CAPSULE ON BANKING

A BOOK ON QUICKEST AND EASY APPROACH TO SUCCESS IN

CAREER / PROMOTION TEST

( A Very useful book for all exams related to Banking

Promotion test, JAIIB, CAIIB , DBF and for knowledge to all )

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.

BANKING LAW ( NI,BR & RBI ACT )

................. 03

2.

CUSTOMERS & THEIR ACCOUNTS

................ 11

3.

LOANS & ADVANCES

................. 33

4.

PRIORITY SECTOR LENDING

............... 42

5.

FINANCIAL STATEMENT ANALYSIS

.............. 59

6.

NPA & LEGAL ASPECTS

............... 64

7.

GENERAL BANKING

.............. 71

8.

FOREX

................ 79

9.

BANKING TECHNOLOGY

............... 93

10.

LATEST BANKING CONCEPT

11.

RECALLED QUESTIONS ( 2014-15 )

............... 100
............. 110

1. BANKING LAW ( NI, RBI & BR ACT )

NEGOTIABLE INSTRUMENT ACT-1881 :No direct definition is available. Definition of NI: U/s 13, NI
means and includes promissory note (PN), bill of exchange (BOE) and cheque. Information Technology
act. Has also been made applicable to NI act and thus electronic Cheques & digital signatures statutory
recognition. IT act will not apply to bill of exchange & promissory note & thus these two can not be
electronic means. It came into force w.e.f. Mar 01, 1882 Last amendment in Dec 2002 ( implemented in
Feb. 2003 ). Total sections 147 Applicable throughout India including J & K.
1. Provisions relating to Negotiable Instruments are given in the Negotiable Instruments Act,
1881.
2. The Negotiable Instruments Act is applicable in whole of India including Jammu & Kashmir.
3. As per Section 13 of the Act, promissory notes, bills of exchange and cheques are the
negotiable instruments.
4. As per practice and usage and as per court decisions, certain instruments' such as Treasury
Bills, Certificate of Deposit, Commercial Paper, Govt. Promissory Note are also Negotiable
instruments.
5. Some instruments like Railway Receipt, Bill of Lading, Warehouse Receipt etc are also treated
as Negotiable instruments as per Section 137 of Transfer of Property Act.
6. The main feature of a negotiable instrument is that it is freely transferable and the title of the
transferee will be better than the transferor.
7. Promissory note: As per Sec 4, PN is in writing, containing unconditional undertaking or promise,
signed by the maker, to pay a certain sum of money to or to the order of a certain person or to the
bearer thereof. It requires payment of stamp duty and can be demand PN or usance PN. There are
2 parties (maker & payee). Currency/bank notes are excluded from the definition of promissory
notes. Writing the words "I owe you Rs 1000' does not constitute PN bull owe you Rs 1000
payable on demand constitute PN.
8. Bill of exchange: As per Sec 5, BoE is an instrument in writing, containing an unconditional order,
signed by maker, directing a certain person to pay a certain sum of money only or to the order of a
certain person or to the bearer of the instrument In a Bill of Exchange, the person ordering for
payment is called Drawer and the person directed to pay is called Drawee. The beneficiary is called
payee.
9. Cheque is defined in Sec 6 of NI Act.
10. Cheque is a bill of exchange but always payable on demand and drawee is always a banker. It also
includes truncated cheque and electronic cheque.
11. A cheque is similar to a bill of exchange.
12. Any bill of exchange which is payable on demand and in which drawee is a banker will be called
cheque.
13. The promissory note or bill of exchange can be payable on demand or after some time. If no time
is mentioned then the same will be treated as Demand promissory note or Demand Bill of
Exchange.
14. A negotiable instrument can be payable to bearer or order. If neither bearer nor order is written
it is treated as payable to order. if both bearer or order are written it is treated as payable to
bearer.
15. As per Section 31 of RBI Act, no person other than Central Government or Reserve Bank of India
or any other person authorized in this behalf can issue bearer promissory notes and demand bills
of exchange payable to bearer.
16. Inchoate Instruments: As per section 20 of the NI Act, an instrument on which date, payee or
3

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

"Negotiation Back" and this cheque is treated as satisfied.

Partial Endorsement: The endorsement can be made only for full amount but in case part
payment has been received and a note to that effect is made on the instrument, then the same
can be endorsed for the balance amount.
n. Forged Endorsement: When endorsement is made by a person other than Holder by forging
signatures of Holder Title does not pass to any person on the basis of such endorsement. A
person getting instrument after such endorsement does not become holder.
o. Regularity of endorsement: Paying bank gets protection u/s 85(1) only when endorsement is
regular (may not be genuine).
Payment of cheques
a) A paying banker gets protection under Section 85 of the NI Act.
b) In the case of order cheques, protection is available under section 85(1) and for bearer cheques
it is available under section 85(2) of NI Act. In the case of drafts it is available under section 85A.
c) As per section 85(1) of the Act a paying banker has two duties Le. the endorsement should be
regular and payment should be in due course. Paying banker is not concerned about genuineness
or forgery of endorsement.
d) As per section 85(2) of the NI Act, in case of a bearer cheque the responsibility of paying banker
is to ensure that payment is in due course. If a bearer cheque is endorsed, the bank is not
required to take note of any such endorsement. Thus as per section 85(2), 'Once a bearer always
a bearer'
e) Payment in Due Course: As per Sec 10, a payment would be considered in due course if: (a)
Payment as per apparent tenor of instrument; (b) Payment in good faith and without negligence; (c)
Payment to person in possession of instrument; (d) Payment under circumstances which do not
afford a reasonable ground for believing that he is not entitled to receive payment of the amount
mentioned therein
f) Form of the cheque has not been given in the Act. It is simply as per practice. However, RBI has
prescribed format at centres where cheque truncation has started. RBI has prescribed the new
cheque standards "CTS-2010 and all banks providing cheque facility to their customers, will
issue only 'CTS-2010' standard cheques across the country by March 31, 2013.
g) Different ink: A cheque can be drawn in different inks, handwritings or different scripts. Thus, a
cheque presented with different ink, handwriting or script can be paid.
h)
Language: The cheque should be written in Hindi, English or Regional language. Bank is
within its powers to return a cheque written in a language other than the language of that
region.Signatures on Back: When a cheque is presented for payment signatures of the presenter are
taken on the back as a witness of payment. If the presenter refuses to sign, the bank can take
receipt on a separate paper.
Date on Cheque
i) Ante dated cheque: A cheque dated prior to its date of presentation is called ante dated cheque. It
is valid and can be paid.
j) Post dated cheque means a cheque which is dated subsequently to the date of presentation. It is
valid but can be paid only on date on cheque or thereafter till it is stale. If it is paid before date
on cheque, it is not a payment in due course.
k) Stale cheque: As per RBI guidelines issued under section 35A of B R Act, a cheque becomes
stale after 3 months of its issue. These guidelines are effective for cheques issued on or after
1.4.12. The validity can be reduced by the drawer but it cannot be extended. On a cheque
becoming stale, the cheque can be revalidated up to 3 months at a time.
m.

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

Crossing of a cheque or demand draft :

General Crossing: Crossing is of two types General or special crossing. If there are two parallel
transverse lines on the face of cheque it is called General Crossing. The parallel lines can be with
words and company or & co or not contain any word. (Sec 123)
For General crossing parallel lines are must. Any other thing is not so material.
A cheque on which name of some station like Indore is written between two parallel lines will
be called Generally crossed cheque.
Crossing is direction of drawer to paying banker. According crossed cheque can be paid to or
through a bank only (in cash or through clearing) and not across the counter, to payee or holder. A
cheque with General Crossing should be paid only to a bank.
Even if the name of a city is written between two parallel lines like "Indore", it will continue to be
a general crossing and the cheque can be paid to any bank. Such cheque dan be paid at any station
to a bank and not necessarily at Indore.
A general crossing can be converted into a special crossing.
Special Crossing: If name of a bank is written on the face of a cheque' with or without two parallel
transverse lines it is called special crossing (Section 124). Parallel line is not necessary. The name of
a bank can be written anywhere on the face of a cheque.
Specailly crossed cheque can be paid only to the bank whose name is mentioned on the cheque or
his authorized agent for collection.
A cheque crossed to two banks has to be returned unpaid unless crossed by one bank to another as
his agent for collection. Two branches of a bank for this purpose, are only one bank
The special crossing is in favour of a bank and not in favour of a particular branch. Therefore, if a
cheque is favouring Canara Bank Patna, it can be paid to Canara Bank at any place.
For special crossing it is not necessary that the cheque should bear two parallel lines.
A generally or specially crossed cheque can be paid to a banker in cash also.
If a crossed cheque is paid in violation of guidelines, it will not be a payment in due course and bank will
be liable to true owner of cheque i.e. payee or holder in due course.
Provisions relating to crossing are applicable to cheques and drafts only and not to Promissory Notes or
Bill of Exchange. Therefore, if any Bill or Promissory note is having addition of two parallel lines or name
of a banker, it does not have any effect.
Who can cross a cheque: The Crossing can be done by drawer, payee or holder or a banker.
'Account Payee' crossing is not recognised by law but is a long standing practice amongst bankers.
Account payee crossing is a direction to the collecting banker.
Account payee cheque can be collected for credit of the named payee only and cannot be endorsed or
transferred.
RBI has directed banks not to collect account payee cheques for any person other than the payee as it is
established practice.
RBI has advised banks not to credit 'Account payee' cheque to the account of any person other than the
payee.
RBI has clarified that the practice of collecting third party account payee cheques on behalf of cooperative credit societies who are their constituents can be allowed if the amount is up to Rs 50,000.
Not Negotiable Crossing: It is defined in Section 130 of N I Act.
Not negotiable crossing does not restrict transferability but it takes away the important element of
negotiation i.e. passing on better title to the transferee (transferee cannot become holder in due course).
It is direction to collecting bank Paying bank has to pay such cheques in normal course.
if words 'Not negotiable' are written between two parallel lines or with the name of a bank, this cheque
will continue to be transferable. It can be endorsed. But the title of transferee will not be better than the
title of transferor.Cancellation of crossing can be done by drawer only under his full signatures by
7

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

of the receipt of information regarding dishonor of cheque

When cause of action arise: If drawer of cheque fails to make the payment, to the holder in
due course, within fifteen days of the receipt of the said notice.
Limitation period for making complaint: The complaint in such cases should be made in
the court of a metropolitan magistrate or a judicial magistrate of the first class or above within one
month of the date of the cause-of-action (i.e. if payment is not made within 15 days)
Bill of Exchange
Demand Bill: A bill Of excharige payable on demand or at sight or on presentment is called Demand Bill.
Usance Bill: A bill of exchange payable after some time is called Usance Bill.
Documentary bill: which is accompanied by document of title to goods like railway receipt, bill of lading,
etc.
Clean bill: is one which is not accompanied by any document of title to goods.
Inland bill: which is drawn or made in India and is either payable in India or on a person resident in
India.
Foreign bill: is one which is not an Inland Bill i.e. it is drawn outside India or if drawn in India is payable
outside India on a person resident outside India. Foreign Bills are issued in more than one part.
Accomodation Bill: means a bill issued without consideration and dealing in such bills is called kite
flying.
Interest Rate: If in a bill of exchange or promissory note, interest rate is not mentioned, it will be
18% p.a.
Calculation of Due Date
o Usance bills should be presented for acceptance within a reasonable time.
o The reasonable time is given under section 105 of NI Act. As per section 105, reasonable time
means as per usage and practice of the area.
o The drawee is allowed 48 hours excluding public holiday to accept the bill.
o If a Usance bill is payable after date, its due date is calculated from date of the bill and if it is
payable after sight, its due date is calculated from the date of acceptance.
o As per section 22 of the N l Act, three days of grace are allowed in the case of Usance bills and
Usance promissory notes. But if the due date is fixed on a particular day or days of grace are
specifically prohibited, the same need not be given.
o Days of grace are allowed only in case of Usance Promissory Note or Usance Billof Exchange and
not in the case of demand bill or demand promissory note.
o As per Section 25 of the Act, if a bill or promissory note matures for payment on public holiday
under NI Act, 1881 (Sunday or any day declared to be public holiday by the Central Government) it
falls due on immediate next preceding business day. Since 26th Jan, 15th August and 2nd October are
national holidays and if the bill falls due on any of these dates, then preceding business day will be
the due date.
o If the period of usance is given in days, then the day from which due date is to be calculated is
excluded.
Due consideration should be given to leap year in which February has 29 days.
o If the period of usance is given in months and there is no corresponding day in the month in
which bill matures, last day of the month is taken into account. For example, a bill dated 3161 Dec
payable two months after date will fall due on 31st Feb without grace period. But since February
has only 28 days, 28th February will be considered and after 3 days of grace, 3td March will be
due date.
Dishonour of a Bill, Noting and Protesting and Liability of Parties
If the drawee does not accept the bill within stipulated period it is treated as dishonoured by non
acceptance.
9

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.

Banking Regulation Act, 1949

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.

Banking Law Amendment Act 2012

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%.

2.Customers & Their Accounts

The Banking Regulation Act 1949 (Section 5-c) defines a banker as a person, undertaking business
of banking. Banking means (Section 6) accepting deposits from public, for the purpose of lending,
repayable on demand or otherwise, withdrawable by cheque, draft, order or otherwise.
Definition of Bank & Banking: Bank is one which conducts business of banking. Banking has
been defined in Section 5 of Banking Regulation Act.
CUSTOMER : There is no legal definition of a bank customer. When customer tenders an account
opening form to open the a/c and banker accepts it, a contractual relationship is established. KYC
definition of customer: As per RBI, for KYC policy purpose, a 'Customer may be defined as
a person or entity that maintains an account with the bank and/or has a business relationship with the bank;

Various types of relationships

Type of Transaction

Bank
11

Customer

Deposit in the bank (CR balance in account)

Loan from Bank (Debit balance in account)
Safe Deposit Vault
Safe custody
issue of draft (after issue of draft)
Payee of draft
Collection of cheque & Standing instruction
Goods left negligently by customer
Purchase of cheque from customer
Purchase/sale of securities on behalf of customer
Currency Chest on behalf of RBI
Money deposited. No instructions for its disposal

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

Banker's Obligations - Duty to maintain secrecy:

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.

Accounts of Illiterate Persons

An illiterate person is competent to contract like any other person.

Cheque book is not issued to illiterate depositor for cash payments.
Cheque book can be issued for making statutory payments, post dated cheques for repayment of
instalments of loan. In such cases, the cheques will be crossed account payee and thumb
impression of the illiterate depositor will be verified on such cheques at the time of issue of
cheque book by competent authority of the bank.

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.

Limited Liability Partnership :

1.
2.
3.
4.

Limited Liability Partnership is governed by Limited Liability Partnership Act 2008.

It is registered with Registrar of Companies.
Minimum number of partners is 2 but there is no limit on number of partners. An individual or a
body coporate can be a member of an LLP.
Liability of partner is limited to the extent of his contribution in the firm. A partner shall not be
personally liable.
18

Accounts of Limited Companies

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

particulars of Modification of charge should be filed with the ROC.

When loan is repaid, particulars of satisfaction of charge should be filed with ROC ,
within 30 days of the satisfaction of charge.
4. ROC with whom particulars to be filed: The particulars of the charge should be filed with the
Registrar of companies in whose jurisdiction the Registered Office of the Company is located.
5. Forms: For filing particulars of fresh charge, Form No. CHG 1 is required. Form used for modification of
the charge is same as that for fresh registration. For satisfaction of charge, Form No. CHG 4 is to be
submitted.
6. Period for filing particulars: Particulars of charge are required to be filed within 30 days of creation of
charge.
7. Extension of Period of Registration: ROC can grant extension of 270 days in filing particulars of
charge. The company will be required to pay additional fees not exceeding 10 times the specified
fees. Beyond this period permission is required from Company Law Board.
8. Duty to file particulars of charge: It is the primary duty of the company to get the charge / modification
of charge / satisfaction of the charge registered with ROC. However, if the company does not get the
charge registered, bank in its own interest can file particulars of charge.
9. Consequence of non filing the particulars: In case the particulars of charge are not filed, the bank
becomes the unsecured creditor against the official liquidator.
10.Priority of charge: The priority of the charge is reckoned from the date of creation of charge (i.e. date of
documents) and not from the date of registration if the charge is registered within the stipulated
period.
3. Satisfaction:

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

Clubs and Societies

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.

KNOW YOUR CUSTOMER (KYC) GUIDELINES

KYC guidelines have been issued by RBI under Section 35A of the Banking Regulation Act, 1949 (and
Rule 7 of Prevention of Money Laundering Rules) keeping in view the recommendations of
Financial Action Task Force
Obiective: The objective of KYC guidelines is to ensure Anti Money Laundering (AML) and
Combating Terrorism Finance (CTF) and risk management
Banks should frame their KYC policies incorporating the following four key elements: Customer
Acceptance Policy; Customer Identification Procedures; Monitoring of Transactions; and Risk
management.
Banks to obtain identity and address of the customer and do proper verification at the time of
opening the account Proof of address not required if address in AOF is same as in proof of identity.
Customers should be categorised into low, medium and high risk customers.
High risk customers include Politically Exposed persons, High Net worth individuals, NGO, Trust etc.
Low risk customers include salaried persons, pensioners, no frill accounts and Government
departments.
Risk review of customers: Bank should review the risk profile of the customer at least once in six
months.
Introduction is not necessary for opening accounts.
Narega card and Aadhar card can be accepted as proof of identity.
While opening the account, bank should obtain photograph for the purpose of identification, proof
of identity and proof of address. If address on proof of identity is same as on Account opening form
then separate proof of address is not required.
Periodical updation of customer identification data: Full KYC exercise will be required to be done at least
every two years for high risk individuals and entities, at least every eight years for medium risk
individuals and entities and at least every ten years for low risk individuals. Positive confirmation
(obtaining KYC related updates through email/letter/telephonic conversation/forms/interviews/visits,
etc.), will be required to be completed at least every two years for medium risk and at least every three
years for low risk individuals and entities. Fresh photographs will be required to be obtained from
22

minor customer on becoming major

Small accounts: As per PMLA guidelines, a small account is one in which balance will not be more than Its
50,000; credits in a Financial year not more than Its 1 lac; withdrawals or transfers in a month not more
than Its 10,000. These accounts can be opened with self attested photo and self attested address.
Simple saving bank account: No min balance but max withdrawal in a month 4 times.
Documents for identity of the customer: (i) Passport (ii) PAN card (iii) Voter Identity card (iv) Driving
Licence (v) Identity card to Bank's satisfaction (vi) letter from any recognized public authority (vii)
Narega Card (viii) Aadhar card.
Documents for proof of address: (i) Telephone Bill (ii) Bank account statement (iii) Letter from any
recognized public authority (iv) Electricity Bill (v) Ration Card (vi) Letter from employer subject to bank
satisfaction (vii) Rent Deed registered with state authority.
Transfer of account: Proof of new address not to be insisted for 6 months.
Plonitorino of Transactions & Reoortina to FILl (Financipt Intelligence Unit)'
Any remittance of funds by way of demand draft, MT/TT or any other mode and issue of travelers'
cheques for value of Rupees fifty thousand and above should be only by debit to the customer's account
or against cheques and not against cash payment.
Record of transactions: Branches should maintain proper record of all cash transactions (deposits and
withdrawals) of more than Rs.I0 lakh.
Banks should send report of all cash transactions (deposit or withdrawal) of more than Rs 10 lakh (Cash
transaction report -CTR) to Financial Intelligence Unit India within 15 days from the dose of the
month to which it pertains.
If transactions are integrally connected then the same should be reported to FIU if the cash receipt or
cash payment in a month is more than Rs 10 lakh. However, while filing CIA, details of individual cash
transactions below rupees fifty thousand may not be indicated_
In respect of suspicious transactions involving any amount, report called as Suspicious Transaction
Report (STR) should be sent within 7 days from the date of transaction
Preservation Period of Records : The record of transactions reported to FIU should be kept for years
from the date of transaction between the bank and the client. Banks should also maintain records
pertaining to the identification of the customer and his address (e.g. copies of documents like passports,
identity cards, driving licenses, PAN card, utility bills etc.) for at least 10 years after closure of
account. .
Banks are to appoint a Sr. Mgmt. Officer, to be designated as Principal Officer responsible for monitoring
and reportin.
Officially valid documents for Customer Identity & Address Proof as per AML Act: Passport, PAN
card, Voter I-Card, driving license, UIDAI letter (including e-KYC process), MGNAREGA job card.
For low risk customers under simplified procedure, the documents can be (i) Identity Card issued by
Govt., Bank, PSU (ii) Letter issued by Gazetted Officer. (RBI July 17, 2014). If identity document contains
address, separate document not to be taken for address proof. For low risk customers, if a/c is opened
without appropriate KYC, complete verification of identity, must be done within 6 months. Address can
be current or permanent. If address changes fresh proof to be given within 6 months. If change is due to
relocation, customer to inform within 2 weeks.
NOMINATION FACILITIES IN CUSTOMERS' ACCOUNTS
Provisiont relating to nomination are contained Section 45ZA to 45ZF of the BR Act.
Nomination facilities are available in deposit accounts (Sec 45 ZA & 45ZB), in respect of articles deposited
for safe custody with the bank (Sec 45ZC & 45ZD) and in locker accounts (45ZE & 45ZF)
Where facility is available: Nomination facility is available in all types of deposit accounts like SB, CA, FD,
RD, foreign currency accounts of individuals and accounts of NRI like NRE, FCNR(B) and NRO.
Who can nominate: Account should be in individual capacity or joint account of individuals or a sole
23

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.

BANK OMBUDSMAN SCHEME 2006

The Ombudsman Scheme has been started by RBI under section 35 A of B R Act.
Applicable all Scheduled Commercial Banks including Private sector banks and foreign banks, RRB/Coop
Banks (incdg AK State)
Ombudsman i$ appointed by RBI. The appointment will be for 3 years at a time.
Who can be Ombudsman? : The Chief General Manager / General Manager of RBI
The expenses of the Ombudsman will be borne by RBI.
Scope Complaints relating to deficiency in service in deposit, ancillary services, non adherence of RBI
guidelines on advances, delay in sanction or disbursement, time schedules, credit card and direct selling
agents. The scope of scheme has been extended to intemet banking , violation of code of banking
services.
Before making a complaint to the Ombudsman, the complaint will be made to the bank. The complainant
can file the complaint with the Ombudsman if no reply is received within one month of lodging the
complaint with bank or reply received is not satisfactory.
Maximum period within which complaint can be filed is 1 year from the date of receiving the reply from
the bank. In case reply is not received from the bank, complaint can be lodged within 13 months from
the date of making the complaint to the bank.
Ombudsman will not entertain a complaint where (a) case is pending in the court (ii) case has already
been decided by the court (iii) similar case has already been decided Ombudsman.
Procedure: On receipt of complaint views of bank called to promote settlement by agreement If not
settled within 1 month, Ombudsman shall announce award. Role of the Ombudsman is that of Arbitrator
with mutual consent.
Maximum amount of award: Rs 10 lakh. In case of credit card maximum claim is Rsi lakh.

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

OTHER ISSUES RELATING TO CUSTOMER SERVICE

Delays In Cheque Clearing: (I) For local cheques credit and debit shall be given on the same day or at the
most the next day of their presentation in clearing. (ii) Timeframe for collection of cheques drawn on
state capitals / major cities / other locations to be 7/10114 days respectively.
Customer Committees: Branch level committees include their customers too. Further a senior citizen may
preferably be included therein. The Branch Level Customer Service Committee may meet at least once a
month.
Both the drop box facility and the facility for acknowledgement of the cheques at the regular collection
counters should be available to customers and no branch should refuse to give an acknowledgement if
the customer tenders the cheque at the counters. On the cheque drop box it should be indicated that
customer can deposit the cheque at collection counter and obtain acknowledgement.
Banks should invariably offer pass book facility to all its savings bank account holders (individuals) and
in case the bank offers the facility of sending statement of account and the customer chooses to get
statement of account, the banks must issue monthly statement of accounts. The cost of providing such
Pass Book or Statements should not be charged to the customer.
Banks should mention the address / telephone number of the branch on the Pass Books 1 Statement of
accounts issued to account holders.
Unique Customer Identification Code (UCIC) for banks' customers in India: Banks should initiate steps for
allotting UCIC to all their customers while entering into any new relationships for individual customers
to begin with, and to existing individual customers by end-March 2014.
Intersol charges: Banks should follow a uniform, fair and transparent pricing policy and not discriminate
between their customers at home branch and non-home branches. If a particular service is provided
free at home branch the same should be available free at non home branches also. There should be no
discrimination as regards intersol charges between similar transactions done by customers at home
branch and those done at non-home branches.
Banks shbuld give an acknowledgment to customer at the time of receipt of Form 15-G/15-H.
CONSUMER PROTECTION ACT : The Act is not applicable in J&K
A complaint can be filed by the consumer, voluntary consumer association, Central or State Government.
The objective is to address consumer's grievances against deficiency in the quality of goods or service's for
consideration.
Limitation period for lodging the complaint is 2 years from the date of cause of action.
Pecuniary jurisdiction: The Forum operates at three levels i.e. District, State or National. For claims up to
Rs 20 lac, complaint will be lodged with Distt. Forum, for claims over Rs 20 lac up to Rs 100 lac with State
Commission and for claims more than Rs 100 lac with the National Commission.
Time limit - admissibility of complaint 21 days. Decision 3 months without analysis and 5 months with
analysis.
Frivilous complaint- Imprisonment 1 month to 3 years and fine Rs.2000 to Rs.10000.
Appeal - Appeal from one forum to another can be made within 30 days of the order. Against Distt Forum
to State Commn deposit of 50% of amount or Rs.25000, whichever less, against State Commn to National
Commission Rs.35000 and against National Commn to Supreme Court Rs.50000.
Settlement of claims in respect of missing persons :
As per the provisions of Section 108 of the Indian Evidence Act, presumption of death can be raised only
after a lapse of seven years from the date of his/her being reported missing. As such, the nominee / legal
heirs have to raise an express presumption of death of the subscriber under Section 107/108 of the
Indian Evidence Act before a competent court. If the court presumes that he/she is dead, then the claim
in respect of a missing person can be settled on the basis of the same.
SAVING ACCOUNT : Interest rate on Saving accounts has been deregulated and decided by banks
26

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'
28

The payment of a demand draft can not be stopped

Demand draft or Pay order of Rs 50,000 & above should be issued to the debit of an account or
cheque and not against cash.
RBI has prescribed far following charges for Collection of Outstation cheques for saving bank
customers: (i) Up to Rs. 5,000; not exceeding Rs. 25 per instrument (ii) Rs 5000 to Rs 10,000: not
exceeding Rs 50 (iii) Rs. 10,000 to Rs. 1,00,000 : not exceeding Rs. 100 per instrument: (iv)
Rs.1,00,001 and above: Bank discretion.(iv) The above charges will be all inclusive. No additional
charges such as courier charges, out of pocket expenses, etc., should be levied from the customers.
For current account customers: Bank discretion irrespective of amount.
SAFE DEPOSIT LOCKERS
The relationship between bank and customer in case of Safe Deposit Vault is Lessor and Lessee.
The relationship between bank and customer in case of safe custody of articles, is Bailee and
Bailor.
Safe Deposit Vault is governed by provisions of Transfer of Property Act
Safe Custody is governed by provisions of Indian Contract Act_
Banks to maintain wait list for locker allotment.
Bank should not insist for any deposit at the time of hiring the locker. Bank may obtain a Fixed
Deposit which would cover 3 years rent and the charges for breaking open the locker in case of an
eventuality.
identification Code of the bank / branch should be embossed on all the locker keys with a view to
facilitate Authorities in identifying the ownership of the locker keys. (Latest instruction)
If a locker is in joint names with operating instructions as either or survivor, and one of them
reports loss of key, the operation of the locker should be allowed to both on joint basis.
Where the lockers have remained unoperated for more than three years for medium risk category
or one year for a higher risk category, banks should immediately contact the locker-hirer and
advise him to either operate the locker or surrender it. In case the locker-hirer does not respond
nor operate the locker, banks should consider opening the lockers after due notice to him even if
the rent is paid regularly.
Banks should not open sealed/closed packets left with them for safe custody or found in locker
while releasing them to the nominee(s) and surviving locker hirers / depositor of safe custody
article.
PENSION PAYMENTS & GOVERNMENT BUSINESS
Pension Payment Order is the basic document sanctioning pension to a retired employee.
Life certificate is obtained in November every year.
Pension for the month of March is credited in the month of April. Thus, in the month of April,
pension is credited twice in the account of the pensioner.
Pension account is opened in the name of pensioner. It can be opened jointly with the spouse either
as 'either or survivor or "former or survivor provided the pensioner gives an undertaking that the
pension disbursing authority will be discharged by credit pension to the joint account.
Commission rates for government Business including PPF and Senior Citizen Saving Scheme:
Receipts:
Physical: Rs 50 per transaction: Electronic: Rs 12 per transaction; Pension payments: Rs 65 per
transaction; Other payments: 5.5 paise per Rs 100 turnover.
Time period for remittance of Govt. receipts to Govt. account (CAS Nag pur): (i) Remittance
through e payments: T+1 day; (ii) T + 3 (i.e. date of Transaction + 3 days) in case of local
transactions; (iii) T + 5 in case of outstation transactions.
Delayed period interest : Bank rate + 2% for remittance of Rs.1 lac and above; For transaction of
less than Rs.1 lac - Bank rate, when delay is up to 5 days. Delay above 5 days, bank rate + 2% for full
period of delay.
29

PUBLIC PROVIDENT FUND (1968)

can be opened only in the name of individuals. Joint accounts and HUF account not allowed.
Account in the name of minor can be opened either by father or mother.
Contribution: Minimum Rs 500 & maximum Rs 100000 p.a. (Max 12 instalments in a year)
Period: 15 years. Can be extended by blocks of 5 years each.
Interest Rate for 2013-14:8.7% p.a. paid on min balance between 5th and last day of month.
Nomination: Allowed. Nominees can be one or more than one.

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.

VARIOUS PENALTIES IN TAX NON-COMPLIANCE

If "a person makes payment of FDR of Rs.20000 or above in cash: penalty equal to amount paid. No
penalty
of imprisonment.
.
Penalty for non-deduction of TDS on interest on deposits, by a bank: Bank shall be assessee in default
in respect of that amount, pay simple interest at 1.5% per month on the amount of that tax before
furnishing quarterly statement of each quarter (Sec 200 IT Act); Imprisonment : 3 months to 7
years.
Delay in filing TDS return Rs.200 per day
Non compliance of provision of PAN = Rs.10000
Wrong reporting in TDS statement: Rs 10.000 to Rs 100,000
Delay in deposit of service tax Intt 13% pa + penalty @ 200 per day or 2% per month of tax
liability, whichever higher. Maximum it could be up to amount of service tax.
Cash & Other Ceilings for important Transactions
Transaction
32

Ceiling

Payment of FOR including interest in cash

Issue of Demand Drafts and TTs/MTs against
Issue of Foreign Currency in cash
Deduction of TDS on Term Deposits
Payment of interest in cash
Quoting PAN for term deposit
Quoting PAN for deposit of cash with bank
Account paying crossing on DD

Leis than Rs 20,000

Less than Rs 50,000
Up to Rs 50,000
Above Rs 10,000
Less than Rs 10000
Above Rs 50,000
Rs 50,000 or above
Rs 20000 or above

3. LOANS & ADVANCES

CHARGES ON SECURITIES

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

Available for Mortgage by Conditional Sale

only
Not available for Mortgage by conditional sale
and usufructuary mortgage

Right to sale without court intervention

Registration of
mortgage
with
Registrar
of
There is absolute transfer of property
Loan is repaid out of income from the
mortgaged property

English Mortgage.
Equitable Mortgage.

possession of property is with mortgagee

Usufructory mortgage

English Mortgage
Usufructory mortgage

VARIOUS KINDS OF CHARGES OVER SECURITIES

immovable Property like land and building
34

Charge
Mortgage

Actionable claims like Book debts, FDR. NSC, Life Policies

Assignment
Movable property/_goods like Plant & machinery, stocks, vehicle, RIR Pledge or hypothecation
Paper securities like Shares, debentures, MF units, bonds
Lien
Advance against Shares
Bank should not grant advance against security of partly paid shares because these
represent contingent liability. Moreover, it is prohibited by RBI.
Amount of advance: Loans against the security of shares, should not be more than Rs 10 lakh per
borrower if the shares etc are held in physical form and not more than Rs 20 lakh per borrower if
these are in dematerialised form.
Margin: Minimum margin of 50 percent of the market value of equity shares/convertible debentures
held in physical form and 25% for demat shares. In case advance is granted to an employee for
purchase of shares of his own company, then the amount of advance can be up to 90% of
the value.
Advance against Life Insurance Policy:
The amount of loan is linked to the surrender value of the policy. Surrender value
means amount payable by the insurance company, upon surrendering the policy.
Life insurance Policy is charged to bank by way of assignment
There is no role of nominee while granting advance against LIP.
GUARANTEE & BANK GUARANTEE
Guarantee is defined in section 126 of Indian Contract Act.
There are three parties to a contract of guarantee namely principal debtor, creditor and surety.
The liability under guarantee is a contingent liability and surety is liable on default by the principal debtor.
Once there is a default, the liability of the surety is co extensive with the principal debtor. That is
he is equally liable as principal debtor.
When a guarantor makes payment on being called by the creditor, he becomes entitled to all
rights and remedies which creditor had against the principal debtor. This right of the surety is
called Right of Subrogation.
When guarantee is issued for a single transaction it is called specific guarantee and when it is
issued for series of transactions it is called continuing guarantee.
Deferred payment guarantee is issued when the applicant purchases machine etc on instalment basis.
Deferred payment Guarantee is just like financial guarantee.
The difference between Deferred payment guarantee and term loan is due to outlay of funds.
STAMPING OF LOAN DOCUMENTS
Indian Stamp Act extends to whole of India except Jammu & Kashmir.
There are certain documents on which stamp duty is prescribed by Central Government and is uniform
throughout India. These documents are Promissory Note, Bill of Exchange, Receipt etc. Duty on these
documents will be same throughout India except J&K. On all oilier documents, the stamp duty rates are
prescribed by the State Govt. Such documents are Power of Attorney, Agreements, Guarantee Bond,
Indemnity Bond etc.
Stamp Duty on Different Instruments:
a) Demand Promissory Notes:
DPN Amount
Stamp value
Not exceeding Rs. 250
Five paise
Exceeding Rs. 250 but not exceeding Rs. 1000
Ten paise
Exceeding Rs. 1000/Fifteen paise
Demand Bill of Exchange:
No stamp duty is payable
b) Usance Promissory Notes/Usance Bills: The amount of stamp duty depends on period of usance and the
amount of the bill. However, Bills of exchange with usance not exceeding three months drawn on/drawn
35

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

LATEST POLICYGUIDELINES DURING 2014-15 LOANS & ADVANCES

1.Housing Loans: Review of Instructions (5.3.2015): As per current instructions, banks should not
include stamp duty, registration and other documentation charges in the cost of housing property so
that the effectiveness of LTV ratio is not diluted. Now, RBI has decided that where the cost of the
house/dwelling unit does not exceed Rs.10 lakh, banks may add stamp duty, registration and other
documentation charges to the cost of the house/dwelling unit for the purpose of calculating LTV
ratio.
2.Housing Loans - Construction linked disbursal of housing loan (5.3.2015): As per extant guidelines,
disbursal of housing loans sanctioned to individuals should be closely linked to the stages of
construction of the housing project/houses and upfront disbursal, should not be made in cases of
incomplete/under-construction/green field housing projects. Now, RBI has decided that in cases of
projects sponsored by Government/Statutory Authorities, they may disburse the loans as per the
payment stages prescribed by such authorities, even where payments sought from house buyers are
not linked to the stages of construction, provided such authorities have no past history of noncompletion of projects.
3.HOUSING SECTOR: NEW SUB-SECTOR CRE-RH: As loans to the residential housing projects under
Commercial Real Estate (CRE) Sector exhibit lesser risk and volatility than the CRE Sector taken as a
whole, RBI has decided to carve out a separate sub-sector called Commercial Real Estate
Residential Housing (CRE-RH) from the CRE Sector.
4.CRE-RH would consist of loans to builders/developers for residential housing projects (except for
captive consumption) under CRE segment. Such projects should ordinarily not include nonresidential commercial real estate. However, integrated housing projects comprising some
commercial space (e.g. shopping complex, school, etc.) can also be classified under CRE-RH, provided
that the commercial area in residential housing project does not exceed 10% of total Floor Space
Index (FSI) of the project. In case the FSI of the commercial area in the predominantly residential
housing complex exceeds the ceiling of 10%, the project loans should be classified as CRE and not
CRE-RH.The CRE-RH segment will attract a lower risk weight of 75% and lower standard asset
provisioning of 0.75% as against 100% and 1.00%, respectively for the CRE segment.
5.CONVERSION OF DEBT INTO SHARES: Pursuant to the amendments made in SARFAESI Act, 2002,
RBI has advised as under: Securitisation Companies / Reconstruction Companies (SC/RCs) are
permitted to convert a portion of debt into shares of the borrower company as a measure of asset
reconstruction provided their shareholding does not exceed 26% of the post converted equity of the
company under reconstruction. Securitisation Companies / Reconstruction Companies (SC/RCs) are
required to obtain, for the purpose of enforcement of security interest, the consent of secured
37

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.

4. PRIORITY SECTOR LENDING

History : At a meeting of the National Credit Council held in July 1968, it was emphasised that commercial
banks should increase their involvement in the financing of priority sectors, viz., agriculture and small scale
industries. The description of the priority sectors was later formalised in 1972 on the basis of the report
submitted by an RBI's Informal Study Group. Initially no specific target were fixed but in Nov.1974, the banks
were advised to raise the share of priority sector in their aggregate advances to the level of 33 1/3 % by March
1979. Subsequently, on the basis, of the recommendations of the Working Group on the Modalities of
Implementation of Priority Sector Lending and the Twenty Point Economic Programme by Banks (Chairman:
Dr. K. S. Krishnaswamy), all commercial banks were advised to achieve the target of priority sector lending at
40 %. of aggregate bank advances by 1985. Sub-targets were also specified for lending to agriculture and the
weaker sections within the priority sector. The guidelines on Priority sector were revised in the year 2007
based on the recommendations of the Working Group headed by Shri C. S. Murthy. The Sub-Committee
headed by Shri Y. H. Malegam constituted to study issues and concerns in the Micro Finance institutions (MFI)
sector, also recommended review of the guidelines on priority sector lending. In August 2011, RBI set up a
Committee headed by Shri M V Nair, to suggest revised guidelines with regard to Priority Sector lending
classification and related issues. Based on the recommendations of the Committee, RBI has issued following
guidelines which will be operational with effect from July 20, 2012. The priority sector loans sanctioned under
the guidelines issued prior to these guidelines will continue to be classified under priority sector till maturity /
renewal.
CATEGORIES OF PRIORITY SECTOR
Priority sector include (i) Agriculture (Direct and Indirect), (ii) Micro and Small Enterprises (Direct and
Indirect), (iii) Export Credit, (iv) Education loans and (v) Housing loans (vi) Others.
COMPUTATION OF PS ADVANCES FOR TARGET PURPOSE : The current year targets to be computed based on
Adjusted Net Bank credit (ANBC) / Credit Equivalent of Off-balance sheet exposure (CEOBE), whichever
higher, of preceding March 31st. Outstanding PS loans as on Mar 31st of current year to be reckoned for
achievement of targets. ANBC = NBC + non-SLR investment in HTM category + other investment eligible as
part of priority sector. NBC=Outstanding bank credit in India shown in item VI Form A u/s 42 (2) RBI Act
42

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%

Within agriculture - Direct Min 13.5% and

Indirect max 4.5%
of ANBC (Indirect
beyond 4.5% not part of agriculture but part of Priority Sector)
Weaker section (% of ANBC or CEOBE) (it can be expressed as 25% of PS)

10%

Differential Rates of Interest :

4.00% Simple

Within DRI to SC/ST beneficiaries

40%
2/3rd

Within DRI

through rural/semi

urban branches of banks

Micro and Small Enterprises (MSE) sector -Overall target

(Annual increase of MSE loans - 20%. Growth in no. of micro a/cs - 10%).

No specific
target

Min 60% of MSE advances to micro enterprises. Out of which:

1.with investment in plant & machinery up to
Rs.10 lac
and
investment
in equipment up to Rs.4 lac
2. with investment in plant & machinery above 10 lac but up to Rs.25 lac and investment in
equipment above Rs. 4 Lac up to Rs.10 lac in service providing units.
Housing finance allocation (of incremental
deposit for
last
reporting
Friday of previous year.

Minority communities (as %age of priority sector advances)

Export Credit - Advances
given
induded in respective category
Women beneficiaries

(of

to Agriculture or MSE for export

ANBC) - outside priority sector

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%

RRBs: Priority Sector (% of total loans)

Within this Weaker Section

60%
15%

Urban Coop Banks : (% of Adjusted net bank credit)

40%

Agr loans disbursement for 2015-16

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

NON-ACHIEVEMENT OF LENDING TARGET & SUB-TARGETS

1. Domestic scheduled commercial banks & Foreign Banks with 20 or more branches having shortfall in
lending to overall target (40%), agriculture target(18%) or Weaker Section target (10%) to be
allocated amounts for contribution to RIDF with NABARD or funds of other financial institution (on
the basis of 31st March of current year). Corpus of RIDF decided by Central Govt.
2 Foreign banks with less than 20 branches, which fail to achieve the priority sector targets are required to
contribute to funds with SIDBI or with other Financial Institutions, as advised by RBI.
3 The interest rates on RIDF or other funds, fixed by RBI.
CATEGORIES OF PRIORITY SECTOR
1. Direct Agriculture (Finance to farmers, Self Help Group or Joint Liability Group of farmers
for agriculture or allied agricultural activities)
1. Short-term loans for raising crops, i.e. for crop loans. This will include traditionallnontraditional plantations and horticulture.
2. Medium & long-term loans to farmers for agriculture and allied activities.
3. Advances up to Rs. 50 lakh against pledge/hypothecation of agricultural produce (including
warehouse receipts) for a period not exceeding 12 months, irrespective of whether the farmers were
given crop loans for raising the produce or not.
4. Loan up to Rs 2 crore to corporates, partnership firms for Agriculture and Allied Activities. If more than
Rs 2 crore then entire advance is indirect agri.
5. Loan to distressed farmers for repaying loans of non institutional lenders - called Rural Debt
Swap (No limit on advance)
6. Loans to small and marginal farmers for purchase of land for agricultural purposes (No limit on
advance)
7. Loans for pre-harvest and post-harvest activities such as spraying, weeding, harvesting, grading,
sorting, processing and transporting undertaken by individuals, SHGs and cooperatives in rural areas.
8. Loans to Primary Agricultural Credit Societies (PACS), Farmers' Service Societies (FSS) and Largesized Adivasi Multi Purpose Societies (LAMPS) for on lending to farmers for agricultural and allied
activities.
9. Export credit to farmers for exporting their own farm produce
10. LoantofarmersunderKisanCreditCardScheme
IndirectAgriculture
1. Loan to corporate more than Rs 2 crore for agriculture & allied activity.
2. Loan to corporate up to Rs 50 lakh against warehouse receipt or stored produce.
3. Loans to dealers in fertilisers, pesticides, seeds, inputs for the allied activities such as cattle feed, poultry
feed, drip irrigation/sprinkler irrigation system/agricultural machinery, subject to a maximum of Rs 500
lakh.
4. Finance for setting up of Agriclinics and Agribusiness Centres.
5. Loans for construction and running of storage facilities (warehouse, market yards, godowns, and silos),
including cold storage units designed to store agriculture produce/products, irrespective of their
location. No limit on amount of advance. If the storage unit is a micro or small enterprise, such loans will
be classified under loans to Micro and Small Enterprises sector.
6. Advances to Custom Service Units who maintain a fleet of tractors, etc. and undertake work
far farmers on contract basis. (There is no limit on advance)
7. Loans up to Rs 5 crore to cooperative societies of farmers for disposing of the produce of members
8. Loans to RRBs, Micro Finance Institutions and NGOs for on-lending to agriculture and allied activities _
9. Loans to NGOs, which are SHG Promoting institutions, for on-lending to members of SHGs for
agricultural and allied activities. Interest charged by the NGO/SHG promoting entity should not exceed
the Base Rate plus eight percent per annum
44

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.

Loan application disposal norms : As decided by Bank's Board of Directors

COLLATERAL SECURITY :

For agriculture: NIL In case of:

Up to R.5.100000.
Up to Rs.3 lac in case of recovery tie-up

Other priority sector

Up to Rs.25000 nil

Micro & Small Enterprises:

-normal accounts -good track record a/c -accounts
guaranteed under CGF guarantee

Not to be insisted upon: Up to Rs.10 lac

Up to Rs.25 lac
up to Rs.100 lac Up to Rs.5 lac nil

Agro clinics & business centres

SGSY:
-Individual up to Rs.100000
-Group up to Rs. 10 lac

Not to be obtained up to this amount

SISRY

Not to be obtained

Education loan up to Rs.7.50 lac

Not to be obtained up to this amount.

5.
PROCESSING/INSPECTION FEE, SERVICE CHARGE, PENAL INIT IN PRIORITY SECTOR ADVANCES

1.For loans up to Rs.25000 No charges

2.For loans above Rs.25000 Bank discretion
AGRICULTURAL ADVANCES
1. No Margin and No Collateral security for agricultural advances up to Rs 100,000
2. No no dues certificate for loans up to Rs 50,000.
3. Committee on flow of credit to agriculture was headed by: Prof Vyas
4. Crops divided into short duration and long duration. Short duration crop where crop season
upto: 12 months. Long Duration crop where crop season more than 12 months. 5_ The
decision regarding duration of crop by SLBC_
6. Service Area approach discontinued except for Government sponsored schemes.
7. Rashtriya Krishi Birna Yojna (RKBY) is operated by : Agri Insurance company Limited.
8. Risks covered by RKBY: damage to crops by natural calamities like flood, draught, pest attack etc
9. Risks not covered under RKBY : War and Nuclear risk
10. Members of Joint Liability Group can be: 4 to 10
11. Maximum advance to Joint Liability Group: Rs 50,000 per member and Rs 5 lac for the group.
12. The scale of finance per acre for crop loans is to be decided by District Technical Committee.
13. If crop is damaged, crop loan has to be converted to medium term loan repayable in 3 to 5 years.
14. Annewari refers to damage to crop due to natural calamities like draught, flood, hailstorm etc.
There are mainly two types of crops Le. Rabi and Khalif. Rabi is generally sown in Oct/Nov and harvested in
April and Kharif is generally sown in July and harvested in Sept/Oct. Main Rabi crops are wheat and gram and
main Kharif crops are paddy, jwar, bajra.
Various types of cultures and revolutions :
1. Sericulture: Silk production.
2. Apiculture: Honey Bee keeping
3. Aquaculture: Shrimp farming, fishes 4. Pisciculture: Breeding of fishes in pond
5. Floriculture: Flower production 6. Apriculture: Mushroom production
7. Silviculture: Forestry
8. Horticulture: Fruits production
9. White revolution: milk production 10_ Green revolution: increase in foodgrain production
11. Blue revolution: fish production 12_ Yellow revolution: increase in oilseeds and pulses
13. Olericulture : Vegetable Cultivation 14. Tissue culture: Improvement of plant varieties
47

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.

meet at base level:Rs.5000; Meet with experts programme (2 programmes in a year) :

Rs.3000
Assistance exceeding Rs.10,000/- may be met by the bank with maximum of Rs 50001- per
annum during the first three years and
Rs.10000/- per year during 4th & 5th year of formation of the club.

AGRI CLINIC & AGRI BUSINESS CENTRE

1. Eligibility: (i) The applicant should be Agricultural Graduates/Graduates in subjects allied to
agriculture. (ii)Diploma in agriculture and allied subjects from State Agricultural Universities.
(iii)Science graduates with post graduation in agriculture and allied subjects (iv) Individuals or
in group of not exceeding 5 persons; of which one could be a Management Graduate with
qualification or experience in business development and management.
2. Maximum Project cost: (a) Project by individual: Rs 20 lakh; (b) Project by a Group: Rs 100 lakh.
Margin: (a) Upto Rs 5 Lakh: Nil; (b) Above Rs 5 lakh: 25%.
4. Security: (i)Upto Rs. 5 Lakh: No collateral security (ii) Above Rs.5 Lakh: Hypothecation of
assets created out of bank loan and Collateral security or Third Party Guarantee.
5. NABARD Refinance: 100 per cent of bank loan.
6. Automatic Refinance Scheme of NABARD: Maximum loan - Rs.30 lakh, and the ceiling for refinance
would be Rs.20 lakh. Projects with outlay over Rs 30 lakh require NABARD approval.
7. Depending on the type of venture, the loan can be repaid within 5-10 years (with
moratorium upto 2 years), in easy installment.
8. Credit linked capital subsidy by Govt of India: (a) 36% of the capital cost of the project. It would be
44% for SC, ST, Women and other disadvantaged sections and those from North-Eastern and Hilly
States. Lock in period for subsidy is 3 years
Self Help Groups
1. Objectives: Self Help Group is a homogeneous group of persons below poverty line who have joined for
savings, mutual help, developing management skills and not for speculative profit and raising finance is
not main objective.
2. SHGs may be an informal group or registered under Societies Act, State Co-operative Act or a
partnership firm.
3. Number of members: 10 to 20; Difficult areas like deserts, hills: 5 to 20
4. Maximum percentage of above poverty line: 30% but they are not eligible for subsidy
Joint Liability Group
1. Numberofmembers:4to10
2. Max finance per member - Rs 50,000; Max finance per Group - Rs 5,00,000
3. Main objective: raising credit from bank
MINORITYCOMMUNITIES
1. Sikhs, Muslims, Christians, Zoroastrians , Buddhists and Jains ( Jan. 2014 ) are part of
Minority community.
2. Margin money scheme of National Minorities Development and Finance Corporation: Loan
by bank: 60% of the project cost. Balance 40% shared by Minorities Corporation, state
channeling agency and the beneficiary in the ratio of 25%, 10% and 5% respectively.
3. As per Govt and RBI guidelines, credit flow to minorities to be monitored in 121 districts
having minimum 25% minority population
Laghu Udyami Credit Card (LUCC)
1. Eligibility: Existing customers with a satisfactory track record (standard account for 3 years)
2. Maximum amount:' Working capital limits up to Rs 10 lac.
3. For whom: For small business, retail trade, Small manufacturing enterprise, professional/ self
employed
49

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.

Targets for finance to Micro Enterprise & T K A Nair Committee Recommendations

1. Minimum 60% of advance to micro and small enterprises should be made to micro
enterprises.
2. Minimum 40% of advance to micro and small enterprises should be made to units with
investment in Plant and Machinery up to Rs 10 lac and in equipments up to Rs 4 lac.
3. Minimum 20% of advance to micro and small enterprises should be made to units with
investment in plant and machinery more than Rs 10 lac up to Rs 25 lac and in equipments
more than Rs 4 lac up to Rs 10 lac.
4. Task Force on Micro, Small and Medium Enterprises (MSMEs) was headed by: Shri T K A Nair.
5. Yearly Growth in credit to MSE should be: 20%
6. Annual growth in number of micro enterprise accounts: 10%
7. The allocation of 60% of the MSE advances to the micro enterprises is to be achieved in stages
viz. 50% in the year 2010-11, 55% in the year 2011-12 and 60% in the year 2012-13.
8. Cluster approach should be adopted for financing MSE
CREDIT GUARANTEE FUND TRUST FOR MICRO & SMALL ENTERPRISES (CGTMSE)
The Fund has been established by Central government and SIDBI on the recommendations of S L
Kapoor Committee. The scheme run by the trust is known as 'Credit Guarantee Fund Scheme for
Micro and Small Enterprises.Credit Guarantee Fund Trust for Micro & Small Enterprises was set
up by Govt. of India and SIDBI in August 2000 to make collateral free credit facilities, available to
MSEs.
Eligible institutions: All scheduled commercial banks and specified RRBs, NS1C, NEDFI, SIDBI
(called Member Lending Institutions (MLIs). Eligible borrowers: New & existing MSE units as per
MSME Dev Act 2006 (except Retail Trade) OR in IT and software industry services or credit facilities
to select activities under Agri-Clinics and Agri-Business Centres Rehabilitation cases : For the unit
covered under CGTSI and becoming sick due to factors beyond the control of management,
assistance for rehabilitation extended by the lender could also be covered within the overall cap of
Rs.100 lac.
Extent of guarantee cover: wef Dec 08 2008):
Women enterprises & North Eastern States
Loan up to Rs.5 lac : 85%*
4.25
Loan up to Rs.50 lac: 80%*
40.00
Loan above Rs.50 lac to Rs.100 lac: 50%*
25.00
Total amount restricted to
50.00
Micro Enterprises
Loan up to Rs.5 lac : 85%*
4.25
Loan up to Rs.50 lac: 75%*
37.50
Loan above Rs.50 lac to Rs.100 lac : 50%*
25.00
Total amount restricted to
50.00
Other loans
Loan up to Rs.50 lac : 75%*
37.50
Loan above Rs.50 lac to Rs.100 lac: 50%*
25.00
Total amount restricted to
50.00
*as %age of principal outstanding on date of NPA or on date of filing the claim, whichever is lower.
Exclusion from risk cover :Other charges such as penal interest, commitment charge, service charge,
or any other levies/ expenses shall not quay for the guarantee cover.
Conditions for Guarantee Cover
Credit facilities extended by more than one bank and/or financial institution jointly and/or
separately to eligible borrower upto a maximum of Rs.100 lakh per borrower subject to ceiling
amount of individual ML1.
Amount of loans : Rs. 100 lac including fund and non-fund based limits (for RRBs and select financial
50

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.

Differential Rate of Interest Scheme (DRI)

Family in-come of borrower should not exceed Rs. 24,000/- p.a. in Metro/urban/semi-urban
areas and Rs. 18,000/- p.a. in rural areas.
For Rousing, loan can be granted up to Rs 20,000 to SC/ST
Other than housing loan to SC/ST, maximum loan amount is Rs. 15,000/- Besides production credit,
loan can be sanctioned to physically handicapped for purchase of artificial limbs, hearing aids,
wheel-chair etc to the extent of Rs 5000.
Rate of interest is only 4% p.a. simple
Maximum repayment period is 5 years including initial moratorium of 2 years
51

Education Loan Scheme

1.
2.
3.

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.

IBA MODEL LOAN SCHEME FOR VOCATIONAL EDUCATION AND TRAINING

1. Quantum of Finance: Need based with a maximum of: (a) For courses of duration upto 3 months:
Rs 20,000; (b) For courses of duration 3 to 6 months: Rs 50,000 (c) For courses of duration 6
months to 1 year. Rs 75,000; (d) For courses of duration above 1 year: Rs 1,50,000.
2. Margin: Nil
3. Repayment Period: Moratorium period plus (a) Courses upto 1 year: 2 to 5 years (b) above 1 year
3 to 7 years.
4. Moratorium Period: For courses of duration upto 1 year: 6 months from the completion of the
course. For courses of duration above 1 year: 12 months from the completion of the course
General Credit Card (GCC) Scheme (Dec 2013): General Credit Scheme was introduced in December
2005. RBI revised the same in Dec 2013. Salient features of the scheme are given below:
1. Objectives: To increase flow of credit to individuals for entrepreneurial activity in the non-farm sector.
2. Eligibility: All non-farm entrepreneurial credit extended to individuals, eligible for classification as PS.
3. Nature of financial accommodation: Any credit facility extended under the Scheme would include both
working capital and term loan requirements of entrepreneurs. The GCC, preferably, may be issued as a
Smart card / Debit card (Biometric smart card compatible for use in the ATMs / Hand held Swipe
Machines and capable of storing adequate information on entrepreneur's identity, assets and credit
profile etc.).
4. Quantum of credit limit: No ceiling on the loan amount. The limits should be fixed on the basis of risk
assessment on a case to case basis.
5. Security: As per RBI guidelines on collateral free lending for micro and small units.
6. Reporting: Any other Credit Card (e.g. Artisan Credit Card, Laghu Udyami Card, Swarojgar Credit Card,
and Weaver's Card etc.) in existence and catering to the non-farm entrepreneurial credit needs of
individuals should be included for reporting of credit extended through the GCC under the Financial
Inclusion Plans (FIPs).
7. Card for Consumption Credit: The issuance of GCC does not preclude the banks from issuing any other
credit card to their customers for their consumption needs. As the GCC is intended to cover all
entrepreneurial credit, consumption credit extended to individuals should not be reported under GCC.
8. Priority sector lending status: 100% of credit outstanding under GCC will be eligible for being treated as
Micro and Small enterprise.
NATIONAL RURAL LIVELIHOOD MISSION (NRLM) AAJEEVIKA :
1. The Ministry of Rural Development, Government of India has launched National Rural Livelihood
Mission (NRLM) by replacing the existing SGSY scheme, effective from April 1, 2013.
2. Objectives: Promoting poverty reduction through building strong institutions of the poor,
particularly women, and enabling these institutions to access a range of financial services and
livelihoods services; to mobilize the poor into functionally effective community owned
institutions, promote their financial inclusion and strengthen their livelihoods.
52

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

Groups (whether registered or unregistered), which are engaged in promoting habit of

savings among their members. Thereafter the SHGs may be sanctioned Savings Linked Loans
(varying from a saving to loan ratio of 1:1 to 1:4) after due assessment or grading by banks.
However, in case of matured SHGs, loans may be given beyond the limit of four times the
savings as per the discretion of the bank.
15. Interest Subsidy on SHG Loans: The interest subsidy will be the difference between the
prevailing rate of interest charged by the bank and 7% p.a. on all loans to SHGs of urban
poor. An additional 3% interest subvention will be provided to all Women SHGs (WSHGs)
who repay their loan in time. The Interest subsidy will be subject to timely repayment of the
loan (as per the loan repayment schedule) and suitable certification obtained from banks by
the ULB. The additional 3% interest subvention amount will be reimbursed to the eligible
WSHGs. The identification, selection, formation and monitoring of SHGs who are to get
interest subvention would be the responsibility of State/ ULBs and banks would not be
liable for wrong identification of SHGs who get interest subvention_
16. Funding Pattern: Funding under this component will be shared between the Centre and the
States in the ratio of 75:25. In case of special category States (Arunachal Pradesh, Assam,
Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Jammu & Kashmir, Himachal
Pradesh and Uttarakhand) this ratio will be 90:10 between the Centre and States.
Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)
1. Project cost: Maximum project cost upto Rs. 5.00 lakh.
2. Margin: No margin money/ promoter's contribution is required to be provided under the scheme.
3. Interest rate: (a) For projects upto Rs. 25,000: 5% per annum; ( for women beneficiaries): 4% per
annum; (b) For projects above Rs. 25,000: 6% per annum.
4. Repayment: The period of repayment loan will be three years for projects upto Rs. 25,000 and 5
years for projects above Rs. 25,000.
5. Subsidy: (a) For projects costing upto Rs. 25,000 : 50% of the project cost. (b) For projects
costing more than Rs. 25,000/-: 25% of the project cost, with a minimum of Rs. 12,500 and
maximum of Rs. 20,000/-. Subsidy is front ended and given in the beginning.

Prime Minister's Employment Generation Programme (PMEGP)

1.
2.
3.
4.
5.

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.

COMMITTEES ON ADVANCES & PRIORITY SECTOR

a. Committee on Wilful Default
2002
S S Kohli
b. Committee on Corporate Debt restructuring
2005 S Gopinath ( Dec. 2005 )
c. Micro, Small & Medium Enterprises
2010
T K A Nair
d. Rehabilitation of Sick SMEs
2008
Dr. K. C. Chakrabarty
e. Flow of Credit to Agriculture
2004
V S Vyas
f. Service Area Approach (rural & urban area)
1988
PD Ojha
g. Financial Inclusion
2006
C Rangarajan
h. Procedure and Processes of Agricultural Loan
2007
C P Swarnkar
i. Rural Credit and Microfinance
2005
H R Khan
j. Flow of Credit to SSI Sector
2004
A S Ganguly
k. Micro finance
2003
Vepa Kamesam
l. Agricultural Credit Delivery (no Dues Certificate) 1998
R V Gupta
m. Lead Bank Scheme
2009
Usha Thorat
n. Micro Finance Institutions
2011
Y H Malegam
o. Institutional Credit to SSIs
1998
S L Kapoor
p. Institutional Credit to SSIs
1974
PR Nayak
q. Committee on to assist Distressed Farmers :
S S Johl
r. SHG Credit Linkage
Kalia Committee
s. PRIORITY SECTOR ( SUB TARGET UNDER PRIORITY SECTOR ) - 40% OF ANBC -BY MARCH 1985
MR. K. S. KRISHNASWAMI COMMITTEE 1980, PRIORITY SECTOR & DRI SCHEME - 1972
t. WEAKER SECTION - MR. K. S. KRISHNASWAMI COMMITTEE - 1980
u. PRIORITY SECTOR CLASSIFICATION C S MURTHY COMMITTEE 2007 & M V NAIR COMMITTEE
20.7.12
56

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

Net Prokbefore tax

Operating profit plus other incomes minus other expenses

Net Profit after tax

Profit before taxation minus provision for taxes.

Retained Profit

Net profit minus dividend paid / dedared

10

Cash Profit

Profit before charging Depreciation (Net Profit + Depredation)

59

11
Cash-Loss
_12 Assets
13
Fixed Assets
.
Current
Assets
14
15

Intangible Assets

16
17

Fictitious Assets
Miscellaneous Assets or
Non current assets

Which have notional value only e.g. losses, preliminary expenses.

Which can't be classified as current, fixed or intangible e.g. inter
Corporate investment

18

Tangible Assets

Total asset side of balance sheet minus intangible assets.

19

Quick Assets

20

Liabilities
Owners Equity
(Net Worth)
Long term liabilities or
Debt

Assets which can be converted to cash quickly. Cash, bank balances,

marketable investments, bills receivables and sundry debtors
considered goal. (Current Assets minus-Inventories & Prepaid
Expenses)
Thin s owed by the business.
Paid up share capital, reserves and surplus, preference shares with
more than 12 years maturity.
Outsiders funds, payable in more than 12 months. Term loan
(exduding instalment payable within 12 months) plus debentures
maturing within more than one year, preference shares redeemable
within 12years, deposits payable beyond one year.
Liabilities which are payable in less than one year e.g. sundry
creditors, unsecured loans, advances from customers, interest accrued
but not due, dividends payable, statutory liabilities, provisions, Bank
borrowings for working capital etc

21
22

Loss before charging Depredation (Net Loss Depredation)

Things owned by a business Not converted into cash in normal course
of business, These are acquired to use them in the production of other
goods and services.
Assets which are meant to be converted into cash or consumed in
normal course of business say within 1 year. These are also called as
gross working capital.
Expenditure on invisible assets, likely to yield benefit to the company
in future e.g. goodwill, patent, trade marks, designs.

23

Current Liabilities

24

Total Outside Liabilities

25

Tangible Net Worth

Total of the liability side of balance sheet minus net worth

Total tangible assets minus total outside liabilities. Owner's funds

minus Intangible & Fictitious assets ; Paid up capital plus reserves
minus intangible assets
Total of Current Assets
26
Gross Working Capital
Current assets minus total current liabilities. Long Term Sources
27
Net Working Capital
minus long term uses
Current Assets minus current liabilities other than Bank Borrowings.
28
Working Capital gap
Paid up capital, reserves and surplus (excluding specific reserves) i.e.
29
Long term sources
Net Worth and long term liabilities.
Current Liabilities
30
Short Term Sources
Fixed Assets, Miscellaneous or Non. current assets, Intangible and
31
Long Term Uses
Fictitious Assets (assets other than current assets)
Current Assets
32
Short Term Uses
Likely liability which may or may not arise on the happening or non
33
Contingent Liabilities
happening of an event
(i) As per RBI guidelines, installments of term loans due within 12 months are not to be
treated as current liability for calculation of Net Working Capital and Working Capital
60

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

Long term liabilities:

Liabilities which are not due for payment
within 12 months from the date of the
Balance Sheet)
Term loans from financial institutions;
Term loan from banks; Debentures/Bonds;
Deferred payment liability;Preference
Shares redeemable within 12 years;
Fixed Deposits maturing after one year;
Provision for gratuity; Unsecured Loans

Non Current Assets:

Assets which cannot be classified as current or
fixed or intangible assets Book Debts or Sundry
Debtors more than 6 months old/ Disputed Debts,
Investment of long term nature in shares,
govt. securities, associates or sister firms or
companies. Long term security deposits. Unquoted
investments; Investments in subsidiaries or sister
concerns; Loans & Advances to directors, officers;
Accounts receivables in respect of sale of plant &
machinery; Advances to concerns in which
directors are interested; Deposits with customs
port trust etc
Intangible & fictitious Assets Which do not have
physical existence. For example: Goodwill, Patents,
Trade Mark, Copy Right, Preliminary or pre
operative expenses, other formation expenses,
debit balance of P & L account, accumulated
losses, bad debts, Capital issue expenses e.g.
discount on issue of share & debentures,
commission on underwriting of shares &
debentures; Deferred revenue expenditure
e.g. Advertisement

61

Short term for CurrentyLiabilities Liabilities

which are due for payment within 12
months from the date of the balance sheet
and are to be repaid out of proceeds of
current assets,Short term borrowings from
banks (C/C, 0/D or B/P, B/D limits) for
working capital.,Sundry/trade
creditors/creditors/ Account payable,Bills
Payable / trade acceptances
Fixed Deposits from public payable within
one year,Short duration loans or deposits
Provision for taxation, Proposed Dividends,
Provision for bonus, unclaimed dividend.
Deposits from dealers, selling agents etc.
Advance payments from customers,
outstanding expenses and Accruals e.g.
wages & salaries, rent; expenses payable

Current Assets : Cash in hand, Bank balance

including fixed ,deposits with banks.
Stocks/inventory (such as raw material, stock in
process, finished goods, consumable stores and
spares),Book debts/Sundry debtors/Bills
Receivable/ Accounts receivable/ debtors,
Government and other trustee securities
(other than for long term purposes e.g. sinking
funds, gratuity funds etc.),Readily
Marketable/quoted govt. or other securities
meant for sale,Interest accrued and
receivables,Advance payment of taxes,
pre-paid expenses,Advance payments for
merchandise; unexpired insurance

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:

IMPORTANT RATIOS & FORMULAE LIQUIDITY RATIOS

Current Ratio : Current assets / Current liabilities
Acid Test or Quick Ratio Quick assets / Current liabilities
Net working capital : Long term sources - long term uses OR current assets - current liabilities.
SOLVENCY or LEVERAGE RATIOS
Debt-Equity Ratio
Long term outside liabilities/Tangible net worth
Debtor service coverage ratio (DSCR)
(Net profit + depreciation + amount of interest on th long term liabilities) / (amount of interest
on the lob term liabilities + amount of instalment of long tern liabilities).

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

3. Break Even Point in units =

Fixed Cost/(Sale Price per unit Variable Cost per unit)or
Fixed cost/contribution per unit
4. Break Even Point in Rupees = Fixed cost x sale/(Sale- Variable Cost)
5. PV Ratio
= contribution/sales x 100
6. Break Even Point
= Fixed cost/PV Ratio
7. Break Even Point in terms of capacity utilization=Break even units/Installed capacityx 100
8. Margin of Safety =(Actual Sale Break Even Sale)/ Actual Sale*100
Cash Flow Statement :Cash flow statements are useful in planning short
term operation of the business. Usually cash flow statement is prepared by cash
receipt & payment.
Fund Flow Statement : Fund flow statement is a statement of sources and uses of funds for a period.
Fund means net working capital. Fund flow statement indicates the changes in net working capital
position and the reasons for the same.

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

Permissible Bank Finance Method

1. This method was suggested by Tandon Committee.

2. First Method: Permissible bank finance is equal to 75% of the working capital gap. Borrower's
margin will
be 25% of the working capital gap. This method will give a current ratio of minimum 1.17:1.
3. Second method: Permissible bank finance is equal to 75% of the current assets minus 100% of
current liabilities other than bank borrowing. Borrower's margin will be 25% of the current assets.
This method will give current ratio of minimum 1.33:1
4. If the borrower is not able to bring required margin, he may be given working capital term loan.
Thus, working capital term loan was suggested by Tandon Committee
Cash Budget Method
1. In this method, borrower's requirements are worked on the basis of monthly budgets and
finance is provided wherever there is shortfall.
2. This method is used while financing seasonal industries like tea, sugar, service oriented
industries like software, Non banking finance companies, construction contracts.

Loan Delivery System

1. This method was suggested by Jilani Committee.

2. Applicable to units with working capital requirements of Rs 10 crore and above from the
banking system.
3. Accordingly to this method, 80% of the working capital requirements were to be sanctioned by
way of a demand loan and balance 20% as fluctuating cash credit limit. Now, RBI allowed banks to
fix the percentage of demand loan as per their discretion.
4. The method is not applicable in respect of (a) Bill Finance (b) Export credit (c) Seasonal
industries .(d) sick units
6.NPA & LEGAL ASPECTS OF RECOVERY
The prudent guidelines were first issued by RBI in the year 1991 implemented wef 01.04.1992 on
recommendations of Narasimham committee covering, income recognition, asset classification and
provisioning. Prudential norms prescribed by RBI include norms relating to Accounting, Exposure,
and Capital Adequacy. Prudential accounting norms are income recognition, asset classification and
provisioning.
CLASSIFICATION AS NPA
If Interest and/ or instalment of principal remain overdue for aperiod of
Term Loan
more than 90 days

64

CC/
Credit/overdraft

Bills
Agricultural
accounts

Loan against FD,

NSC, KVP, LIP

Loan guaranteed
by Government

Consortium
advances

if the account remains 'out of order or the limit is not renewed/reviewed

within180 days from the due date of renewal. Out of order means an account
where (i) the balance is continuously more than the sanctioned limit or
drawing power OR (ii) where as on the date of Balance Sheet, there is no
credit in the account continuously for 90 days or credit is less than interest
debited OR (iii) where stock statement not received for 3 months or more. if
the bill remains overdue for a period of more than 90 days from due date .
(I) if loan has been granted for short duration crop: interest and/or
instalment of principal remains overdue for two crop seasons beyond the due
date.
(ii) if loan has been granted for long duration crop: interest and/or
instalment of principal remains overdue for one crop season beyond due
date.
Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs and
life policies not treated as NPAs provided sufficient margin is available.
Advances against gold
ornaments, govt securities and all other securities are not covered by this
exemption
Loan guaranteed by Central Govt not treated as NPA for asset classification
and provisioning till the Government repudiates its guarantee when invoked.
Treated as NPA for income recognition.
Advances guaranteed by the State Government classified as NPA as in other
cases classification of accounts under consortium should be based on the
Asset
record of recovery of the individual member banks.

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

Principal or interest payment not overdue for more than 30 days

but account showing signs of incipient stress.
Principal or interest payment overdue between 31 60 days.
Principal or interest payment overdue between 61 90 days.

SMA-0: IDENTIFIED AREAS

Delay of 90 days or more in
Submission of stock statement/ other statements such as QOS, HOS and ABS.
Credit monitoring or financial statements or
Non renewal of facilities based on audited financials.
Actual sales/operating profits falling short of projections accepted by 40% or more.
A single event of non co-operation /prevention from conduct of stock audits.
65

Reduction of Drawing Power (DP) by 20% or more after a stock audit.

Evidence of diversion of funds for unapproved purpose.
Drop in internal risk rating by 2 or more notches in a single review.
Return of 3 or more cheques (or electronic debit instructions ) issued by borrowers in 30
days, on grounds of non availability of balance / DP.
Return of 3 or more bills/cheques discounted or sent under collection.
Devolvement of Deferred Payment Guarantee (DPG) installments or LCs or invocation of
BGs and its non payment within 30 days.
Third request for extension of time either for creation or perfection of securities or for
compliance with any other terms and conditions of sanction.
Increase in frequency of overdrafts in current accounts.
The borrower reporting stress in the business and financials.
Promoter(s) pledging/ selling their shares in the borrower Company due to financial stress.
ASSET CLASSIFICATION
1. Asset Classification to be borrower-wise and not facility-wise
2. Assets classified into Standard, Sub standard, Doubtful, Loss. Except standard all others are NPAs.
3. When an account becomes NPA it is called Sub standard asset.
4. An account remains sub standard up to 12 months from the date of becoming NPA
5. Doubtful Assets : An asset is to be classified as doubtful, if it has remained NPA or sub standard
for a period exceeding 12 months.
6. Loss Assets : A loss asset is one where loss has been identified by the bank or internal or external
auditors or the RBI inspection but the amount has not been written off wholly.
7. When an account is classified as Doubtful or Loss without waiting for 12 months: If in an
account which was secured in the beginning, the realizable value of tangible security falls below
10% of the outstanding, it should be.classified loss asset without waiting for 12 months
8. If the realizable value of security is 10% or above but below 50% of the outstanding, it should be
classified as doubtful irrespective of the period for which it has remained, NPA.
PROVISIONING NORMS
1. Provisioning is made on all types of assets i.e. Standard, Sub standard, Doubtful and loss assets.
2, Standard Assets :
a. Direct advance to agriculture or Micro and Small Enterprise (Not medium): 0.25% of
outstanding;
Commercial Real Estate: 1% of outstanding and CRE Housing 0.75%
b. Housing Loans with teaser interest rates: 2% of outstanding; All others: 0.4% of outstandinj.
c. The provisions on Standard Assets is shown as 'Contingent Provisions against Standard
Assets' under 'Other Liabilities and Provisions Others' in Schedule 5 of the balance sheet.
3. Sub Standard Assets:
a. Secured sub standard: 15% of outstanding balance without considering securities available.
b. Unsecured sub standard: if the loan was unsecured from the beginning: 25% of outstanding
balance.
c. If unsecured sub standard for infrastructure: 20% of outstanding balance.
d. Unsecured exposure means exposure where the realisable value of the security, as assessed
by the bank/approved valuers/Reserve Bank's inspecting officers, is not more than 10
percent, ab-initio, of the outstanding exposure.
4. Doubtful Assets:
1. Unsecured portion:100 %
2. Secured ortion: 20% to 100% depending on the period for which account is doubtful

Age of Doubtful Asset

Provision as % of secured portion

66

_ Doubtful up to 1 year D1
Doubtful for more than 1 year to 3 years; D2
Doubtful for more than 3 years; D3

25% of RVS (Realisable value of security)

40% of RVS
100% of RVS

Loss Assets: 100% of the outstanding amount.

If loan is guaranteed by ECGC, CGFT or CGFLHS, provision not on guaranteed portion
Provision on advance against FD, NSC, LIP, KVP as per their asset classification.
Overall provisions: Provisioning coverage ratio, including floating provisions, should not be less than 70
per cent. Banks should achieve this norm not later than end-September 2010.
9. Provisioning coverage ratio is the ratio of provisioning to gross NPAs.
10. Provision on Standard account to be kept as part of Other Liabilities in Schedule-5 of bank's balance sheet
11. Provision on Standard accounts to be done on Global balance and for NPA accounts on Gross Balance
12. For Doubtful accounts, provision to be done separately for secured portion and unsecured
portion of total balance in the account.
13. In case of standard and sub standard assets, provision is on outstanding balance without
bifurcating the balance into secured or unsecured.
14. Floating provisions can be deducted from Gross NPAs or treated as part of Tier Il capital but not both
SUMMARYOF PROVISIONSPERCENTAGE
Standard - General accounts 0.40 %
Direct Agriculture & SME 0.25 %
Commercial Real Estate 1.00%
Teaser Home Loans (provision will be 0.4% after one year of increase in interest rate) 2.00%
New restructured a/c w.e.f 01.06.2013 : 5%
Existing a/c Restructured upto 31.03.2013
wef 31.03.14 ( spread over four quarters ) : 3.5%
wef 31.03.15 ( spread over four quarters ) : 4.25%
wef 31.03.16 ( spread over four quarters ) : 5.0%
Sub-standard Secured
15%
Sub-standard Unsecured
25%
Sub-standard unsecured (infrastructure accounts)
20%
Doubtful - up to 12 months
25%
Doubtful - more than 12 months but up to 3 years
40%
Doubtful - more than 3 years (secured/unsecured):
100%
Loss account
100%
Provisioning coverage ratio is to be calculated w.r.t. gross NPAs as on Sept 2010 (ratio of
70%
provisions / gross NPAs). Excess amount (over and above account-wise provision) to be
kept in Cyclical Provision Buffer Account -70%
Important issues relating to provisions : Provision on Standard account to be kept as part of
other Liabilities in Schedule-5 of bank's balance sheet (it will be part of tier 2 capital fund for CAR
purpose) Provision on Standard accounts to be done on Global Balance and for NPA accounts on
Gross Balance For Doubtful accounts provision to be done Separately for secured portion and
unsecured portion of total balance in the account.For sub-standard accounts, provision to be done by
treating the account secured sub-standard or unsecured sub-standard without bifurcating the
balance into secured or unsecured.
Sub-standard unsecured account means an account where at the time of sanction no security obtained or
security value was 10% or less
Gross NPAs: It is the principal dues of NPAs plus Funded Interest Term Loan where the
corresponding contra credit is parked in sundry account (Interest Capitalization Restructured
Accounts), in respect of NPAs
5.
6.
7.
8.

67

NET NPAs: Net NPAs is the amount of Gross NPAs minus

Provisions held in the case of NPA Accounts as per asset classification (including additional
provisions for NPAs at higher than prescribed rates)
DICGC/ ECGC claims receivedand heldpendingadjustment
Part payment receivedand kept in Suspense A/c oranyothersimilaraccounts
Balance in Sundry Accounts(Interest Capitalization Restructured Accounts), in respect of NPAs
Floating provisions : Provisions in lieu of diminution in the fair value of restructured accounts classified as
NPAs
Provisionsin lieuofdiminution in the fair value of restructuredaccountsclassified asstandardassets
UPGRADATION OF LOAN ACCOUNTS CLASSIFIED AS NPAs
1. if arrears of interest and principal are paid by the borrower in the case of loan accounts classified as
NPAs, the account may be classified as 'standard' accounts immediately.
2. Restructured accounts: After one year after the date when first payment of interest or of principal,
whichever is earlier, falls due, subject to satisfactory performance during 12 months period from the date of
starting payment after moratorium period. For example, an account was restructured on 5th Jan 2014,
moratorium period 6 months, 1st instalment due on 5th July 2014 which was paid on 1s4 July 2014 and
thereafter account was regular for 12 months. This account will be upgraded on 5th July 2015 and not on 1st
July 2015.
Sale and Purchase of NPAs by banks
1. The sale and purchase of NPAs can be made by banks, financial institutions and NBFCs
2. A bank can sell NPA provided it is held in its books as NPA for at least 2 years
3. The sale will be on cash basis and without recourse basis. Purchasing bank can not resell the
same to the selling bank.
4. The asset will be classified as Standard Asset in the books of the purchasing bank for 90 days
and thereafter on the basis of its record of recovery.
5. Purchasing bank can resell the same other than to the original bank after keeping the same in its
books for 15 months
6. The purchasing bank should realize the assets within 3 years. Minimum 10% should be recovered in the first
year and 5% in the each following half year.
7. I n the books of the purchasing bank, this asset will carry a risk weight of 100% for capital adequacy purpose
Asset Reconstruction Companies
1. ARCs have been set up for taking over NPAs from bankslFls and reconstruct or re pack these for sale
2. First ARC is Asset Reconstruction Company of India Ltd (ARGIL)
3. ARC will be set up as a joint stock company. Registration with RBI is must before commencement of
business as ARC.
4. ARC should start business within 6 months of registration with RBI. REll can extend it by another six months.
5. Net owned funds of ARC should be 15% of the acquired assets or Rs 100 crore whichever is less.
6. Capital Adequacy Ratio at all times should be at least 15%
7. ARC should invest at least 5% in security receipts created out of each securitization.
Wilful Defaulters
1. Wilful defaulters of Rs 25 lac & above to be reported to RBI
2. Reporting to RBI will be quarterly
3. Where suits have been filed, banks should submit the list of suit-filed accounts of wilful defaulters of
Rs.25 lakh and above as at end-March, June, September and December every year to Credit Information
agency like CIBIL and not to RBI.
LOK ADALAT : Created under Legal Services Authority, Act 1983.Decisions are consent decrees. There is no
appeal against such decree. Civil Procedure Code is applicable. These Adalats are similar to civil courts.Banks
can call Lok Adalat with application to High-court.Amount: General Lok Adalat: Up to Rs 20 lacs (wef Aug 03,
68

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

Debt Restructuring Mechanism for SMEs

1. The guidelines are applicable to entities which are viable or potentially viable as follows : (i) All
non-corporate SMEs irrespective of the level of dues to banks. (ii) All corporate SMEs which are
enjoying banking facilities from a single bank, irrespective of the level of dues to the bank. (iii)
All corporate SMEs which have funded and non-funded outstanding up to Rs.10 crore under
multiple/ consortium banking arrangement.
2. Accounts involving wilful default, fraud and malfeasance would not be eligible for restructuring.
3. Accounts classified by banks as Standard, Sub Standad and Doubtful only are covered. 'Loss
assets' would not be eligible for restructuring.
4. Viability: Banks should decide on the acceptable viability benchmark. it should be ensured that the
unit becomes viable in 7 years and the repayment period for restructured debt does not exceed 10
years.
5. Time period for restructuring: Restructuring package should be implemented within a maximum
period of 60 days from the date of receipt of request.

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

address grievance against all financial service providers.

India Financial Code to be introduced soon in Parliament for consideration.
Vision of putting in place a direct tax regime, which is internationally competitive on rates,
without exemptions.
Gold monetisation scheme to allow the depositors of gold to earn interest in their metal accounts
and the jewellers to obtain loans in their metal account to be introduced.
Sovereign Gold Bond, as an alternative to purchasing metal gold scheme to be developed.
(For details visit : www.indiabudget.nic.in
VARIOUS POLICY RATES AT GLANCE
Bank Rate
8.5%
04.03.2015
CRR
4.0%
09.02.2013
SLR
21.5%
07.02.2015
Repo Rate
7.5%
04.03.2015
04.03.2015
Reverse Repo Rate
6.5%
_
MSF Rate
8.5%
04.03.2015

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

The policy is issued in April. Bi Monthly reviews is undertaken by RBI.

RBI has deregulated interest rate on term deposits of banks except FCNR (B) deposits.
Interest rate on Domestic Saving deposits has been deregulated. It is decided by banks.
In respect of advances, RBI has deregulated interest except DRI where it is 4% p.a.
Interest rate on deposits and advances are decided by Board of Directors of Banks or by Asset
Liability Management Committee of the respective banks if powers delegated by Board.
6. Interest rates on advances are linked to Base of the Bank which varies from bank to bank.
7. RBI has asked banks to adopt concept of Base Rate instead of BPLR w.e.f. 1.7.2010.
1.
2.
3.
4.
5.

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.

Cash Reserve Ratio

Scheduled Commercial Banks are required to maintain CRR as per section 42(1) of RBI Act.
Banks are required to maintain certain percentage of Net Demand & Time Liabilities as cash
with RBI.
3. As per amendment to sub-section (1) of Section 42 of the RBI Act 1934, with effect from 15t
April 2007, RBI can prescribe the Cash Reserve Ratio (CRR) for Scheduled Commercial Banks
without any floor rate or ceiling rate. Accordingly, there is no minimum or maximum CRR as per
RBI Act and RBI will fix CRR.
4. Banks are required to maintain the prescribed CRR based on their NDTL as on the last Friday of
the second preceding fortnight.
5. Banks are required to maintain daily average balance as fixed percentage of NDTL with RBI.
The actual balance on any day of the fortnight (14 days) may be more or less than the required
balance. However, cash balance with RBI on any day of the fortnight should not fall below 95%
of the required average daily cash balance.
6. RBI will not pay any interest on the CRR balances with effect from 31"t March 2007.
7. If a bank fails to maintain 95% of required balance with RBI on any day of the fortnight, RBI
will charge penal interest for that day at the rate of three per cent per annum above the bank
rate on the amount of shortfall. If the shortfall continues on the next succeeding day/s, penal
interest will be recovered at a rate of five per cent per annum above the bank rate.
1.
2.

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.

Statutory Liquidity Ratio

Statutory Liquidity Ratio is maintained as per section 24 of Banking Regulation Act.
As per amendment to section 24 of the. Banking Regulation Act, the provision relating to
maintenance of minimum SLR of 25% of NDTL has been withdrawn. Thus, RBI is free to fix
minimum SLR. However, it can be increased to maximum of 40% of NDTL.
3. SLR can be kept in the form of (a) cash (b) gold valued at a price not exceeding the current
market price, (c) unencumbered approved securities valued at a price as specified by the RBI
from time to time (d) cash balance with other banks (e) excess cash balance with RBI. Cash
management bill issued by Government of India will be treated as Government of India T Bills
and accordingly shall be treated as SLR securities
4. For calculation of SLR, banks are required to send monthly statement on Form VIII under
Section 24 of the
B R Act.
5. If a bank fails to maintain SLR on any day of the fortnight, RBI will charge penal interest for that
day at the rate of three per cent per annum above the bank rate on the amount of shortfall. If
the shortfall continues on the next succeeding day/s, penal interest will be recovered at a
rate of five per cent per annum above the bank rate.
Exposure Ceilings
1. The basic objective of exposure norms are better risk management and avoidance of credit
risk.
2. In case of single borrowers, the exposure ceiling is 15% of capital funds of the bank and for
borrower group, the exposure ceiling is 40% of capital funds of the bank. For oil marketing
companies, the exposure ceiling for single borrower is 25% of capital funds of the bank.
1.
2.

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

as on March 31 of the previous year

3. As per Section 19(2) of the Banking Regulation Act, 1949, a banking company can not hold shares
in any company, whether as pledgee, mortgagee or absolute owner more than 30% of the paidup'share capital of that company or 30% of paid-up share capital and reserves of the bank
whichever is less.
T. As per Section 20(1) of Banking Regulation Act, banks can not allow advance against their own
shares. As per RBI guidelines, banks can not grant advance to their employees for purchase of
the bank's own shares.
3. Advance against shares: Maximum advance from the banking system that can be allowed to an
individual against shares, convertible bonds, convertible debentures and units of equity
oriented mutual funds is restricted to Rs 10 lakh in case of physical shares and to Rs 20 lakh in
case of demat shares. Banks should maintain a minimum margin of 50% for finance against
physical shares and 25% against demat shares. Banks can not grant loan against partly paid
shares.
1. Banks will not grant loan to partnership/proprietorship concerns against the primary security
of shares and debentures.
2. Banks may grant advances to individuals for subscribing to IPOs maximum up to Rs 10 lakh
3. Banks can grant loans to employees of companies for purchasing shares of their own
companies under Employees Stock Option Plan(ESOP). Maximum amount of adVance can be up
to Rs 20 lakh and minimum margin will be 10%.
4. RBI has not prescribed any limit on loan that can be granted to Stock Brokers & Market Makers
against shares. It will be as per policy decided by Board of Directors of the respective bank.
5. Banks should maintain minimum margin of 50% while issuing guarantees in favour of stock
exchange or commodity exchange on behalf of brokers. Within 50% margin, cash margin should
be minimum' 25% and balance 25% may be in the form of other securities.
Loans to Directors of Banks
As per Section 20 (1) of Banking Regulation Act, banks can not grant any loans or advances to
any of its directors except as permitted by RBI. This rule is also applicable to spouse &
dependent children of Director.
RBI has permitted banks to allow following types of loans to its directors (a) Loan against
Government Securities, Life Insurance policies and bank deposit (b) Loans to employee
directors of the bank as are applicable to him as an employee of that bank (c) Facilities like bilis
purchased/discounted and purchase of cheques (d) credit card facility as per the same criteria
as applied to other persons for card business. As per Section 20A of the Banking Regulation Act,
1949, bank can not remit a loan due to the bank by any of its directors without RBI permission.
Bank can grant loan to directors of other banks or relatives of its own director or directors of
other banks subject to the following conditions:
(a) if loan is less than Rs 25 lac, it can be granted by competent authority but it will be
reported to Board of Directors of the sanctioning bank.
(b) If loan is of Rs 25 lac and above it can be granted only with the prior approval of Board of
Directors.
No officer shall sanction any loan to his relative and should be sanctioned by next higher authority.
Credit facilities sanctioned to senior officers of the bank i.e. officers of scale IV and above should
be reported to the Board. Credit facility for this purpose does not include .advance against
Government securities, LI P, fixed or other deposits, temporary overdrafts. upto Rs. 25,000.and
purchase of cheques up to Rs. 5,000.
Miscellaneous Instructions
1. Selective Credit Control: RBI can issue directives for restrictions on bank advances against
specified sensitive commodities as per provisions of Section 21 & 35A of Banking Regulation
Act. Presently Buffer stock of sugar with sugar mills, unreleased stocks of sugar with sugar
mills is still covered under stipulations of Selective Credit Control. Banks are free to sanction
limits for commodities under the purview of SCC. Banks have freedom to fix interest rate for
commodities coming under the purview of SCC.
2. Banks cannot grant loans against CDs'or buy-back their own CDs before maturity except in
respect of CDs held by mutual funds.
3. In case of Housing Loans, for loans up to Rs 20 lac covered under PS, Loan to Value Ratio
should not be more than 90%. For loans more than Rs 20 lac up to Rs 75 lac, Loan to Value
Ratio should not be more than 80%. For loans more than Rs 75 lac, Loan to Value Ratio
78

4.
5.
6.

should not be more than 75%.

In case of loan against Gold jewellery, Loan to value ratio should not be more than 75%.
Banks should desist from sanctioning advances against FDRs, of other banks.
Banks should not grant any advance against bullion/ Primary gold.
Other Important Committees on Banking

1 .Working Group on Surveys: Deepak Mohanty

1. Systems & Procedures for Currency Distribution: Usha Thorat
2. G20 Working Group on Enhancing Sound Regulation and Strengthening Transparency: Dr. Rakesh
Mohan and Mr. Tiff Macklem
3. Committee on Financial Sector Assessment: Dr. Rakesh Mohan
4. Estimation of Savings and Investment: Dr. C. Rangarajan
5. Seasonal Movements in Inflation: Dr. Balvant Singh
6. Technical Advisory Group On Development Of Leading Economic Indicators For Indian Economy:
Dr. R B Barman
7. Working Group on Compilation of State Government Liabilities: Dr. N.D. Jadhav
8. Working group to formulate a scheme for Ensuring Reasonableness of Bank Charges: N.
Sadasivam
9. Advisory Committee on Ways and Means Advances to State Governments: M.P.Bezbaruah
10. Need and Use Behavior for Small Denomination Coins: Sanal Kumar Velayudhan
11. Monitoring of Financial Conglomerates: Smt.Shyama Gopinath
12. Development Financial Institutions: Shri N. Sadasivan
13. Working Group on Instruments of Sterilisation: Smt. Usha Thorat
14. Working Group for Suggesting Operational and Prudential Guidelines on STRIPS (Separately
Traded Registered Interest and Principal of Securities): Shri M.R.Ramesh
15. Consolidated Accounting and Other Quantitative Methods to Facilitate Consolidated Supervision:
Shri Vipin Malik'
16. Expert Committee to Review the System of Administered Interest Rates and Other Related Issues:
Dr.Y.V. Reddy
17. Task Force to Study the Cooperative Credit System and Suggest Measures for its Strengthening:
Shri Jagdish Kapoor
18. High Power Committee on Urban Cooperative Banks: Shri Madhav Rao
19. The Reserve Bank constituted a Working Group to review, update, and revise the Banking
Ombudsman Scheme, 2006. The committee is headed by ______: (Smt. Suma Varma.)
20. Financial Bench mark P Bhaskar Rao committee
21. Expert committee on revise & strengthen the Monetary Policy Frame work :Urjit Patel (
Dy.Director RBI )

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

Summary of Exchange Rate Application

Transaction
TT-Setting
Outward remittance such as DD, TC
etc. 1 Cancellation of purchase such
as:
bills purchased returned unpaid,
bills transferred to collection account
forward purchase contract cancelled
Bill-selling
Transfer of proceeds of import bills even if these are by way
TCs/ currency note selling
DD or TT_ At the discretion of the AD
Rate

TT-Buying

cancellation of outward TT, MT etc.

clean inward remittances (TT,DD, MT) where cover already
received abroad
Conversion of proceeds of instruments that are sent for collection
Cancellation of forward sale contract
Purchase of bills and other instruments

Bills-Buying

TCs/currericy note Buying

At the discretion of the AD

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

Non Residents and their Accounts

Resident: As per section 2(v) of the FEMA 1999, a person is called resident in India if he stays in
India for more than 182 days during the preceding financial year except those who have gone
out of India for taking up employment outside India or for carrying on a business or vocation
outside India or for any other purpose ndicating his intention to stay abroad for indefinite
period. NON Resident: Person resident outside India means a person who is not resident in
India. NRI has been defined in Income Tax Act. Definition of NRI: However, as per RBI
guidelines, a non resident Indian can be a person of Indian Jationality or a person of Indian
Origin.
Person of Indian Nationality (PIN): A Person of Indian Nationality is one who holds an Indian
passport at the time of opening the account.
Person of Indian Origin: A. Person of Indian Origin is one who is presently not a national of
Pakistan or Bangladesh and : (a) who at anytime held an Indian passport; or (b) he himself,
either of his parents or any of his grand parents was a citizen of India by virtue of Constitution
of India or the Citizenship Act,1955 ; or (c) the person is a spouse of Person of Indian
Nationality / Origin.
Overseas Corporate Bodies are those in which at least 60% shareholding is of NRI. OCBs are not
allowed to open NRI accounts.
Students who go abroad for studies have also been given the facility of opening NRI accounts.
Non resident accounts are of 3 types (a) Non Resident ordinary (b) Non Resident (External)
(c) Foreign Currency Non Resident (Bank) account. Salient features of these accounts are as
under:
Non Resident Ordinary account:
Type of account: Saving, Current, FD and RD
Credit: can be local income as well as remittance from abroad.
Currency of deposit: Indian Rupees
Period of Deposit and interest rate : Fixed deposit can be opened for 7 days to 10 years.
Interest rate on term deposits and saving bank has been deregulated and banks will decide.
But it can not be more than as applicable to domestic deposits.
5. Joint account allowed with residents as well non residents
6. Interest income is taxable and tax will be deducted at source irrespective of type of account
and amount of interest. The rate of tax on interest on deposits out of foreign remittance is
20% and on deposits from local income is 30%. Surcharge and education cess will be extra.
7. Power of Attorney is allowed to residents for making local payments. Power of Attorney can
undertake all local payments in rupees including payments for eligible investments subject
to compliance with relevant regulations made by the Reserve Bank; and Remittance outside
India of current income in India of the nonresident individual account holder, net of
applicable taxes. The resident Power of Attorney holder is not permitted to repatriate
outside India funds held in the account other than to the non-resident individual account
holder nor to make payment by way of gift to a resident on behalf of the non-resident
account holder or transfer funds from the account to another NRO account.
8. Repatriation is allowed as per following details: (I) Remittance outside India of current
income like rent, dividend, pension, interest, etc. in India of the account holder. (ii)
Remittance up to USD one million, per financial year (April- March), for all bonafide
purposes, to the satisfaction of the authorised dealer bank. (iii) sale proceeds of immovable
property up to US $ 10 lakh per financial year without waiting for 10 year period.
Non Resident (External) and Foreign Currency Non Resident (Bank) account
There are certain common features in these accounts like
a. Credits: Only amount received from abroad can be credited to these accounts.
b. Joint account is allowed with Non residents. With residents joint accbunt allowed with close
relatives on F or S basis.
c. Power of attorney is allowed to residents. He can make local payments. POA can remit
money abroad if permitted by Power of Attorney.
d. Maximum loan against NRE and FCNR(B) : As per Bank discretion but margin should be
maintained
e. Interest income is free of Income tax and therefore tax is not deducted at source
f. Repatriation: Entire balance including interest can be repatriated abroad,
.
1.
2.
3.
4.

Item

NRE

81

' FCNR(BJ .
In any freely convertible currency

Currency of
Deposit

In Indian Rupees

Type of account
Exchange Risk

savings, term deposit, current, RD

Exchange risk borne by account
holder(s)
Period of Fixed Minim urn:1 year; maximum: Bank
discretion.
Deposit
Interest Rate
Interest rate on fixed deposit and SB
deposits have been deregulated and
banks are free to decide interest rates.
However it should not be more than
rate applicable on domestic deposits.
Periodicity
of Quarterly
interest

only term deposit

Exchange risk borne by the account
opening bank
FD for 1 to 5 years
Rate of interest should not exceed
LIBOR for concerned currency and
maturity period plus 200 basis points
for maturity less than 3 years and plus
300 basis points for maturity 3 years
and
Afterabove.
every 180 days

Distinctive features of NRE & FCR

Banks can grant loans against NR(E)RA and FCNR(B) deposits either to the depositors or third
parties up to any amount subject to margin.
2. If FCNR(B) is up to one year, no compounding is allowed.
3. In both NRE and FCNR deposits, if there is premature payment before one year no interest is
allowed. If there is premature payment after one year, penalty as per bank discretion.
1.

Foreign Currency accounts of residents

Foreign currency accounts of residents are of three types namely (a) Resident Foreign
Currency account (b) Resident Foreign currency (domestic) account (c) Exchange Earners
Foreign Currency account. Salient features of the same are given as under:
Resident Foreign Currency Account:
1. Who can open: This account can be opened by a resident individual who was NRI and
returned to India after minimum stay of one year abroad.
2. Source of funds: Foreign exchange received as pension or other benefits from employer;
realization of assets held abroad, proceeds of FCNR/NRE.
3. Joint account is allowed with resident individuals who are close relatives on former or survivor
basis.
4. Type of deposit: Saving, current and fixed deposit.
5. Repatriation is allowed for entire balance including interest for any purpose.
Resident Foreign Currency (Domestic) account:
1. Who can open: Account can be opened by any resident individual.
2. Type of account: Non interest bearing current account.
3. Credits: Forex acquired on visit abroad, from any person on visit to India or gift or
honorarium for services, gift or honorarium on a visit abroad, unspent forex acquired during
travel abroad.
4. Joint account is allowed with resident individuals who are dose relatives on former or survivor
basis.
5. Repatriation is allowed for permissible current and capital account transactions.
Exchange Earners Foreign Currency account:
1. Who can open: The account can be opened by any resident. This account will be opened by
exporters.
2. Type of account: Non interest bearing current account.
3. Credits: 100% of foreign exchange earnings can be credited to this account. Earlier, EEFC
account holders were permitted to access the forex market for purchasing foreign exchange
only after utilizing fully the available balances in the EEFC accounts. RBI has lifted the above
restriction.
4. Packing credit can be adjusted out of such funds.
Liberalised Remittance Scheme (LRS) for Resident
Individuals RBI has started this facility in February, 2004 and its salient
82

features are as under:

1. Resident individuals can remit up to $ 250, 000 per financial year for current or capital account
or a combination of both for any approved purpose including remittance for gift or donations
or purchase of immovable property. (Capital account transaction means a transaction when
there is a change in asset or liability and current account transaction is one which is not a
Capital account transaction.)
2. Facility is not available to corporates, partnership firms, HUF, Trusts etc
3. Accounts' at foreign centres can be maintained for the purpose of remittance without RBI
approval
4. The facility is not in substitution of the facilities like private travel, business travel etc.
The applicants should normally have maintained the bank account with AD for at least one year prior
to date of remittance. Some Permissible Current Account Remittances (in addition to LRS)
1. Release of exchange not exceeding USD 10,000 or its equivalent in one financial year, for one or
more private visits to any country (except Nepal and Bhutan).
2. Exchange facilities'not exceeding USD 100,000 for persons going abroad for employment.
3. Exchange facilities for emigration not exceeding USD 100,000 or amount prescribed by country
of emigration.
4. Release of foreign exchange up to USD 100,000 for maintaining relatives abroad.
5. Release of foreign exchange, not exceeding USD 25,000 per visit to a person, irrespective of
period of stay, for business travel, or attending a conference / specialised training or for
maintenance expenses of a patient going abroad for medical treatment or check-up abroad, or
for accompanying as attendant to a patient going abroad for medical treatment/check-up.
6. Release of exchange for meeting expenses for medical treatment abroad not exceeding the
estimate from the doctor in India or hospital/doctor abroad. (No estimate required for
remittance up to US $ 1,00,000)
7. Release of exchange for studies abroad not exceeding the estimate from the institution
abroad.(No estimate required for remittance up to US $ 1,00,000)
8. For studies abroad and meeting expenses of medical treatment, up to US $1,00,000 can be
released by AD on the basis of a declaration and estimate need not be insisted upon.
Foreign exchange in the form of currency can be taken abroad up to US $ 3000 and balance in the
form of Traveller cheque or Draft. For Iraq and Libya this limit is US $ 5000. For Iran, Russia and CIS
countries, no limit on currency. Indian rupees' can be taken abroad up to Rs 25000. Foreign
exchange can be issued against cash up to Rs 50,000.
Inward Remittance
Any person foreigner or Indian coming to India can bring any amount of foreign exchange in
India.
2. If foreign currency being brought is more than US$ 5000 or foreign currency and traveler
cheque is more than US $ 10,000, then the person bringing forex should make declaration
before Customs on the Currency Declaration form. If it is not submitted to Customs, then it can
be submitted to Authorised Dealer while surrendering foreign exchange.
3. Unspent Foreign exchange should be surrendered within 180 days of arrival in India whether it
is foreign currency or foreign traveler cheque.
4. A resident individual can retain up to US $ 2000. There is no limit on coins.
5. Indian rupees can be brought up to Rs 25000.
Exchange regulations are not applicable in case of remittance to or from Nepal and Bhutan.
Therefore, forex can neither be taken to nor brought from Nepal and Bhutan. Indian rupees can be
taken to Nepal and Bhutan in the denomination of Rs 100 or below.
1.

Types of Letters of Credit

Revocable Credit : Such a Credit can be revoked I modified or amended without consent of
beneficiary.
2. Irrevocable Credit : Such a Credit cannot be cancelled / modified or amended without consent of
beneficiary. In the absence of any indication whether an L/C is revocable or irrevocable, it shall
be deemed to be irrevocable. As peeUCPDC 600, banks will issue only irrevocable LC
3. Confirmed Credit: An irrevocable credit which carries confirmation of the advising bank is
called confirmed credit.
4. Transferable Credit: Under a transferable L/C the beneficiary requests for credit being made
available in whole or in part to one or more other beneficiaries. Unless otherwise stated in the
1.

83

Credit, a transferable Credit can be transferred once only.

Revolving Credit: In such an L/C the amount of drawing is reinstated and made available to
the beneficiary-again after negotiation of documents drawn under LC. There will be restriction
regarding number of times LC can revolve or maximum value upto which documents can be
negotiated or both.
6. Back to Back Credit: It is an VC which is issued on the strength of original L/C. Beneficiary of
original VC s applicant of Back to Back credit. Normally an exporter uses his export L/C as a
cover for VC in favour of local suppliers.
7. Red Clause L/C: This LC has a clause permitting the correspondent bank in the exporter's
country to grant advance to beneficiary at issuing bank's risk and responsibility. These
advances are adjusted from proceeds of the bills negotiated.
8. Green Clause L/C: This type of VC is an extension of Red Clause L/C. Besides pre-shipment
credit, Greei Clause L/C entails finance for storing of goods in a warehouse. Both Red clause
and Green clause LC are called anticipatory credits.
9. Restricted LC: A letter of credit in which negotiation is restricted to a particular bank.
10.Stand by LC: A LC issued in lieu of Bank Guarantee. It is similar to performance bond or
guarantee, la Lt issued in the form of LC. The beneficiary can submit his claim by means of a
draft accompanied by the requisite documentary evidence of non-performance, as stipulated in
the credit.
11.0A LCs are those, where the payment is to be made on the maturity date in terms of the credit.
The documents of title to goods are delivered to applicant merely on acceptance of documents
drawn under LC.. 12.DP LCs are those where the payment is made against documents on
presentation.
13.With or without recourse LCs: Where the beneficiary holds himself liable to the holder of the
bill r dishonoured, is considered to be with-recourse. Where he does not hold himself liable, the
credit is said to be without-recourse.
14. Instalment Credit: It is a letter of credit for the full value of goods but requires shipments of
specific quantities of goods within nominated period and allows for part-shipment. In case any
instalment of shipment is missed, credit will not be available for that and subsequent insalment
unless of LC permits the same,
Merchant Exporter will prefer transferable or back to back credit whereas manufacturer exporter
will prefer Red clause or Green clause LC. All exporters prefer Irrevocable LC
5.

Salient provisions of UCPDC

All LC transactions are subject to Uniform Customs and Practice for Documentary Credits
(UCPDC) 600 which is effective from 1st July 2007 and has been issued by International
Chamber of Commerce Paris.
2. Advising bank is not liable for making payment under LC. His responsibility is only to ensure
apparent authenticity of credit. Both issuing bank and confirming bank are liable for making
the payment.
3. As per UCPDC, banks deal in documents and not in goods
4. On or about Such expression will be interepreted as a stipulation that an event is to occur
during a period of 5 calendar days before and until 5 calendar days after the specified date,
both the start and end dates included.
5. The words 'to', 'until', 'from' and 'between' when used to determine a period of shipment
include the date mentioned and the words 'before' and 'after' exclude the date mentioned.
6. The words 'from' and 'after' when used to determine a maturity date exclude the date
mentioned.
7. The terms 'first half' and 'second half' of a month shall be construed respectively as the 1st to
the 15th and the 16th to the last day of the month, all dates inclusive.
8. The terms 'beginning', 'middle' and 'end' of a month shall be construed respectively as the 1st
to 10th, the 11th to the 20th and the 21st to the last day of the month, all dates inclusive,
9. Branches in different countries are considered to be separate banks.
10. A clean transport documents is one bearing no clause or notation expressly declaring a
defective condition of the goods or their packaging.
11. If there is no indication in the credit about insurance coverage, amount of insurance coverage
must be at least 110% of CIF or CIP value of the goods.
12. Bill of Lading should be "On Board Bill of Lading". Since Bill of Lading is issued in more than
one set, all negotiable copies of bill of lading should be obtained.
1.

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.

Trade and Exchange Control Regulations for Imports

Importer can import goods either on the basis of OGL or on the strength of specific import
licence issued b y DGFT.
Payment for imports should be made within 6 months from date of shipment.
Advance payment against imports is allowed up to any amount. However, where the amount of
advance: remittance for services exceeds US $ 500,000 or its equivalent, or for goods exceeds
USD 50,00,0Cce (provided bank is satisfied about the bonafides of importer otherwise USD
200,000), the same can be allowed against guarantee of an international bank of repute or
guarantee of a bank in India against counter guarantee of an international bank.
Bill of Entry is documentary evidence of physical arrival of goods into India. For advance
remittances exceeding US $ 1,00,000, it should be submitted within 6 months of remittance.
AD is required to submit icai RBI, statement on form BEF on half- yearly basis (within 15 days
from the close of the half-year) as at the end of June & December of every year, in respect of
importers who have defaulted in submission of Bill of entry within 6 months from the date of
remittance.
Delinking or Crystallisation of Export and Import bills: Crystallisation means converting a
foreign currency liability to rupee liability. In the case of overdue export bills it will be done as
per bank discretion and exchange rate will be TT selling rate. In the case of import bills
conversion will be at Bills selling rate. In demand bills it will be on 10th day and in case of
usance bills it will be done on due date.
For release of forex for imports, application should be made on Form Al if the amount of
remittance exceeds USD 5000. For release of forex for purpose other than import, application
should be made on Form A2 if the amount of remittance is more than USD 25000.

Risk in Foreign Exchange

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)

Seller, in addition to cost of goods,

bears
Goods available at factory

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

His cost starts after the goods reach

the port of destination. --------------------------His liability
starts after
the
goods reach the frontier.

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

LATEST POLICY GUIDELINES IN 2014-15 ON FOREX

1.FOREIGN CURRENCY DEPOSITS: With the objective of aligning the instructions in respect of foreign
currency accounts with Depositor Education and Awareness and Awareness Fund Scheme, 2014, RBI
has advised that Authorised Dealer banks shall crystallize - convert the credit balances in any
inoperative foreign currency denominated deposit into Indian Rupee as follows: In case a foreign
currency denominated deposit with a fixed maturity date remains inoperative for a period of three
years from the date of maturity of the deposit, at the end of the third year, the authorised bank shall
convert the balances lying in the foreign currency denominated deposit into Indian Rupee at the
exchange rate prevailing as on that date.In case of foreign currency denominated deposit with no
fixed maturity period, if the deposit remains inoperative for a period of three years (debit of bank
charges not to be reckoned as operation), the authorised bank shall, after giving a three month notice
to the depositor at his last known address as available with it, convert the deposit from the foreign
currency in which it is denominated to Indian Rupee at the end of the notice period at the prevailing
exchange rate. In both the cases, the depositor shall be entitled to claim either the said Indian Rupee
proceeds and interest thereon, if any, or the foreign currency equivalent (calculated at the rate
prevalent as on the date of payment) of the Indian Rupee proceeds of the original deposit and
interest, if any, on such Indian Rupee proceeds.
2.INTEREST RATE FUTURES: The Reserve Bank has permitted all non-deposit accepting nonbanking finance companies with asset size of Rs.1,000 cr and above, to participate in the interest rate
87

futures market permitted on recognised stock exchanges as trading members.

3.FOREIGN CONTRIBUTION (REGULATION) ACT: To discipline erring foreign-funded NGOs, the
government has advised that all voluntary organisations henceforth will have to make payments
exceeding Rs 20,000 through account payee cheques or drafts.
4.ROUTING OF FUNDS RAISED ABROAD TO INDIA: The Reserve Bank, on November 25, 2014,
clarified to AD banks (category I) that Indian companies or their AD Category I banks are not
allowed to issue any direct or indirect guarantee or create any contingent liability or offer any
security in any form for such borrowings by their overseas holdings / associate / subsidiary / group
companies except for the purposes explicitly permitted in the relevant Regulations. Further, funds
raised abroad by overseas holding / associate / subsidiary / group companies of Indian companies
with support of the Indian companies or their AD Category I banks as mentioned above cannot be
used in India unless it conforms to the general or specific permission granted under the relevant
regulations.
5.IMPORT OF GOLD UNDER 20:80 SCHEME: The Reserve Bank has advised Category-I AD banks that
all instructions issued about the Import of Gold (under 20: 80 Scheme) by nominated banks /
agencies / entities have been withdrawn.
6.FACILITIES FOR PERSONS RESIDENT OUTSIDE INDIA: Foreign Institutional Investors (FIIs) are
allowed to approach any AD Category I bank for hedging their currency risk on the market value of
entire investment in equity and/or debt in India as on a particular date. Further, RBI has clarified
that a foreign investor is free to remit funds through any bank of its choice for any transaction
permitted under FEMA, 1999 or the Regulations / Directions framed. The funds thus remitted can be
transferred to the designated AD Category -I custodian bank through the banking channel.
7.INVESTMENT IN CORPORATE DEBT REDUCED: Foreign Institutional Investors, Qualified Financial
Institutions and long term investors registered with SEBI, such as, Sovereign Wealth Funds (SWFs),
Multilateral Agencies, Pension/Insurance/ Endowment Funds, Foreign Central Banks, can now invest
only upto USD 2 billion in Commercial Papers. The sub-limit has been reduced from US$ 3.5 bn.
8.RESIDENT BANK A/C MAINTAINED BY RESIDENTS IN
INDIA JOINT HOLDER
LIBERALIZATION: RBI has decided that AD banks may include an NRI close relative in existing / new
resident bank accounts as joint holder with the resident account holder on Either or Survivor basis
subject to the condition such account will be treated as resident bank account for all purposes and all
regulations applicable to a resident bank account shall be applicable.
9.INTEREST ON FCNR(B)/NRE DEPOSITS: The interest rate ceilings on Foreign Currency NonResident (B) deposits is:
Maturity Period

From March 1, 2014

1 year to less than 3 years

LIBOR / Swap plus 200 basis points

3-5 years

LIBOR / SWAP plus 300 basis points

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
90

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
93

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.

Indo Nepal Remittance Scheme Salient features

1. it is a cross-border one-way remittance facility scheme facilitating remittance from India to

Nepal.

2. A remitter can transfer funds up to Indian rupees 50,000 from any of the NEFT branches to

Nepal. The beneficiary would receive funds in Nepalese rupees.

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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.
.

AUTOMATED TELLER MACHINE

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.

MOBILE BANKING TRANSACTIONS IN INDIA

What is Mobile Banking Transactions? : Undertaking banking transactions using mobile

phones by bank customers that involve credit/debit to their accounts.
2. Who can offer mobile ban ing services: Only banks which are licensed and supervised in India
and have a physical presence in India will be permitted to offer mobile banking services. Only
banks who have implemented core banking solutions would be permitted to provide mobile
banking services. Banks may also use the services of Business Correspondent appointed in
compliance with RBI guidelines, for extending this facility to their customers.
3. To whom this service can be offered: The services shall be restricted only to customers of
banks and/or holders of debit/credit cards issued as per the extant Reserve Bank of India
guidelines.
1. Type or transactions permitted: Only Indian Rupee based domestic services shall be provided.
Use of mobile banking services for cross border inward and outward transfers is strictly
prohibited.
5. Transaction limit:
i.For fund transfer: No limit , (ii)For purchase of goods & services: No limit.
iii.Maximum value of cash transfers: Rs 10000/- per transaction subject to a maximum value of
Rs 25,000 per month per customer.
iv.Banks may also put in place monthly transaction limit depending on the bank's own risk
perception of the customer. Cash Withdrawal at Point-of-Sale (POS): RBI has decided to permit
cash withdrawals at POS terminals. To start with, :his facility will be available for all debit cards
issued in India, upto Rs.I000/- per day. The conditions subject to which this 'acility is being
extended are given below: (i) This facility is available only against debit cards issued in India. (ii)
The liaximum amount that can be withdrawn at POS terminals is fixed at Rs.1000/- per day. (iii)
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

Timing on Weekdays Timing on Saturdays

Open for Business

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 %

Minimum CAR in India as per RBI uidelines

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

while determining their value for inclusion

in Tier II Capital )

capital reserves representing surplus arising

out of sale proceeds of assets.

Investment Fluctuation Reserve.

Innovative Perpetual Debt Instruments(IPDI)

Perpetual Non-Cumulative Preference shares.

(PNCPS)
Both not to be more than 40% of Tier I (IPDI)
alone
alone max 15%). There is no maturity period.
There is call option after 10 years

General Provisions and Loss Reserves ,upto a

maximum of 1.25% of weighted risk
assets:
Subordinated debt (long term unsecured
loans
Hybrid debt capital Instruments' (say bonds):
Debt capital instruments min maturity 15
Years

Minus
equity investments in subsidiaries,
intangible assets, and
losses in the current period and those brought
forward from previous periods

Redeemable cumulative preference shares.

Redeemable non-cumulative preference

shares.
Perpetual cumulative preference shares.

Risk weighted assets Fund Based

Risk weighted assets mean fund based assets such as cash, loans, investments and other assets.
Degrees of credit risk expressed as percentage weights have been assigned by RBI to each such
assets.
Cash, balance with RBI,
Balances with other banks with CRAR of 9% & above

0%
20%

Secured loans to Staff Members by mortgage & super annuation benefits

Other loans to staff members

20%
75%

Housing Loan up to Rs.75 lac to individual secured by Mortgage

Housing Loan more than Rs.75 lac to individual secured by Mortgage

50%
75%

Forex and gold open position

Exposure to Central/State Govt
Central Govt guaranteed advance
State Govt guaranteed advances
Loans to PSUs (not guaranteed by Govt)
Claims on unrated corporates
Exposure to DICGC/CGFT
Exposure to ECGC
Loans against FDR, LIC policy, NSCs with margin
Education loan (under Basel I 100%) But under Basel-II
Loans against gold/silver jewellery up to Rs.1 lac
Consumer credit / credit cards/Personal Loan
Exposure to capital market

1 00%
0%
0%
20%
1 00%
1 00%
0%
20%
0%
75%
50%
125%
125%

Commercial real estate

100%
101

Venture Capital invstmt as part of Capital market exposure

Loans to non-deposit taking NBFCs for on-lending
Retail Loan & Loan to SME (Retail Loan means limits up to Rs 5 crore and sale in
previous
FY
less than Rs 50 crore)

150%
1 0 0%
75%

NPA if specific provision is Less than 20%

If specific provision is 20% and above but less than 50%
If specific provision is 50% and above
Bills purchased under LC issued by another bank

150%
100 %
150 %
20%

Risk Weights for Important Assets

BASEL 11 : Three Pillars
1st Pillar Minimum Capital Standard (to be complied with by bank)
2nd Pillar Supervisory Review (to be carried by RBI based on 1CAAP &SREP) 3rd Pillar Market
Discipline.
Approaches for risk calculation
Standard Approach, Internalrating Based approach (comprise foundation approach &
Credit Risk
advance
approac
Standard Approach (comprising maturity method & duration method), Internal risk based
Market Risk
approach
Operational Risk Basic Indicator Approach, Standard Approach, Advance Measurement
Approach
Immediate implementation. Other approaches to be implemented later on.
BASEL III
Basel III: A Global Regulatory Framework for more Resilient Banks & Banking Systems
issued in Dec 2010, is comprehensive reform package of Basel Committee on Banking
Supervision (BCBS)
Objective - (a) improve ability to absorb shocks from financial & economic stress (b) to reduce
risk of spillover frorrit financial sector to real economy.
3 Pillars
Framework based on 3 pillars. Pillar-1 : Minimum capital standards, Pillar : 2 Supervisory
review and Pillar:3 Market discipline.
Pillar-1 Minimum Capital Standards
The total regulatory capital consist of the following :
(i) Tier 1 Capital (going-concern capital) comprising (a) Common Equity Tier 1 and
(b) Additional Tier 1
(ii) Tier 2 Capital (gone-concern capital).
In addition, the banks will also have to build capital conservation buffer (CCB), comprised of common equity.
Basel III implementation in India
It began w.e.f. Apr 1, 2013. It will be fully implemented by 31.03.2019. Certain provisions of
Basel II will continue tilt 31.03.2017 (parallel run).
Capital Ratios in Basel III
1. Common equity Tier I capital ratio = Common Equity Tier I Capital / RWA for (Credit
risk + Market risk Operational risk)
2. Tier I capital ratio = Tier I Capital / RWA for (Credit risk + Market risk + Operational risk)
3. Total capital ratio (CRAB) = Eligible Total Capital / RWA for (Credit risk + Market risk + Operational
risk)
102

Overall capital (% to Risk Weighted

assets)
1. Minimum Common Equity Tier 1
(CETI) ratio
2. Additional Tier 1 Capital ratio
3 Minimum Tier 1 capital ratio [1+2]
4 Tier 2 capital ratio
5 Minimum Total Capital Ratio (MTC)
[3+4)

5. 5
1.5
7. 0
2.0
9.0

6 Capital conservation buffer (CCB)

(comprised of Common Equity)
2.5
7 Minimum CET1 ratio + CCB (1+6) 8.0
8 Minimum Total Capital Ratio plus CCB [5+6]
11.5
(Ratios are w.r.t. RWA for credit
risk + market risk -1- operational
risk)

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

Applicable on the issue price in case of

Not applicable
.
banks
' Individuals
(other thanminors),corporations,
individuals (other than .
minors),
companies, trusts, .funds, associations etc
corporations, companies, trusts,
funds,
Min: 7 daysMax : 12 Months'. (in case of Fls Min: 7 days Max
: 12 Months
minimum 1 year and maximum 3 years).
.
Min: Rs.1 lac, beyond which in multiple of Min: Rs.5 lac, beyond which in
"Rs.1lac
'
multiple of Rs.5 lac

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

Transfer: Endorsement & delivery. Any time

Instrument: Usance Promissory note. Can be issued in Dematerialisation form only
Loan : No loan can be given on security of these documents
if payment day is holiday, paid' on next preceding business day
Issued at a discount to face value

PROMPT CORRECTIVE ACTION

It relates to taking corrective action promptly, where a bank faces weakness in respect of CAR,
net NPA o rofits. The action becomes necessary when the following situation arises (called
Trigger Points)
_
Trigger level
Parameter
less than 9%
Capital Adequacy Ratio
Net NPAs over 10%
Non-performing assets
Below 0.25%
Return on assets
DIVIDEND PAYMENT PARAMETERS
Banks can declare dividend without RBI permission, if they fulfill the undernoted criteria.
Normal cases
Special Cases

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.

BANKING SUPERVISION & CAMLES RATING CRITERIA

Banking supervision is carried by RBI on on--site basis (as per Sec 35 of B R Act) and off-site
supervision (through DSB returns). Based on that, rating of bank is carried by RBI on CAMELS
criteria. The rating parameters for Indian Banks and Foreign Banks are given below:
ASSET - LIABILITY MANAGEMENT IN BANKS
It has been implemented wef April 01, 1999.
What is ALM : ALM is the management of structure of balance sheet (liabilities and assets) in
such a way that the net earning from interest is maximised within the overall risk-preference
(present and future) of the institutions.
Maturity buckets are different time intervals (10 for the time being, namely next day, 2-7 days, 814 days, 15- 28, 29-90, 91-180, 18'1-365 days, 1-3 years, 3-5 and above 5 years), in which value
of an asset or liability is placed desending upon its residual maturity
Mismatch position : When in a particular maturity bucket, the amount of maturing liabilities or assets
does not match, such position is called a mismatch position, which creates liquidity surplus or
liquidity crunch position and depending upon the interest rate movement, such. situation may
turnout to be risky for the bank.
Ceiling on mismatch position : Mismatches for cash flows for next day to 15-28 days' buckets to
be kept to minimum (not to exceed 5% for next day, 10% for 2-7 days, 15% for 8-14 days and
20% for 15-28 days, each of cash outflows for those buckets).
Role of ALCO : Asset-Liability Committee is the top most committee to oversee implementation of
ALM system, to be headed by CMD or ED. ALCO would consider product pricing for both deposits and
advances, the desired maturity profile of the incremental assets and liabilities in addition to
monitoring the risk levels of the bank. It will have to articulate current interest rates view of the bank
and base its decisions for future business strategy on this view.
105

Call Money
Notice Money
Term Money
Held till maturity
Held for trading
Available for sale
Yield to maturity
Coupon Rate

Money lent for one day

Money lent for a period of 2-14 days
Money lend for 15 days or more in Inter-bank market
Govt. securities which are not meant for sale and shall be kept till maturity by
the banks.
Govt.
securities acquired by the banks with the intention to trade by taking
advantage of the short-term price/ interest rate movements.
Govt. securities which do not fall within the above two categories i.e. HTM or
HFT.
Expected
rate of return on a security during the period, it is held by an
investor which may include capital gains and losses also.
Specified interest rate on a fixed maturity security, fixed at the time of issue.

Gilt Edged security

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

Risk to reputation of a bank on account of engaging services of 3rd parties for

certain banking jobs.
RIGHT TO INFORMATION ACT
Information can be obtained by Indian Citizen only from any public authority without giving any
reason.
Information is available with Public Information Officer, appointed by each organization for that
purpose.
Time for providing information : 30 days; If information pertains to life and liberty, the period is
48 hours
Fine for delay in providing information: Per day Rs.250 and total Maximum fine Rs.25000
Record preservation time: 5 to 8 years as fixed by Central Govt.

LATEST POLICY GUIDE LINES DURING 2014-15

1.CAR : STATE / CENTRAL CO-OP BANKS: RBI has decided to prescribe a minimum CRAR for
StCBS / CCBs of 9% to be achieved in a phased manner over a period of 3 years as : As on March
31, 2015 - 7%;
As on March 31, 2017- 9%.

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.

6.BASEL III FRAMEWORK ON LIQUIDITY STANDARDS: With a view to providing a transition

time to banks, the Liquidity Coverage Ratio (LCR) requirement would be minimum 60 per cent for
the calendar year 2015 beginning January 1, 2015 and rise in equal steps to reach 100 per cent on
January 1, 2019, as per the time-line given below:

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.

8.GUIDELINES IN SOCIAL SECURITY SCHEMES: The Government has notified enhancement of

wage ceiling to Rs 15,000 per month, fixed minimum monthly pension at Rs. 1,000 under EPS-95
and enhanced the maximum sum assured under the Employees' Deposit Linked Insurance (EDLI)
Scheme to Rs. three lakh. The minimum monthly pension of Rs. 1,000 and a higher wage ceiling of
Rs 15,000 for social security schemes run by retirement fund manager EPFO will be implemented
from September 1.

9.MTSS: APPOINTMENT OF SUB-AGENTS: To broaden the network of sub-agents under the

Money Transfer Service Schemes (MTSS), the RBI has permitted non-deposit accepting nonbanking finance companies (NBFCs) with asset size of Rs.100 crore and above, to act as subagents under MTSS subject to the stipulated conditions.

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.

11.LIQUIDITY MANAGEMENT FRAMEWORK: A revised framework for liquidity management

has been put in place with effect from September 5, 2014. The instruments covered under the
revised liquidity management framework are Overnight Fixed Rate Repos (at repo rate); Variable
Rate 14 Day Term Repo Auctions; Overnight Variable Rate Repo Auction; Overnight Fixed Rate
Reverse Repo; Overnight Variable Rate Reverse Repo Auctions; Overnight Marginal Standing

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

IDFC Limited and Bandhan Financial Services Private Limited.

17.INTEREST RATES ON PPF &SCSS, 2004: The Government of India has advised the following
interest rates on PPF & Senior Citizen Saving Scheme for 2014-15: 5 Year SCSS, 2001 9.2% p.a.;
PPF - 8.7% p_a

11. RECALLED QUESTIONS

VARIOUS POLICY RATES AT GLANCE
Bank Rate
8.5%
04.03.2015
CRR
4.0%
09.02.2013
SLR
21.5%
07.02.2015
Repo Rate
7.5%
04.03.2015
04.03.2015
Reverse Repo Rate
6.5%
_
MSF Rate
8.5%
04.03.2015
( Note : Kindly Change the answer as per latest rates as given in the above table )
(OBC Exam Clerk to Officer held on 15 Feb 2015)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.

What is full form of NPA?: Non Performing Asset

What is full form of FDI?: Foreign Direct Investment
What is full form of MICR?: Magnetic Ink Character Recognition
What is full form of CRAR?: Capital to Risk weighted assets ratio
What is the present rate of SLR?: 21.5% of NDTL
FCNR (B) can be opened in how many currencies?: Any freely convertible currency ( earlier
6 foreign currencies - USD, Euro; GBP; Jap Yen; Australian Dollar; Canadian Dollar)
What is the maximum housing loan for a dwelling unit so that it is covered under priority
sector: Rs 25 lakh in places with population over 10 lakh and Rs 15 lakh for places with
population up to 10 lac.
When a person does not repay bank's loan though he has profit to pay, he is called: Wilful
Defaulter
Net Working Capital is represented as - (a) Current Asset minus current liabilities; (b) Current
asset minus stock; (b) Current asset minus current liabilities except bank borrowings: Current
Asset minus current liabilities
How much award can be given by Banking Ombudsman for deficiency in service related to a
credit card?: Rs 1 lakh
As per section 107 and 108 of Indian Evidence Act, a person can be presumed to have died if he
is missing for : 7 years
What is the target of Priority sector for domestic commercial banks?: 40% of ANBC or CEOBE
whichever is higher.
What is time period for which banks are required to preserve records relating to photograph;
proof of ID and proof of address as per KYC norms: Up to 5 years from close of the account
A Unit will be called as Micro Manufacturing Enterprise if investment in plant and machinery
is up to: Rs 25 lakh
A Unit will be called as Small Service Enterprise if investment in equipments is up to: Rs 2
crore.
Banks will not obtain collateral security in respect of loans to micro and small enterprises
which are covered by Credit Guarantee Scheme for Micro and Small enterprises?: Rs 1 crore
What is the maximum amount of loan that can be granted under DRI: Rs 15000
The interest rate at which RBI rediscounts bills of commercial banks is called: Bank Rate
What is Bank Rate at present?: 8.75%
In case of advance granted to Micro and small enterprises, banks will not obtain collateral
security up to: Rs 10 lakh.
Limit sanctioned Rs 5 lac; Stock Rs 6 lac; Margin 25%; What will be Drawing power: Rs 4.5 lac
Main difference between term deposit and Deffered payment guarantee is due to: Outlay of
Funds
What are the total number of digits in Aadhar Card: 12
What are the timings for RTGS for customer on weekdays other than Saturday?: 8 AM to 4.30
110

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.

What is full form of IFSC?: Indian Financial System Code

What is full form of MICR?: Magnetic ink Character Recognition
What is full form of PIN in the context of ATMs?: Personal identification Number
What is full form of VAT?: Value Added Tax
What is full form of FDI : Foreign Direct Investment
What is represented by T in RTGS?: Time
If cash credit limit is Rs 5 lac, margin is 25%, stock Rs 6 lac, what will be Drawing power?: Rs
4.5 lac
8. What is the minimum amount of remittance under RTGS? : Rs 2 lac.
9. For exchange of soiled notes over the counter at bank branches, RBI will provide an incentive of:
Rs 2.00 per packet for exchange of soiled notes in denominations up to Rs.50
10. What activity is taken- by banks for Financial Inclusion?: Banks provide banking services to
poor people at an affordable cost (Financial inclusion means: Providing financial services to
weaker sections at affordable cost; Financial Inclusion is: The delivery of banking services at an
affordable cost to the vast sections of disadvantaged and low income group; 11. A cheque was issued on 1st January 2013. The date on the cheque was mentioned as 31st
January 2013. The cheque was presented for payment on 14th January 2013. What should the
bank do?: Bank should not pay as the cheque is post dated cheque and payment of such cheque
1.
2.
3.
4.
5.
6.
7.

111

not treated as payment in due course

A Demand draft should be crossed with Account payee crossing when amount of Draft is - (a)
more than Rs 20,000; (b) more than Rs 50,000; (c) Rs 20,000 or above: Rs 20000 or above
13. There is a FDR in the joint name of A and B payable to either or survivor. S has been appointed
as nominee. A has died. On due date of FDR, B presents the FOR for payment whereas legal heirs
of A also have submitted the claim for the amount. Whom should bank pay?: Survivor i.e. B
14. What is the maximum amount of award Ombudsman can give in case of Credit Card Operations:
Rs.1.00 lakh
.15. In case of advances covered under Credit Guarantee Scheme for Micro and Small enterprises,
what is the extent of guarantee cover for loans more than Rs 5 lac but up to Rs 50 lac: 75% of
the amount in default (it is for units other than by women beneficiaries or in North East).
16. Which organizations have been granted "in-principle" approval by RBI for banking licences?:
IDFC Limited and Bandhan Financial Services Private Limited
17. A person will be called very senior citizen if his/her age is : 80 years or above
18. In case of very senior citizens, income tax exemption is available up to income of: Rs 5 lac per
financial year.
19. In which year first RRB was set up 1975, 1980, 1985, 1990?: 1975 (Regional Rural Banks
were established under the provisions of an Ordinance passed on 26 September 1975 and the
RRB Act 1976. The- development process of RRBs started on 2 October 1975 with the with
forming the first RRB, the Prathama Bank)
20. What is limitation period for a Demand promissory Note: 3 years from date of demand
promissory note
21. The process whereby the proceeds of crime are transformed into ostensibly legitimate money
through banks is called: Money Laundering
22. Which form is to be used by. depositor for cancellation of nomination in deposit accounts?
: DA 2
23. 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
24. When on a farm along-with crop production, raising of live stock or some other agrjculture
based practice like poultry, dairy farming or bee keeping etc. is adopted, then this system of
farming is known as: Mixed farming.
25. The type of charge on goods in which possession is with bank and ownership is with
borrower is called: Pledge
26. Which of the following is not Material Alteration? (a) Alteration of the date of the instrument.
(b) Alteration of the sum payable; (c) Changing Order to Bearer (d) Alteration of the name of
the payee; (e) Changing Bearer to Order Cheque: Changing Bearer to Order Cheque
27. Cash Reserve Ratio (CRR) is maintained as percentage of (a)- deposits; (b) liabilities; (c)
demand deposits; (d) Net Demand and Time Liabilities; (e) Demand and Time Liabilities; (f)
Credit Equivalent of Off Balance Sheet Exposure: Net Demand and Time Liabilities
28. A person taking is cheque crossed generally or specially; bearing in either case the words --shall not be able to give a better title to the holder than that of the transferor: Not negotiable
29. Banks normally do not give loans to partnerships which are not registered with Registrar of
Firms. What is the reason for the same? : Because unregistered firm cannot file a suit for
recovery of its debts from third parties and thus may not be able to pay bank's dues
30. An asset would be classified as doubtful if it has remained in the substandard category for a
period of: 12 months
31. Under the DR! Scheme, banks provide finance upto Rs.15,000/- at a concessional rate of
interest of 4 percent per annum to the weaker sections of the community for engaging in
productive and gainful activities. In order to ensure that persons belonging to SCs / STs also
derive adequate benefit under the Differential Rate of Interest (DRI) Scheme, banks have been
advised by RBI to grant to eligible borrowers belonging to SCs / STs such advances to the extent
of not less than of total DRI advances: 40%
32. As per RBI, Domestic Commercial Banks are required to lend to priority sector at least 40 per
cent of or credit equivalent amount of Off- Balance Sheet Exposure, whichever is higher: Adjusted Net
Bank Credit (ANBC)
33. Bank can exercise rights under Sarfaesi Act in respect of which type of advances?: Non
performing Assets (NPAs)
34. When an asset, including a leased asset, ceases to generate income for the bank, it is called - (a)
No profit yielding asset; (b) Non performing asset; (c) No profit asset (d) Non participating
12.

112

asset: Non Performing Asset.

35. As per RBI, banks are required to introduce a system. of periodical updation of customer
identification data (including photograph/s) after the account is opened. The periodicity of such
updation in case of high risk customers should not be less than once in: two years.
36. Nomination facility is allowed in respect of which type of account - (a) accounts, of trust; (b)
account of limited company; (c) account of individuals; (d) account of individual and Sole
proprietorship account : account of individual and Sole proprietorship account
37. In MICR system used for clearing, the last two digits represent transaction code which are - (a)
10,11,12,13
; (b) 01,02,03,04; (c) 21,22,23,24; (d) 31,32,33,34: 11,12,13,14
38. Which of the following is not a part of direct agriculture finance- (a) Loan for post harvesting
activity; (b) Loan for pre harvesting activity; (c) Loan to Primary Agriculture Credit Society; (d)
Loan to Agri Clinic and Agri Business Centre: Loan to Agri clinic and agri business.
39. What is the rate of interest on PPF w.e.f 151 April 2014: 8.7%
40. For calculation of CRR, statement is prepared (a) weekly.; (b) fortnightly; (c) monthly; (d)
quarterly: fortnightly
41. On which of the following assets, charge is not created by way of hypothecation - (a) Machine (b)
Land (c) Stock; (d) Vehicle: Land
42. Rural Infrastructure Development Fund (RIDF) is maintained with: NABARD
43. At present what is the total rate of service tax 10%; 11%; 12%?: 12.36% (The Service tax is
payable @ 12% of the 'gross amount' plus 2% Education Cess on service tax plus 1% Secondary
Higher Education Cess on service tax i.e totaling to 1236%)
44. For being eligible to be classified as small (service) enterprise, the original investment in
equipment should not exceed: Rs 2 crore
45. What should the minimum holding of Government in public sector banks?: 51%
46.What is the periodicity of R Return sent to RBI: Fortnightly
47 In the case of Wrongful dishonour of cheque, to whom the bank is liable?: Drawer
48. 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
49. Debt Equity Ratio indicates: Long term solvency or capital structure of the firm
50. 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
51. 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
52. 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
53. When a borrower does not repay bank's dues deliberately despite adequate cash flow and
good net worth, he is called: Wilful Defaulter.
54. Photograph is obtained at the time of opening the account What is the purpose for the same?:
for identification of the prospective customer
55. 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.
56. 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.
57. 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.
58. 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.
59. 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
60. The rate at which RBI rediscounts the usance bills of banks is called: Bank Rate
61. What is the minimum and maximum period for which FCNR(B) deposit can be opened?: 1 year
and 5 years.
62. 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.
63. The Garnishee Order is applicable on the account of a customer when the relationship between
113

banker and customer (Judgement Debtor) is: Debtor & Creditor.

Equitable mortgage is created by which of the following methods - (a) By deposit of title
deeds with creditor; (b) By signing a Bond; (c) By executing a mortgage deed; (d) By deposit of
mortgage deed: By deposit of title deeds with creditor to create security for a debt;
65. A private limited company, means a company which has a minimum paid-up capital of one
lakh rupees or such higher paid-up capital as may be prescribed, and by its articles restricts
the right to transfer its shares, if any. It can be registered with a minimum number of (2, 7,10,
15): 2 members or more
66. Why amount in words is required to be written on cheques?: To avoid mistakes and make it
harder to fraudulently alter the amount after the cheque had been written.
67. Banks can not grant 'loan to its own director except as permitted by RBI as per provisions of:
Section 20 of Banking Regulations Act.
68. In case of failed ATM transaction, if there is delay beyond 7 working days in affording credit
bank will have to pay penalty provided complaint is made by the customer within: 30 days
69. The Foreign Exchange Management Act, 1999 (FEMA) which was introduced as a replacement
for earlier Foreign Exchange Regulation Act (FERA) was made effective from: 1st day of June,
2000.
70. Farmers day is celebrated on: December 23 every year (India celebrates Farmers Day in the
memory of Chaudhary Charan Singh, the ex-Prime Minister).
71. Bhartiya Mahila Bank started its operations in the month of (a) Oct 2013; (b) November
2013; (c) December 2013: November 2013
72. IRDA is a regulator of which of the following capital market; insurance; non banking financial
company: Insurance
73. IFSC code is used for RTGS and NEFT transactions. How many digits are there in IFSC?: 11
74. Which of the following is nodal agency for PMEGP RBI, NABARD, Ministry of Finance: KVIC;
Khadi & Village Industries Commission.
75. Which of the following is not required for opening account of a private limited company (a)
Memorandum of Association; (b) Articles of Association; (c) Certificate of Incorporation; (d)
Certificate of Commencement of Business: Certificate of Commencement of Business (As per
Companies Act 2013, private limited company is also required to file certain particulars with
ROC before commencing business)
76. The term "your account with us" represents which type of account?: Vostro account
77. The term "Purchase now, pay now" represents or is related to: Debit Card
78. The right of creditor to retain possession ofgoods and securities of the debtor till creditor's
dues are paid by the debtor is called: Lien
79. Which of the following is intangible asset?: Goodwill
With effect from ist July 2010, interest rate on advances made by a bank are linked to which of
the following (a) Bank Rate; (b) Base Rate; (c Benchmark Prime Lending Rate; (d) Prime
Lending Rate: Base Rate
80. What is the relationship between a bank and a customer in case of deposit accounts?: Debtor
and Creditor
81. In order to support students from Economically Weaker Sections of the Society, Department of
Education, Ministry of Human Resourse Development,Governemnt of India has launched
Central Scheme of Interest Subsidy for Educational Loans. Only those students are eligible
under the scheme, where annual gross parental/family income from all sources does not .
exceed: Rs.4.50 lass.
82. In case of Bills purchased or Bills discounted, account will be classified as NPA, when the bill
remains overdue for a period of: more than 90 days
83. Bank can enforce its rights under Sarfaesi Act, provided outstanding balance in the account
is: more than Rs 1 lac
84. When nomination is made by a depositor who is literate, witness is required from how many
per:sons: None. No witness is required for nomination in case of deposit accounts of literates.
(For illiterates 2 witnesses are required)
85. As per KYC norms, accounts of bullion dealers (including sub-dealers) & jewelers should be
categorized by banks as (a) Low risk; (b) Medium Risk (c) High Risk; (d) Very High Risk:
High Risk
86. What is the maximum amount of claim to a depositor that will be made by DICGC in respect
of deposits that were made a bank which has now failed or amalgamated?: Rs 1 lac per
customer per bank
64.

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88.
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90.
91.
92.

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.

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
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27.
28.
29.
30.
31.
32.
33.
34.

35.
36.
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41.
42.

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8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.

19.
20.
21.

which ratio?: Entirely by bank.

Nostro Account means: An account opened abroad in Foreign Currency.
Which of the following is not a material alteration: Adding crossing on an open cheque
Under Section 269T OF Income Tax Act, the payment of Interest plus Principal can be paid in
cash if the amount is: below Rs 20000/When the payee of a cheque signs the same on back of the cheque, this is called: Endorsement.
What will happen in case of negative working capital limit: Current Liabilities are more than
Current Assets
Blue Revolution is related to: aquaculture
What is the right in which bank can retain possession of securities with it till the debt due to the
bank is repaid: Lien.
When the maker or holder of a negotiable instrument signs the same, otherwise than as such
maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed
thereto, or so signs for the same purpose a stamped paper intended to be completed as a
negotiable instrument, it is called: Endorsement.
Application for information under RTI Act 2005 should be disposed off within: 30 days
As per BASEL II Guidelines, the Loans guaranteed by State Govt will attract Risk weight of: 20%
Business correspondent appointed by bank work as: Agents of the bank.
Under PMJDY Scheme announced by Prime Minister the debit card will be issued to every
account holder. The type of debit card will be: Rupay Card;
When a person comes to India from abroad, he is required to submit Currency Declaration Form
if the amount of foreign currency is: More than US$ 5000 or its equivalent.
What is the Code required for transfer of funds from one bank account to another bank account
in India through NEFT/RTGS?: IFS Code;
Interest rate on Saving Deposit is decided by : Banks individually
What is White Plastic?: Counterfeit Card
RECALLED QUESTIONS
(CENTRAL MP GRAMIN BANK 8 JUNE 2014)
In MICR code of cheque, 1st six digits belong to cheque number. What do next 3 digits belong
to?: Station Code.
What is full form of CIBIL?: Credit Information Bureau of India Limited
What is full form of IBPCs?: Inter Bank Participation Certificates
What is the limit of fixed deposit amount for which cash payment is allowed?: Less than Rs
20000.
Bankers lien is what type of pledge implied, express, legal, constructive, symbolic: implied
pledge
What does T stand for in SWOT: Threats.
Interest Subvention in case of KCC is limited for loans up to: Rs 3lac
As per Personal Accident Insurance Policy, how much claim is payable to a KCC holder on loss
of 2 organs or loss of both organs: Rs 50000
A manufacturing enterprise will be classified as micro enterprise if investment in plant and
machinery is up to ____ and small enterprise if investment in plant and machinery is up to _____:
Rs 25 lakh; Rs 5 crore
What is the maximum project cost for manufacturing & service enterprises in PMEGP: Rs 25 lac
& Rs 10 lac.
What is the margin for educational loan of 4 lac: NIL
What would be the margin for educational loan of more than Rs 4 lac for studying in foreign
country: 15%.
Which statement is not correct for minor?: In respect of a cheque drawn or endorsed by
him he can make everybody liable on the cheque including himself.
SLR is defined u/s of act: Section 24 of Banking Regulation Act.
What is the true statement with reference to pledge: Ownership remains with the borrower
but pledged goods can be sold by serving him a notice and without intervention of court.
Net working capital is 8 cr. Total assets is 32 cr. Fixed Assets: Rs 16 crore. What will be the
current ratio?: 2:1;
DSCR is used to determine which of the following liquidity; solvency; repayment of
instalments: Ability of a firm to repay term loan instalments.
A and B have an FDR with the bank with operating instruction as either or survivor. A died
before maturity. The amount is payable to: Survivor B and legal heirs of A if premature
payment is required. If payment is taken on due date, the payment will be made to
Survivor B.
In case of Regional Rural Banks, what is the target for weaker section under priority sector?:
15% of total advances (or 25% of priority sector advance)
What is target for priority sector advance for Regional Rural banks?: 60% of total advances.
Up to how much amount bearer DD can be issued?: Nil. As per section 31 of RBI Act, Demand
draft cannot be issued payable to bearer.
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28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
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:
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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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44.
45.
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51.
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55.
56.

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61.

62.
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64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
82.

Who is testamentary guardian: Guardian appointed by will

Who is Resident: person who resided in India for more than 182 days in previous financial
year.
Bailment of goods is related to : Pledge
What is conversion: Dealing with others property without his consent
Limitation period for mortgage: 12 years
What is funds flow statement: statement of sources and application of funds over a period
How much risk percentage under unsecured staff loans: 75%
In a Bill of exchange what is the liability of drawer before acceptance and after acceptance: If Bill
is not accepted liability of drawer is primary and if accepted liability of drawer is
secondary.
After transfer of deposit account, within how many period fresh address proof should be
submitted: 6 months of transfer of account
What is the purpose of Disaster Recovery Plan : Ans: Alternate Server installed for smooth
functioning of systems in case of failure of Main Server (Blue Print);
As per UCP 600, number of days permitted for scrutiny of documents while negotiating Bills: 5
banking days
What is the exchange rate applicable for export proceeds that are credited to NOSTRO account
for USD 37500 and then credited to customer: TT Buying Rate
What is the time period for crediting proceeds of outstation cheque presented in Speed Clearing:
48 hours
RBI provides export credit Re-finance to Banks under Sec 17(3A) of RBI Act 1934 on the basis of
rupee export credit. What is the interest rate on this Refinance: Repo Rate under Liquidity
Adjustment Facility.
In an Exchange Quotation, the rate is mentioned as USD 60.61/63. What rate you Buy: 60.61
What is the present Reverse Repo Rate: 6.50%
A Foreign Traveller is travelling into India. What is the maximum Forex, the traveller can carry
without declaration in Currency Declaration Form: Less Than FC$5000 or FC&FCTC$10000.
Loan System for Delivery of Bank Credit is meant for: Optimum utilization of Banks funds and
credit discipline.
A Forged Cheque is passed by Bank, wherein forgery is done in such a manner that it cannot be
identified with naked eye. Whether Banker is liable: Ans: Yes, because it will not be construed
as mandate to debit the account
Current Assets:100 lacs. Current Liabilities:50 lacs. Quick Ratio: 1.5:1. What is the value of
Stocks: Rs 25 lacs.
A Loan of Rs.25 lakhs sanctioned to Woman for Micro Enterprise. What is the coverage of
CGTMSE: 80% of amount in default.
What is the maximum permissible amount of outward remittance per annum by NRI from his
NRO account: 1 million dollars
As per RBI instructions Basel 3 implementation to be completed by: 31-03-2019.
A Cheque is signed by an Agent. Cheque presented after death of agent. What is to be done:
Cheque can be passed if it is otherwise in order.
Mortgage is required for Agricultural Loans if loan amount exceeds: Ans: Rs.1,00,000/In case of Nomination, the nominee will get right after death of depositor as: Trustee of Legal
Heirs
While granting Loans to NBFC-MFIs collateral security of deposit to the extent of ____ % of loan is
to be obtained: 10%
Sprinkler Irrigation system will be installed for what types of crops: Densely located Crops
Internationally LCs are subject to: UCPDC
Packing Credit is granted on the basis of: FOB value
Hot listing of Debit Card is done by way of: Stopping transactions at Switch
What is the maximum quantum of loan that can be sanctioned to Joint Liability Group: 5.00 lakhs
What is the Banks Contribution of Premium in case of Personal Accident Insurance Scheme for
KCCS holders: Rs.10/- by Bank (Debit Rs.5/- to partys account)
Computer programme which spreads and interfere with files is called as: Virus
While submitting CGTMSE claims by banks, filing of suit is not compulsory for advances upto:
Rs.50,000.
While doing Project Appraisal, sensitivity analysis is useful for: Viability and sustainability of
proposal.
Lorry Receipts issued by Transport Operators approved by IBA are preferred. The reason is the
Transport Operators will take care of: Carriers Risk
What is the interest payable by RBI on CRR balances: No Interest
What is the maximum permissible outward remittance for Treatment Abroad without Estimates
from Local Hospital: $1 lakh
Security value is eroded by more than 50% and the available security is more than 10% of
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outstanding. What is the classification of this Asset: Doubtful

Internationally, Banks are maintaining capital for various type of risks as per rules framed by:
Bank for International Settlements
84. While preparing balance sheet of a firm, closing value of stocks is inflated. What will be the
effect?: Gross Profit will increase (Inflation in gross profit).
85. What is the purpose of Rural Debt Swap scheme?: To repay loans raised from Money Lenders
86. As per Sec 19(2) of BR Act, no Banking Company can hold shares in another company whether as
pledgee, mortgagee or absolute owner of an amount exceeding ____ of the paid up share capital of
that company or _____% of its own paid up share capital and reserves, whichever is less: 30%,
30%
87. What is the minimum percentage of Tier 1 capital prescribed by RBI: 6%
88. While doing Risk Rating, an asset is downgraded from A+ rating to A rating. What type of risk is
involved: Credit Risk
89. Operation risk is NOT caused due to (1)failure of systems (2) process by people (3) external
events (4)NON PAYMENT OF DUES BY BORROWERS (5) none of the above: NON PAYMENT OF
DUES BY BORROWERS
90. Tangible Net Worth is calculated as: Ans: Total paid up capital + Reserves Intangible Assets
91. What is IMPS?: Interbank Mobile Payment Service (IMPS) is an instant interbank electronic
fund transfer service through mobile phones.
92. In Break Even Analysis, Contribution means: Sales Variable Cost or (fixed cost + profit)
93. Spot Delivery means: T+2 days
94. Loan granted to women upto Rs. Classified under Weaker Sections. Rs.50,000/95. ______ % of total library budget should be used for purchase of Hindi Books: 50%
96. Cluster Based Approach of SMEs will: Contain Risks
97. Basel II, Pillar 1 prescribed capital for what type of Risks?: Credit Risk, Market Risk and
Operational Risk
98. Which of the following is the benefit of CGMSE to borrower: No Collateral and Third party
guarantee
99. Debt Securitization means:Converting illiquid financial assets as Marketable Securities
100.
What is the provision on Doubtful Assets more than 1 year: Ans: 100% of unsecured portion
+ 40% of realizable value of security.
101.
What is Green Clause LC: Which contain a Provision of financing for Warehousing apart
from Loan for procuring Raw Material
102.
What is the maximum quantum of project cost for individual for setting up Agri Business
Centre: Ans: Rs.20 lakhs (Rs 25 lac for highly successful)
103.
As per UCP 600, beginning of month means: Ans: 1st to 10th
104.
LLP is to be registered with:
Registrar of
Companies
105.
Sales Above Break Even Level: Margin of Safety
106.
Commercial paper is issued in the form of: UsancePromisory Note
107. Delay in commencement of commercial production by more than 6months for reasons beyond
the control of the promoters indicates: Handholding stage of MSEs.
108.
As per Master Circular of RBI, Dec 2013, General Credit Card is classified under: Non Farm
Sector (Other Priority).
109.
While extending finance to NBFC-MFIs, the percentage of Qualifying Assets should be:
minimum 85%
110.
What is the full form of IFSC: Indian Financial System Code
111.
Whether US citizen visiting India can open NRO account: Yes
112.
If we discount future cash flows at the rate of Internal Rate of Return, the Net Present Value
should be: Zero
113.
What is the penalty for delay in Providing Information under RTI Act: Rs.250/- per day
beyond 30 days, with maximum of Rs.25,000/114.
What is the maximum amount of award Ombudsman can give in case of Credit Card
Operations: Rs.1.00 lakh
115.
In Kisan Credit Card Scheme, what is the maximum ceiling of sub limit for consumption credit:
10% of Crop Component.
116.
An account that has become NPA will not be considered as wilful default if it due to: Economic
Recession
117.
EEFC account can be opened as: Current Account Only
118.
Foreign Exchange brought to India by a Resident has to be surrendered to AD within a period
of: 180 days
119.
Pre Shipment credit Concessional rate of Interest for: 270 days for loans made up to
30.6.2010; Thereafter, no concession and it should not be below base rate.
120.
What is the LTV ratio prescribed by RBI for small value Housing Loans of Rs.20.00 lakhs: 90%
121.
What is the maximum quantum of GCC as per old scheme: maximum Rs. 25,000/122.
Priority Sector Classification is modified as per recommendations of: M V Nair Committee
123.
What is the indication of Liquidity Risk: More amount of Liabilities maturing than
83.

121

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
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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

39. M I C R full form : Magnetic Ink Character Recognition

40. What is required for sending RTGS/NEFT a.MICR b IFSC c PIN CODE Ans: IFSC
41.What is the form to be taken from Senior Citizen for exemption of TDS on deposits: Ans: 15H
42.What is the form to be taken from Other than Senior Citizen for exemption of TDS on
deposits: Ans: 15G
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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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73.What is target for Agriculture out of ANBC. Ans: 18% of ANBC

74.As per recent guidelines of RBI, Loans granted to Small/Medium Enterprises upto Rs._____
crores considered under Priority Sector. This facility is restricted for loans granted upto 3103-2014 only. Ans: Rs.10.00 crores
75.What is the insurance scheme for financial loss caused to crops due to adverse weather
conditions: Ans: Weather Based Crop Insurance Scheme
76.Export Bills should be realized with in a period of_____ from the date of export. Ans: 9 months
77.What is the quantum of revolving fund under NRLM. Ans: Min. Rs.10,000/- and Maximum
Rs.15,000/78.NRLM has a provision for interest subvention, to cover the difference between the Lending
Rate of the banks and_____%, on all credit from the banks / financial institutions availed by
women SHGs, for a maximum of Rs.3,00,000 per SHG. Ans: 7%
79.What are the charges for cash withdrawal through Credit Card, Ans: 3% of transaction
amount with minimum Rs.30/- per thousand or part thereof.
80.What is the rate at which RBI lends to Commercial banks: Ans: Repo Rate
81.The limit of loans to farmers against Pledge/Hypothecation of Agricultural Produce
(including warehouse receipts) and the period: Ans. Rs.50.00 lakhs and 12 months
82.Basel 3 implementation to be completed by: Ans: 31-03-2018
83.Under RTI Act, information to be provided to applicant with in maximum a period of_____
days. Ans: 30 days
84.What is the rate of Interest payable on EEFC account: Ans: No Interest. Only Current
Account
85.Upto what percentage of export proceeds can be credited to EEFC account : Ans: 100%
86.While sanctioning Gold Loan for other than Agriculture purpose, what is the maximum
percentage of Gold Value is sanctioned as loan: Ans: 75% of appraised value
87.What is the rate of interest subvention for Housing Loans upto Rs.15.00 lakhs with a project
cost ceiling of rs.25.00 lakhs. Ans: 1%
88.What is the target for Priority Sector in a Commercial Bank. Ans: 40% of ANBC
89.Loans sanctioned to dealers in Cattle Feed and Poultry Feed upto Rs.____ considered under
Indirect Agriculture. Ans: Rs.5.00 crores
90.Loans to distressed persons other than farmers, for repayment of their debt raised from non
institutional lenders, upto Rs.______ is considered under Priority Credit. Ans: Rs.50,000/91.What is the periodicity of customer meet in a Branch. Ans: Monthly
92.Hindi Meeting Report by HO to RBI: Ans:Quarterly (to check the answer)
93.How many member countries are there in Asian Clearing Union: Ans:9
94.As per prudential exposure norms, the maximum quantum of loan to a Single Corporate
Borrower: Ans: 15% of banks capital
95.Standby LC is similar to: Ans: Bank Guarantee
96.Role of Introducer in SB account: Ans: Identification
97.In a Loan Account, Borrower died. What is the role of guarantor. Ans: to pay the liability
98.What is the percentage of provision on Unsecured Portion in an NPA account of 18 months
old. Ans: 25% (since it is DA1 category)
99.Rule in Clayton Case which right applies: Ans: Set off
100. An account of Foreign Correspondant Bank with a Bank in India in Indian Rupees is called
as: ans: Vostro Account
101. Qualification for PMEGP project cost of more than Rs.10 lakhs under manufacuturing
activity. Ans: 8th standard
102. A truck is financed by Bank. Lien noted by. Ans: RTO office
103. No collateral security or personal guarantee for EL upto Rs.___ Ans: Rs.4 lakhs
104. Latest version of Exports & Imports guidelines. Ans: UCP 600
105. Import, Export rules governed by: Ans: FEMA
106. Dishonour of cheques of value less than `1 crore, on ____occasions during the financial year
will attract stoppage of cheque book facility and closure of account. Ans: Six
107. ________ provides credit history of customers. Ans: CIBIL
108. Green clause LC provides: Ans: Authorises the nominated bank to give advance payment for
Warehousing and Insurance Charges
109. Risk arising out of Non Functioning of a Computer in Branch. Ans: Operational Risk
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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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