NPAs (Non-Performing Assets)

Non- Performing Assets are the bad-loans of the Banks. The criteria to identify
such assets keep on changing from time to time.

NPA-Debt

In 2004, RBI shifted to a current policy. Under it, a loan is considered as NPA if
it has not been serviced for one term (one term here signifies 90 days). This
is known as 90 day overdue norm.

For Agricultural norms period is tied with the period of the concerned crops
ranging from two crop season to one crop season.

Types of NPAs

Sub-standard : NPAs for less than or equal to 18 months.

Doubtful NPAs : NPAs for more than 18 months
Loss Assets : in these the loss has been identified by the Banks or RBI but the
amount has not been written off.
GNPAs (Gross Non-Performing Assets) of scheduled commercial banks as a
percentage of total gross advances increased to 4.5% in September 2014
from 4.1% in march 2014.

The main REASONS for this increase in NPAs, could be following:

Increased interest rates in the recent past

Lower economic growth
Aggressive lending by banks in the past especially during good times.

Macroeconomic situation of the country

To resolve the issue of increasing NPAs, RBI came out with new guidelines,
those were:

Banks have to start act as soon as sign of stress is noticed in borrowers

actions and not wait for it to become an NPA.
Banks are required to give further loans to non-cooperative borrowers at
higher rate of interests.
Independent evaluation of large scale restructuring (above 500cr rp.) made
mandatory.
If a borrowers interest or principal payments are overdue by more than 60
days, a Joint Lenders Forum to be formed by the bankers for early resolution
of stress.
PSL (Priority Sector Lending)

Priority sectors in India at present includes following sectors:

Agriculture
Small and medium enterprises
Road and water transport
Retail trade
Small housing loans
Self Help Groups (SHGs)
Agro-processing
Software industries
Small and Marginal farmers
Small business
SC/STs
And other weaker sections of the society

In 2007, RBI included five minorities also : Muslims, Parsis, Sikhs, Buddhists,
Christians under the PSL. And now Jains also.

In 2015, RBI added medium enterprise, sanitation and renewable energy

under it.

The PSL target must be met by Indian Banks in following way:

INDIAN Banks need to lend 40% of their total lending to the Priority sector
every year (Indian Banks here includes Public sector as well as Private Sector
Banks).
There is a sub-target also 18% of the total lending must go to Agriculture.
And, 10% of the total lending or 25% of the PSL must be lent out to the
weaker sections of the society.
FOREIGN Banks have to fulfill only 32% PSL target which has sub-set targets
for the exports (12%) and small and medium enterprises (10%)
Above one term is used Small and Marginal farmers.

Now see, what is the difference between these two terms.

Marginal farmers are those who owns less than 1 hectare piece of land. And
Small farmers are those who owns more than 1 hectare of piece of land.
AIM of PSL is what, basically government of India wants the unprivileged
sections of the society to have the benefits of financial services. And only
then the country will develop when this section of society develops

FOREX

WHAT IS FOREX?

Forex is a commonly used abbreviation for Foreign Exchange, and it is

typically used to describe trading in the foreign exchange market by investors
and speculators.
The foreign exchange market (forex, FX, or currency market) is a global
decentralized market for the trading of currencies. This includes all aspects of
buying, selling and exchanging currencies at current or determined prices.
In terms of volume of trading, it is by far the largest market in the world.

EXCHANGE RATE

Exchange ratebetween two currencies is the rate at which one currency will
be exchanged for another. It is also regarded as the value of one countrys
currency in terms of another currency.
Exchange rates are determined in theforeign exchange market, which is open
to a wide range of different types of buyers and sellers where currency
trading is continuous: 24 hours a day.
In the retail currency exchange market, a different buying rate and selling
rate will be quoted by money dealers. Most trades are to or from the local
currency.

WHO TRADES CURRENCIES?

Daily turnover in the worlds currencies comes from two sources:

Foreign trade (5%). Companies buy and sell products in foreign countries,
plus convert profits from foreign sales into domestic currency.
Speculation for profit (95%).
Most traders focus on the biggest, most liquid currency pairs. The Majors
include US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian
Dollar and Australian Dollar. In fact, more than 85% of daily forex trading
happens in the major currency pairs.

WHY DO EXCHANGE RATES CHANGE?

Currencies trade on an open market, just like stocks, bonds, computers, cars,
and many other goods and services. A currencys value fluctuates as its
supply and demand fluctuates, just like anything else.
An increase in supply or a decrease in demand for a currency can cause the
value of that currency to fall.
A decrease in the supply or an increase in demand for a currency can cause
the value of that currency to rise.
A big benefit to forex trading is that one can buy or sell any currency pair, at
any time subject to available liquidity. So if one think the Eurozone is going to
break apart, he can sell the euro and buy the dollar (sell EUR/USD). If he think
the price of gold is going to go up, based on historical correlation patterns he
can buy the Australian dollar and sell the U.S. dollar (buy AUD/USD).

CENTRAL BANKS

National central banks play an important role in the foreign exchange

markets. They try to control themoney supply, inflation, and/or interest rates
and often have official or unofficial target rates for their currencies.
They can use their often substantial foreign exchange reserves to stabilize
the market. Nevertheless, the effectiveness of central bank stabilizing
speculation is doubtful because central banks do not go bankrupt if they
make large losses, like other traders would, and there is no convincing
evidence that they do make a profit trading.

FOREIGN EXCHANGE FIXING

Foreign exchange fixingis the daily monetary exchange rate fixed by the
national bank of each country. The idea is that central banks use the fixing
time and exchange rate to evaluate behaviour of their currency.
Fixing exchange rates reflects the real value of equilibrium in the market.
Banks, dealers and traders use fixing rates as amarket trend indicator.
The mere expectation or rumour of a central bank foreign exchange
intervention might be enough to stabilize a currency, but aggressive

intervention might be used several times each year in countries with adirty
float currency regime.
Central banks do not always achieve their objectives. The combined
resources of the market can easily overwhelm any central bank.Several
scenarios of this nature were seen in the 199293 European Exchange Rate
Mechanism collapse, and in more recent times in Asia.

UNIQUENESS OF THE FOREX MARKET

Its huge trading volume representing the largest asset class in the world
leading to high liquidity;
its geographical dispersion;
its continuous operation: 24 hours a day except weekends, i.e., trading from
22:00 GMT on Sunday (Sydney) until 22:00 GMT Friday (New York);
the variety of factors that affect exchange rates;
the low margins of relative profit compared with other markets of fixed
income; and
the use of leverage to enhance profit and loss margins and with respect to
account size.

DETERMINANTS OF EXCHANGE RATES

Economic Factors
Economic policy- Monetary policy, fiscal policy
Economic conditions Balance of Trade trends, inflation level trends,
economic growth and health, productivity of economy
Political conditions
Internal, regional and international political conditions
Market psychology
Long term trends

Technical trading considerations

Flights to quality a type of capital flight whereby investors move their
assets to a perceived safe haven

FINANCIAL INSTRUMENTS OF FOREX

Spot: is a two-day delivery transaction and it represents a direct exchange

between two currencies
Forward: One way to deal with the foreign exchange risk is to engage in a
forward transaction. In this transaction, money does not actually change
hands until some agreed upon future date.
Swap: In a swap, two parties exchange currencies for a certain length of time
and agree to reverse the transaction at a later date. These are not
standardized contracts and are not traded through an exchange.
Futures: Futures are standardized forward contracts and are usually traded on
an exchange created for this purpose. The average contract length is roughly
3 months. Futures contracts are usually inclusive of any interest amounts.
Option: A foreign exchange option (FX option) is a derivative where the owner
has the right but not the obligation to exchange money denominated in one
currency into another currency at a pre-agreed exchange rate on a specified
date. The FX options market is the deepest, largest and most liquid market
for options of any kind in the world.
RTGS

* RTGS stands for real time gross settlement, which means that it enables
money to move from one bank to another on a real time and gross basis.

* Real time means the beneficiary bank receives the instructions for fund
transfer immediately and gross means that it is not bunched with any other
transaction and settlements of funds transfer instructions happen individually.

* The service window for RTGS at banks is available from 9am to 4.30pm on
week days and from 9am to 1.30pm on Saturdays for settlement at the RBI

end. Keep in mind that the timings that each bank follows may vary.

* RTGS is mostly meant for large transactions. The minimum amount that can
be remitted through it is Rs 2 lakh. RTGS does not have an upper ceiling for
transactions.

* For RTGS, inward transactions (when you receive funds through RTGS) are
free. For outward transactions (when you send funds via RTGS), if the amount
is between Rs 2 lakh and Rs 5 lakh, the charges will be up to Rs 30 per
transaction. If the amount transferred is above Rs 5 lakh, the charges cant
exceed Rs 55 per transaction.

NEFT

* Neft stands for National Electronic Funds Transfer and is a payment system
which facilitates one-to-one funds transfer.

* Like RTGS, Neft also transfers funds from one bank, but unlike RTGS the
settlement takes place in batches (that may include transfers from various
individuals) rather than individually.

* Neft operates in hourly batches. Currently, it has 11 settlements from 9am

to 7pm on weekdays and five settlements from 9am to 1pm on Saturdays.

* It does not have a minimum or maximum limit of amount you can transfer.
But the maximum amount per transaction is limited to Rs 50,000 for cashbased remittance and remittance to Nepal.

* For Neft, inward transactions (when you receive funds via Neft) are free, as
no charges are to be levied from the person to whom fund are being
transferred to. When you use Neft to make an outward transaction (when you
send funds via Neft) at a bank branch for amounts up to Rs 1 lakh, the charge
is up to Rs 5 plus service tax. For transactions above Rs 1 lakh and up to Rs 2

lakh, the charge is up to Rs 15 plus service tax. for transactions above Rs 2

lakh, the charges cant exceed Rs 25 plus service tax.

If the transaction fails, the beneficiarys bank must return the amount to your
bank within two hours and the transaction must be reversed. Also, the bank
must transfer the amount to your account within 30 minutes of receiving the
same. The process can work quickly for RTGS . But, in case of NEFT the entire
process could take an additional three-four hours.

IMPS

* IMPS is next generation instant money transfer service from your mobile,
effectively any time, any where.

* This service is designed to make use of your mobile phone for transferring
money between banks but you can also it via netbanking.

* You will need a 7 digit MMID (Mobile Money Identifier) number to transfer
funds via IMPS (you need to check whether bank is participating on IMPS
service or not).

* main difference between IMPS and NEFT, RTGS is that is available 247,
including Sundays and even on bank holidays, while both NEFT and RTGS
available only limited period and also not available during bank holidays.

* Second difference is that IMPS is Immediate Payment service, The

beneficiary account is credited immediately when a Fund Transfer request is
made through your mobile phone or net banking, while NEFT is hourly
settlement service.

* Third difference between IMPS and RTGS is that transaction limit is Rs 1 in

IMPS while its 2 lacs in RTGS, which means like NEFT, you can transfer any
amount of money using IMPS.

Initially IMPS service was free, but now almost all banks are charging money.

GRPT

* The acronym GRPT stands for GROUP PAYMENT. GRPT is electronic funds
transfer between all branches of State Bank Group, which are under CBS. This
facility is used by branches for transfer of funds between customers
maintaining accounts with SBI and its Associate Banks. The customers
account gets credited instantaneously, as in Core Power Transactions.

* GRPT is an easy, quick, attractive remittance alternative for Demand Draft,

Banker Cheques, TTs etc. GRPT remittance is credited instantly on the same
day or latest on the next working day (if sent after Closing hour).

* All Associates Bank are in CBS and are GRPT enable.

* There is no limit on amount for GRPT transactions.

* As this fund transfer is in between State Bank Group branches, all branches
of State Bank Group are GRPT enabled, except a few SBI branches, which are
not yet migrated to CBS.

Reverse Mortgage Loan

Salient Features
# Any house owner over 60 years of age is eligible for a reverse mortgage.
# The maximum loan is up to 60% of the value of residential property.
# The maximum period of property mortgage is 15 years with a bank or HFC.

# The borrower can opt for a monthly, quarterly, annual or lump sum
payments at any point, as per his discretion.
# The revaluation of the property has to be undertaken by the Bank or HFC
once every 5 years.
# The amount received through reverse mortgage is considered as loan and
not income; hence the same will not attract any tax liability.
# Reverse mortgage rates can be fixed or floating and hence will vary
according to market conditions depending on the interest rate regime chosen
by the borrower.

Eligibility Criteria for reverse mortgage

# House owners above the age of 60 years. If spouse is a co-applicant, then

she should be above 58 years. Owners of a self-acquired, self-occupied
residential house or flat, located in India. The titles should be clear, indicating
the prospective borrowers ownership of the property.
# Property should be free from any encumbrances. The life of the property
should be of minimum 20 years. Property should be the permanent primary
residence of the individuals.

Period of reverse mortgage loan.

The loan under reverse mortgage shall not be granted for a period exceeding
twenty years from the date of signing the agreement by the reverse
mortgagor and the approved lending institution.

Settlement of a reverse mortgage

A reverse mortgage loan becomes due when the last surviving borrower dies,
or if the borrower chooses to sell the house. The bank first gives an option to
the next of kin to settle the loan along with accumulated interest, without
sale of property. If the next of kin is unable to settle the loan, the bank then
opts to recover the same from the sale proceeds of the property. Any extra
amount, after settlement of the loan with accrued interest and expenses,
through the sale of the property, will be passed on to the legal heirs.

# Prepayment of loan: Borrowers could prepay the loan at any time during
the tenor of the loan, at no prepayment penalty or charges.

# Death of one of the spouses: If one of the spouses dies, the other can still
continue living in the house. Only on death of both, settlement of the loan
takes place.

Drawbacks of reverse mortgage

# Lengthy documentation procedures: Banks require various documents of
the property. For a senior citizen this procedure could be tedious, complicated
and difficult to understand.
# Fixed monthly amounts: The monthly payouts are fixed. There is no
provision to increase this amount in case of an emergency or contingency.

Conclusion
Though introduced in 2007, Reverse Mortgage has not gained much
popularity in India for the following reasons. Inadequate marketing of the
product. Recent reports indicate that many of the senior citizens are not
aware of the existence of such a product. Reverse Mortgage is a relatively
new concept in India.

It would take some time for a change in mind set of individuals to accept it.
As a financial tool, Reverse Mortgage is ideal to augment a senior citizens
income in his years ahead. Despite all its shortcomings in India, it could make
good the shortfall in ones pension or income to live a quality life ahead.
Reserve Bank of India An Overview

RBI was established on April 1, 1935 on recommendation of Hilton youngs

commission and it was nationalized on January 1, 1949 under RBI act 1934.
RBI has 22 regional offices and 4 head quarters (4 directors represent
Mumbai , Kolkata, Chennai, and New Delhi).

Aim of RBI:

To regulate the issue of Bank notes and the keeping of reserves with a view to
secure monetary stability in India and generally to operate the currency and
credit system of the country to its advantage.

Functions of RBI:

Controlling money supply in the system (Monetary policy).

Maintaining people confidence in banking and financial system.
Providing tools for customers help through banking ombudsman.
Issue & exchange or destroy currency are fixed by RBI.
Issue of licenses for new banks and branches.
To appoint chairman, directors of banks in India .
Implementation of government policies related to agriculture and rural
development.
KYC norms and Risk management .
Audit and inspection.
RBI controls inflation, Bank credits by changing SLR , CRR , Repo rate and
reverse repo rate.

Logo :

When it was started the lion and palm tree is in the logo later lion was
replaced with tiger.

Subsidiaries of RBI:

Deposit Insurance and Credit Guarantee Corporation (DICGC) came into

existence on July 15, 1978.

National Housing Bank (NHB) set up on July 9, 1988 under the National
Housing Bank Act, 1987.

Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL) established

in February 1995.

Governors :

1st governor Osborne smith

1st indian governor C.D.Deshmukh

present (23rd) Governor Raghuram rajan (he was Chief economist at IMF
from 2003 to 2006)

Hedge Funds

The name hedge fund came into being because the aim of these vehicles
was to make money regardless of whether the market climbed higher or
declined. This was made possible because the managers could hedge
themselves by going long or short stocks (shorting is a way to make money
when a stock drops).

Hedge funds are alternative investments using pooled funds(funds from

different investors) that may use a number of different strategies in order to
earn active returns, for their investors. Hedge funds may be aggressively
managed or make use of derivatives and leverage in both domestic and
international markets with the goal of generating high returns.

Hedge funds mostly cater to sophisticated investors. You can think of hedge

funds as mutual funds for the super rich. They are similar to mutual funds in
that investments are pooled and professionally managed, but differ in that
the fund has far more flexibility in its investment strategies.
Various strategies which the Hedge funds manager employs are Equity
market neutral, convertible arbitrage, Fixed-income arbitrage etc but they are
out of the scope of banking exams

Key Characteristics

They are only open to accredited or qualified investors. Investors in hedge

funds have to meet certain net worth requirements to invest in them net
worth exceeding $1 million excluding their primary residence.
Wider investment latitude: A hedge funds investment universe is only limited
by its mandate. A hedge fund can basically invest in anything land, real
estate, stocks, derivatives, currencies. Mutual funds, by contrast, have to
basically stick to stocks or bonds.
Often employ leverage: Hedge funds will often use borrowed money to
amplify their returns. As we saw during the financial crisis of 2008, leverage
can also wipe out hedge funds.

Similarities between hedge funds and mutual funds:

Both mutual funds and hedge funds are managed portfolios. This means that
a manager (or a group of managers) picks securities that he or she feels will
perform well and groups them into a single portfolio. Portions of the fund are
then sold to investors who can participate in the gains/losses of the holdings.
The main advantage to investors is that they get instant diversification and
professional management of their money.

Now, the differences:

Hedge funds are managed much more aggressively than their mutual fund
counterparts. They are able to take speculative positions in derivative
securities such as options and have the ability to short sell stocks. This will

typically increase the leverage and thus the risk of the fund. This also
means that its possible for hedge funds to make money when the market is
falling. Mutual funds, on the other hand, are not permitted to take these
highly leveraged positions and are typically safer as a result.
Second is their availability. Hedge funds are only available to a specific group
of sophisticated investors with high net worth. The U.S. government deems
them as accredited investors, and the criteria for becoming one are lengthy
and restrictive. This isnt the case for mutual funds, which are very easy to
purchase with minimal amounts of money.
Various accounts maintained by NRI

1st type: NRE account (Non resident external account):

NRE account is chosen when you want to park your overseas earnings
remitted to India converted to Indian Rupees.

Deposits in NRE account is in foreign currency but the accounts are

maintained in rupees. Foreign currency is converted to Indian rupees at the
prevailing foreign exchange rates when the money is deposited into the
account. NRE accounts offer high interest rates and that interest is not
taxable in India.
you cannot deposit money from sources in India such as house rent or
pensions in this account. For this there is another type of account (NRO
account) which is explained below.
Interest income earned on the money in a NRE account is non-taxable in
India.
2nd type: NRO accounts (Non resident ordinary accounts):

They are mainly used for keeping India based earnings of NRIs in India. They
are appropriate for NRIs who have had earnings in India earlier and became
NRIs later as well as NRIs with income from sources in India such as house
rent, pensions etc. NRO accounts are maintained in rupees.
The source of funds deposited into NRO accounts can be from India or
abroad. You can also deposit money from your earnings abroad or transfer

money from a NRE account into a NRO account.

Funds which can be repatriated from the NRO are subject to a maximum limit
of USD 1 million per financial year.
Interest income earned on the money in a NRO account is liable for taxes in
India
So, in conclusion, NRE account is chosen when you want to park your
overseas earnings remitted to India converted to Indian Rupees. And NRO
account is choosen when want to park India based earnings in Rupees in
India, or you want account to deposit income earned in India such as rent,
dividends etc. Both the accounts are maintained in Indian rupees. But if you
want to maintain your account in foreign currency you need another type pf
account ie. FCNR account.

3rd type: FCNR account (Foreign currency non resident account):

It allows NRIs to make fixed Deposits (FD) in Indian Banks, in Pound Sterling,
US Dollar, Japanese Yen, Euro etc. They are not savings bank accounts. Only
Fixed deposit is possible
minimum maturity is 1 yr and maximum is 5 yrs.
FCNR accounts have to be opened and maintained in the foreign currency
itself. Also, the source of funds deposited into FCNR accounts have to be from
sources abroad.
Interest income earned on the money in a FCNR account is non-taxable in
India. NRE and FCNR accounts have the advantages of not having to pay
taxes in India
People opening NRE accounts and would like to repatriate their funds at some
point must consider the foreign currency conversion rates at the time the
funds are being deposited versus the time when the funds have to be
repatriated. This can carry risks as well as rewards depending on the forex
rates trend. For example, if $1000 is converted to Indian rupees at Rs. 50 per
dollar(=50000RS) and then converted back to dollars at a conversion rate of
Rs. 40 per dollar(50000/40=1250$), then you would get back $250 for a good
gain. On the other hand, if the dollar is at Rs. 55 per dollar(50000/55=909),
you would lose some of your principal when you do the repatriation

What Is Mortgage Loan?

A mortgage is a loan to finance the purchase of your house. It a kind of
security instrument that you as a buyer give to the lender. Mortgage is a legal
document that secures the lender's interests in your house. It is a kind of
debt instrument that gives conditional ownership of your property. A
mortgage on your home gives you the choice of not having to pay off the
entire amount of property at one go. Most firsttime home buyers do not
have instant cash available to buy a house. Thus, obtaining a mortgage to
acquire a loan is the right option. You can also obtain a loan against property,
disbursed against the mortgage of your property, if you need funds to acquire
a new property or for anything else.
What Is A Home Loan?
A home loan is the debt you incur when you are about to buy a house. In
banking terms, a loan is sum of amount approved for a borrower. This money
thats borrowed has to be repaid to the lender/bank in regular installments.
The bank or the lenders usually charge the borrower with interest, in addition
to the due amount. A bank approves a loan followed by a legal procedure and
a contract stating that both parties agree to this deal. Theres no notable
difference between mortgage loan and a home loan. You'll find that the
application process for both loans is similar. Both of them use your home as
collateral. Just like a mortgage, if you default payment on your home loan,
you can lose your home.
So whats the difference then when both ways individuals are obliged to
mortgage their property?
In mortgage, the property serves as collateral whereas a home loan may or
may not be secured. Unlike a home loan, where you actually receive money
to purchase a house, a mortgage is a legal document that you will offer to
your lender in exchange for a legal claim of your property. Its like a security
instrument agreeing to make regular payment with interest against your
property.
A home loan is provided for the restricted end use of any property. The
payment has to be made to either the seller or the builder of the property. On
the other hand, a mortgage loan is offered for an open end use. It is given
against the lien of a property. The lien is removed when the debt is
completely paid off. In both cases, the property is mortgaged to the lender.
How Are The Two Different From Loan against Property?
There is a striking difference here - Home Loan or Mortgage loan is taken only
for the purpose of purchasing a property. Mortgage loans or home loans

usually fund home purchases whereas a Loan against Property can be taken
for any purpose.