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NOTE:Basicallyforcominginsuranceexamandinterview
WHATISINSURANCE
Thebusinessofinsuranceisrelatedtotheprotectionoftheeconomicvaluesofassets.Everyassethasa
value.Theassetwouldhavebeencreatedthroughtheeffortsoftheowner.Theassetisvaluabletotheowner,
becauseheexpectstogetsomebenefitsfromit.Itisabenefitbecauseitmeetssomeofhisneeds.The
benefitmaybeanincomeorinsomeotherform.Inthecaseofafactoryoracow,theproductgeneratedbyitis
soldandincomeisgenerated.Inthecaseofamotorcar,itprovidescomfortandconvenienceintransportation.
Thereisnodirectincome.Bothareassetsandprovidebenefits.
BRIEFHISTORYOFINSURANCE
Insurancehasbeenknowntoexistinsomeformorothersince3000BC.VTheChinesetraders,traveling
treacherousriverrapidswoulddistributetheirgoodsamongseveralvessels,sothatthelossfromanyone
vesselbeinglost,wouldbepartialandshared,andnottotal.TheBabyloniantraderswouldagreetopay
additionalsumstolenders,asthepriceforwritingofftheloans,incaseoftheshipmentbeingstolen.The
inhabitantsofRhodesadoptedtheprincipleofgeneralaverage,whereby,ifgoodsareshippedtogether,the
ownerswouldbearthelossesinproportion,iflossoccurs,duetojettisoningduringdistress.(Captainsofships
caughtinstorms,wouldthrowawaysomeofthecargotoreducetheweightandrestorebalance.Suchthrowing
awayiscalledjettisoning)TheGreekshadstartedbenevolentsocietiesinthelate7thcenturyAD,totakecare
ofthefuneralandfamiliesofmemberswhodied.ThefriendlysocietiesofEnglandweresimilarlyconstituted.
TheGreatFireofLondonin1666,inwhichmorethan13000houseswerelost,gaveaboosttoinsuranceand
thefirstfireinsurancecompany,calledtheFireOffice,wasstartedin1680.
PurposeandNeedofInsurance
Assetsareinsured,becausetheyarelikelytobedestroyedormadenon
functionalbeforetheexpectedlifetime,
throughaccidentaloccurrences.Suchpossibleoccurrencesarecalledperils.Fire,floods,breakdowns,lightning,
earthquakes,etc,areperils.Ifsuchperilscancausedamagetotheasset,wesaythattheassetisexposedto
thatrisk.Perilsaretheevents.Risksaretheconsequentiallossesordamages.Therisktoaownerofa
building,becauseoftheperilofanearthquake,maybeafewlakhsorafewcroresofrupees,dependingonthe
costofthebuilding,thecontentsinitandtheextentofdamage.
Howinsuranceworks
Peoplefacingcommonriskscometogetherandmaketheirsmallcontributionstoacommonfund.The
contributiontobemadebyeachpersonisdeterminedontheassumptionthatwhileitmaynotbepossibletotell
beforehand,whichpersonwillsuffer,itispossibletotell,onthebasisofpastexperiences,howmanypersons,
onanaverage,maysufferlosses.

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HumanAsset
Ahumanbeingisanincomegeneratingasset.Onesincomegeneratingabilitydependsononesskills,
(manual,professional,problemsolving,entrepreneurial,etc).Thesearetheassets.Thevalueoftheassetcan
bemeasuredbyconsideringtheincomethatisgeneratedbythepersonconcerned.TheconceptofHumanLife
Values,providesscientificwaystodeterminetheassetvalueofthehumanlifeandtherefore,theamountoflife
insurancerequired..Thesetechniques,likeothertechniquesrelatedtoselling,willhavetobelearntonthejob

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FundsandInvestment
CASADeposit:
DepositinbankincurrentandSavingsaccount.
HighCostDeposit:
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Depositsacceptedabovecardrate(forthedeposits)ofthebank.
LiquidAssets:

QUIZ OF THE DAY

Question:
Inacertaincode
DELHI=33
BOMBAY=52
ThenthecodeofKOLKATA=?
MoreDetails

Liquidassetsconsistsof:cash,balanceswithRBI,balancesincurrentaccountswithbanks,moneyatcall
andshortnotice,interbankplacementsduewithin30daysandsecuritiesunderheldfortradingandavailable
forsalecategoriesexcludingsecuritiesthatdonothavereadymarket.

CapitalFunds
Equitycontributionofowners.Thebasicapproachofcapitaladequacyframeworkisthatabankshouldhave
sufficientcapitaltoprovideastableresourcetoabsorbanylossesarisingfromtherisksinitsbusiness.Capital
isdividedintodifferenttiersaccordingtothecharacteristics/qualitiesofeachqualifyinginstrument.For

supervisorypurposescapitalissplitintotwocategories:TierIandTierII.

TierICapital

DAILY CURRENT AFFAIRS

SAARCSUMMIT2014
INDIAISTHESECONDMOST
POPULARMARKETINASIA,HAS

Atermusedtorefertooneofthecomponentsofregulatorycapital.Itconsistsmainlyofsharecapitaland
disclosedreserves(minusgoodwill,ifany).TierIitemsaredeemedtobeofthehighestqualitybecausethey
arefullyavailabletocoverlossesHenceitisalsotermedascorecapital.

INVESTED$1.4BILLION:HSBC
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TierIICapital
Referstooneofthecomponentsofregulatorycapital.Alsoknownassupplementarycapital,itconsistsof
certainreservesandcertaintypesofsubordinateddebt.TierIIitemsqualifyasregulatorycapitaltotheextent
thattheycanbeusedtoabsorblossesarisingfromabank'sactivities.TierII'scapitallossabsorptioncapacity
islowerthanthatofTierIcapital.

VOCABULARY OF THE DAY

Word:Unsavoury(Adjective)
Definition:
Disagreeabletotaste,smell,orlookat.
MoreDetails

NonPerformingAssets(NPA)
Insimplewords,Theassetsofbankswhichdonotperform(meansdonotbringsanyreturn)arecalledNPA.
Inmoregeneralsenseitknownasbadloan.
AccordingtoRBI:Anyamounttoberecivedremainsoverduefortheperiodofmorethan90days.
"So90daysisathumbrulefordecidingNPA."
"Foragricultureloan(FordecidingNPA):
1If6monthcropthan,2cropseasons.
2Ifoneyearcrop,than1cropseason.

ClassificationOfNPA
SUBSTANDARDASSETS:12month
DOUBTFULASSETS:Next12month

Exam Pattern
SBICLERK2014
TheselectionprocedureforSBIClerk
willbeinthreestages:
Onlinetest
Interview
Finalselection

BANK LINKS
NationalizedBanks
SBI&Associates
RuralBanks
PrivateSectorBanks
OtherLinks

RBI Policies
BankRate:9.0%
RepoRate:8.0%
ReverseRepoRate:7.0%

LOSSASSETS:Next12month(Butuncertaintime)

SARFAESIACT(SecuritisationandReconstructionofFinancialAssetsandEnforcementof
SecurityInterestAct2002
ThisActuseforrecoveryofBadLoans
TheActprovidesthreealternativemethodsforrecoveryofnonperformingassets,namely:
Securitization
AssetReconstruction
EnforcementofSecuritywithouttheinterventionoftheCourt.
NPAloanswithoutstandingaboveRs.1lakh
NPAloanaccountswheretheamountislessthan20%oftheprincipalandinterestarenoteligibletobedealt
withunderthisAct.
Itisnotuseforagriculturalloan.

ResellingofNPA
AssetReconstructionCompany(ARC)
*NPAsaresubjectedtoresoldbutthepuchasercanonlybeARC.
Acompanywhichissetupwiththeobjectiveoftakingoverdistressedassets(NPA)frombanksorfinancial
institutionsandtoreconstructorrepacktheseassetstomakethoseassetssaleable.
Tobuyouttroubledloansfrombanksandmakespecialeffortsatrecoveringvaluefromtheassets,ifnecessary
byspeciallegislation,withspecialpowersforrecovery.
Restructuringofweakbankstodivestthebadloanportfolio.
IndiasfirstARCwithaninitialequityofRs.10crorewithICICIbank,IDBIandSBI.

MSF:9.0%

IncorporatedasapubliclimitedcompanyonFebruary11,2002.

CRR:4%

LOKADALAT

SLR:22%

Banks Results
IBPSPOIVSCOREOUT
ViewYourScoreforIBPSPOIV
ViewYourCutoffforIBPSPOIV
RRBIIIRESULTOUT
ViewYourScoreforCWERRBPhase
III

Vcancies

Tosettledisputesinvolvingaccountindoubtfulandlosscategory.
OutstandingbalanceofRs.20lakhsforcompromisesettlement.
Provedtobequiteeffectiveforspeedyjusticeandrecoveryofsmallloans.
Progressthroughthischannelisexpectedtopickupinthecomingyears.

DebtRecoveryTribunal(DRT)
TorecovertheirbadDebtquicklyandefficiently.
33DebtRecoveryTribunaland5DebtRecoveryAppellateTribunal
Itisthespecialcourtestablishedbycentralgovernmentforthepurposeofbankoranyfinancialinstitutions
recovery.
Thejudgesofthiscourtaretheretiredjudgesofhighcourt.
InthiscourtonlytherecoverycasesofRs.10lakhsandabovecanbefiled.

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NonPerformingAssets(NPA)
Insimplewords,Theassetsofbankswhichdonotperform(meansdonotbringsanyreturn)arecalledNPA.
Inmoregeneralsenseitknownasbadloan.
AccordingtoRBI:Anyamounttoberecivedremainsoverduefortheperiodofmorethan90days.
"So90daysisathumbrulefordecidingNPA."

Blog Archive
December(91)

"Foragricultureloan(FordecidingNPA):
1If6monthcropthan,2cropseasons.
2Ifoneyearcrop,than1cropseason.

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ClassificationOfNPA
SUBSTANDARDASSETS:12month
DOUBTFULASSETS:Next12month
LOSSASSETS:Next12month(Butuncertaintime)

SARFAESIACT(SecuritisationandReconstructionofFinancialAssetsandEnforcementof
SecurityInterestAct2002
ThisActuseforrecoveryofBadLoans
TheActprovidesthreealternativemethodsforrecoveryofnonperformingassets,namely:
Securitization
AssetReconstruction
EnforcementofSecuritywithouttheinterventionoftheCourt.
NPAloanswithoutstandingaboveRs.1lakh
NPAloanaccountswheretheamountislessthan20%oftheprincipalandinterestarenoteligibletobedealt
withunderthisAct.
Itisnotuseforagriculturalloan.

ResellingofNPA
AssetReconstructionCompany(ARC)
*NPAsaresubjectedtoresoldbutthepuchasercanonlybeARC.
Acompanywhichissetupwiththeobjectiveoftakingoverdistressedassets(NPA)frombanksorfinancial
institutionsandtoreconstructorrepacktheseassetstomakethoseassetssaleable.
Tobuyouttroubledloansfrombanksandmakespecialeffortsatrecoveringvaluefromtheassets,ifnecessary
byspeciallegislation,withspecialpowersforrecovery.
Restructuringofweakbankstodivestthebadloanportfolio.
IndiasfirstARCwithaninitialequityofRs.10crorewithICICIbank,IDBIandSBI.
IncorporatedasapubliclimitedcompanyonFebruary11,2002.

LOKADALAT
Tosettledisputesinvolvingaccountindoubtfulandlosscategory.
OutstandingbalanceofRs.20lakhsforcompromisesettlement.
Provedtobequiteeffectiveforspeedyjusticeandrecoveryofsmallloans.
Progressthroughthischannelisexpectedtopickupinthecomingyears.

DebtRecoveryTribunal(DRT)
TorecovertheirbadDebtquicklyandefficiently.
33DebtRecoveryTribunaland5DebtRecoveryAppellateTribunal
Itisthespecialcourtestablishedbycentralgovernmentforthepurposeofbankoranyfinancialinstitutions
recovery.
Thejudgesofthiscourtaretheretiredjudgesofhighcourt.
InthiscourtonlytherecoverycasesofRs.10lakhsandabovecanbefiled.

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