Priority Sector Advances (RBI 07.01.13) : Banks are to furnish data on priority sector advances,
on monthly, quarterly and yearly basis to Rural ,Planning and Credit Department, of RBI within five days,
fifteen days and one month.
TARGETS FOR PRIORITY SECTOR
Targets for Domestic banks and Foreign Bank with 20 or more branches in India
Priority sector (as % of ANBC OR credit equivalent of Off-balance sheet exposure, whichever higher as
on 31't Mar previous year)
Agriculture (% to ANBC or CEOBE)
(it can also be expressed as 45% of PS)
40 %
18%
10%
4.00% Simple
40%
2/3rd
Within DRI
through rural/semi
No specific
target
(of
40%
20%
3%
15%
will
be
No separate
category
5%
FOREIGN
BANKS(less than 20
branches) : PS target (without a specific sub-target for MSE f Export)
32%
60%
15%
40%
850000 cr
Rural Infrastructure Development Fund (RIDF) It was established in 1995-96. Its corpus is announced by
Ministry of Finance every year. Corpus amount for 2015-16 = Rs.25000 cr. Period of deposit for RIDF / SEDF
or any other fund : Fixed by RBI from time to time. Rate of interest on amount deposited: For shortfall less
than 5%age points : Bank Rate minus 2%age points For shortfall 5 and above, but less than 10%age points :
Bank Rate minus 3 percentage points Shortfall 10 percentage points and above : Bank Rate minus 4
percentage
43
2. SMALL ENTERPRISES :
1. Enterprises are classified in manufacturing enterprises like SSI /MSME and service enterprises like
Small Business, Transport operators, Professional and Self employed.
2. Micro manufacturing enterprise: investment in Plant and Machinery up to Rs 25 lac.
3. Small manufacturing enterprise: investment in Plant and Machinery more than Rs 25 lac up to Rs 5
crore.
4. Medium manufacturing enterprise: investment in Plant & Machinery more than Rs 5 crore up to Rs 10
crore.
5. Micro service enterprise: investment in equipment up to Rs 10 lakh.
6. Small service enterprise: investment in equipment more than Rs 10 lakh but up to Rs 2 crore.
7. Medium service enterprise: investment in equipment more than Rs 2 crore but up to Rs 5 crore.
8. Medium enterprise is not part of Priority sector. But incremental advance after 13.11.2013 treated as
PS for loans up to Rs 10 crore in case of service enterprise and without any limit for manufacturing
units. ( upto 31.03.2014 only )
9. There is no limit on number of vehicles, for classification as micro or small enterprise.
10. All advances to units in the Khadi and Village industries sector, irrespective of amount of original
investment in plant and machinery will be part of small enterprises.
11. Advance to retail traders are also classified as advance to Small enterprise
12. Maximum loan to small manufacturing enterprise other than composite loan: No limit
13. Maximum loan to small service enterprise including retail trade, small business, transport operator and
professional and self employed for classification as PS: Rs 5 crore.; For incremental advances after
13.11.2013, maximum limit is Rs 10 crore. ( upto 31.03.2014 only )
14. Maximum composite loan to manufacturing or service enterprise: Rs 1 crore
15. Cost of pollution control equipment, generator set, tools in not included for calculation of
cost of plant and machinery or equipment.
16. Loans for food and agro processing will be classified under Micro and Small Enterprises, provided
the units satisfy investments criteria prescribed for Micro and Small Enterprises.
17. Export credit to MSE units (manufacturing and services) for exporting of goods/services produced by
them.
18. Loan toeducationalinstitutions-smallenterprise.
Indirectfinanceto Smallenterprises
1. 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.
2. Loans to cooperatives of producers in the decentralised sector viz. artisans village and cottage
industries.
3. Loans sanctioned by banks to MFIs for on-lending to MSE sector as per the prescribed conditions
3. Education Loan
Education in India: Maximum loan up to Rs. 10 lakh, Education abroad: Maximum loan up to Rs. 20 lakh
4. Housing
a Loans for construction or purchase of house: Maximum Rs. 15 lakh at places with population up to 10
lakh and Rs 25 lakh at places with population of more than 10 lakh excluding loans to their own
employees.
b Loans for repairs to the damaged dwelling units: Maximum Rs. 2 lakh in rural and semi-urban
areas and up to Rs. 5 lakh in urban and metropolitan areas.
c Loan to a Govemmental agency for construction of dwelling units or for slum clearance:
Maximum Rs. 10 lakh per dwelling unit.
d Loans to Housing Finance Companies (HFCs), for on-lending to individuals for
purchase/construction of dwelling units: Maximum loan Rs 10 lakh per dwelling unit. The
45
total loan to HFCs should not be more than live per cent of the individual bank's total
priority sector.
e Loans for housing projects exclusively for the purpose of construction of houses only to
economically weaker sections and low income groups, the total cost of which do not exceed Rs
10 lakh per dwelling unit For the purpose of identifying the economically weaker sections and
low income groups, the family income will be limited to Rs 1,20,000 per annum, irrespective of
the location.
5.Export Credit
Export Credit extended by foreign banks with less than 20 branches will be reckoned for
priority sector target achievement. For domestic banks and foreign banks with 20 and above
branches, export credit is not a separate category under priority sector
6.Others
1. Loans, up to Rs 50,000 per borrower to individuals and their SHG/JLG, provided the borrower's
household annual income in rural areas does not exceed Rs 60,000/- and non-rural areas not
more than Rs 1,20,000/2. Loans to distressed persons (other than farmers) not exceeding Rs 50,000 per borrower to
prepay their debt to non-institutional lenders.
3. Loans outstanding under loans for general purposes under General Credit Cards (GCC).
4. Overdrafts, up to Rs 50,000 (per account), granted against 'no-frills' I basic banking I savings
accounts provided the borrowers household annual income in rural areas does not exceed Rs
60,000!- and for non-rural areas it should not exceed Rs 1,20,000/,
5. Loans to State Sponsored Organisations far Scheduled Castes/ Scheduled Tribes for
purchase and supply of inputs to and/or the marketing of the outputs of the beneficiaries of
these organisations.
6. Loans to individuals for setting up off-grid solar and other off-grid renewable energy
solutions for households.
WEAKER SECTION IN PRIORITY SECTOR :
The concept was introduced as per recommendations of Krishnaswami Committee (1980). It
comprises: 1.Small and marginal farmers,2 Artisans, village and cottage industries where
individual credit limits do not exceed Rs. 50,000/3 Beneficiaries of National Rural Livelihood Mission (NRLM) - earlier called Swarnjayanti Gram
Swarojgar Yojana (SGSY), 4 Scheduled Castes and Scheduled Tribes
5 Beneficiaries of Differential Rate of Interest (DRI) scheme
6 Beneficiaries under Swama Jayanti Shahari Rojgar Yojna (SJSRY)
7 Beneficiaries under the Scheme for Liberation and Rehabilitation of Scavengers (SLRS).
8 Advances to Self Help Groups including NGOs for on-lending purposes
9 Loans to distressed farmers indebted to non-institutional lenders for prepayment of loans
10 Loans up to Rs.50000 to distressed poor to prepay their debt to noninstitutional lenders.
11 Loans up to R5.50000 to individual women.
12.Loans under 1 . to 11 above, to Minority community as notified by Govt. of India
Terms and Conditions for Priority Sector Advances
1. Loans up to Rs 25,000 in PS there is no margin, no collateral security, no penal interest on
advance, no processing fees and no inspection charge.
2. Loan more than Rs 25,000, the margin will be from 15% to 25%. For Loans beyond Rs
25,000, bank can ask for TPG/collateral security or both.
46
3.
4.
COLLATERAL SECURITY :
Up to R.5.100000.
Up to Rs.3 lac in case of recovery tie-up
Up to Rs.25000 nil
SISRY
Not to be obtained
5.
PROCESSING/INSPECTION FEE, SERVICE CHARGE, PENAL INIT IN PRIORITY SECTOR ADVANCES
15. Vermiculture - Rearing of earth worm 16. Mulberry Associated with Sericulture 17. Rainbow revolution- connected with flowers
Interest Subvention for Agricultural Loans
1. Available for short term production loans in agriculture up to : Rs 3 lakh
2. Available only to public sector banks
3. Subvention provided by Central Govt
4. Rate of subvention: 2% p.a.
5. Interest charged by banks: 7% per annum.
6. Submission of claims: Half-yearly as at September 30, and March 31,
7. Additional subvention for prompt repayment: 3% if repayment within one year.
8. Effective rate to farmer: 4%
Kisan Credit Card
1. Scheme prepared by Nabard and changes also by Nabard.
2. Revised on recommendations of Committee headed by Shri T.M.Bhasin.
3. Kisan Credit Card Scheme can be used for (a) meeting the short term credit requirements for
cultivation of crops (b) Post harvest expenses (c) Produce Marketing loan (d) Consumption
requirements of farmer household (e) Working capital for maintenance of farm assets and
activities allied to agriculture, like dairy animals, inland fishery etc. (f) Investment credit
requirement for agriculture and allied activities like pump sets, sprayers, dairy animals etc
4. Fixation of limits: The short credit limit for farmers other than marginal farmers for first
year will be calculated as under - Scale of finance for the crop (as decided by District Level
Technical Committee) x Extent of area cultivated + 10% of limit towards post-harvest /
household / consumption requirements + 20% of limit towards repairs and maintenance
expenses of farm assets + crop insurance, PAIS & asset insurance_ For subsequent years, limit
will be increased each year by 10% towards cost escalation increase in scale of finance for
every successive year and estimated Term loan component for the tenure of Kisan Credit
Card, i.e., five years
5. Validity Period of KCC: Banks may determine the validity period of KCC and its periodic review.
6. If there is a credit balance in the account it will earn interest at Saving Fund rate as per rules
applicable in SF account.
7. Personal Accident Insurance for KCC holders: KCC holders are covered against death or
permanent disability due to accident for Rs 50,000. For partial disability due to accident the
cover is available for Rs 25,000. The cover is available only to KCC holders up to 70 years of
age at the time of entry to the Scheme. The insurance premium is competitive but not more
than Rs 15 per annum to be shared by the bank and the borrower in the ratio of 2:1.
Farmers' Club Programme (FCP)
1. Features of the Club:
Size of the Club:No restriction on the upper limit but the minimum size should be 10 members
Membership: Both farmers as well as non farmers can become the members of the club.
Office bearers: Each Club will have two office bearers, viz, Chief Co-ordinator and
Associate Coordinator.
Operational area: Preferably one village or a group of 2-3 villages on contiguous basis.
Registration: Not required.
Bank Linkage: All the Clubs should have savings bank accounts with the bank in the joint
name of the office bearers.
2. NABARD assistance: Rs.10000/- per club per annum for a period of three years as per
following details: Formation and maintenance expenses:Rs.2000; Awareness / orientation
48
3.
4.
5.
Amount of Limit Artisans, businessmen, traders and small entrepreneurs: 20% of the annual
turnover declared for tax purposes; professional and self employed: 50% of the gross annual
fees received.
Validity of the Card: 3 years subject to annual review.
institutions, the amount is Rs.50 lac). Collateral security: The credit facility has to be given without
collateral and/or third party guarantee. Loans against guarantee of Govt. or DICOC, not eligible.
Time limit for obtaining guarantee cover: Within the quarter, next to the quarter, during which the
credit facilities are sanctioned.
Composite
Fee as % of
sanctioned loan
w.e.f.
1.1.13
For loan
up to Rs.5 lac
Above Rs.5 lac up to Rs.100 lac
Women,
NE
States, MSEs
Others
0.75% p.a.
0.85% p.a.
1% p.a.
1% p.a.
If fee is not paid on time, CGTMSE may allow payment interest at bank rate + 4%
Invocation of guarantee
If (a) account has been classified as NPA as per RBI guidelines (b) suit has been filed and (c)
guarantee (a) within 2 years from date of NPA NPA is after lock in period or (b) within 2 yeilr from
date of completion of 18 month lock period. (lock-in period of 18 months from tIL: date of last
disbursement of the loan or the date of payment of the guarantee fee whichever is later) Payment of
the claim amount : The trust shall pay 75 % of the guaranteed amount on preferrin, of eligible claim
by the lending institution, within 30 days. For delay beyond 30 days, trust shall interest on the
eligible claim amount at the prevailing bank rate. The balance 25 % will be paid on conclusion of
recovery proceedings 'b:,; the lending institution or within 3 years from date of decree, whichever is
earlier.
Sharing of recovery: Recovery shall be first appropriated towards cost of recovery, balance amount
for recovery of fee and other charges of CGTMSE and balance amount on prorate basi1/4 i.e. 85:15,
80:20, or 75:25.
Delay in sharing recovery : Every amount recovered and due to be paid to the trust shall be paid
without delay, and if any amount due to the trust remains unpaid beyond a period of 30 days from
the date on which it was first recovered, interest shall be payable to the trust by the lending
institution at the rate which is 4% above bank rate for the period for which payment remains
outstanding after the expiry of the said period of 30 days.
Misc. aspects
Promoters' Personal guarantee can be obtained. Commencement of guarantee cover : The
guarantee cover will commence from the date of payment of guarantee fee by the lender. Date of
payment will be the date on which the fee is credited to the Trust's A/c.
DRI for MSEs with guarantee cover of CGTMSE As per RBI guidelines dated Apr 15, 2014, banks
can provide differential interest rate for MSE borrowers, having guarantee cover from CGTMSE. But
such rate of interest should not be below the Base Rate.
National Equity Fund of SIDBI
1. It is a soft loan window of SIDBI to provide margin money assistance to Small Manufacturing
enterprises.
2. Maximum project cost: Rs 50 lakh.
3. Margin money assistance: 25% of the project cost with a maximum of Rs 10 lakh.
4. Promoter's contribution: minimum 10% of the project cost and Debt equity ratio should be 2:1.
5. Repayment period: 7 years including moratorium of 3 years.
1.
2.
3.
4.
5.
4.
5.
6.
Maximum loan: Rs.10 lakh for studies in India and Rs 20 lakh for studies abroad
Margin: Upto Rs.4 lakh: No margin; More than 4 lakh: Studies in India: 5%; Studies abroad: 15%
Security: Upto Rs.4 lakh: Co obligation of parent; No security or Third party Guarantee. Loan more than
Rs 4 latch but up to Rs 7.5 lakh: Co obligation of parent and third party guarantee. Loan above Rs.7.5
lakh: Co
obligation of parent and collateral security of suitable value and/or third party along with the
assignment of future income of the student for payment of instalments.
Rate of Interest: Linked to base rate. Simple interest during moratorium period.
Repayments: Moratorium: Course period + 1 year ( 2 year as economic slowdown) from completion of
studies or 6 months after getting job, whichever is earlier. The loan to be repaid in 10 to 15 years after
commencement of repayment. The accrued interest during the repayment holiday period should be
added to the principal and repayment in EMI fixed.
Interest subvention provided by Govt for entire interest charged during moratorium period if
annual income of parents up to Rs 450,000.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Under NRLM generally, there would be women self help groups. In case of groups of persons with
disabilities, and other special categories like elders, transgenders, NRLM will have both men and
women in the self-help groups.
Women SHGs under NRLM consist of 10-15 persons. In case of groups in the difficult areas,
groups with disabled persons, and groups formed in remote tribal areas, this number may be a
minimum of 5 persons.
- SHG is an informal group and registration under any Societies Act, State cooperative Act is not
mandatory. Federations of SHGs formed at village level, cluster level, are to be registered under
appropriate acts.
The mission will provide a hand-holding support to the institutions of poor for a period of 5 7
years till they come out of abject poverty.
Revolving Fund (RF): NRLM would provide a Revolving Fund (RF) support to SHGs in existence
for a minimum period of 3/6 months and follow the norms of good SHGs, i.e they follow
'Panchasutra' regular meetings, regular savings, regular internal lending, regular recoveries
and maintenance of proper books of accounts. Only such SHGs that have not received any RF
earlier will be provided with RE, as corpus, with a minimum of Rs. 10,000 and up to a maximum
of Rs. 15,000 per SHG.
Capital Subsidy: No Capital Subsidy be sanctioned to any SHG from the date of implementation of
NRLM.
Interest subvention: NRLM will provide interest subvention, to cover the difference between the
Lending Rate of the banks and 7%, on all credit from the banks/ financial institutions availed by
women SHGs, for a maximum of Rs 3,00,000 per SHG. This will be available across the country
in two ways: (a)150 identified districts, banks will lend to all the women SHGs @7% upto an
aggregated loan amount of Rs 3,00,000/- . The SHGs will also get additional interest subvention
of 3% on prompt payment, reducing the effective rate of interest to 4%; (b) In the remaining
districts also, NRLM compliant women SHGs will be registered with SRLMs. These SHGs are
eligible for interest subvention to the extent of difference between the lending rates and 7% for
the loan upto Rs. 3 lakhs, subjected to the norms prescribed by the respective SRLMs.
Opening of Savings accounts: Banks will open accounts for all the Women SHGs, SHGs with
members of Disability and the Federations of the SHGs after observing KYC norms.
Eligibility criteria for the SHGs to avail loans: SHG should be in active existence at least since the
last 6 months as per the books of account of SHGs and not from the date of opening of S/B
account. SHG should be practicing 'Panchasutrae. The existing defunct SHGs are also eligible for
credit if they are revived and continue to be active for a minimum period of 3 months.
Loan amount: Loan will be provided in multiple doses as given below: (a) First dose: 4-6 times to
the proposed corpus during the year or Rs. 50, 000 whichever is higher; (b) Second dose: 5-10
times of existing corpus and proposed saving during the next twelve months or Rs. 1 Iakhs,
whichever is higher; (c) Third dose: Minimum of Rs. 2 Iakhs, (d) Fourth dose onwards: Loan
amount can be between Rs. 5-10 lakhs for fourth dose and/or higher in subsequent doses. The
loan amount will be based on the Micro Credit Plans of the SHGs and their members. The loans
may be used for meeting social needs, high cost debt swapping and taking up sustainable
livelihoods by the individual members within the SHGs or to finance any viable common activity
started by the SHGs. Corpus is inclusive of revolving funds, if any, received by that SHG, its own
savings and funds from other sources in case of promotion by other institutes/NGOs.
Type of facility and repayment: SHGs can avail either Term loan or a CCL loan or both based on
the need. Repayment schedule could be as follows: (a) The first dose of loan will be repaid in 612 instalments; (b) Second dose of loan will be repaid in 12-24 months; (c) Third dose will be
sanctioned based on the micro credit plans, the repayment has to be either monthly/quarterly
/half yearly based on the cash flow and it has to be between 2 to 5 Years: (d) Fourth dose
53
onwards: repayment has to be either monthly/quarterly /half yearly based on the cash flow and
it has to be between 3 to 6 Years
14. Security and Margin: No collateral and no margin upto Rs. 10.00 lakhs limit to the SHGs. No lien
should be marked against savings bank account of SHGs. and no deposits should be insisted
while sanctioning loans.
NATIONAL URBAN LIVELIHOODS MISSION (NULM)
1. Implemented by: Ministry of Housing and Urban Poverty Alleviation (MoHUPA). Started by
restructuring SJSRY. The NULM is under implementation w.e.f. September 24, 2013 in all
districts headquarters (irrespective of population) and all the cities with population of 1 lakh or
more.
2. Objective: To reduce poverty of the urban poor households by enabling them to access gainful
self employment and skilled wage employment opportunities, resulting in an appreciable
improvement in their livelihoods on a sustainable basis.
3. Type of Subsidy: Capital Subsidy available under SJSRY has been replaced by interest subsidy for
loans to Individual enterprise (SEP- I), Group enterprise (SEP- G) and Self Help Groups (SHGs).
4. Type of enterprises: small enterprises relating to manufacturing, servicing and petty business for
which there is considerable local demand. Local skills and local crafts should be particularly
encouraged.
5. Reservation: (i) Women beneficiaries under SEP: 30 percent; (ii) SCs and STs: at least to the extent of
the proportion of their strength in the city/town population of poor; (iii) differently-abled: .3 percent;
(iv) Minority Community: 15 percent of the physical and financial targets.
6. Selection of Beneficiary: will be done by any of the following (i) Community Organisers (COs)
and professionals from Urban Local Body (ULB); (ii) Self Help Groups (SHGs) and Area Level
Federations (ALFs) may also refer prospective entrepreneurs to ULB; (iii) The beneficiaries may
directly approach ULB or its representatives for assistance; (iv) Banks may also identify
prospective beneficiaries at their end and send such cases directly to ULB.
7. Educational pualifications and Training Requirement: No minimum educational qualification is
required. Entrepreneurship Development Programme (EDP): In addition to skill training of the
beneficiaries, the ULB will also arrange to conduct Entrepreneurship Development Programme for 37 days for individual and group entrepreneurs.
8. Financial Assistance & subsidy: The beneficiaries will be provided finance at 7% p.a. for loans up to Rs
3 lac. The difference between 7% p.a. and the prevailing rate of interest will be provided to banks
under NULM which will be interest subsidy. Interest subsidy will be given only in case of timely
repayment of loan. Suitable certification from banks will be obtained in this regard.
9. Procedure for interest subsidy: All scheduled commercial banks(SCBs), Regional Rural Banks(RRBs)
and cooperative banks, which are on the Core Banking Solution (CBS) platform would be eligible for
getting interest subvention under the scheme. After disbursement of loan to the beneficiaries, the
concerned branch of the bank will send details of disbursed loan cases to ULB along with details of
interest subsidy amount. The settlement of claims made by banks would be done on quarterly basis by
the ULBs. However, the submission of claims should be monthly. The pending claims should not be
more than a quarter. In case the claims of the banks are not settled for a period of 6 months, SLBC is
empowered to stop the scheme temporarily in selected cities subject to clearance of claims by such
ULBs. In such eventualities, the claims settlement should prospectively be given to the Lead District
Bank.
10. Individual Enterprises (SEP-l)-Loan & Subsidy: The prospective beneficiary should have attained
the age of 18 Years at the time of applying for loan. The Maximum unit Project Cost for individual
micro-enterprises cases is Rs 200,000
Group Enterprises {SEP-G) -Loan & Subsidy: (i) Eligibility: The group enterprise should have minimum 5
members with a minimum of 70% members from urban poor families. The application/ intent to set up a group
enterprise by beneficiaries/ group members should preferably be referred by the community structures viz: SHG/
ALF formed under SJSRY/NULM; (ii) Age: All members of the group enterprise shou Id have attained an age of
18 years at the time of applying for bank loan; (iii). Project Cost (PC): The Maximum unit Project Cost for a
group enterprise is Rs 10,00,000 (Rs Ten Lakhs); (iv) Loan: Project Cost less the beneficiary contribution as
specified by bank.
12. Collateral Guarantee on Bank Loan: No collateral guarantee required. Only the assets created
would be hypothecated/ mortgaged/pledged to banks for advancing loans.
13. Repayment: Repayment schedule ranges from 5 to7 Years after initial moratorium of 6- 18
months as decided by banks.
54
14. SHG-Bank Linkage: SHG Bank Linkage includes Opening of Savings Bank Account of Self Help
6.
7.
8.
9.
Created by: merger of Rural Employment Generation Programme ( REGP) with Prime Minister
Rozgar Yoj a n a (PM RY).
Applicability: Throughout India.
Objectives: To generate employment opportunities in rural as well as urban areas of the country
through setting up of new micro enterprises.
Eligibility: (a) Age: Any individual, above 18 years of age (b) Income: No income ceiling
Educational Qualification: No minimum or maximum qualification for projects up to Rs 10 lakh in the
case of industry and up to Rs 5 lakh for business or service sector. In case project cost is more than Rs
10 lakh in the manufacturing sector and above Rs. 5 lakh in the business or service sector, the
beneficiaries should be at least VII! standard pass.
Assistance under the Scheme is available only for new _projects.
Only one person from one family is eligible for obtaining financial assistance for setting up of
projects under PMEGP. The 'family' includes self and spouse.
Project cost: (a) Maximum cost of the project under manufacturing sector is Rs. 25 lakh and
under business/service sector is Rs. 10 lakh.
Subsidy (Margin Money):
a. General category borrowers: 15% of project cost in urban areas and 25% in rural areas;
b. Special category: 25% in urban areas and 35% in rural areas. (Special category means including
SC / ST, OBC, Minorities, Women, Ex servicemen, Physically handicapped, NER, Hill and Border
areas etc.
c. Subsidy provided by KVIC
55
Subsidy should be kept in the Term Deposit Receipt of three years at branch level
No interest will be paid on the TDR and no interest will be charged on loan to the
corresponding amount of TDR.
f. Margin money (subsidy) will be credited to the Borrowers loan account after three years from
the date of first disbursement to the borrower/institution, by the Bank.
g. In case the Bank's advance goes 'bad' before the three year period, due to reasons, beyond the
control of the beneficiary, the Margin Money (subsidy) will be adjusted by the Bank to
liquidate the loan liability of the borrower either in part or full.
h. Margin Money (subsidy) will be 'one time assistance', from Government. For any enhancement of
credit limit or for expansion/modernization of the project, margin money (subsidy) assistance is
not available.
i. Margin Money (subsidy) assistance is available only for new projects sanctioned specifically
under the PMEGP. 10_ Borrower's Margin: 10% in general category and 5% in special
category.
Collateral Security: No collateral security for projects involving loan upto Rs. 10 lakh.
Repayment schedule may range between 3 to 7 years after an initial moratorium as may be
prescribed by the concerned bank/financial institution.
Implementing Agencies: PMEGP will be a central sector scheme to be administered by the
Ministry of Micro, Small and Medium Enterprises (MoMSME). The Scheme will be implemented
by Khadi and Village Industries Commission (KVIC) which will be the single nodal agency at the
national level.
Identification of beneficiaries: The identification of beneficiaries will be done at the district level
by a Task Force consisting of representatives from KVIC/State KVIB and State DICs and Banks
d.
e.
11.
12.
13.
14.
v. CREDIT GUARANTEE FUND TRUST FOR MSE (CGTMSE ) : MR. V K SHARMA COMMITTEE
w. KISAN CREDIT CARD (1994 ) MR. R V GUPTA COMMITTEE effected 1998 & MR. T M BHASIN
COMMITTEE 2012
x. LEAD BANK SCHEME DEC. 1969 PROF. GADGIL COMMITTEE & MR. F K P NARIMAN
COMMITTEE, High level committee on Lead bank (2010 ) Usha Throat ( spl. Thrust on Financial
inclusion & all distt. Including Metropolitan cities as well as bank & state Govt. to work together for
Inclusive growth wef may. 2013 )
y. NRLM AAJEEVIKA MR. RADHA KRISHANAN COMMITTEE
z. R J KAMAT COMMITTEE : EDUCATION LOAN IBA MODEL (2001 )
A. Bhartiya mahila Bank : M B N Rao Committee
B. Benchmark Prime Lending Rate (BPLR) & Base Rate : Deepak Mohanty
C. To Review Business Correspondent Model: P Vijaya Bhaskar Rao
D. Technical Advisory Group on Development of Housing Start-Up Index in India: Prof. Amitabh
Kundu
E. Cost of ICT Solutions for RRBs: Shri G. Padmanabhan
F. To Review Business Correspondent Model: P Vijaya Bhaskar Rao
G. Task Force on Empowering RRB Boards for Operational Efficiency : Dr. K.G. Karmakar
H. Internal Working Group on RRBs: Shri A V Sardesai
I. Working Group on Warehouse Receipts and Commodity Futures: Shri Prashant Saran
J. Working Group on Regulatory Mechanism for Cards Shri R.Gandhi
K. Task Force on Revival of Cooperative Credit' Institutions: Prof.A.Vaidyanathan
L. Special Group for Formulation of Debt Restructuring Mechanism for Medium Enterprises: Shri
G.Srinivasan
M. A Technical Committee comprising various stakeholders was constituted to examine the feasibility
of a uniform routing code and uniform a/c number across banks. The committee is headed by _______:
Shri Vijay Chugh.
N. A Working Group headed by _____ has been constituted in March 2013 to study the feasibility of
Aadhaar as an additional factor for authentication of card present transactions and other related issues.
Shri Pulak Kumar Sinha.
O. A Working Group was set up to review the existing prudential guidelines on restructuring of
advances by banks/financial institutions. The committee is headed by : ( Shri B. Mahapatra.)
P. The Committee to assess the feasibility of introduction of long-term fixed interest rate loan products
by banks is headed by : Shri K.K. Vohra.
Q. The Reserve Bank constituted an Expert Committee to undertake an in-depth analysis of the
Short-Term Cooperative Credit Structure (STCCS). The committee is headed by : Dr. Prakash Bakshi
R. Legal Aspects of Bank Frauds: Dr. N .L. Mitra
S. Committee, to make a vision for financial inclusion: Nachiket Mor Committee (Committee on
Comprehensive Financial Services for Small Businesses and Low-Income Households).
T. Review Group on Working of the Local Area Bank Scheme : Shri G.Ramachandran
U. Working Group to Examine the Role of Credit Information Bureaus in Collection and
Dissemination of Information on Suit-filed Accounts and Defaulters: Shri S.R. Iyer
V. Working Group for setting up Credit Information Bureau in India: Shri N.H.Siddiqui
W. Free copy of Credit Report ( CIBIL ) & Use of common Data : Aditya Puri ( Chairman HDFC )
LATEST POLICY GUIDELINES DURING 2014-15 PRIORITY SECTOR
1.RESTRUCTURING OF SJSRY AS NULM: Govt. has launched the National Urban Livelihoods Mission
(NULM) after restructuring the existing Swarna Jayanti Shahari Rozgar Yojana (SJSRY). The Self
Employment Programme (SEP) component of NULM will focus on providing financial assistance
57
through a provision of interest subsidy on loans to support establishment of individual and group
enterprises and self-help groups (SHGs) of urban poor. Furthermore, the existing provision of capital
subsidy for USEP (Urban Self Employment Programme) and UWSP (Urban Women Self-Help
Programme) components of SJSRY has been replaced by interest subsidy for loans to individual
enterprise (SEP- I), group enterprise (SEP- G) and self help groups (SHGs).
2.TIMELINES FOR CREDIT DECISIONS: RBI has drawn banks attention on Guidelines on Fair
Practices Code for Lenders, wherein RBI have stipulated that the time frame within which loan
applications up to Rs.2 lakh will be disposed of should be indicated at time of acceptance of loan
applications. It is felt that a similar practice of time bound decision making may be required in the
case of other loans too.
3.Priority Sector Lending-Overdraft in PM]DY accounts (February 25, 2015): Overdrafts extended by
banks upto Rs 5,000/- in Pradhan Mantri Jan-Dhan Yojana (PMJDY) accounts will be eligible for
classification under pity sector -adi/arias ('others' category) as also weaker sections, provided the
borrowers household annual income does not exceed Rs 60,000/- for rural areas and Rs 1,20,000/for non-rural areas.
4.TREATMENT OF RIDF AND OTHER FUNDS: The Reserve Bank has advised that the outstanding
deposits as on March 31 of the current year under RIDF, Warehouse Infrastructure Fund, Short Term
Co-operative Rural Credit Refinance Fund and Short Term RRB Fund with NABARD would be treated
as part of indirect agriculture and would count towards overall priority sector target achievement.
The outstanding deposits under the above funds with NABARD as on preceding March 31 will form
part of adjusted net bank credit. These guidelines are applicable with effect from March 31, 2014.
5.National Rural livelihoods Mission. (NRLM) Aajeevika - Interest Subvention Scheme (December 09,
2014): Interest subvention scheme on Credit to Women S G during the year 2014-15 for Commercial
Banks (only Public Sector_.------- Banks, Private Sector Banks and Regional Rural Banks) and Cooperative banks in 150 districts: (i) All women SHGs vvilr6egiven loans upto Rs, 3 lakhs at 7% per
annum. (ii) All Commercial Bank (excluding RRBs) will be subvented to the extent of difference
between the Weighted Average Interest Charged and 7% subject to the maximum limit of S.5% for
the year 2014-15. (iii) RRBs and Coop&ative Banks will be subvented to the extent of difference
between the maximum lending rates (as specified by NABARD) and 7% subject to the maximum limit
of 5.5% for the year 2014-15. RRBs and Cooperative Banks will also get concessional refinance from
NABARD. (iv). Further, the SHGs will be provided with an additional 3% subvention on the prompt
repayment of loans. An SHG account will be considered prompt payee if it satisfies the following
criterion as specified by Reserve Bank of India (RBI) - (a) For Cash Credit Limit: Outstanding balance
shall not have remained in excess of the limit/drawing power continuously for more than 30 days.
There should be regular credit and debits in the accounts. In any case there shall be at least one
customer induced credit during a month. Customer induced credit should be sufficient to cover the
interest debited during the month; (b) For the Term loans: A term loan account where all of the
interest payments and/or instalments of principal were paid within 30 days of the due date during
the tenure of the loan. (v) The Interest Subvention scheme shall be implemented for all commercial
banks (excluding RRBs).through a Nodal Bank selected by the Ministry of Rural Development_ For
the FY14-15, Canara Bank is nominated as the Nodal Bank by MoRD. For the RRBs and Cooperative
Banks the scheme will be operationalized by NABARD; (vi) All Commercial Banks (including the
PSBs, Private Banks and RRBs) who are operating on the Core Banking Solutions (CBS) ca -vail the
interest subvention under the scheme.
6.Credit facilities to Minority Communities - Inclusion of jain Community (December 03, 2014):
Ministry of Minority Affairs, Goverhment of India, have notified the Jain Community as a minority
58
community, vide notification dated January_ 27, 2014. This is in addition to five communities already
notified as minority communities, viz. Sikhs, Muslims, Christians, Zoroastrians and Buddhists.
7. DIFFERENTIAL RATE OF INTEREST FOR MSES: The Reserve Bank has advised the banks to take
into account the incentives available to Micro and Small Enterprises (MSE) borrowers in the form of
the credit guarantee cover of the Credit Guarantee Fund Trust for Micro and Small Enterprises
(CGTMSE) and the zero risk weight for capital adequacy purpose for the portion of the loan
guaranteed by the CGTMSE and provide differential interest rate while pricing their loans for such
MSE borrowers, than the other borrowers. However, banks should note that such differential rate of
interest is not below the base rate of the bank.
5. FINANCIAL STATEMENT ANALYSIS
1. A Financial Statement is organized collection of information or data prepared as per certain
acceptable accounting norms & procedures. Financial statement mainly consists of Balance sheet
(the position of assets and liabilities as on particular date), Profit and loss account (the income and
expenditure statement for a Particular period), Funds flow statement & cash Flow statement.
2. Financial Statements : 3 stage process - Classification of assets and liabilities ( as per RBI guidelines
),Calculation of financial ratios Interpretation of ratios.
3. Audited Balance sheet : For credit limit ( FB + NFB ) upto Rs. 20 lacs no ABS, only unaudited BS but
over Rs.20 lacs ABS is must but for Agril. Related loans no ABS upto Rs. 100 lacs & only above Rs.
100 lacs ABS in Agril. Credit ( FB + NFB ) is required. For company & other statutory body ABS
always required irrespective of Quantum of limit and similar in the case in business enterprises
where turn over is Rs. 100 lacs or more- ABS. Gross receipt of Profession exceeds Rs.25 lacs- ABS
required. As per IT rules Form 3CB & Form 3CD also required where ever it is applicable. In case of
sticky accounts S-3, a special audit report is required. Penal Interest of 2% on the outstanding
liability shall be collected if ABS is not submitted before 31st oct. every year ( within 07 month from
closing year ) or within a fortnight from the date of Audit of financial accounts of business unit
which ever is earlier.
Terms used inFinancial statement analysis
Gross Sales minus returns, discounts, excise duty.
Net Sales
1
Raw Materials consumed Opening Stock of raw materials plus purchases of raw materials less
2
Dosing stock of raw material .
Raw materials consumed, stores and spares consumed, power and fuel,
Cost of Production
3
direct labour, repairs and maintenance, other manufacturing expenses
and depredation plus opening stock of stock in process minus dosing
stock of stock in process.
Cost of production (3) plus opening stock of finished goods minus
4
Cost of Sales
dosing stock of finished goods.
Net Sales - Cost of Sales (Item 1 minus Item 1)
5
Gross Profit
Gross Profit (5) minus interest, selling general and administrative
6
Operating Profit
expenses.
7
Retained Profit
10
Cash Profit
11
Cash-Loss
_12 Assets
13
Fixed Assets
.
Current
Assets
14
15
Intangible Assets
16
17
Fictitious Assets
Miscellaneous Assets or
Non current assets
18
Tangible Assets
19
Quick Assets
20
Liabilities
Owners Equity
(Net Worth)
Long term liabilities or
Debt
21
22
23
Current Liabilities
24
25
Gap. (ii) Overdue instalments and Interest on term loan is treated as current liability.
(iii) Sundry Debtors/ Book debts older than 6 months are treated as Non current assets.
(iv) Loans from friends and relations are normally treated as Long term liability but if
these are secured by Demand Promissory Note i.e. payable on demand then the same
should be treated as Current Liability. (v)Reserves except which are in the nature of
provisions like Depreciation Reserve are part of net worth.
Liabilities
Net worth/Equity Funds brought in by the
promoters as their investment in business or
generated by and retained in business
Share capital/partner's capital/ Paid up
equity share capital,/owners funds
Reserves & Surplus e.g. General Reserve,
CapitalReserve, Revaluation Reserve and
Other Reserves),Retained Earnings
Undistributed Profits,Preference share
capital (not redeemable within 12 years)
Assets
Fixed Assets :Assets which are purchased for long
term and not meant to be sold but used for
production.
Land & Building,Plant & Machinery
Vehicles,Furniture & Fixture
Office equipment,Capital Work in Progress These
are represented as under:
Original value (Gross Bock) Less depreciation
Net Block or book value or written down
Value Method
61
TOTAL
TOTAL
Contingent Liabilities: which may or may not arise. For example: aairns against the company not
acknowledged as debts; Arrears of fixed cumulative dividends; Bills discounted but not matured and
shown in the Balance Sheet; Letter of Credit; Guarantees given by the company on behalf of its
subsidiary company, employees etc.
How ratios are expressed
Ratios can be expressed in the following different ways: In %age terms such as net profit to sale ratio
(being 23%),In proportion such as current ratio (being 2:1),In no. of times such as stock turn over
ratio (being no of times )
1:
2:
3:
4:
5:
6:
ACTIVITY RATIOS
Stock OR Inventory turnover: Sales / Stocks
Debtor turnover : Sales / sundry debtors (i.e. book debts, receivables)
Debtors' velocity or debt collection period Book-debts / sales x 12 PROFITABILITY
Return on equity : Profit / tangible net worth x 100
11:Return on investment or capital employed Profit / Investment (or capital employed) x 100
12: Net Profit Ratio -=Net profit / Sales x 100
BREAK-EVEN RATIOs
Costs of a business cart be classified into fixed and variable. Fixed costs are those costs which do not
change with production like rent, salaries and variable costs are those which change with
production like raw material, wages, power, repair etc.
1. Profit
= Sale minus fixed cost minus variable cost
2. Contribution = Sale price per unit minus variable cost per unit or Sale-variable cost
7:
8:
9:
10:
62
For preparing this statement, balance sheet of two consecutive years and profit and loss
account for the intervening period is required.
Long term sources of funds include issue of capital, raising term loans, debentures, funds from
operations and long term uses include purchase of fixed assets, payment of dividend, payment of
taxes, repayment of term loans.
If long term sources are more than long term uses, it will result in increase in net working
capital and vice versa
Various types of long term source, short term sources and uses are given below:
Net Profit after Tax
LTS
Tax Payments
LTU
Dividend Payments
LTU
Increase in Term Loans
LTS
Increase in Other CL
STS
Increase in Stock
STU
Decrease in TL
LTU
Depreciation
Neither S nor U
Increase in short term bank borrowing STS
Increase in Fixed Assets
LTU
Net Loss
LTU
Increase in Receivables
STU
Reduction in fixed assets
LTS
Drawings by partners
LTU
Decrease in Receivables
LTS
Increase in Capital
LTS
Working Capital
1. Working capital: Current assets such as cash, stocks, book-debts, other current assets
2. Net working capital= Current assets - current liabilities OR Long term sources - long term uses
3. Working capital gap= Current assets - current liabilities other than bank borrowing
4. Working capital limits= Bank facilities needed to purchase current assets. These facilities are
cash credit, overdraft, bills purchasekliscounting, pre-shipment or post-shipment loans etc.
Methods for Calculation of Working Capital
There are mainly three methods for calculating working capital requirements and bank finance.
These methods are: 1. Turnover Method 2. Permissible Bank Finance Method 3. Cash Budget
Method.
Turnover Method:
1. This method was suggested by Nayak Committee.
2. This method is to be applied in the case of working capital limits up to Rs 5 crore in the case of
Small Manufacturing enterprises and up to Rs 2 crore in other cases. a Working capital requirement
is equal to 25% of the accepted projected annual sales;
4. Bank finance is 20% of the projected annual sales or 80% of the working capital requirements
63
5. Margin is 5% of the projected annual sales or 20% of the working capital requirements
6. For example, if the current sales are Rs 400 lac, projected growth is 25%, then projected annual
sale will be Rs 500 lac. Accordingly, working capital requirement will be Rs 125 lac, bank finance Rs
100 lac and borrower's margin Rs 25 lac. However, actual drawing power will be allowed as per
security available.
7. If net working capital available with the borrower (i.e. borrower's margin) is more than 5% of
the projected annual sale, the limits can be adjusted accordingly.
8. The requirement as per this method is minimum assuming working capital cycle of the unit at 3
months. If working capital cycle is more, Bank may consider higher requirement depending on the
business of the borrower and current ratio is 1.25:1
64
CC/
Credit/overdraft
Bills
Agricultural
accounts
Loan guaranteed
by Government
Consortium
advances
DISTRESSED ASSETS:
Identify incipient stress by creating a sub-category viz., Special mention accounts (SMA)
before a loan Account turns into an NPA.
Early formation of lenders committee with timeline to agree a plan of resolution.
Incentives for lenders to agree collectively and quickly to plan.
Improvement in current restructuring process.
More expensive future borrowing for borrowers who do not co-operate with lenders.
More liberal regulatory treatment of asset sales.
SPECIAL MENTION ACCOUNTS:
SMA SUB CATEGORY BASIS FOR CLASSIFICATION
SMA 0
SMA 1
SMA 2
66
_ Doubtful up to 1 year D1
Doubtful for more than 1 year to 3 years; D2
Doubtful for more than 3 years; D3
67
2004) and above Rs 20 lacs DRT Lok Adalat.Eligible accounts: NPA (Loss and doubtful accounts).After full
payment discharge should be given.Repayment: Preferably down payment. Max in 1-3 years.
Central Registry of Securitization Assets Reconstruction and Security Interest of India (CERSAI) : Central
Registry of Securitization Assets Reconstruction and Security Interest of India (CERSAI) established as a Sec
25 Company to perform functions of Central Registry wef 31.03.2011.Objective: To prevent loan frauds
relating to multiple mortgage of same property.Transaction of securitization and reconstruction of financial
assets and equitable mortgages to be registered.Time period for registration is 30 days, which can be
increased by 30 days by Central Registrar.Form I to IV for different transactions.
SARFAESI ACT 2002 ( SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS &
ENFORCEMENT OFSECURITY INTEREST ACT 2002 ) : Applicable wef Aug 23, 2002 in entire India,
including J & K .Amendment: Act amended during 2004 on Supreme Court intervention in Mardia Chemicals
vs Union of India and others (provisions of deposit of 75% amount by borrower before approaching DRT were
withdrawn). Banks can take possession of the charged securities, take management of securities, can sell the
charged securities, without court intervention. Designated officer to initiate action under the Act: Scale IV and
above in banks OR officers approved by BoD of the bank. Consortium/BIFR cases: In case of joint/consortium
financing consent of 75% (by value) creditors required for action. BIFR cases can be recalled back with
consent of 75% of creditors.Possession: 60 days notice before possession. Remedy to borrower: If borrower
objects, bank to justify the possession within one week/ 15 days. If borrower not satisfied could approach DRT
within 45 days (without depositing any amount). DRT's decision is appealable (within 30 days) to DRAT after
deposit of 50% of amount that could be reduced to 25% by DRAT.Sale: Before sale 30 days notice. Sale below
reserve price (to be fixed by bank) only with consent of the borrower. Sale can be by tenders or though public
auction. For sale through auction, public notice in 2 news papers (one. regional). Sale is confirmed on receipt of
25% amount immediately and balance is payable in 15 days. DRT pending case: Banks can make use of
SARFAESI Act for sale of security for such cases (Supreme Court - Transcore vs Union of India & others).
loans not eligible under SARFAESI Act : Loans with outstanding up to Rs.1 lac. Agriculture land cannot be Sold;
Where the amount due is less than 20% of the principal and interest (i.e. 80% or more already recovered).
Loans secured by pledge, lien & by security of bank deposits.Where limitation has expired Where security is
not charged to the Bank.
Summary of Time Limits in SARFAESI Act
Notice before possession
60 days
Reply to objection by borrower
15 days
Borrower can approach DRT against possession notice without deposit of any amount
45 days
Appeal to DRAT against decision of DRT by deposit of 50% amount which can be reduced
to 25% by DRAT
Notice before sale
Period of balance payment 75% by the buyer of assets
Important Section in SARFAESI Act
60 days notice before possession
Assistance by Chief Metropolitan Magistrate or Dist. Sec 14 Magistrate in taking
possession
Application to DRT against possession notice issued by the bank
Appeal against DRT to DRAT by depositing 50% amount
30 days
30 days
15 days
Sec 13 (2)
Sec 14
Sec 17
Sec 18
Debt Recovery Tribunal : Created under Recovery of Debt Due to Banks & FIs Act 1993 (except J&K).
These are like other civil courts for a special purpose of helping in quicker NPA recovery in large account.
69
DRT headed by President (President assisted by Registrar and Recovery Officer) and DRAT by Chairperson.
Eligible account: Loans of banks and FIs with recoverable dues of Rs.10 lac or more. Jurisdiction: No other
court has jurisdiction over such cases.Time limit: On receipt of application, show cause notice to borrower to
submit his defence within 30 days. Disposal is expected in 180 days. Disposal of appeal by DRAT also
maximum 180 days.Appeal: Order by DRT appealable to DRAT within 45 days from date of receipt after
deposit of 75% of due amount. DRAT may reduce or waive the amount.Order: After claim is upheld,
Recovery certificate is issued. Recovery officer has powers such as attachment etc. under Income Tax
Act.Appeal to President of DRT against order of Recovery Officer within 30 days and appeal against
Registrar within 15 days. Fee: Rs.12000. For each additional Rs.1 lac Rs.1000. Max 1.50 lacs. For appeal
Rs.12000 for debt less than Rs.10 lac, 20000 (10 lac to less than Rs.30 lac) and Rs.30000 (Rs.30 lac & above).
Asset Reconstruction Companies : Objective: For taking over distressed assets from banks/FIs at discount
and reconstruct or re-pack for sale. Recovery period maximum of 5 years (8 years with Board Approval).To
be set up as a joint stock company. RBI registration must before commencement for business as
ARC.Business to be commenced within 6 months of registration with RBI. RBI can extend it by another 1
year in aggregate.Net worth: not less Rs.100 cr or 15% of acquired assets, whichever lower. Capital
adequacy ratio min 15% of Risk Weighted Assets.ARC to invest at least 5% in security receipts created out of
each securitization.
Corporate Debt Restructuring (CDR):
1.
2.
The borrower should be a corporate borrower i.e. Companies, Co-operative societies etc.
The loan should have been raised from more than one bank or financial institution. The scheme
will not apply to accounts involving only one financial institution or one bank
3. The outstanding fund based and non-fund based exposure should be Rs.10 crore and above by
banks and institutions.
4. The CDR Mechanism is available to the corporates engaged in industrial as well as non-industrial
activities. The account should be standard, sub standard or Doubtful.
5. The account should be Standard, Sub Standarad or Doubtful. Loss accounts are not covered.
6. There would be no requirement of the account / company being sick, NPA or being in default for
a specified period before reference to the CDR system.
7. Corporates indulging in frauds and malfeasance even in a single bank will be ineligible for
restructuring under CDR mechanism.
8. The accounts where recovery suits have been filed by the creditors against the company, may be
eligible for consideration under the CDR system provided, the initiative to resolve the case under
the CDR system is taken by at least 75% of the creditors (by value) and 60% of creditors (by
number).
Types of CDR: CDR is of two types namely CDR I & CDR II. CDR I is applicable to Standard and Sub
Standard accounts if at least 90% of creditors by value have treated the account as standard/sub
standard. It means that if in the books of creditors with exposure up to 10% by value, the account is
classified as Doubtful, it can be still covered under CDR 1. CDR Ii is applicable to Doubtful accounts.
Category I and Category II restructuring: For making reference under CDR I, consent of 20% of
lenders by value is required whereas for making reference of doubtful accounts under CDR II and
suit filed accounts, consent of 75% lenders by value and 60% by number is required.
Stand still clause: Debtors and creditors agree through an agreement called Debtor Creditor
agreement that no party shall take legal action during the standstill period i.e. 90 days (can be
extended to 180 days).
Inter Creditor Agreement: The Inter-Creditor Agreement would be a legally binding agreement
amongst the creditors, wherein they will agree that if 75 per cent of creditors by value and 60 per
cent of the creditors by number, agree to a restructuring package of an existing debt (i.e., debt
outstanding), the same would be binding on the remaining creditors. ICA will be initially valid for a
period of 3 years and subject to renewal for further periods of 3 years thereafter.
70
7.GENERAL BANKING
LATEST POLICY GUIDE LINES DURING 2014-15
HIGHLIGHTS OF UNION BUDGET 2015-16 RELATED TO FINANCIAL SECTORS
Financial Inclusion - 12.5 crores families financially mainstreamed in 100 days.
New reforms on the anvil : Goods and Service Tax (GST), Jan Dhan, Aadhar and Mobile (JAM) - for
direct benefit transfer.
CPI inflation projected at 5% by the end of the year.
Monetary Policy Framework Agreement with RBI, to keep inflation below 6%.
GDP growth in 2015-16, projected to be between 8 to 8.5%.
Housing for all - 2 crore houses in Urban areas and 4 crore houses in Rural areas.
To make India, the manufacturing hub of the World through Skill India and the Make in India
Programmes.
Development of Eastern and North Eastern regions on par with the rest of the country.
Challenge of maintaining fiscal deficit of 4.1% of GDP met in 2014-15, despite lower nominal GDP
growth due to lower inflation and consequent sub-dued tax buoyancy.
Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of 220,000/- crores
and credit gurantee corpus of 23,000/- crores to be created.
MUDRA bank will be responsible for refinancing all Micro-Finance Institutions which are in the
business of lending to such small entities of business through a Pradhan Mantri Mudra Yojana.
A Trade Receivables Discounting System (TReDS) which will be an electronic platform for
facilitating financing of trade receivables of MSMEs to be established.
Postal network with 1,54,000 points of presence spread across villages to be used for increasing
access of the people to the formal financial system.
NBFCs registered with RBI and having asset size of 2500 crore and above may be considered for
notifications as 'Financial Institution' in terms of the SARFAESI Act, 2002.
Pradhan Mantri Suraksha Bima Yojna to cover accidental death risk of Rs.2 Lakh for a premium of
just Rs.12 per year.
Forward Markets commission to be merged with SEBI.
Section-6 of FEMA to be amended through Finance Bill to provide control on capital flows as
equity will be exercised by Government in consultation with RBI.
Proposal to create a Task Force to establish sector-neutral financial redressal agency that will
71
1.Bank Rate (4.3.2015): The Bank Rate stands adjusted by 25 basis points from 8.75% to 8.5% w.e.f 4
Mar 2015.
2.Repo Rate (4.3.2015): Repo rate reduced by RBI by 25 basis points from 7.75% to 7.50% w.e.f. 4
Mar 2015. The Reverse Repo rate under the LAF will stand adjusted to 6.50%.
3.SLR reduced from 7 Feb 2015: RBI in its six Bimonthly policy announced on 3 Feb 2015 has
decided that statutory liquidity ratio (SLR) of scheduled commercial banks reduced by 50 basis
points from 22.0 per cent to 21.5 per cent of their NDTL with effect from the fortnight beginning
February 7, 2015; (iv) export credit refinance (ECR) facility discontinued and replaced with the
provision of system level liquidity with effect from February 7, 2015; (v) to continue to provide
liquidity under overnight repos of 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity
under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system through
auctions; and (vi) to continue with daily variable rate term repo and reverse repo auctions to smooth
liquidity. Consequently, the reverse repo rate under the LAF will remain unchanged at 6.50 per cent,
and the marginal standing facility (MSF) rate and the Bank Rate at 8.50 per cent.
4.Implementation of Cheque Truncation System - Dispensation of the requirement of forwarding of
government cheques in physical form to government (January 1, 2015): RBI, vide circular dated
September 30, 2014 had stated that the discontinuation of P2F for government cheques was to be
implemented with effect from January 1, 2015. RBI has decided to postpone the implementation of
P2F.
5.Roadmap-Provision of. Banking Services in Villages with Population below 2000 (January 2, 2015):
The Pradhan Mantri Jan Dhan Yojana (PMJDY) was launched by the Hon'ble Prime Minister on 28th
August, 2014 and Phase I of PMJDY is being implemented through banks in a time bound manner for
completion by August 14, 2015. Earlier, vide circular dated June 19, 2012, SLBCs were advised to
prepare a roadmap and cover all unbanked villages with population less than 2000 for providing
banking services in a time-bound manner (latest by March 2016). Keeping in view the ongoing
implementation of PMJDY, SLBC Convenors banks and lead banks should complete the process of
providing banking services in unbanked villages with population below 2000 by August 14, 2015 in
line with the PMJDY instead of Mardi 2016 prescribed earlier.
72
6.RBI to issue Rs 1 Currency Notes Soon: RBI will soon put in circulation currency notes in one rupee
denomination ( signed by finance secretary ). The notes will be printed by the Government of India.
These currency notes are legal tender as provided in The Coinage Act 2011. The existing currency
notes in this denomination in circulation will also continue to be legal tender.
7.Special Deposit Scheme 1975 - Payment of interest for the calendar year 2014 (December 12,
2014): Interest for the calendar year 2014 to the SDS account holders will be @ 8.7% p.a. from
January 01, 2014 to December 31, 2014.
8.Entry of Banks into Insurance Business (January 15, 2015): (i) Banks setting up a subsidiary/JV for
undertaking insurance business with risk participation: Banks are not allowed to undertake
insurance business with risk participation departmentally and may do so only through a
subsidiary/JV set up for the purpose. Banks which satisfy the eligibility criteria (as on March 31 of
the previous year) given below may approach Reserve Bank of India to set up a subsidiary/joint
venture company for undertaking insurance business with risk participation: a) The net worth of the
bank should not be less than Rs.1000 crore (earlier Rs 500 crore); b) The CRAR of the bank should
not be less than 10 per cent; c) The level of net non-performing assets should be not more than 3
percent (earlier reasonable); d) The bank-should have made a net profit for the last three continuous
years; e) The track record of the subsidiaries, if any, of the concerned bank should- be satisfactory.
9.PRE-2005 SERIES OF BANKNOTES: RBI has been following a policy of phasing out of certain series
of banknotes from time to time. The RBI has urged public to deposit the Mahatma Gandhi series,
(Pre-2005) currency notes in their bank a/cs or exchange them at a bank branch by June 30, 2015.
Earlier, the last date for public to exchange these notes was Jan. 1, 2015. The Reserve Bank has stated
that the notes can be exchanged for their full value. It has also clarified that all such notes continue to
remain legal tender. To exchange more than 10 pieces of Rs. 500 and Rs. 1000 notes, bank should
obtain from non-customers, proof of their identity and residence.
10.COLLECTION OF ACCOUNT PAYEE CHEQUES: As per the extant guidelines, banks are prohibited
from crediting 'account payee' cheques to the account of any person other than the payee named
therein. RBI has reiterated these instructions and advised that banks should strictly collect account
payee cheques only for their payee constituents. Banks may, however, consider collecting account
payee cheques drawn for an amount not exceeding Rs.50,000/- to the account of their customers
who are Co-operative credit societies, if the payees of such cheques are the constituents of such cooperative credit societies.
11.KYC NORMS / AML STANDARDS / CFT: With reference to the powers of Director to impose fine,
Sec 13(2) states that if the Director, in the course of any inquiry, finds that a reporting entity or its
designated director on the Board or any of its employees has failed to comply taken under any other
provisions of this Act, he may by an order, levy a fine on such reporting entity or its designated
director on the Board or any its employees, which shall not be less than Rs.10,000/- but may extend
to Rs.1,00,000 for each failure.
12.DEPOSITOR EDUCATION & AWARENESS FUND: The Reserve Bank has launched The Depositor
Education and Awareness Fund (the Fund) Scheme 2014. Under the Scheme, the amount to the
credit of any account in India with any bank which has not been operated upon for a period of ten
years or any deposit or any amount remaining unclaimed for more than ten years, shall be credited
to the Fund, within a period of three months from the expiry of the period of Ten years.The Fund
shall be utilised for promotion of depositors interest. The depositor would, however, be entitled to
claim from the bank her deposit or any other unclaimed amount or operate her account after the
expiry of ten years, even after such amount has been transferred to the Fund. The bank would be
73
liable to pay the amount and claim refund of such amount from the Fund.
13.HARMONISATION OF KYC NORMS FOR FPIs: To simplify the know your customer (KYC) norms
for opening bank accounts by Foreign Portfolio Investors (FPIs), RBI has advised banks to rely on the
KYC verification done by the third party (i.e., the Custodian/Securities and Exchange Board of India
(SEBI) regulated intermediary) for FPIs who have been duly registered in accordance with SEBI
guidelines and have undergone the required KYC due diligence / verification prescribed by SEBI
through a custodian /intermediary regulated by SEBI, for opening a bank account for the purpose of
investment under Portfolio Investment Scheme (PIS).
14.CCTV COVERAGE IN CURRENCY CHESTS: RBI has advised the banks that coverage of CCTVs
surveillance should also cover all cash operations in the vaults / strong rooms and other cash
handling areas to identify any mischief / irregularity and also to the Memorandum on the procedure
to be followed in connection with opening of the Currency Chests issued to the banks in which banks
were advised that Potdar from the Chest Remitting bank should accompany soiled note remittance.
15.NON-MAINTENANCE OF MINIMUM BALANCES: RBI has prohibited all scheduled commercial
banks (excluding RRBs) from levying penal charges for non-maintenance of minimum balances in
any inoperative account, including the basic savings bank deposit a/cs (BSBDAs).
16.BANK ACCOUNTS IN THE NAMES OF MINORS: To promote the objective of financial inclusion and
also to bring uniformity among banks in opening and operating minors accounts, RBI has advised: A
minor of any age can open a savings / fixed / recurring bank deposit account through his/her natural
or legally appointed guardian; Minors above the age of 10 years may be allowed to open and operate
savings bank accounts independently. On attaining majority, the minor should confirm the balance in
his account and if the account is operated by the natural guardian/legal guardian, fresh operating
instructions and specimen signature of the erstwhile minor should be obtained and kept on record
for all operational purposes. Banks are free to offer additional banking facilities, such as, internet
banking, ATM/debit card, cheque book facility etc., subject to safeguards that minor accounts are not
allowed to be overdrawn and that these always remain in credit.
17.INOPERATIVE ACCOUNTS: As per the guidelineson Unclaimed Deposits / Inoperative Accounts in
Banks in terms of which a savings as well as current account should be treated as inoperative /
dormant if there are no transactions in the account for over a period of two years. Further, for the
purpose of classifying an account as inoperative, both the types of transactions i.e. debit as well as
credit transactions induced at the instance of customers as well as third party should be considered.
Since dividend on shares is credited to Savings Bank accounts as per the mandate of the customer,
the same should be treated as a customer induced transaction. As such, the account should be treated
as operative account as long as the dividend is credited to the Savings Bank account.
18.AGE LIMIT FOR WTDs OF PRIVATE BANKS: The Reserve Bank has advised all private sector
banks that the upper age limit for the post of Managing Director and Chief Executive Officers (MD &
CEO) and other Whole Time Directors (WTDs) of banks in private sector in India should be 70 years,
that is, beyond which nobody should continue in the post. Within the overall limit of 70 years,
individual banks Boards are free to prescribe a lower retirement age for the WTDs, including the MD
& CEO, as an internal policy.
19.SB A/Cs - MAINTENANCE OF MINIMUM BALANCE: The Reserve Bank has advised that w.e.f April
1, 2015, following guidelines to be kept in view while levying charges for non-maintenance of
minimum balance in Savings Bank account: In the event of a default in maintenance of minimum
balance / average minimum balance as agreed to between the bank and customer, the bank should
74
notify the customer clearly by SMS/ email / letter that in the event of the minimum balance not being
restored in the account within a month from the date of notice, penal charges will be applicable. In
case the minimum balance is not restored within a reasonable period, which shall not be less than
one month from the date of notice of shortfall, penal charges may be recovered under intimation to
the account holder. The policy on penal charges to be so levied may be decided with the approval of
Board of the bank. The penal charges should be directly proportionate to the extent of shortfall
observed. In other words, the charges should be a fixed percentage levied on the amount of
difference between the actual balance maintained and the minimum balance as agreed upon at the
time of opening of account. A suitable slab structure for recovery of charges may be finalised. The
penal charges should be reasonable and not out of line with the average cost of providing the
services.
The balance in the savings account does not turn into negative balance solely on account of levy of
charges for non-maintenance of minimum balance.
20.CHEQUE RELATED FRAUDS: An indicative list of some of the preventive measures that banks may
follow, are as under: Ensuring the use of 100 percent Cheque Truncation System (CTS) - 2010
compliant cheques; Examination under ultra violet lamp for all cheques beyond a threshold of say,
Rs. 2 lakh; Checking at multiple levels, of cheques above a threshold of say, Rs. 5 lakh; (For details
please refer Dec. 2014 issue)
21.DECREASE IN HTM LIMITS: The Reserve Bank on December 15, 2014, advised all standalone
primary dealers about the reduction in the quantum of securities that can be classified as Held to
Maturity (HTM) - from 200% to 100% of the audited net owned fund (NOF) of the primary dealers
(PD) as at the end of the preceding financial year. The change was brought about keeping in view the
prevailing market conditions. The new limits will come into effect from December 31, 2014.
However, PDs are allowed to effect one additional transfer from HTM for the current quarter ending
December 31, 2014 to enable them to comply with the new norms.
22.FINANCIAL INCLUSION: USE OF BCs: Taking into a/c the recommendations of the Mor Committee,
existing guidelines on appointment of Business Correspondents (BCs) have been reviewed by RBI as
under: ELIGIBLE INDIVIDUALS / ENTITIES: a) RBI has now decided that banks will be permitted to
engage non-deposit taking NBFCs (NBFCs-ND) as BCs, subject to condition that there is no
commingling of bank funds and those of the NBFC-ND appointed as BC. DISTANCE CRITERIA: RBI
has decided to remove the stipulation regarding distance criteria. The banks should, however, while
formulating the Board approved policy for engaging BCs, keep in mind the objectives of adequate
oversight of the BCs as well as provision of services to customers while deciding how to modify
extant distance criteria.
23.CTS ON PAID GOVERNMENT CHEQUES: The Reserve Bank has advised all agency banks to do
away with the requirement of returning paid government cheques back to Government Departments
concerned. The government cheques would be paid in CTS clearing based on their electronic images.
In case any drawee bank desires to verify the government cheque in physical form before passing it
for payment, the image would be returned unpaid under the reason present with documents. The
presenting banks are required to preserve the physical cheques in their custody securely for a period
of 10 years as required under CTS. The government cheques paid by a drawee bank across its
counter by way of Cash withdrawal or Transfer also need to be truncated and preserved for 10 years.
At any time during the preservation period of cheques, for the purpose of reconciliation, enquiry,
investigation, etc., the Government may require any paid cheque in physical form for which it would
approach the drawee bank.
75
24.SMALL BANKS IN PRIVATE SECTOR: The Reserve Bank of India has released the guidelines for
Licensing of Small Finance Banks in the Private Sector. The objectives of setting up of Small Finance
Banks will be to further financial inclusion by provision of savings vehicles, and supply of credit to
small business units; small and marginal farmers; micro and small industries; and other unorganised
sector entities, through high technology-low cost operations. The minimum paid-up equity capital for
small finance banks shall be Rs. 100 crore. The promoter's minimum initial contribution to the paidup equity capital of such small finance bank shall at least be 40% and gradually brought down to
26% within 12 years from the date of commencement of business of the bank. The small finance
bank will be subject to all prudential norms and regulations of RBI as applicable to existing
commercial banks including requirement of maintenance of CRR and SLR. No forbearance would be
provided for complying with the statutory provisions. The small finance banks will be required to
extend 75% of its Adjusted Net Bank Credit to the sectors eligible for classification as priority sector
lending by the Reserve Bank. At least 50% of its loan portfolio should constitute loans and advances
of up to Rs. 25 lakh.
Interest Rates
1.
2.
3.
4.
5.
BASE RATE
Base Rate concept has been introduced on the recommendations of Deepak Mohanty
Committee.
Base Rate is the minimum rate below which banks will not lend to any borrower except in
the case of (a) DRI advances (b) loans to banks' own employees (c) loans to banks'
depositors against their own deposits. Base Rate shall include all those elements of the
lending rates that are common across all categories of borrowers.
Base Rate shall include all those elements of the lending rates that are common across all
categories of borrowers like (a)cost of funds (b) Unallocatable Overhead Cost (c) negative carry
for SLR and CRR (d) Average Return on Net Worth
Obiective of Base Rate:(i) Enhancing transparency in lending rates of banks (ii) Enabling
better assessment of transmission of monetary policy.
The Base Rate system will replace the BPLR system with effect from July 1, 2010.
76
8.
Reserve Bank of India has prescribed statutory returns i.e. Form A return (for CRR) under
Section 42 (2) of the RBI, Act, 1934 to be sent fortnightly.
3.
4.
5.
6.
7.
8.
9.
10.
1.
2.
3.
4.
5.
In case of infrastructure projects, the exposure ceiling in case of single borrowers is 20% of
capital funds and in case of borrower group it is 50% of capital funds provided additional
exposure of 5% or 10% is in respect of infrastructure project.
In all of these cases, bank can take extra exposure of 5% with the approval of its Board of
Directors. However, such cases have to be reported in the Balance Sheet of the Bank as part of
Notes to Accounts.
Bank may fix exposure ceiling at lower levels but not at higher levels.
For the purpose of capital exposure norms,..bapital fund means Tier I & Tier II capital of the
bank.
Group means when there is Commonality of Management and effective control in various
companies with the same persons.
Exposure would include 100% of fund based as well as non fund based limits and investment in
shares, debentures, commercial papers or any type of facility given to the company. In case of
fully drawn term loans, the exposure will be outstanding and not the limit sanctioned.
Exposure norms are not applicable to (a) Credit facilities to weak/sick industrial units under
rehabilitation packages (b) Food credit (c) Loans guaranteed by Government of India (d)
Advance against Bank's own deposit
Infrastructure would also include (a) construction of cold storage for fruits, vegetables (b)
laying down of gas pipeline (c) construction of educational institutions and hospitals.
Capital Market Exposure
A bank can have exposure in capital market in two forms i.e. direct exposure and indirect
exposure.
Direct exposure means when bank invests in equity shares or convertible bonds and
convertible debentures issued by company and units of equity oriented mutual funds.
Indirect exposure would include loans against these instruments or issuing guarantee
favouring stock exchange or commodity exchange on behalf of brokers.
Exposure norms on capital markets have been prescribed because it is a sensitive sector.
The bank's direct investment in shares, convertible bonds, convertible debentures, units of
equity-oriented mutual funds and all exposures to Venture Capital Funds (VCFs) should not
exceed 20% of its net worth.
The aggregate exposure of a bank to the capital markets in all forms (both fund based and nonfund based) on solo basis as well as consolidated basis should not exceed 40% of its net worth
77
4.
5.
6.
8.FOREIGN EXCHANGE
Foreign Exchange is a commodity. Forex transactions (sale/purchase) are regulated in India under :
FEMA 1999.Objective of FEMA: To facilitate external trade and orderly management and
development of inter-bank forex markets in India. Inter-bank forex market regulated in India by :
RBI. Inter-bank forex market timing: 9 am to 5 pm (Saturday-closed).Foreign Currency rates are
fixed in India by: Market forces of demand and supply (Higher demand - higher rate).Foreign trade
is regulated by: DGFT. In India direct rates is used W.e.f. 1.8.1993,.
Introduction
79
1.
2.
3.
4.
5.
6.
7.
8.
9.
1.
2.
3.
4.
5.
6.
in India, forex transactions are subject to Foreign Exchange Management Act 1999.
The Act came into operation with effect from 1.6.2000.
The main objective of the Act is to ensure orderly conduct of forex transactions.
In India, exchange control is exercised by RBI and trade control is exercised by DGFT
(Director General of Foreign Trade.
Only Authorised persons i.e. who are authorised by RBI can undertake forex transactions.
Authorised persons would include Authorised Dealers (AD) and Full fledged money
changers.
Banks have three types of correspondent bank accounts namely Nostro, Vostro and Loro
accounts.
Nostro account: It means our account with you. The account of a bank in India with a
foreign correspondent bank abroad in Foreign currency is called Nostro account. For
example, account of PNB Delhi with City Bank New york.
Vostro account: It means your account with us. The account of a foreign correspondent
bank abroad with a bank in India in Indian Rupees will be a Vostro account. For example,
account of City Bank New York with PNB Delhi.
Loro Account: Their account with them. For example, PNB has account with City Bank New
York. For PNB, this account is Nostro account. Similarly account of BOB with City Bank
New York is Nostro account for BOB. Far PNB, this account of BOB is Loro account.
Exchange Rates
Direct Rate: When foreign currency is fixed and value of home currency is variable, it is
Direct rate e.g. US$1= Rs 61.43;
Indirect Rate: When home currency is fixed and value of foreign currency is variable, it is
Indirect rate e.g. Rs 100= US $ 1.63.
In India, direct rates are applied. When direct rates are applied, the principle is "Buy Low and
Sell High".
In India, rates are determined by market forces of demand and supply and not by RBI or any
other agency.
The exchange rate for purchase or sale of foreign currency are most unfavourable as
holding cost of currency is high.
The difference between buying & selling rate is called Dealer's spread
TT-Buying
Bills-Buying
1.
2.
3.
4.
R RETURNS
R Return is a statement of purchase and sale of forex by an authorised dealer.
It is sent to RBI fortnightly as on 15th and last day of the month. Sent twice a month.
With effect from 1st Jan 2009, it will be sent by bank as a whole under the Foreign Exchange
Transactions Electronic Reporting System (FETERS).
R Return is prepared to know balance of payment position.
80
Item
NRE
81
' FCNR(BJ .
In any freely convertible currency
Currency of
Deposit
In Indian Rupees
Type of account
Exchange Risk
83
84
Bank should accept Clean Bill of Lading and not claused one. Claused Bill of Lading means the
one which indicates defective condition of goods or packing. Clean bill of lading means a BL in
which there are no adverse remarks on Bill of Lading.
14. Bill of Lading should be presented for negotiation within 21 days of shipment otherwise it will
be treated as Stale Bill of Lading.
15. If expiry date of LC falls on a holiday declared for banks, then LC can be negotiated on the next
'working day. But as per 'Forece Majeaure' clause, if on expiry date of LC, banks are closed due
to riots or strike or any reason beyond the control of the bank, expiry date will not be extended.
Force Majeure clauses envisage eventualities beyond the control of contracting parties. In the
UCPDC 600, acts of terrorism have also been added to this clause.
16. Negotiating, confirming and Issuing Bank are given 5 banking days each to scrutinize that
documents are as per LC.
Export Credit
Export credit is allowed in two stages namely pre shipment or packing credit and post shipment.
Salient features of packing credit are as under:
1. Eligibility: For packing credit eligibility conditions are (a) Exporter should have Import Export
Code Number (b) Exporter should not be on the caution list of RBI (c) Exporter should not be
on the specific approval list of ECGC (d) He should have confirmed order of LC. However, if
running packing credit facility has been allowed confirmed order can be submitted later on.
2. Amount of PCL: on the basis of F.O.B value
3. Period of PCL: As per need of exporter. If pre-shipment advances are not adjusted by
submission of export documents within 360 days from the date of advance, the advances will
cease to qualify for prescribed rate of interest for export credit to the exporter ab initio.
Adjustment of PCL: Normally through proceeds of export bills or export incentives or debit to
EEFC account. Post shipment credit:
1. As per Exchange Control Regulations, bills should be submitted for negotiation within 21 days
of shipment.
2. The period of realization and repatriation of export proceeds shall be nine months from the
date of export for all exporters including Units in SEZs, Status Holder Exporters, EOUs, Units in
EHTPs, STPs & BTPs until further notice. The period of realization and repatriation to India of
the full exports made to warehouses established outside India shall continue to be 15 months.
3. If any export is not realized within 180 days of date of shipment, in all cases, a report should
be sent to RBI on XOS statement which is a half yearly statement submitted as at the end of
June & Dec of each year. This is to be submitted by 15th of July / January.
4. Post-shipment credit is to be liquidated by the proceeds of export bills received from abroad in
respect of goods exported/ services rendered or from balances in Exchange Earners Foreign
Currency (EEFC) Account.
5. Normal Transit Period is the period between negotiation of bills and credit to Nostro account.
It is fixed by FEDAI and presently it is 25 days irrespective of the country.
13.
1.
2.
3.
4.
5.
Export Refinance
Who will provide? Export Refinance is provided by RBI.
Maximum period of refinance is 180 days.
Extent of Refinance: 15% of eligible export finance outstanding on the reporting Friday of the
preceding fortnight.
Interest rate is Repo Rate.
Packing Credit in Foreign Currency is not eligible for export refinance.
Export Declaration Forms for goods and services
a) Form EDF : To be completed in duplicate for export from Non EDI port including export
of software in physical form i.e. magnetic tapes/discs and paper media. For export by post
also this form will be used (earlier form GR was used for exports other than by post and PP
form for exports by post).
b) Form SDF: To be completed in duplicate and appended to the shipping bill, for exports declared
to ustorm s Offices notified by the Central Government which have introduced Electronic Data
Interchange (EDI) systereri for processing shipping bills notified by the Central Government.
d) Form SOFTEX: To be completed in triplicate for declaration of export of software otherwise than
in physical form, .i.e. magnetic tapes/discs, and paper media. A common "SOFTEX Form" will be
used for declaration of single and bulk software exports.
85
1.
2.
3.
4.
5.
6.
1.
2.
3.
4.
Risk in foreign exchange arises when a bank has open position in forex i.e either it is
overbought or oversold. A bank is said to be overbought when purchase is more than sale and
it is oversold when sale is more than purchase.
When a bank is overbought and it wants to square its position it will gain if rate of forex goes
up and wilt lose if rate of forex goes down.
When a bank is oversold and it wants to square its position, it will gain if rate of forex goes
down and wilt lose if rate of forex goes up.
The Daylight open position will be generally more than the overnight open position.
INCO TERMS
International Commercial terms have been framed by International Chamber of Commerce. In the
latest version of 2010 there are 11 terms compared to 13 in the previous version. The main
objective for issue of Inco terms is to provide rules for inter retation of commonly used terms in
foreign trade.
Contract
Ex-Works (BM)
Buyer bears
All cost of insurance and freight
subsequent to seller's factory.
Cost relating to place the goods All cost relating to loading, insurance
alongside the ship
and freight after these are placed
along the ship
Free on Board (FOB) Cost up to loading the goods on the
All cost relating to insurance and
ship
freight once these are on board of the
Cost & Freight (C&F) After shipment, cost of freight als'o ship Insurance
Free alongside the
ship (FAS)
Cost, insurance
&
freight (CIF)
Delivered at
Frontier
(DAF)
Subsequent to
shipment
insurance and
freight
cost
----------------------------All cost till be goods reach the
customs boarder normally by rail
or road
86
COMMITTEES ON FOREX
1. Capital A/c Convertibility : S S Tarapore Committee ( 1997 )
2. Committee on the Global Financial System (CGFS) on Capital Flows and Emerging Market
Economies: Dr Rakesh Mohan
3. Task Force For Diamond Sector: A K Bera
4. Technical Group on Statistics for International Trade in Banking Services: Shri K.S.R.Rao
5. Working Group on Cost of NRI Remittances: P. K. Pain
6. Working Group to Review Export Credit: Shri Anand Sinha
7. Interest Rate Futures: Shri V.K. Sharma
8. Working Group on Introduction of Credit Derivatives in India: Shri B. Mahapatra
9. Working Group on Rupee Derivatives: Shri Jaspal Bindra
10. The Working Group on Government Securities (G-secs) and Interest Rate Derivatives Markets is
headed by : Shri R. Gandhi.
11. In order to examine various issues relating to exports such as the availability of credit, transaction
costs, insurance, factoring and other procedural aspects in the dealings of exporters with banks and
financial institutions, a Technical Committee on Services / Facilities to Exporters was constituted. The
committee is headed by: Shri G. Padmanabhan.
12. A Working Group was constituted to identify gaps in the current export reporting and follow-up
procedure, including large number of unmatched export transactions between customs and bank
reporting, and to recommend suitable re-engineering of the system. The Working Group is headed by :
Smt. Rashmi Fauzdar
13. A Committee for Implementation of GIRO based Payment System was constituted in January 2013.
The Committee is headed by _: Shri G. Padmanabhan.
14. Working Group on Import of Gold by Nominated Banks : Sri K U B rao Committee
15. Head of the committee to clear the ambiguity between Foreign Direct Investment (FDI) and Foreign
Institutional Investment (FII): Arvind Mayaram,
16. Rupee Interest Rate Derivatives: Shri G. Padmanabhan
17. Technical Group on Statistics of International Trade in Services: Shri Deepak Mohanty
3-5 years
The Reserve Bank of India has also decided that in case of NRE deposit account, banks cannot offer
higher interest rates on NRE deposits than what they offer on comparable domestic rupee deposits.
10.SEBI REGISTERED LONG TERM INVESTORS: The existing sub-limit of USD 5 billion available to
Long term investors registered with SEBI - Sovereign Wealth Funds (SWFs), Multilateral Agencies,
88
Pension / Insurance / Endowment Funds and Foreign Central Banks - for investment in Govt. dated
securities has been enhanced to USD 10 billion. This would, however, be within the total limit of USD
30 billion available to them for foreign investments in Govt. securities.
11.IMPORT OF ROUGH DIAMONDS: With a view to liberalising the procedure for facilitating the
import of rough diamonds, RBI has decided that it will not notify the names of overseas mining
companies from whom an importer (other than PSC or Department / Undertaking of Govt. / State
Govt.) may import rough diamonds into India, by way of advance payments, without any limit / bank
guarantee / stand-by LC. In case of an importer entity in the Public Sector or a Deptt. / Undertaking
of the Govt. / State Govts, AD Category I, banks may permit the advance remittance subject to the
above conditions and a specific waiver of bank guarantee from the Ministry of Finance, where the
advance payments is equivalent to or exceeds USD 100,000/-. AD Category - I banks are required to
submit a report of all such advance remittances made without a bank guarantee or standby LC,
where the amount of advance payment is equivalent to or exceeds USD 5,000,000/-, to the concerned
RBI within 15 calendar days of the close of each half year.
12.FOREIGN INVESTMENT IN INDIA IN G-SECS: To encourage longer term flows, the RBI has
permitted all eligible investors including Registered Foreign Portfolio Investors to invest only in
Govt. dated securities having residual maturity of one year and above, within the total foreign
investment limit of US$ 30 billion. The existing foreign investments in treasury bills (T-bills) and
Govt. dated securities (G-secs) of less than one year residual maturity will be allowed to taper off on
maturity/sale.
13.BOOKING OF FORWARD CONTRACTS: All resident individuals, firms and companies, who have
actual or anticipated foreign exchange exposures, are now allowed to book foreign exchange forward
contracts up to US$ 250,000 on the basis of a simple declaration without any requirement of further
documentation.
14.HEDGING OF CURRENCY RISK: RBI has advised that in the event of cancellation of contracts
booked upto 75% of the eligible limit as allowed to the exporters / importers for hedging, the
exporter / importer shall have to bear the loss or gain as the case may be. While in the event of
cancellation of contracts booked in excess of 75% of the eligible limit, the exporter/importer shall
have to bear the loss but will not be entitled to receive the gain.
15.TRADE RELATED REMITTANCE LIMIT: The Reserve Bank has increased the limit of trade
transactions from the existing Rs.2,00,000/- per transaction to Rs.5,00,000/- per transaction, w.e.f.
March 13, 2014. The decision to increase the limit was taken after a review of the permitted
transactions under the Rupee Drawing Arrangements (RDAs).
16.MERCHANTING TRADE: For a trade to be classified as merchanting trade following conditions
should be satisfied; Goods acquired should not enter the Domestic Tariff Area, and the state of the
goods should not undergo any transformation. Goods involved in the merchanting trade transactions
would be the ones that are permitted for exports / imports under the prevailing FTP of India, as on
the date of shipment and all the rules, regulations and directions applicable to exports (except Export
Declaration Form) and imports (except Bill of Entry), are complied with for the export leg and import
leg respectively; AD bank should be satisfied with the bonafides of the transactions and compliance
of KYC and AML guidelines.Both the legs of a merchanting trade transaction are routed through the
same AD bank. The bank should verify the documents. If originals are not available, Non-negotiable
copies duly authenticated by the bank may be taken. The entire merchanting trade transactions
should be completed within an overall period of nine months and there should not be any outlay of
foreign exchange beyond four months; The commencement of merchanting trade would be the date
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of shipment / export leg receipt or import leg payment, whichever is first. The completion date
would be the date of shipment / export leg receipt or import leg payment, whichever is the last ;
Short-term credit either by way of suppliers' credit or buyers' credit will be available for
merchanting trade transactions, to the extent not backed by advance remittance for the export lag,
including the discounting of export leg LC by an AD bank, as in the case of import transactions ; In
case advance against the export leg is received by the merchanting trader, AD bank should ensure
that the same is earmarked for making payment for the respective import leg. Merchanting traders
may be allowed to make advance payment for the import leg. Such advance payment for the import
leg beyond USD 200,000/ per transaction, the same should be paid against bank guarantee / LC from
an international bank of repute except in cases and to the extent where payment for export leg has
been received in advance ; LC to the supplier is permitted against confirmed export order keeping in
view the outlay and completion of the transaction within nine months; Payment for import leg may
also be allowed to be made out of the balances in Exchange Earners Foreign Currency Account of the
merchant trader; AD bank should ensure one-to-one matching in case of each merchanting trade
transaction. Defaults in any leg by the traders be reported to RBI, on half yearly basis within 15 days
from the close of each half year, i.e. June and Dec; The names of defaulting merchanting traders,
where outstandings reach 5% of their annual export earnings, would be caution-listed. Reporting for
merchanting trade transactions for compilation of R-return should be done on gross basis, against
the stipulated codes.
17.EXPORT OF GOODS - LONG TERM EXPORT ADVANCES: RBI has decided to permit AD Category- I
banks to allow exporters having a minimum of three years satisfactory track record to receive long
term export advance up to a maximum tenor of 10 years to be utilized for execution of long term
supply contracts for export of goods subject to the conditions that the Firm has obtained irrevocable
supply orders. The rate of interest payable, if any, should not exceed LlBOR plus 200 bps. Such export
advances shall not be permitted to be used to liquidate Rupee loans, which are classified as NPA.
Receipt of such advance of USD 100 million or more should be immediately reported to the RBI.
18.STRUCTURED FINANCIAL PRODUCTS: The Reserve Bank has decided that foreign branches /
subsidiaries of Indian banks which propose to offer structured financial and derivative products that
are not specifically permitted by the RBI in the domestic market, can do so only at the established
financial centres outside India like New York, London, Singapore, Hong Kong, Frankfurt, Dubai, etc.
At other centres, banks may offer only those products that are specifically permitted in India.
19.PROCEDURE FOR ECB SIMPLIFIED: RBI has decided to delegate powers to AD banks to approve
the following cases under the automatic route: Proposals for raising External Commercial
Borrowings (ECB) by companies belonging to manufacturing, infrastructure, hotels, hospitals and
software sectors from indirect equity holders and group companies. Proposals for raising ECB for
companies in miscellaneous services from direct / indirect equity holders and group companies.
Miscellaneous services mean companies engaged in training activities (but not educational
institutes), research and development activities & companies supporting infrastructure sector.
Proposals for raising ECB by companies belonging to manufacturing, infrastructure, hotels, hospitals
and software sectors for general corporate purpose. ECB for general corporate purpose (which
includes working capital financing) is, however, permitted only from direct equity holder. Proposals
involving change of lender when the ECB is from foreign equity holders (FEHs) direct / indirect
equity holders and group company.
20.ENHANCED REMITTANCE FACILITIES: The RBI has advised all authorised dealers of foreign
exchange, to allow all residents and nonresidents (except citizens of Pakistan and Bangladesh and
also other travellers coming from and going to Pakistan and Bangladesh) to take out Indian currency
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notes up to Rs. 25,000 while leaving the country.Any person resident outside India, not being a
citizen of Pakistan and Bangladesh and also not a traveller coming from and going to Pakistan and
Bangladesh, and visiting India can also bring into India and take outside India the same amount
while exiting or entering through an airport.
21.ISSUE OF PARTLY PAID SHARES & WARRANTS: RBI has decided that the partly paid equity shares
and warrants issued by an Indian shall be eligible instruments for the purpose of FDI and FPI by
FIIs/Registered Foreign Portfolio Investors (RFPIs) subject to compliance with FDI and FPI schemes.
The reporting of receipt of foreign inward remittance towards each upfront / call payment for FDI
transaction shall be made in Advance Reporting Form.
22.ECBs IN INDIAN RUPEES: With a view to providing greater flexibility for structuring of ECB
arrangements, RBI has decided that recognised nonresident ECB lenders may extend loans in Indian
Rupees subject to the condition that the lender should mobilise Indian Rupees through swaps
undertaken with an AD Category-I bank in India. The all-in-cost of such ECBs should be
commensurate with prevailing market conditions. For the purpose of executing swaps for ECBs
denominated in Indian Rupees, the recognised ECB lender, if it desires, may set up a representative
office in India. For hedging arrangement for ECBs denominated in Indian Rupees extended by nonresident equity-holders shall continue to be governed by the extant guidelines.
23.PURCHASE / SALE OF SECURITIES BY A PERSON RESIDENT OUTSIDE INDIA: With a view to
providing flexibility in regard to the manner in which government securities can be acquired by
eligible investors, viz., SEBI registered Foreign Institutional Investors (FIIs), Qualified Foreign
Investors, registered Foreign Portfolio Investors (RFPIs) and long term investors registered with
SEBI, RBI has decided to remove any stipulation as to the manner of acquisition from the said
Regulations. Consequently, the eligible investors can acquire such securities in any manner as per
the prevalent/approved market practice.
24.EXPORT CREDIT REFINANCE FACILITIES: Scheduled commercial banks, excluding RRBs advised
that the eligible limit of export credit refinance (ECR) facility has been reduced from the level of 32%
of the outstanding rupee export credit eligible for refinance as at the end of the second preceding
fortnight to 15 per cent effective from October 10, 2014.
25.FPIs - HEDGING FACILITIES: The RBI has advised all category - I authorized dealer banks that
Foreign Portfolio Investors (FPIs) can now hedge the coupon receipts arising out of their
investments in debt securities in India falling due during the following twelve months subject to the
condition that the hedge contracts shall not be eligible for rebooking on cancellation. The decision
was taken to enhance the hedging facilities for the Foreign Portfolio Investors (FPIs) holding
securities under the Portfolio Investment Scheme (PIS). The contracts can however be rolled over on
maturity provided relative coupon amount is yet to be received.
26.RISK MANAGEMENT AND INTER BANK DEALINGS: The RBI has advised AD Category-I banks that
importers are allowed to book forward contracts, under the past performance route, up to 100% of
the eligible limit. Importers, who have already booked contracts up to previous limit of 50% in the
current financial year, shall be eligible for difference arising out of the enhanced limits.
27.IMPORT OF GOLD (UNDER 20: 80 SCHEME): The Working Group on Gold (Chairman: Sh. K.U.B
Rao) had recommended aligning gold import regulations with rest of the imports for creating a level
playing field between gold imports & other imports. Accordingly, RBI had introduced 20:80 scheme.
RBI has withdrawn the 20:80 scheme and restrictions placed on import of gold.
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28.PARKING OF ECB PROCEEDS WITH AD BANKS: With a view to provide greater flexibility to the
External Commercial Borrowings, borrowers in structuring draw down of ECB proceeds and their
utilisation for permitted end uses, the RBI, on Nov. 21, 2014, permitted authorised dealer category - I
banks to allow eligible ECB borrowers to park ECB proceeds (both under the automatic and approval
routes) in term deposits with AD Category- I banks in India for a maximum period of six months
pending utilisation for permitted end uses subject to certain conditions.
29.ISSUE OF EQUITY SHARES AGAINST LEGITIMATE DUES: RBI has advised all AD Category banks
to permit issue of equity shares against any other funds payable by the investee company, remittance
of which does not require prior permission of the Govt. or RBI under FEMA, 1999 or any rules/
regulations. The decision was taken after reviewing the extant guidelines for issue of shares /
convertible debentures under the automatic route.
30.RESIDENTS CAN ON-LEND RUPEES BORROWED FROM RESIDENT OUTSIDE INDIA: A person
resident in India who had borrowed in Rupees from a person resident outside India was restricted
under current FEMA regulations from using such borrowed funds for any investment, whether by
way of capital or otherwise, in any company or partnership firm or proprietorship concern or any
entity, whether incorporated or not, or for relending. On a review, such resident entities / companies
in India, have been authorised by the Govt. to issue tax-free, secured, redeemable, non-convertible
bonds in Rupees to persons resident outside India have been permitted to use such borrowed funds
for: On lending / re-lending to the infrastructure sector; and Keeping in fixed deposits with banks in
India pending utilization by them for permissible end-uses.
31.Guidelines on Import of Gold by Nominated Banks / Agencies (February 18, 2015): RBI had
withdrawn 20:80 scheme for import of gold vide circular dated November 28, 2014. RBI has now
issued following clarifications in this regard: (1). The obligation to export under the 20:80 scheme
will continue to apply in respect of unutilised gold imported before November 28, 2014, i.e., the date
of abolition of the 20:80 scheme; (2) Nominated banks are now permitted to import gold on
consignment basis. All sale of gold domestically will, however, be against upfront payments. Banks
are free to grant gold metal loans; (3) Star and Premier Trading Houses (STH/PTH) can import gold
on DP basis as per entitlement without any end use restrictions; (4) While the import of gold coins
and medallions will no longer be prohibited, pending further review, the restrictions on banks in
selling gold coins and medallions are not being removed.
32.Import of Goods into India Form 'February 12, 2015): RBI has decided to dispense with the
requirement of
submitting request in Form A-1 to the AD .tegory I Banks for making payments towards imports
into India. Banks should obtain all the requisite details from the importers and satisfy itself about the
bonafides of the transactions.
33.Delay in Utilization of Advance Received for Exports (February 09, 2015): As per extant
guidelines, an exporter receiving an advance payment for exports (with or without interest) from a
buyer outside India shall be under an oblig ation to ensure that the shipment of goods is made within
the stipulated period (generally one year but may be more than one year in certain situations) from
the date of receipt of advance payment. Doubtful cases as also instances of ch ronic defaulters may be
referred to Directorate of Enforcement (DoE) for further investigation. A quarterly statement
indicating details of such cases may be sent to the concerned Regional Offices of RBI within 21 days
from the end of each quarter. Export Credit Refinance facility discontinued (3.2.2015): RBI has
decided to replace export credit refinance (ECR) facility with the provision of system level liquidity
with effect from February 7, 2015.
34Limit under Liberalised Remittance scheme enhanced to USD 250000 per person per year.
Furthermore, in order to ensure ease of transactions, all the facilities for release of exchange/
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remittances for current account transactions available to resident individuals under Schedule III to
Foreign Exchange Management (Current Account Transactions) Rules 2.0 as amended from time to
time, shall also be subsumed under this limit.
35.Export and Import of Indian Currency (January 22, 2015): As per existing guidelines, a person
may take or send out of India to Nepal or Bhutan and bring into India from Nepal or Bhutan, currency
notes of Government of India and Reserve Bank of India for any amount in denominations up to
Rs.100/-. With a view to mitigating the hardship of individuals visiting from India to Nepal or
Bhutan, RBI has decided that, an individual may carry to Nepal or Bhutan, currency notes of Reserve
Bank of India denominations above Rs.100/-, i.e. currency notes of Rs.500/- and/or Rs.1000/denominations., subject to a limit of Rs.25000/-.
36.Overseas Investments by Alternative Investment Funds (AIF) (December 09, 2014): RBI has
permitted an Indian Alternative Investment Fund (AIF), registered with Securities and Exchange
Board of India (SEBI), to invest overseas.
37.FDI IN CONSTRUCTION SECTOR: The Union Cabinet has eased foreign investment rules in Indias
construction sector by reducing the built-up area requirement for foreign direct investment (FDI) in
construction projects to 20,000 square metres from 50,000 square metres. Further, the minimum capital
requirement has also been reduced to $5 million from $10 million. The investor will be permitted to exit on
completion of the project or after three years from the date of final investment, subject to development of
trunk infrastructure.
9.BANKING TECHNOLOGY
COMMITTEES ON COMPUTERIZATION
Beginning with the year 1983, a no. of committees on computerization have been set up by RBI. The
summary of recommendations of these committees are given as under:
Rangarajan Committee (1983-lst committee) : Introduction of mechanization and
computerization at branch, regional, zonal and Head office level with a view to bring some level of
positive change in functioning of banks. Model I of branch mechanization by use of microprocessor
based stand along ALPMs.Model 11 of branch mechanization by use of single microprocessor based
system of large capacity. Installation of mainframe and mini computers at controlling offices.
Rangarajan Committee (1988-2nd committee): Set the pace of competition amongst banks in use
of computers. Full computerization of 2500 branches at 30 high activity centres with daily vouchers
up to 750. Branches to have mainframe computers with required no. of online terminals. R0/20/HO
to be computerized.Banks to get networked. New services should be designed for better customer
service. Staff training In computerization should be given priority.
Saraf Committee (1994): Remittance facility for customers called electronic funds transfer(EFT)
and suitable legislation on the pattern of EFT Act 1978 of US.Introduction of delivery vs payment
(DVP) for reporting of Subsidiary General Ledger (SGL) transactions in govt. securities. Use of
NICNET for reporting of currency chest operations to obviate delays in reporting. Use of NICNET for
reporting govt. transactions for settlement purpose. Introduction of electronic clearing service -(ECS)
for electronic payment of dividend, interest payments In bulk. Cheque truncation system for cheques
up to Rs.5000. Physical reach of BANKNET to be extended to all centres, to Increase speed of
transmission, extensive use of RBINET.All banks/institutions authorized by RBI should join SWIFT
and linking of A and B category branches to SWIFT
Shere Committee (1994) : Judicial combination of regulatory and contractual models for
development of technology in India. Introduction of a country-wide antra-bank funds transfer
system. Introduction of more EFTS by banks. RBI's EFT to be restricted to high value transactions
under RIGS.
Vasudevan Committee (1998) : Communication infrastructure and use of INFINET (participating
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banks may create their own networks and link their networks with INFINET).
Standardization and security (IDRBT may be apPointed as ' certification agency for security
management). Outsourcing of technology and services (banks may set up IT subsidiaries which
should be closely connected , to technology solution providers). Computerisation of govt.
transactions (all branches doing govt. business should be computerized). Data warehousing, datamining and management information system.
22. IT support for Urban Cooperative Banks: R Gandhi
23. Technology Upgradation of RRBs: Shri G. Srinivasan
24. Working Group on Screen Based Trading in Govt Securities: Dr.R.H.Patil
25. Expert Group on Internet Deployment of Central Database Management System (CDBMS)
Prof.A.Vaidyanathan
26. Cheque Truncation and E- cheques: Dr. Barman, ED
27. B Sambamurthy committee ( Director IDRBT ) : Technical committee on Mobile banking
28. Committee on Computer Audit: Shri A.L. Narasimhan
29. Committee on Payment Systems: Dr R H Path
30. Working Group on Electronic Money: Mr .Zarir J. Cama
31. Information systems audit policy for the banking and financial sector & ALSO EBT ( Electronic
Benefit for Transfer which facilitates payment to reach the intended beneficiaries og Govt. sponsored
schemes through bank account ) : Dr. R.B.Burman
11. Technical Group on Market Integrity: Shri C.R. Muralidharan
COMPUTER TERMINOLOGY
ATM:
Automated Teller Machine '
SWIFT:
Society for worldwide Interbank Financial Telecommunication
SFMS:
Structured Financial Messaging System
OLTAS:
Online Tax Accounting System
CBS:
Centralized/ core Banking Solution
PIN:
Personal Identification Number
LAN:
Local Area Network (used in the same building)
MAN:
Metropolitan Area Network (used in the same city)
WAN:
Wide Area Network (used in different locations)
1DRBT:
Institute for development & Research in Banking Technology
Banknet:
Payment System Network established by RBI
NICNFT:
National Informatics Centre Network (currency chest operation)
WWW:
World Wide Web
HTTP:
Hyper Text Transfer Protocol
URL:
Uniform Resource Locator
VSAT:
Very Small Aperture terminal
Firewall:
Software programme that restricts unauthorized access to data and acts as a
security to private network
Booting:
Starting of a computer
Hard Disk:
A device for storage of data fitted in the processor itself
Modem:
Modulator & Demodulator: A device used for converting digital signals to analog
signals & vice-versa
Encryption:
Changing the data into coded form
Decryption:
Process of decoding the data
Virus:
Vital Information Resources Under Seize: Software programme that slows down
the working of a computer or damages the data. Main source of virus is internet (other sources are
floppy or CD)
Vaccine:
Anti Virus Software programme used for preventing entry of virus or repairing the
same
Digital Sign:
Authentication of. electronic records by a subscriber by means of electronic
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method or procedure
Key used:
For digital signatures, there is a pair of keys, private key & public key
RTGS:
Real time Gross Settlement
ECS: Credit:
One account debited, number of accounts credited
ECS: Debit:
One account credited, number of accounts debited
Hacking:
Knowingly concealing, destroying, altering any computer code used for computer
network
Address:
The location of a file. You can use addresses to find files on the Internet and your
computer. Internet addresses are also known as URLs.
PAYMENTS SYSTEMS - RTGS System
1. "RTGS" stands for Real Time Gross Settlement. RTGS system is a funds transfer mechanism
where transfer of money takes place from one bank to another on a "real time" and on "gross"
basis.
2. This is the fastest possible money transfer system through the banking channel.
3. RTGS helps in preventing Systemic and Settlement Risks.
4. Minimum / maximum amount for RTGS transactions: The minimum amount to be remitted
through RTGS is Rs.2 lakh. There is no upper ceiling for RTGS transactions.
5. Time taken for effecting funds transfer from one account to another: The beneficiary bank has
to credit the beneficiary's account within two hours of receiving the funds transfer message. G.
6. Timing for RTGS:
Customer's transactions from 8.00 hours to 16.30 hours on week days and from 8.00 hours
to 14.00 noon on Saturdays. However, the timings between these hours would vary
depending on the customer timings the branches have.
For inter-bank transactions, the service window is available from 8.00 hours to 20.0 hours
on week days and from 8.00 hours to 15.30 hours on Saturdays.
7. Charges:
a) inward RTGS free; b) Outward transactions (i) Rs. 2 to 5 lakh not exceeding Rs. 25
per transaction; Rs. 5 lakh and above not exceeding Rs. 50 per transaction.(Service tax
extra). If after 3.30 PM then Rs 5 extra.
8. With effect from 1.8.08, all payment transactions above Rs. 10 lac by RBI regulated entities in the
RBI regulated markets would have to be mandatorily routed through electronic payment
systems like the Real time Gross Settlement (RTGS) System, National Electronic Fund Transfer
(NEFT) System and Electronic Clearing Service (ECS).
National Electronic Funds Transfer (NEFT) System
1 National Electronic Funds Transfer (NEFT) system is a nation wide funds transfer system to
facilitate transfer of funds from any bank branch to any other bank branch.
2. Batches: The settlement of transactions is in batches. There are 12 hourly batches on weekdays
and 6 hourly batches on Saturdays.
3. Settlement Timings: There are twelve settlements at 0800, 0900, 1000, 1100, 1200, 1300, 1400,
1500, 1600, 1700,1800, 1900 hours on weekdays and 0800, 0900, 1000, 1100, 1200, 1300
hours on Saturdays
4. The beneficiary should get credit within 2 hours from the time of completion of batch i.e. on
B+2 basis on the same day.
5. Amount: There is no minimum or maximum amount to be remitted.
6. Processing Charges/Service Charges: Upto Rs 10,000: Maximum Rs 2.5; Upto Rs 1 lac:
Maximum Rs More than 1 lac up to Rs 2 lac: Max Rs 15; More than Rs 2 lac: Max Rs
25.(Service tax extra)
7. Difference between IFS Code and MICR: Indian Financial System Code (IFSC) is an alpha
numeric cod designed to uniquely identify the bank-branches in India. This is 11 digit code
with first 4 character representing the banks code, the next character reserved as control
character (Presently 0 appears in th, fifth position) and remaining 6 characters to identify
the branch. The MICR code has 9 digits to identify t1-1. bank-branch. IFSC code is printed on
cheques leaves issued to their customers.
Nepal.
2. A remitter can transfer funds up to Indian rupees 50,000 from any of the NEFT branches to
3. Charges:
The charges have been revised with effect from 9.2.09. The details of the revised
charges are asa under: (i) Originating bank Maximum Rs 51- per transaction aligned with
NEFT. (ii) State Bank of India Rs 20/- per transaction. 5131 would share this Rs.20/- with NSBL
at Rs.10 each. NSBL would not charge any additional amount for crediting the beneficiary, if he
maintains an account with it. (iii) In case the beneficiary does not maintain an account with
NSBL then, an additional amount would be charged- Rs 50/- for remittances up to Rs 5,000/and Rs 75/- for remittance above 5,000/-. Originating branches of participating banks may
please note to recover the entire charges and pass on the appropriate amount to SBI after
retaining their share.
Any remitter is allowed to remit maximum of 12 remittances in a year under this Scheme.
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 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 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
1. Speed Clearing refers to collection of outstation cheques through the local clearing. It facilitates
collection of cheques drawn on outstation core-banking-enabled branches of banks, if they have
a net-worked branch locally.
2.
When will the beneficiary get funds under Speed Clearing?: The local cheques are processed
on T+1 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
outstation, cheques under Speed Clearing will also be paid on T+1 or 2 basis.
3. Availability and charges: Speed Clearing is currently available in 41 MICR centres. Collecting
banks 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 irrespective of amount of chque. The charges are inclusive of all
charges other than Service Tax.
1. What
Cheque Truncation
is Truncation: Process of stopping the flow of the physical cheque issued by a drawer to
the drawee branch. The physical instrument will be truncated at some point en-route to the
drawee branch and an electronic image of the cheque would be sent to the drawee branch
along with the relevant information like the MICR fields, date of presentation, presenting
banks etc.
2. The electronic images of truncated cheques will be in gray scale technology. There will be
three images of the cheques i.e. front grey, front black & white and back black & white which
will be made available to member banks.
3. What type of cheques can be presented in the CTS?: All the local cheques can be presented
in the CTS.
PREPAID PAYMENT INSTRUMENTS : Eligibility : Banks who comply with the eligibility
criteria would be permitted to issue all categories of pre-paid payment instruments. NonBanking Financial Companies (NBFCs) and other persons would be permitted to issue only
semi-closed system payment instruments.
Capital requirements : Banks and Non-Banking Financial Companies which comply with the
Capital 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 paidup capital of Rs 100 lakh and positive net owned funds.
Safeguards against money laundering (KYC/AML/CFT) provisions
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/-.
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 to the following conditions:1. The amount so maintained shall be used only for making payments to the participating
merchant establishments.
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 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.
.
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.
2. 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 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 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 customer does not make complaint within 30 days of the
transaction, he will not be entitled to compensation.
3. 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 use of own bank ATMs at all locations.
1. 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 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
4.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
bank account customers shall remain unchanged.
5. Charges for ATM transactions: Beyond free transactions, there will be a ceiling / cap on
customer charges of Rs.20/- per transaction (plus service tax, if any).
6. 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 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.
7. Banks have been permitted to install Off site ATMs without RBI permission subject to reporting
to RBI.
1.
97
This facility may be made available at any merchant establishment designated by the bank after a
process of due diligence. (iv) The facility is vailable irrespective of whether the card holder makes
a purchase or not.
LATEST POLICY GUIDE LINES IN 2014-15 BANKING TECHNOLOGY
1.NEW FEATURES IN RTGS SYSTEM: The Reserve Bank has decided to enable the Hybrid and
Future value dated transaction features in the Real Time Gross Settlement System (RTGS). The
features has been made effective from July 14, 2014. The hybrid feature will be configured to do
offsetting every five minutes. The transactions with normal priority would be settled in off-setting
mechanism, with a maximum of two attempts, i.e., the maximum time a transaction would be in
normal queue is 10 minutes. The parameter value will be set to 10%. This means that 10% of the
balance in the settlement account would be taken for settlement in the offsetting mode. The Future
Value dated Transaction would enable the customers / participants to initiate RTGS transactions
three working days in advance for settling in RTGS on value date.
2.NG-RTGS CHARACTER SET: RBI has defined and issued a list of special characters that are
allowed and a list of characters that are not allowed in RTGS messages. The Next Generation Real
Time Gross Settlement (NGRTGS) System has several advanced features, such as, liquidity
management facility, extensible markup language (XML) based messaging system conforming to
ISO 20022 and real time information and transaction monitoring and control systems.
3.FREE TRANSACTIONS ON ATMs: RBI w.e.f 1st Nov, 2014, reduced the number of mandated free
transactions for Savings Bank account holders at other bank ATMs from five to three per month.
This will apply for transactions done at ATMs located in six metro centres, namely, Mumbai, New
Delhi, Chennai, Kolkata, Bengaluru and Hyderabad which are well-served in terms of payment
infrastructure. This reduction will, however, not apply to customers having no-frills / small / Basic
Savings Bank Deposit Account (BSBDA) type of accounts as well as for transactions done by
savings bank account holders at ATMs situated outside these six metro centres. Banks to provide
their savings bank account holders with at least five free transactions per month at their own
ATMs. Beyond this, banks may decide to levy transaction charges (not exceeding Rs.20/- plus
applicable taxes per transaction) which are decided in a transparent manner.
4.CTS - GOVERNMENT CHEQUES: As part of enhancing the efficiency in cheque clearing, the RBI
introduced Cheque Truncation system (CTS) for clearance of cheques facilitating the presentation
and payment of cheques without their physical movement. RBI has conveyed to all agency banks
regarding doing away with the requirement of returning paid government cheques back to Govt.
Deptt. concerned with effect from Jan. 1, 2015.
5.TReDS: RBI has issued guidelines for setting up and operating the trade receivables system in the
country. The TReDS will facilitate the discounting of both invoices as well as bills of exchange. The
TReDS could deal with both receivables factoring as well as reverse factoring so that higher
transaction volumes come into the system and facilitate better pricing. The transactions processed
under TReDS will be without recourse to the MSMEs. Since the TReDS will not be allowed to
assume any credit risk, its minimum paid up equity capital shall be Rs. 25 crore. Entities, other
than the promoters, will not be permitted to have shareholding in excess of 10 per cent of the
equity capital of the TReDS.
6.BHARAT BILL PAYMENT SYSTEM (BBPS): The Bharat Bill Payment System (BBPS) will function
as a tiered structure for operating the bill payment system in the country with a single brand
image providing convenience of anytime anywhere bill payment to customers. BBPS is an
integrated bill payment system in the country offering interoperable and accessible bill payment
98
service to customers through a network of agents, enabling multiple payment modes, &providing
instant confirmation of payment. The BBPS will consist of two types of entities carrying out
distinct functions: Bharat Bill Payment Central Unit: Will be the single authorized entity operating
the BBPS. Bharat Bill Payment Operating Units: Will be the authorised operational units, working
in adherence to the standards set by the BBPCU.
8.EXTENSION OF RTGS TIME WINDOW: The Reserve Bank, on December 15, 2014, has advanced
business hours under Real Time Gross Settlement (RTGS) system to 8:00 hours from the earlier
9.00 hours and has extended the closing time to 20.00 hours on week days. RTGS business window
will be open from 8.00 hours to 15.30 hours on Saturdays. The change will be effective from
December 29, 2014.
S. No.
Daily Events
08:00 hours
08:00 hours
Initial cut-off
16:30 hours
14:00 hours
9. ALL NEW ATMS TO TALK FROM JULY 1: The Reserve Bank has advised the banks to make all
new ATMs installed from July 1, 2014 as talking ATMs with Braille keypads. Banks should lay down
a road map for converting all existing ATMs as talking ATMs with Braille keypads. Banks also
advised to provide magnifying glasses in all bank branches for the use of persons with low vision.
10.ATMS TO BE MADE MORE DISABLED-FRIENDLY: The Reserve Bank has advised banks to take
necessary steps to provide all existing ATMs / future ATMs with ramps so that wheel chair users /
persons with disabilities can easily access them. Further, the height of the ATMs should not be
impediment for wheelchair users. In cases where it is impracticable to provide such ramp facilities,
whether permanently fixed to earth or otherwise, this requirement may be dispensed with, for
reasons recorded and displayed in branches or ATMs concerned.
11. Introduction of Digital Life Certificates for Pensioners (December9, 2014): As per the present
scheme for payment of government pension, pensioners are required to furnish a life certificate in
November every year to the bank concerned for continued receipt of pension without
interruption. Now, the Government of India has since launched "Jeevan Pramaan", a digital life
certificate based on Aadhaar Biometric Authentication. The Central Pension Accounting Office,
Ministry of Finance, Government of India (CPAO) has amended the Scheme of Payment of Pensions
to Central Government Civil Pensioners stating that a Life Certificate issued online by a
Government Agency as a result of Aadhar Biometric Authentication will also be accepted as a valid
certificate. This document may be accessed through a Website by the Pen ion Disbursing Agency
without insisting either on personal appearance of the pensioner or Life Certificate by the
Competent Authority.
12. Brand/Name of products Offered by authorised entities Dissemination of InformatiOn
(January 2, 2015): Under the Payment and Settlement Act, 2007 (PSS Act), an entity operating a
payment system within the country has to obtain authorisation from Reserve Bank of India (RBI).
The Certificate of Authorisation (COA) issued by the Bank to an entity on receiving approval is in
the name of the company. A list of authorised entities is also disseminated by RBI on its website for
access to the public. To ensure transparency in the promotional material and to build an enduring
relationship with the customers, all authorised entities should comply with the following: (a) All
the information available to the public regarding the product, whether as advertisements, on
website, application form, etc. should prominently carry the name of the entity/company
99
authorised by RBI under the PSS Act; (b) The authorised entities/companies should also regularly
keep BI informed regarding the brand names employed / to be employed for their products.
13.White Label ATMs (WLAs) in India(Dec 05, 2014): RBI has decided to - (a) allow WLAs to accept
international credit/debit/prepaid cards; (b) permit the facility of Dynamic Currency Conversion
(DCC) for the use of international cards at WLAs if the operator so decides to implement the DCC
facility. The currency conversion rate will only be obtained from authorised dealer bank; (c) enable
delinking cash supply from that of sponsor bank arrangements. WLAO may now tie up with other
commercial banks for cash supply at WLAs. While the cash would be owned by the WLAO, the
responsibility of ensuring the quality, and genuineness of cash loaded at such WLAs would be that
of the cash supplier bank.
13.Mobile Banking Transactions in India (December 04, 2014): RBI has advised banks to provide
options for easy registration for mobile banking services to their customers, through multiple
channels, thus minimizing the need for the customer to visit the branch for such services. The time
taken between registration of customers for mobile banking s9rvices and activation of the service
should also be minimal.
14.Pre-paid Payment Instruments (PPIs) (December 03, 2014): (a) PPIs issued with full KYCenhanced value: As per extant guidelines, the maximum value of any pre-paid payment
instruments (where specific limits have not been presented) shall not exceed Rs. 50,000/-. Further,
semi closed 2re-paid payment instruments can be issued up to Rs 50,000 provided full KYC has
been done. The balance in the PPI should not exceed Rs.50,000/- at any point of time. The limit of
PPI that can be issued after doing hill KYC has now been enhanced from Rs. 50,000 to
Rs.1,00,000/- The balance in the PPI should not exceed Rs. 1,00,000/- at any point of time; (b) Gift
Cards: The maximum validity of the gift cards has been enhanced from one year to three years; (c)
Multiple PPIs can be issued by banks from fully-KYC compliant bank accounts for
dependent/family members. The account holders purchasing the PPIs need to provide the
minimum details (such as name, address and contact details) of the intended beneficiary/ies who
are his/her dependents and family members. Only one card can be issued to one beneficiary. The
transaction and monthly limits as applicable for cash payout arrangements (currently Rs 10,000/per transaction with a monthly ceiling of Rs 25,000/-) will be applicable for such PPIs. Such PPIs
shall be issued only in electronic form; (d) Rupee denominated PPIs issued by banks for visiting
foreign nationals and NRIs: The cards can be issued by overseas branches of banks in India
directly or by cobranding with the exchange houses/money transmitters upto a maximum amount
of Rs.2 lakhs by loading from a KYC compliant bank account. Such PPIs should be activated by the
bank only after the traveller arrives in India. Cash withdrawal from such PPIs will be restricted to
Rs 50,000/- per month. The cards should be issued strictly for use in India and transactions settled
in 1R. Such PPIs shall be issued only in electronic form.
10.LATEST DEVELOPMENTS
CAPITAL ADEQUACY RATIO / CAR / CRAR
The objective is to strengthen the capital base of banks with reference to their risk weighted
assets, expressed
as a ratio as under:
Capital Fund / Risk Weighted Assets x 100
Minimum CAR as per Basel II recommendations
08 %
09%
Out of this 6% should be Tier I by 31.3.2010, if already not so. Tier II cannot be more than 50% of the total capital as per
100
Basel 1
Tier 1
Capital fund
Tier II
*Un-disclosedreserves and cumulative perpetual
preference shares:
Revaluation Reserves (at a discount of 55%
paid-up capital
statutory reserves,
other disclosed free reserves
Minus
equity investments in subsidiaries,
intangible assets, and
losses in the current period and those brought
forward from previous periods
0%
20%
20%
75%
50%
75%
1 00%
0%
0%
20%
1 00%
1 00%
0%
20%
0%
75%
50%
125%
125%
100%
101
150%
1 0 0%
75%
150%
100 %
150 %
20%
5. 5
1.5
7. 0
2.0
9.0
UNIVERSAL BANKING
Universal banking (Khan Committee) means allowing undertaking all kinds of activity of
banking or development financing activity, subject to compliance of Statutory and other
requirements prescribed by RBI, Govt. and related legal Acts. 'Activities include -low risk
activities like. acceptance of deposits, investing in securities, medium risk activities like
granting of loans, high risk activities like credit cards, forex and insurance, project financing.
NARROW BANKING
Banking in low risk products such as collecting low cost deposits, lending to low risk loans,
investment in govt. securities. (recommended by SS Tarapore CoMmittee)
CROSS SELLING
Cross selling is a marketing tool which means to make effort to sell to customers, more than one
product. It leads to per customer (a) reduction in operational cost and (b) increase in business
and profits.
SECURITISATION
Securitisation is the process by which the selected pool of loans of a Bank is sold to a trust called
Special Purpose Vehicle. (say SBI sells a part of its housing finance loans to the SPV). The SPVin
turn, issues marketable paper securities (called Pass Through Certificates and similar to
debentures) against the backing of such assets and sells the same to prospective investors.
.
FACTORING.
Factoring is an arrangement under which a factoring company purChases and administers the
doMestic receivables of short term period of a firm after purchasing the receivables from the
seller of goods. The responsibility to recover is that of the factor which recovers discount and
collection charges from the seller.
FORFAITING
It is on the pattern of factoring and deals with long term and medium export receivables (deferred
payment- exports) while factoring deals with short.term receivables.
WAYS & MEANS ADVANCES (WMA)
It is temporary overdraft that RBI allows to Govt. to cover the mismatch between Govt. receipt
and payment. For Central Govt. it is for max. 10 days and for State govt. for 14 days. interest is
Repo Rate.
LIQUIDITY ADJUSTMENT FACILITY .,
It is short term loan that RBI allows to a commercial bank to cover the short term liquidity
problem. It is through repo-reverse repo mechanism at Repo rate (i.e. RBI purchases govt.
securities from the bank with the condition of re-purchase by the bank at the end of loan period).
MARGINAL STANDING FACILITY
It is overnight loan that RBI allows to a commercial bank against collateral of govt. securities.
Max amount is restricted to 2% of net demand and time liabilities. Rate of Interest = Repo.rate +
1%
REPO / REVERSE REPO
Repo : When RBI purchase govt. securities from bank to inject liquidity. It increases the liquidity
with banks. It is done at Repo Rate.
Reverse Repo : When RBI sells govt. securities to bank to absorb liquidity. It reduces liquidity
with banks and done at reverse Repo Rate.
FINANCIAL INCLUSION
Financial inclusion means the delivery of banking services at an affordable cost to the vast
sections of disadvantaged and low income groups. Opening of no-frill accounts or granting loans
103
under govt. sponsored schemes etc. is part of the financial inclusion. Financial inclusion can be
expanded through state-driven intervention (by way of statutory enactments) and through
voluntary effort of banking community itself for evolving various strategies to bring within the
ambit of the banking sector, the large strata of society.
CERTIFICATE OF DEPOSIT & COMMERCIAL PAPER
Commercial Paper
Certificate of Deposit.
Who
can Scheduled commercial banks (except
-Financial
Institutions,Primary
issue
.RRBs), and All India Financial
reputed companies
Institutions within their 'Umbrella limit'.
CRR!SLR
Investors
Maturity
Amount
Issue of commercial paper by a company : 4 conditions are to be satisfied (1) Net worth Rs.4 cr,
sanctioned working capital, their loan accounts in standard category and credit rating of P2
from CRISIL or equivalent from others.
Features Common to CD & CP
Premature cancellation not allowed
9%
for
the
year
for
which
9% for the year for which
Capital adequacy
to be paid
dividend to be paid & previous 2 dividend
.
,
yrs
Net NPAs
Less than 5% Less than 7%
Thereisceilingondividendpayoutintheformofaratiowhichcanbe40%.Itcanbepaidfromcurrentyear's
profitsonly.TheratioisworkedoutasDividendpayoutratio=Amountofdividend/amountofprofitsafter
provisionsx100).
INSURANCE BUSINESS
Insurance business can be (a)'Bancassurance (selling policies of other companies for commission as
corporals agent called without risk) (b) underwriting-(risk based). Licence from IRDA required for
both.
Underwriting business: (with risk insurance business). Business can be. done through a separate
subsidiary company as a joint venture. Maximum investment of the bank can be 50% of the capital
of the company. Permission to be obtained from RBI, if following Parameters are complied with.
104
Net worth
Profits
Net NPAs
Capital adequacy ratio
'
500 cr
3 years
Reasonable
10%
Indian Banks
F or e i n B a n ks
.
C
Capital adequacy ratio
C
Capital adequacy ratio
A.
A
Asset qualityAsset quality C
M
Compliance
Management Effectiveness
E
S
System and controls
Earning (i.e. profitability)
.
L
Liquidity (asset-liability
management)
S
System
and controls
Satisfactory .
Performance of subsidiaries
SMALL BANKS & PAYMENT BANKS
Small Finance Banks in Private Sector
Objective : Furtherance of Financial
inclusion. Can accept deposit and give loans.
Promoters : NBFC, Companies, Societies, LAB,
MFI, Individual / professionals with 10 years'
experience.
Capital : Min Rs.100. cr (Promoters min 40%,
to reduced to 26% -in 12 years)
Prudent norms : As applicable to commercial
banks including CRR / SLR.
Priority sector : 75% of ANBC. 50% of total loans
to including individual loans up to Rs.25 lac.
Payment Banks
Objective : Furtherance of Financial
inclusion. Can accept only demand deposits
and cannot give loans.
Promoters : PPI issuers, NBFC, Individual /
professionals, Mobile phone co.
Capital : Min Rs.100 cr (Promoters min 40% for
first 5 years). Leverage ratio : 3% (i.e. (Vs liabilities
can be 33.33 times of net worth)
Priority sector : 75% of demand deposits to
be invested in Govt. Securities (max one year
maturity). Max 25% can be deposited M
commercial banks.
Call Money
Notice Money
Term Money
Held till maturity
Held for trading
Available for sale
Yield to maturity
Coupon Rate
Government security.
Govt. security instruments which have tenure over one year.
Dated securities
Borrowing
: On a fortnightly basis, maximum 100% of capital fund of
Prudential limitsFor call
latest
audited
balance sheet. It can go up to 125% on any particular day.
money
Lending: On a fortnightly basis, maximum 25% of capital fund of latest
audited balance sheet. It can go up to 50% on any particular day.
Max 200% of its net-worth as on 31st March of the previous year. Banks with
Inter-bank liability
CRAR is at least 25% more than the minimum CRAR (9%) i.e. 11.25% up to
ceilings
300% of the net worth for IBL.
TERMS RELATING TO MONEY MARKET
FINANCIAL PRODUCTS
Derivatives: A derivative is a financial contract that derives its value from another financial
product/commodity (say spot rate) called underlying (that may be a stock, stock index, a foreign
currency, a commodity). Forward contract in forex, a simple form of a derivative.
Option : It is contract that provides a right but does not impose any obligation to buy or sell a
financial instrument, say a share or security. It can be exercised by the owner. Options offer the
buyers, profits from favourable movement of prices say of shares or foreign exchanqe.
Variants of option: There are two variants of options i.e. European (where the holder can exercise his
right on the expiry date) and American (where the holder can exercise the right, anytime between
purchase
date
and the(buyer),
expiry date).
Call option
: Owner
has the right to purchase and the seller has the obligation to sell, a
specified no. of instruments (say shares) at a specified rate during the time frior to expiry date.
Put Option : Owner or the buyer has the right to sell and the seller has the obligation to buy
during a particular period.
Futures: The futures are the contracts between sellers and buyers under which the sellers (termed
'short') have to deliver, a pre-fixed quantity, at a pre-fixed time in future, at a pre-fixed price, to the
buyers (known as long'). The main features of a futures contract are that these are traded in organised
exchanges, regulated by institutions such as SEBI, they need only margin payment on a daily basis.
Futures contract are made primarily for hedging, speculation, price determination and allocation of
resources.
Forwards: The forward on the other hand is a contract that is traded off-the-stock exchange, is self
regulatory and has certain flexibility unlike future which are traded at stock exchange only, do not
have flexibility of quantity and quality of commodity to be delivered and these are regulated by
SEBI, RBI or other agencies.
RISK TERMS
Risk on account of possible default by the borrower in meeting his
Credit Risk
commitments
Market Risk
Risk
on account of trading in securities
Legal Risk
Risk on account of deficiency in loan documentation
Liquidity risk
Risk of inability of a bank to meet its liabilities due to mismatch in inflows
from assets and liabilities.
Settlement risk
Risk of default by a bank in meeting its obligations due to its capacity to repay
Risk due to changes in interest rates leading to effect on profit and loss of the
Interest rate risk
bankon account of failure of internal processes, procedures etc.
Operational risk Risk
Forex Risk
Risk on account of fluctuation in forex rates
Systemic Risk
Risk to a system on account of failure of other related systems.
106
Reputation risk
2.SCBs / CCBs can issue long term Subordinated Debts and Innovative Perpetual Debt Instruments
(IPDI) to facilitate raising of capital funds (Tier-I and Tier II) for the purpose of compliance with
the prescribed CRAR norms.
3.BANKS EXPOSURE TO CENTRAL COUNTERPARTIES: As per the extant guidelines, the
exposure limit applicable to a single counterparty of a bank is 15% of its capital funds. RBI
decided that as an interim measure, a banks clearing exposure to a Qualifying CCP (QCCP) will be
kept outside of the exposure ceiling of 15% of its capital funds applicable to a single counterparty.
Clearing exposure would include trade exposure and default fund exposure. Other exposures to
QCCPs such as loans, credit lines, investments in the capital of CCP, liquidity facilities etc. will
continue to be within the existing exposure ceiling of 15% of capital funds to a single
counterparty. However, all exposures of a bank to a non-QCCP should be within this exposure
ceiling of 15%.
4.BASEL III CAPITAL REGULATIONS IN INDIA: In view of the industry-wide concerns about the
potential stresses on the asset quality and consequential impact on the performance/profitability
of the banks, which would have necessitated some lead time for banks to raise capital within the
internationally agreed timeline for full implementation of the Basel III Capital Regulations, the
Reserve Bank has extended the transitional period for full implementation of Basel III Capital
Regulations in India upto March 31, 2019. Earlier deadline was March 31, 2018
5.EXPOSURE NORMS FOR STAND ALONE PDs: With a view to promoting central clearing of
standardised over the counter (OTC) derivative products through a central counter party (CCP),
as an interim measure, a standalone primary dealers (PD) clearing exposure to a qualifying CCP
(QCCP) will be kept outside of the exposure ceiling of 25 per cent of its net owned funds
applicable to a single borrower / counterparty.
Jan 1,
Jan 1,
Jan 1,
107
Jan 1,
Jan 1,
Minimum
LCR
2015
2016
2017
2018
2019
60%
70%
80%
90%
100%
A Quantitative Impact Study (QIS) conducted by the Reserve Bank as on December 2013 on a
sample of banks to assess their preparedness for the Basel III Liquidity ratios indicates that the
average LCR for these banks varied from 54 per cent to 507 per cent.
6.SPECIAL DRAWING FACILITY TO STATE GOVTS: The Reserve Bank in consultation with the
State Governments has decided to change the nomenclature of Special Ways and Means Advances
granted to the State Governments as Special Drawing Facility. The change has come into effect
from June 23, 2014. The Reserve Bank extends Special Drawing Facilities to State Governments
under Section 17(5) of the RBI Act 1934.
7.PPF LIMIT INCREASED TO RS. 1.5 LAKH: The Reserve Bank has notified the increase in
deposit money under Public Provident Fund (PPF) to Rs.1.5 lakh from Rs.1 lakh earlier. PPF is a
15-year investment scheme under which an investor enjoys tax exemption at the time of deposit,
accrual of interest and withdrawal.
10.MODIFICATION OF GUIDELINES ON MGCs: The RBI has made certain modifications to the
Guidelines on Registration and Operations of Mortgage Guarantee Companies (MGCs). The
modifications are: While calculating the capital adequacy of the MGC, the mortgage guarantees
provided by the MGCs may be treated as contingent liabilities and the credit conversion factor
applicable to these contingent liabilities will be fifty percent as against the earlier applicable credit
conversion factor of hundred percent. The contingency reserves could go to a minimum of 24% of
the premium or fee earned, such that the aggregate of provisions made towards losses and
contingency reserves is at least 60% of the premium or fee earned during a financial year.
Investments made towards Government securities, quoted or otherwise, government guaranteed
securities and bonds not exceeding the MGCs capital may be treated as Held To Maturity (HTM)
for the purpose of valuation and accounted for accordingly. Investment classified under HTM need
not be marked to market and will be carried at acquisition cost, unless it is more than the face
value, in which case the premium should be amortised over the period remaining to maturity.
108
Facility; and Export Credit Refinance. Under the existing arrangements, day-to-day liquidity
requirements are met through variable rate 14-day / 7-day repo auctions equivalent to 0.75 per
cent of net demand and time liabilities (NDTL) of the banking system, supplemented by daily
overnight fixed rate (at the repo rate) repos equivalent to 0.25 per cent of bank-wise NDTL and
export credit refinance (at the repo rate) of 15% of bank-wise outstanding eligible export credit
bills (about 0.4% of NDTL). In addition, the RBI conducts special repos of varying maturities in
order to manage transient liquidity pressures emanating from unanticipated frictional factors.
12.NORMS FOR CLASSIFICATION OF UCBs AS FSWM: Primary (urban) Co-operative banks (UCBs)
fulfilling the following criteria would now be termed as Financially Sound and Well Managed (FSWM):
.Capital to Risk (Weighted) Assets Ratio (CRAR) of not less than 10%; Gross NPA of less than 7% and
net NPAs of not more than 3 per cent; .Net profit for at least three out of the preceding four years subject to
it not having incurred a net loss in the immediate preceding year; No default in maintenance of CRR / SLR
during the preceding financial year; Core Banking Solution (CBS) fully implemented. Sound internal
control system with at least two professional directors on the Board;
13.BASEL IIIINTRADAY LIQUIDITY MANAGEMENT: Banks will be permitted to reckon govt.
securities held by them up to another 5% of their NDTL within the mandatory SLR requirement as
level 1 HQLA for the purpose of computing their LCR. For the purpose of computing the LCR, such
reckoned government securities within the mandatory SLR requirement should be valued at an
amount no greater than their current market value (irrespective of the category of holding the
security, i.e.HTM, AFS or HFT). Banks will be permitted to avail liquidity facility against such
securities under a special facility to be called Facility to Avail Liquidity for Liquidity Coverage
Ratio (FALLCR), essential features of which are given below:
a.Eligibility: Availing of liquidity against such securities would be permitted to banks only under
the conditions of stress, and after utilisation of all other HQLAs (including securities permitted
under MSF). Banks will be required to furnish a declaration to this effect that they have exhausted
their all other HQLAs before availing of the FALLCR.
b.Tenor: This facility can be availed / rolled over up to a maximum period of 90 days.
c.Haircut: Liquidity against securities under FALLCR will be available after applying haircuts as
stipulated for MSF.
d.Facility rate: Rate of interest on the funds availed under this facility will be 200 bps above the
prevailing LAF repo rate, up to a period of 90 days, or as decided by the RBI from time to time.
e. Effective date: The above facility will be w.e.f. 1st Jan, 2015.
14.Updation of list of inoperative on Bank's website (February 2, 2015): Banks were required to
display the list of unclaimed deposits/ inoperative accounts which are inactive/ inoperative for
ten years or more on their respective websites by June 30, 2012 and March 31, 2015, respectively.
The list displayed on the websites must contain only the names of the account holder(s) and
his/her address in respect of unclairneneposits/inoperative accounts. In case such aff6rmts are
not in the name of individuais,the names of individuals authorized to operate the accounts should
also be indicated. However, the account number, its type and the name of the branch shall not be
disclosed on the bank's website. RBI has now advised banks to update their websites at least on a
monthly basis by: i) adding the names and address of the account holders whose deposits have
been transferred to the Fund during the month/ period; ii) deleting the names and address of
account holders whose claim were admitted by the banks during tlee month/period. In doing this
the banks need not wait for refund from the Fund.
15. Report of the Committee to Review Governance of Boards of Banks in India: RBI had
constituted an Expert Committee to Review Governance of Boards of Banks in India (Chairman:
Dr. P.J.Nayak). The Committee has submitted the Repot.
16. Which organizations have been granted "in-principle" approval by RBI for banking licences?:
109
PM
When a substandard account becomes doubtful?: After 12 months from date of becoming
NPA
26. What is the maximum and minimum limit for maintenance of CRR?: No minimum or
maximum as per RBI Act. It is decided by RBI.
27. As per KYC norms, banks are required to periodical update data. In respect of High risk
customers, full KYC exercise will be required to be done at least every: two years
28. How many members are there in a Joint Liability Group?: 4 to 10
29. When a bank accepts a forged note, how much per cent of the loss suffered by bank is
reimbursed by RBI?: 25%
30. When counterfeit note in one remittance is or
above, banks are required to lodge FIR with the police: 5 or above
31. What is the minimum and maximum amount that can be remitted under RTGS?: Rs 2 lac and
no limit
32. What is the rate of guarantee fee on loans up to Rs 5 lakh made in North East or to a women
in case of Credit Guarantee Scheme for Micro and Small enterprises?: 0.75% per annum of
the limit sanctioned.
33. What is the maximum period for which FCNR(B) and NRE deposits can be accepted?: 5 year
and 10 year respectively.
34. A crop will be called short duration crop if its crop season is up to : 12 months
35. Bailment of goods or securities to secure a debt is called: Pledge
36. What is a General crossing?: Writing two parallel lines on the face of the cheque with or
without and company or any abbreviation thereof.
37. What is the relationship between a bank and customer in case of standing instruction?: Agent
and Principal
38. Cash receipt or cash payment of more than Rs 10 lakh are reported to FIU on CRT statement
which should be sent to FIU within from
the
close
of
the
month:
15 days.
39. Suspicious Transaction report is sent to FIU within: 7 days from confirmation of suspicion.
40. What is the limitation period of mortgage?: 12 years
41. Why loan is not sanctioned to a minor by banks?: Minor not competent to contract, contract
with minor is void abinitio. Therefore, bank will not be able to recover the loan.
25.
Why banks ensure that charge created on any asset of the company should be registered with
ROC within stipulated period?: If charge is not registered, bank will become unsecured
creditor.
43. What is the target for financing under priority sector?: 40% of ANBC or CEOBE whichever is
higher.
44. What is the amount of claim in case of loans to micro enterprises for loans up to Rs 5 lac?:
85% of the amount in default with a maximum of Rs 4.25 lakh
45. Under NEFT how many times in a day on weed day transactions are settled?: 12 times in a
day at every hour (First settlement at 8 AM and last at 7 PM)
RECALLED QUES PNB & CBI - CLERK TO I (TEST ON 6.7.2014& 26.10.2014)
42.
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Days of grace are allowed in which type of negotiable instruments (a) Cheques; (b) Demand
draft; (c) Demand bill; (d) Usance promissory' note and Usance Bill of Exchange: Usance
prothissory note and Usance Bill of Exchange.
Deferred Payment Guarantee (DPG) is a type of - financial guarantee, performance guarantee,
bid bond guarantee: Financial Guarantee
Difference between Deferred Payment Guarantee and Term Loan is due to (a) Inflow of
funds; (b) Outflow of funds; (c) Outlay of funds: Outlay of funds
Monetary Policy issued by RBI is reviewed at what interval (a) fortnightly; (b) monthly: (c)
once in two months; (d) quarterly: Once in two months
As per exposure norms prescribed by RBI, maximum exposure of a bank to a single borrower
can be 15% of - (a) Net worth; (b) paid up capital; (c) Capital funds: Capital funds
While granting advance against Life Insurance Policy, amount of loans is calculated on the basis
of (a) Face value of the policy; (b) paid up value of policy; (c) Sum assured; (d) surrender
value of policy: Surrender Value
RECALLED QUESTIONS
(PRATHMA BANK AUGUST 2014)
For being eligible to be classified as small (service) enterprise, the original investment in
equipment should not exceed: Rs 2 crore
What should the minimum holding of Government in public sector banks?: 51%
What is the periodicity of R Return sent to RBI: Fortnightly
In the case of Wrongful dishonour of cheque, to whom the bank is liable?: Drawer
What is the purpose of preparing R Returns that are submitted to RBI fortnightly as on 15th and
last day of the month?: To report purchase and sale of foreign exchange to compute
Balance of Payments position
Debt Equity Ratio indicates: Long term solvency or capital structure of the firm
In case of Doubtful assets, 100% provision is to be made both on secured and unsecured
portion if account is doubtful for: more than 3 years
In terms of Government of India, Notification dated December 16, 2010 on the Prevention of
Money-laundering, 'small account' means a savings account in a banking company where the
aggregate of all credits in a financial year does not exceed: Rupees one lakh
When only image of cheque is sent to the paying bank while sending cheque for collection
instead of sending the physical cheque, the process is called: Cheque Truncation
When a borrower does not repay banks dues deliberately despite adequate cash flow and good
net worth, he is called: Wilful Defaulter.
Photograph is obtained at the time of opening the account. What is the purpose for the same?:
for identification of the prospective customer
The true owner of a cheque has been deprived of his right by collection of the cheque for a
different person. This is called: Conversion.
When a private limited company is financed against the security of its movable or immovable
property, the company is required to file particulars of charge with: Registrar of Companies.
Maximum amount of deposit which a bank may ask while allowing locker facility to a customer:
Advance rent for 3 years and locker breaking charges.
Why banks do not grant loan to a minor?: A minor is not competent to contract. Therefore,
loan given to a minor can not be recovered.
The term used for conversion or transfer of property derived from a criminal offense for the
purpose of concealing, or disguising, the illicit origin of the property is called: Money
laundering
The rate at which RBI rediscounts the usance bills of banks is called: Bank Rate
The minimum and maximum period for which FCNR(B) deposit can be opened: 1 year and 5
years.
There is a joint account in the name of A & B payable to either or survivor. X has been
appointed as nominee. On the death of A, the amount will be payable to: B, the survivor.
The Garnishee Order is applicable on the account of a customer when the relationship between
banker and customer (Judgement Debtor) is: Debtor & Creditor.
Which of the following is intangible asset?: Goodwill
In a cash deposit made by a customer, one piece of counterfeit note is detected. What should the
bank do? Bank should seize the note and not return the same to customer.
If counterfeit notes up to ____ are detected in a single cash deposit in the bank branch, bank is
not required to lodge FIR with police. Instead, bank should send a consolidated report and send
such notice to police at the end of the month?: 4
Which of the following can not be done by the purchase of a Demand Draft? Stop payment of
DD.
Who will decide Base Rate of a Bank?: Bank itself.
In case of Deposit Insurance, Insurance premium is paid to DICGC by bank and depositor in
115
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42.
What is the bank-customer relationship in term deposit receipts?: Debtor and Creditor
What is the maximum amount of loan that is guaranteed under Credit Guarantee Scheme for
Micro and small enterprises?: Rs 50 lac in case of RRB; Max Rs 100 lac in case of
commercial banks.
How much minimum balance is required to be maintained in Basic Saving Bank Deposit
account?: No minimum balance criteria.
What is the limitation period of a demand promissory note?: 3 years from the date of DPN
How much amount of loan can be granted to a dealer in fertilizer and seeds so that it is
classified as
indirect advance to agriculture?: No limit in case of RRB but up to Rs 5 crore in case of
domestic commercial banks.
What is the maximum amount for which deposits with banks are insured by DICGC?: Rs
100000 per customer with bank.
What is the reason for applying monthly interest on loan accounts?: For smooth transition to
90 days overdue norm for classification of NPAs.
Which of the following cant be nominated by a 75 year old account holder: Trust
Which form should be submitted by a 62 yr. old lady for non deduction of income tax at
source: 15H
A cheque was stolen from the drawer of the account holder by his servant and amount was
withdrawn by the servant from the account by forging signatures of the account holder. Which
statement is correct in this regard?: The bank is liable.
A loan given for repair of house in rural area will be classified as Priority sector advance if loan
is up to: Rs 2 lakhs (in RRB up to Rs 1 lakh)
Which of the following rates is decided by RBI (a) Interest Rate on Saving Deposits (b)
Interest Rate on Term Deposits (c) Base Rate (d) Bank Rate: Bank rate
A loan is treated as doubtful after ____ months of becoming NPA: 12 months
What would be the rate of provision on direct advance to micro and small enterprise which is
classified as Standard: 0.25% of outstanding.
As per provisions of Recovery of Debts due to Banks and Financial Institutions Act, appeal
against decision of DRT can be filed with DRAT within______ of receiving copy of judgement: 45
days
Sarfaesi Act is applicable to NPA accounts in which balance outstanding is more than: Rs 1 lac
Secrecy of bank accounts is to be maintained under following act: Implied contract
What will be the position of bank if a cheque is returned unpaid while the balance in the
account is sufficient & cheque is otherwise in order: Bank will be liable to drawer for
wrongful dishonour
If the credit balance in deposit account of a customer is Rs 439 & an overdue account of that
customer is adjusted balance in deposit account. By exercising which right bank has done
this?: Right of set off.
Claytons rule is relatedto: Appropriation of payments.
The facility of extending banking & financial services at affordable cost to poor persons is
called: financial inclusion.
RECALLED QUESTIONS
(I0B - I TO II EXAM - 8 JUNE 2014)
Number of Neft settlements on week days other than Saturday: 12 hourly settlements ( 6 hourly
settlements on Saturdays).
2. For taking action under SARFAESI for taking over possession of securities charged to the bank,
Bank is required to give notice to borrower through authorized
person for days: 60 days
3. Bank's can't take action under SARFAESI Act, when overdue amount of Principal & Interest is: less
than 20% of the due amount.
4. Service tax is to be remitted by the bank to Govt within how many days: By 5th of succeeding
month.
5. As per KYC norms, in case of Low risk category customers, photo, proof of identity and address to
be obtained once in: 10 years
6. Which of the following is not correct about creation of charges?: Immovable Property Hypothecation
7. In respect of crossed cheques, protection to paying Banker is available under which section of N I
Act?: Section 128 of N I Act.
8. What is the importance of Certification of Incorporation in case of a limited company? It is an
evidence that company has been formed as a separate legal entity.
9. Banks should settle the claims in respect of deceased depositors and release payments to
survivor(s) / nominee(s) within a period not exceeding
from the date of receipt of the claim:
15 days
10. What is the maximum timeframe for collection of cheques drawn on state capitals/major
cities/other locations: 7/10/14 days respectively
1.
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11. A
saving deposit account, will be classified as inoperative when there are no transactions in the
account for: 2 years
12. Unclaimed deposits are those deposits in which there is no operation or no claim is made for: 10
years.
13. An advance given to Dealers/ sellers of fertilizers and seeds will be classified as indirect
agriculture provided the amount of loan is up to: Rs 5 crore
14. As per RBI guidelines, maximum loan to value ratio in case of housing loans up to Rs 20 lac can be:
90%
15. Priority sector loans to Artisans, village and cottage industries will be considered under Weaker
Sections category provided individual credit limits do not exceed: Rs 50,000
16. The Committee set up by RBI to decide new banking licenses was headed by: Dr Bimal Ulan
17. Banks are required to provide agricultural crop loans up to Rs 3 lac at interest rate of 7%. In case
borrower makes payment of the loan in time, then how much per cent interest will be refunded to
the borrower?: 3%
18. As per Credit Guarantee Scheme for Micro and service enterprises, maximum loan that is
guaranteed under CGTMSE is up to a maximum of: Rs 100 lacs
19. In case of priority sector loans, no margin, no collateral security, no processing fees and no penal
interest will be charged for loans up to: Rs. 25000/20. In case of loan through consortium, for initiating action under SARFAESI Act, consent of how many
banks is required: 60% lenders by value (no condition of number of banks)
21. If counterfeit notes up toare received in a single remittance, no FIR to be lodged: upto 4 bank
notes
22. The restriction that banks cannot grant loans to its directors except where permitted by RBI is as
per: Section 20 of the Banking Regulations Act.
23. What is the full form of IFSC which is used for RTGS and NEFT?:Indian Financial System Code
24. In case of long duration crops, account will become
NPA if it is overdue for : 1 crop season
25. Mortgage is defined in: Transfer of Property Act
26. Standby letter of credit resembles which type of guarantee: Financial Guarantee
27. FDR of Rs.20000/- & above cannot be paid in cash and to be paid by crediting account or issue of
DD as per provisions of: Section 269 T of Income Tax Act.
28. In case of loans to Micro and small enterprises, as per RBI guidelines, no collateral security is
required for loans up to: Rs.10 lacs
29. As per section 107 and 108 of Indian Evidence Act, a person can be presumed to have died if he is
reported missing for: 7 years.
30. Maximum amount of loan that can be sanctioned to a micro and small service enterprise so that it
is classified as priority sector advance?: Rs. 5 crores
31. As per Turnover Method of working capital requirement as suggested by Nayak committee,
current ratio will work out to: 1.25:1
32. Capital is Rs 3.00 lac, Withdrawal by partners is 0.25 lac, net profit of the firm for current year is
Rs 1.25 lac, Tax paid is Rs 0.30 lac. What is the net worth?: Rs 3.65 lacs
33. What is Rural Debt Swap?: When loan is granted to farmers for repaying debt taken from
money lenders at high rate of interest.
34. What activity is taken by banks for Financial Inclusion?: Banks provide banking services to
poor people at an affordable cost.
35. What is the rate of provision on Sub-standard assets that were secured abinitio? 15% of
outstanding.
36. How much interest rate is paid by RBI on CRR balances: Nil
37. Up to how much amount claims can be filed with Lok adalat?: Rs. 20 lacs
38. In case of advance granted by a consortium of banks, asset classification should be based on the:
record of recovery of the individual member banks
39. A person has requested you to issue foreign DD for USD 500. What rate will be applied?:TT selling
rate
40. Unspent amount of a Travellers card should be surrendered to authorized dealer within
from date of arrival in India?: 180 days.
41. Deferred Payment Guarantee comes under which type of Guarantee?: Financial Guarantee
42. In a balance sheet, which of the following is classified as Current Liability - Stocks, Sundry
Debtors, Trade creditors, Goodwill: Trade creditors
43. If machine is embedded in the earth, it will be classified as
for the purpose of creation of charge:
Immovable property.
RECALLED QUESTIONS
BASED ON ANDHRA BANK & CANARA BANK EXAM HELD ON 27.03.2014
1.
2.
What is the target for Agri for domestic commercial banks: 18% of ANBC or CEOBE whichever is
higher.
The CASA accounts where all the KYC norms have to be updated in every two years,comes under:
118
high risk
Maximum remittance to a student studying abroad on declaration basis i.e. without estimate of
foreign institution: USD 1 lakh per academic year
4. Maximum permitted amount for hosptalisation abroad on declaration basis: USD 1lakh
5. Minimum and maximum period for NRE fixed deposits: 1year , bank discretion
6. Nomination in the account of a minor can be done by: Minor can not nominate. Guardian can
nominate on behalf of minor.
7. For release of forex for import form A1 not required up to : $5000
8. The foreign currency to be surrendered to AD with in a period of: 180 days after return to India.
9. Inoperative CASA accounts are those in which there is neither debit nor credit transaction for a
period of: 2 year.
10. Produce marketing loans to farmers or loan against ware house receipts are part of priority sector
provided allowed for a period of: 12 months
11. An account jointly operated by A(director) and B(Secretary) of a company. On the death of A the
cheque signed by A presented in the bank. What should the bank do? The cheque will be paid if
otherwise in order.
12. A is the POA appointed by B. On the death of B, the cheque presented with the As signature. What
should the bank do? Cheque will not be paid as POA terminates on the death of account
holder.
13. The minimum amount for remittance under RTGS: Rs 2 lakhs
14. No collateral security is required in case of loans to micro and small enterprises for loans upto:
Rs 10 lakhs
15. What is the amount of claim under CGTMSE in case of unit other than belonging to women or in
North East if outstanding is Rs 50 lakh?: Rs 37.5lakhs
16. On which of the following Asset classification and income recognition norms will not be applicable
- a)gold loans b) loans covered by state govt guarantee; c) loan against LIP: loan against LIP
17. Consortium financing is necessary for which of the following - a) Loans above Rs ten crore fund
based; b) Loans above Rs ten crore including fund based and non fund based lending: Bank
discretion. It is required when exposure limit exceeded
18. Risk weight of loans guaranteed by secured by state govt: 20%
19. Risk weight of loans to the staff members which are secured: 20%
20. Current assets 48, net working capital 12 , current ratio: 1.33
21. A manufacturing enterprises will be classified as small enterprise where the investment in plant
and machinery is upto: Rs 5 crore
22. Penalty to be paid at the rate of ___ for delay in returning neft rejections: repo rate +2
23. What is an inchoate cheque? It means an incomplete cheque in which date, payee or amount
is not mentioned.
24. When a loan is recovered from guarantor for dues payable by the Principal Debtor, guarantor
becomes entitled to all rights and remedies which the creditor had against the Principal Debtor.
This right of guarantor is called: Right of subrogation
25. OD/CC account classified as NPA if it is not renewed or reviewed within: 180 days from due
date of renewal.
26. A NPA account to be classified as a loss asset where realisable security becomes less than: 10 per
cent of outstanding.
27. A nonperforming asset in the books of a bank shall be eligible for sale to other banks only if it
has remained a non performing asset for at least _years in the books of the selling bank: no
period specified
28. When SARFAESI Act not applicable : overdue amount less than 20% of the due amount
29. Corporate Debt Restructuring is when applicable : When amount 10 cr or above
30. In education loan, interest subvention is given for which period: Entire interest charged
during moratorium
31. Margin is not required upto how much amount in agriculture loan: Rs 1 lakh
32. In CGTMSE claim up to loan of Rs 5 lakh is : 85% of amount in default
33. Who has the right to make nomination in Minors account: Guardian ( Person legally
competent to act on behalf of minor)
34. In a clubs account , chq can be signed by secretary and one more person, if secretary dies can the
chq signed by him can be paid: yes it can be paid
35. How much interest can be paid in FCNR A/c , if closed before one year: Nil
36. As per which guideline, DD of amount above 20000/- cannot be paid in cash?: As per RBI
guidelines since it has to be crossed account payee.
37. Under which Act demnd draft cannot be paid to bearer : section 31 of RBI Act
38. Where SLR provision is mentioned: Section 24 of B R Act
39. How much loan can be given against Demat Share and Physical Share: Rs 20 lakh; Rs 10 lakh
40. When the cash budget method is used: Seasonal industries
41. As per KYC periodical updation of Data for every 2 yrs is for which type of customer: High Risk
42. If there is overdue in OD and credit balance in SB, under which right bank can set adjust the
balance: right to set off
3.
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maturing Assets
Asset Liability Management is useful for: Interest Spread (NIM)
A customer having Gold Deposit Receipt for 3 years @3% interest wants to prematurely close
the deposit and accept @1% interest. What should be the minimum period: Ans: 1year and
3months (1 year lockin period for gold deposits)
126.
As per Internal Rating Based approach for capital for credit risk, Expected Loss is calculated
as: PDxLADxEAD; probability of default x loss given at default x exposure at default
127.
As per UCP 600 if quality is not mentioned, what is the tolerance level: Not applicable
128.
CR:1.33, NWC: 8 lacs. What is Current Asset: 32
129.
Current Ratio is 3:1 and Quick Ratio is 1:1. What is inventory if Current Asset is 30: 20
130. Currently which approach is being adopted for capital for Operational Risk?: Basic Indicator
Approach.
131.
Indirect finance to Agriculture is 5.5% out of total 18.1% of total Agriculture finance, how
much of it will be part of priority sector?: Entire amount will be part of PS though agriculture
advance will be 17.1%
132.
Notice of 60 days given by Banker under SARFASI, Borrower does not acknowledge/respond
in 15 days, what will be the next step of the banker?: The secured creditor may take recourse
to one or more of the following measures to recover his secured debt, namely:-- (a) take
possession of the secured assets of the borrower; (b) take over the management of the
business of the borrower; (c) appoint any person to manage the secured assets the
possession of which has been taken over by the secured creditor;
133.
A person died testamentary, what does it mean?: After writing the will
134.
Limitation in case of Term Loan payable by instalments 3 years from due date of each
instalment.
135.
Not a part of direct agriculture finance- ACAB. POST HARVESTING; PACS; PRE HARVEST:
Advance to Agri clinic and agri business ACAB
136.
How will non registration of partnership will affect the right of partnership?: Partnership
firm cannot file suit for recovery of its debt.
137.
Account of ABC & Sons is overdue. Money is lying in XYZ and Co account. Both are Partnership
firms of the same 3 partners. Whether bank can adjust the overdue?: Right of set off can be
exercised.
138.
LC liability is shown as ______ in balance sheet: Contingent liability
139.
TDS is applicable in which type of Non resident accounts?: NRO accounts
140.
Variation in interest rate does not affect the income or expense in case of - CA, SB, RD, FD &
Debentures: Current account
141.
What is the full form of CRILC : Central Repository of Information on Large Credits
142.
When settlement is to be done in 2 days, which rate will be applicable - cash rate, spot rate,
call rate?: Spot Rate
143.
Interest on Term Loan 25, Instalment 15: 85/40=2.125
124.
125.
RECALLED QUESTIONS
CANARA BANK CLERICAL TO OFFICER PROMOTION EXAM FEBRUARY 2014
1. If a cheque is dishonoured due to insufficient funds, the holder should issue notice to drawer
within _____ days of receiving notice of dishonor as per Sec 138 of N.I. Act. Ans: 30 days
2. Interest Rate on FCNR(B) deposits should not exceed:
Ans: LIBOR for concerned currency
for corresponding maturity plus 200bps(Upto 3 year) and LIBOR +300bps (3-5 years).
3. If an account is wrongly debited through ATM without dispensing cash and customer
complains about it. Within how many days the bank should refund the amount. Ans: 7
working days
4. Which one is not a material alteration?: Ans: Converting Bearer instrument to Order
instrument.
5. Validity of the Cheque is 3 months as per: Ans: RBI Guidelines.
6. Mr Ram who is payee of the cheque, puts his signatures on the back of cheque and above his
signatures, he writes the words Pay to Mr Mohan. This process is called: Ans:
Endorsement.
7. Which of the following apex body and Regulator has asked banks to swap customer-related
information so that the frauds and defaults may be prevented in future? a)Bombay Stock
Exchange (BSE) b)Indian Banks, Association (IBA) c)Securities & Exchange Board of India
(SEBI) d) Reserve Bank of India (RBI): Ans: d, (RBI)
8. A loan granted for short duration crops will be treated as NPA if the installment of principal or
interest thereon remains overdue for ________ Ans: Two Crop Seasons
9. As per Nayak Committee working capital cycle in general case: Ans: 3 months
122
10.Max time period of FCNR term deposit: Ans: 3 years (AUD, CAD)and 5 years (USD, GBP,Euro)
11.How much Loan amount can be sanctioned without collateral security to group under
NRLM?: Rs 10lac.
12.In which assets provision does not apply- Standard, Sub standard, Doubtful, Loss: Ans None
of these as it is applicable in all cases.
13.For enforcing right under SARFEASI, the account should be of what type?- NPA, Standard,
Loss Asset, Doubtful asset, : Ans NPA
14.Where Equitable Mortgage by Deposit of Title Deeds is created?: Ans: By depositing title
deeds at Notified place, notified by state Govt
15.Under UCPDC 600 what is maximum number of days allowed for examination of documents
by issuing bank and negotiating bank?: 5 banking days each.
16.While sanctioning Term loan, which aspects you give maximum importance?: Ans: Sufficient
cash flow for repayment of loan.
17.Total number of digits in AADHAR.: Ans: 12
18.Under Mobile Banking, what is the maximum limit of for funds transfer for daily and
monthly: Discretion of the bank (Rs.50,000/- per day)
19.After sale of NPA, for how many days, account will be treated in standard category with the
purchaser bank?: 90 Days.
20.As per KYC norms, what is the periodicity for review of risk categorization of customers:
Ans: 6 Months
21.What is Pari-Passu Charge when loan has been sanctioned by more than one
bankinconsortium?: Ans: In case of default, the sale proceeds of security will be shared in
the ratio of outstanding within sanctioned limits.
22.In case of pension payments as part of Government Business, how much commission is paid
to the banks? Ans: Rs. 65 per transaction.
23.What is the Risk Weight for Secured Staff Loan Account for the purpose of capital adequacy?
Ans: 20%
24.Garnishee Order is applicable when relationship with respect to Customer and Bank : Debtor
- Creditor
25.Ombudsman Award - Max for credit card : Ans: Rs.1,00,000
26.In FCNR (B) Exchange risk is borne by : Ans: Banks
27. Maximum number of Withdrawals permitted per month in Basic Savings Bank Deposit account
is ______ and maximum amount per month: Ans: Four & Rs.10,000/28. As per Liberalised Remittance Scheme, Resident Individuals can remit upto USD ________ per
financial year for any permitted Current or Capital Transactions or both. Ans: $75,000
29. As per our banks Doorstep Banking Scheme, what are the ceiling limits for Cash
Pickup/Delivery: Ans: Minimum Amount of Rs.1 lakh and maximum amount of Rs.25 lacs.
30. Unspent Foreign Exchange brought back by Resident is to be surrendered to Authorised
Dealer with in ____ days: Ans: 180 days
31. FCNR(B) is opened in _____ currencies: Ans: 5 (USD,GBP,EURO,AUD,CAD)
32. The maximum credit exposure for individual non corporate borrowers - Individual borrowers for personal loans
for Non business purpose (Other than schematic loans) : Ans: Rs.10 crores
33. What is the minimum amount of Loan under Corporate Loan Scheme: Ans: Rs.10.00 crores
34. CIBILs CIR is to be obtained for consumer accounts with credit limits of Rs.______ and above for
Priority Sector advances. Ans: Rs.2.00 lacs
35. What is the periodicity of conducting Study Circle Meeting: Ans: Once in 3 months in
branches, once in 2 months in C O s
36. Limitation period for executing decree is _____ years from the date decree becomes executable. Ans: 12 years
37. A cheque signed by agent is presented for payment after his(agent) death. What should the bank do: Ans: The
cheque will be paid if otherwise in order, dated prior to death
38. Why Selling rate of Foreign Currency is higher than Traveler Cheque : Ans: Holding cost of currency is high
43. What is the percentage of Income Tax to be deducted on deposits if PAN is given: Ans: 10%
44. What is the percentage of income tax to be deducted on deposits if PAN is not given : Ans:
20%
45. Who can open a SB NSIGSE : Ans: All SC/ST girls who pass class VIII and Girls who pass class
VIII examination from Kasturba Gandhi Balika Vidyalayas (irrespective of whether they belong
to SC/ST) and enroll for class IX in State/UT Government, Government aided or local body
schools
46.In which of the following accounts, Nominee is maintained: a) safe custody articles b)deposit
accounts c)Locke accounts Ans: All
47.What is the limit of Education Loan for inland studies for considering under Priority Sector:
Ans: Rs.10.00 lakhs
48.What is the relationship between a Bank and Customer in case of Deposit Account: Ans:
Debtor(Bank)-Creditor(Customer)
49.In which of the following 3 pillar concept is maintained: a) Basel I b) Basel II c)Basel 3 Ans:
Basel-II
50.What is the coverage amount in Micro Insurance under Sampoorna Kavacha Plan: Ans:
Rs.30,000/51.What is the maximum amount of Gold Loan given under Agriculture: Ans: Rs.3.00 lakhs
52.What is the limit of land in case of Marginal Farmers: Ans: 2.5 acres dry land or 1 acre wet
land
53.As per PMLA (KYC guidelines), preservation of records required after closing the account is:
Ans: 10 years
54.What is the minimum amount and minimum period of RD deposit: Ans: Rs.50 and 6 months
55.What is the periodicity for updation of KYC data in respect of Low Risk Customers: Ans: once
in 10 years
56.What is the minimum amount in respect of KDR: Ans: Rs.1000/57.What is the maximum amount of loan that can be considered under Canara Pension Scheme:
Ans: Rs.2.00 lakhs
58.What is the maximum repayment period under Canara Pension Scheme Ans: 60months(if
pensioner is below 65 years) 48 months if pensioner is above 65 years
59.DDs of amount Rs.20,000/- and above is crossed with: Ans: Account Payee
60.What is Nostro Account: Ans: Account of an Indian Bank with Foreign Bank
61.Full form of LTV: Ans: Loan To Value
62.What is the maximum claim amount in Lok Adalat: Ans: Rs.20.00 lakhs
63.What is the maximum loan amount eligible under Canara Mortgage: Ans: 50% of Land &
Building
64.In which of the following types of accounts, ATM cards are not issued a) Illiterate b)Joint
Account, operation Jointly c) Minor Account d) None. Ans: None (since issued to all types of
accounts mentioned above)
65.Definition of Medium Term Loan: Ans: Repayable in 36-84 months
66.What the period of NPA in Sub Standard Category: Ans: 12 months
67.An account is considered as Inoperative if there are no customer induced operations in the
account for a period of _____ Ans: More than 2 years
68.What is the maximum quantum of Loan that can be considered for purchase of Agricultural
Land. Ans: Rs.10.00 lakhs
69.Canara Gift Card is available in the denominations of: Ans: Rs.500/-. 1000/-. 2000/- and
5000/-.
70.Maximum RTGS transactions permitted to Corporates under Corporate Net Banking: Ans:
Rs.5.00 crores maximum amount per day with a cap of 5 bulk uploading files (each file not
exceeding Rs.1.00 crore) (Cir 351/2013)
71.If there are 4 counterfeit notes in a single remittance by a customer, when complaint is to be
lodged with police? Ans: once in a month (if there are 5 pieces or more, complaint
immediately)
72.Unclaimed deposit means, there are no operations in the account for more than _____ years.
Ans: 10 years
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110. Long Term Assets are procured by Short Term Liabilities. What type of Risk involved:
Liquidity
111. Not valid proof of Identification a)PAN card b) Ration Card c)Driving licence d)Voter Card.
Ans: Ration Card
112. Full form of FATF: Ans: Financial Action Task Force
113. RIDF is maintaining by: Ans: NABARD
114. Relation of Banker and Customer in case of collection of cheque: Agent and Principal
115. If amount mentioned in words and figures differs in a cheque, which amount will be paid
Ans: Amount in words
116. Financial Inclusion Means: Ans: Providing financial services to poor at an affordable cost
117. Full form of ASBA: Ans: Application Supported by Blocked Amount
118. Guidelines on Investor Protection Funds by Stock Exchanges issued by: Ans: SEBI
119. Clearing of cheques in outside of station: Ans: Speed Clearing
120. Rs.50,000/- DD is issued by: Ans: Debiting customers account
121. Debt Equity Ratio is useful for appraisal of ____ loans. Ans: Term Loan
122. Tangible Net Worth arrived by_____: Ans: Net worth minus Intangible assets
123. What is the rate of Annual Guarantee Fee payable to CGMSE in case of SME loans granted to
other than women/North East. Ans: 1% (for others)
124. Bank loans to any governmental agency for construction of dwelling units or for slum
clearance and rehabilitation of slum dwellers subject to a ceiling of Rs._____ lakh per dwelling unit,
can be classified under Priority Sector Housing. Ans: Rs.10.00 lakhs
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