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Gautam Majumdar
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ISBN : 978-93-5013-294-4
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Code No. 1734
Contents
* No maximum limit is prescribed. However, advances to SSI sector will be reckoned in computing performance
under the over all priority sector target of 40% of Adjusted Net Bank Credit (ANBC) or credit equivalent amount
of off Balance sheet exposure, whichever is higher.
** It should be ensured that not less than 40% of the total advances granted under Differential Rate of Interest
Scheme go to SCs/STs. At least third of DRI advances should be granted through rural and semiurban branches.
Q. Define capital adequacy ratio. non performing when it stops earning income
Ans. CAR or capital adequacy ratio measures a for the bank. When loans become bad or diffi-
bank’s financial strength expressed as a ratio cult to recover they are classified as non per-
of the capital of the bank to its loans. The capi- forming as per criteria established.
tal of a bank is taken as its equity capital, re-
serves and subordinated debt. The loans are Q. How do loans become non performing ?
taken as a component of the risk attached to it Ans. Loans are treated as non performing when there
as each loan (asset) has a certain risk value. is no recovery of the loaned amount i.e. the
CAR is thus an assessment of a bank’s capac- borrower ceases to pay to the bank. As per clas-
ity to meet its liabilities and attendant risks. The sification norms when the interest charged and
higher the ratio the stronger is the bank. due during a quarter in an account is not recov-
Q. What is meant by non performing assets? ered with in 90 days from the end of the quarter,
Ans. The loan portfolio of banks is known as their the loan account is to be treated as non per-
assets basket. Any loan or the asset becomes forming.
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Recent Developments In
Banking And Finance
Know Your Customer KYC norms through the loan portfolio and the amount paid on
These norms have been specified for banks to the total deposits is net interest income, a measure
be strictly observed while opening accounts of cus- of the gain to the bank from its primary activity apart
tomers. Banks are required to satisfy itself fully about from other income and expenses from other related
the true identity of its customers before it can start a activities. Net Interest Income should be positive if
bank customer relationship. The customer needs to the bank is to have profitability.
provide documentary proof of his identity with resi- Net Interest Margin NIM for banks
dence particulars to minimize chances of frauds tak- Once the net interest income for a bank is de-
ing place. This requirement is increasingly impor- termined, net interest margin can be calculated by
tant to stop money laundering and other anti na- dividing net interest income by average interest earn-
tional activities. ing assets or loans.
Savings Accounts in banks to be paid in- Electronic Funds Transfer EFT
terest on daily balances With the introduction of electronic banking the
In terms of RBI directives banks are now re- normal mode of remittances by demand draft, tele-
quired to pay interest in savings bank accounts on graphic transfer, mail transfer were replaced by trans-
the daily balance. It is a departure from the earlier fer of money electronically. These modes are much
practice of paying interest on the minimum balance faster and can be sent between different cities and
in the account between the tenth and the last day of different banks.
each month. Analysts had observed that the account National Electronic Funds Transfer NEFT
holders were being paid less effectively by the pre- This is a mode of funds transfer electronically
vious method. To correct the anomaly the improve- across the country. Under this system the payment
ment has been suggested though it would mean the settlement takes place at specified time slots during
banks would have higher cost of funds. the week. Except on Saturdays when this facility is
Deregulation of interest rates on bank sav- available thrice on other week days it happens six
ings accounts times. To complete the transaction the details of the
beneficiary like name , account number, bank name
Presently interest rate for bank savings ac-
and branch with IFSC code has to be provided to the
count is the only deposit rate that is being adminis-
remitter’s bank for making the transfer.
tered by RBI. To bring about greater operational free-
dom for banks, RBI has allowed banks to fix interest Real Time Gross Settlement RTGS
rate for savings account also. Now banks declare their It is a transfer mechanism for remitting money
respective rates based on their cost of funds and from one bank to another instantly. RTGS is differ-
their need for funds. However the fear is that many ent from money transfers through EFT and NEFT.
conditionalities may be imposed by banks on the The minimum amount transferred through RTGS is
savings bank account holders which may be prove Rs. 2 lakh without any upper limit.
unfavourable to small depositors. National Payments Corporation of India
Net Interest Income NII for banks NPCI
Banks charge interest on their loans to cus- NPCI has been set up as an umbrella organiza-
tomers and pay interest on deposits received from tion for retail payments with the objective of inte-
customers. The difference in the amounts received grating and consolidating different clearing houses
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Explanatory Notes
What are Lok Adalats? banks/financial institutions by sale of the bad loans
RBI approves of compromise settlement of by banks for cleaning their balance sheet. These
dues through Lok Adalats. They are convened to companies after acquiring the bad loans arrange for
hear disputes where disposal of the cases are quick recovery or adopt suitable alternatives for revival of
and concessions for one time settlement is offered the sick company. ARCIL is the first company to
by banks. It is an effort to settle large number of commence business in India in this sector.
cases at a single forum in an expeditious manner Biometric ATM— these ATMs have been de-
where clients and banks are willing to settle the is- signed to reduce the possibilities of fraud which are
sue. on the rise because of loss of cards and PINs. By
using stolen cards and PINs cash can be easily with-
Home Loans are mostly against equitable
drawn from ATMs. However with biometric ATM it
mortgage. Please explain equitable mortgage
is not possible as the PIN for bio ATMs is the finger-
Where the mortgager i.e., the borrower deliv- prints of the card holder or his retina scan. This can-
ers to the mortgagee i.e., the bank, at notified places, not be duplicated and are thus safe from theft. Be-
the documents of title to immovable property with cause of the higher cost bio ATMs are less used
intention to create a security thereon for availing a though they are well suited to the requirements of
loan or credit facility it is known as equitable mort- the rural people.
gage of the immovable property. It is also known as
Bullion market— a market where metals like
mortgage by deposit of title deeds. In case of non
gold, silver, platinum and palladium in the form of
payment of the loan amount the bank can sue for
ingots or bars are traded.
sale of the property but cannot confiscate.
Capital market— the market in which corpo-
Often there is mention of limitation period. rate equity and longer term debt securities (those ma-
Please clarify. turing in more than one year) are issued and traded.
Limitation period is governed by the Limita-
tion Act which specifies the time limit within which Commercial paper— short term unsecured
the parties to a legal agreement can take action in a promissory note issued by an organization. These
court of law to enforce their legal right. On expiry of are not usually backed by any form of collaterals
limitation period the filing of legal suit is barred. In and is allowed to be issued only between corporates
most bank loan agreements the limitation period is 3 with high quality ratings. CPs were introduced in
years except in mortgage where it is 12 years. India in 1990 with a view to enable high rated corpo-
rate borrowers raise short term borrowings by this
We hear of Negotiable Instruments but are additional type of instruments. However, later All
not clear about it. Can you elaborate ? India India Financial Institutional and Primary Deal-
Cheques, bank drafts, bills of exchange and ers too were allowed to issue CPs. Individuals, Bank-
promissory notes are known as negotiable instru- ing Cos, other corporate bodies, NRIs, FIIs can innert
ments. Negotiation means transfer of an instrument in CPs. The maturity of commercial paper is typically
through endorsement and delivery with the trans- between 7 days (Min.) and 365 days (Max.); the most
feree getting better and absolute title provided it is common maturity range is 30 to 50 days or less. It is
taken in good faith and for value. All bank payments a common source of raising debt by an organization.
are based on this requirement to be fulfilled. Counterfeit currency— currency which is ob-
Asset Reconstruction Company ARC— a cen- tained by fraudulent means and is therefore not the
tralized agency for resolving bad loans created from permissible legal tender for any transactions. Print-
the banking system due to systematic crisis. It is an ing of illegal currency which is therefore counterfeit
answer to the issue of non performing assets of is a major threat to any economy.
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Infrastructure for Currency Management Table VIII. 3 : Currency Chests and Small Coin
VIII. 6 The Reserve Bank carries out the issue Depots as at end-December 2011
of notes and management of currency through its No. of No. of
Category
18 issue offices, one sub-office at Lucknow, a Currency Small
currency chest at Kochi and a wide network of 4,221 Chests Coin Depots
currency chests and 4,018 small coin depots. There 1 2 3
is an agency agreement with SCBs, under which
Treasuries 11 -
the currency chest facility is granted to them.
Currency chests with sub-treasury offices are being State Bank of India 2,192 2,118
gradually phased out and their number reduced to State Bank Associate 778 775
11 during 2011-12. During the year a revised Banks
agreement was entered into with the banks
maintaining currency chests that interalia Nationalised Banks 1,124 1,009
stipulates various services to be provided to the Private Sector Banks 107 107
public/linked bank branches and the Reserve Bank's
Co-operative Banks 1 1
right to take penal action in case poor conduct of
this function was observed/ reported. The State Regional Rural Banks 3 3
Bank and its associates have the largest share (70 Foreign Banks 5 5
per cent) of currency chests followed by
Total 4,221 4,018
nationalised banks (27 per cent) (Table VIII 3).
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Note : Population per office, per capita deposits and per capita credit figures are worked out on the basis of
population figures as on March 1, 2011 & 2012 supplied by the Office of the Registrar General, Government
of India.
Source : Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, March 2011 & 2012, RBI.
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1. State Bank of India 12·05 13·85 1043647 867579 3·85 1·82 11707
2. Punjab National Bank 11·58 12·63 379588 293775 1·06 1·52 4884
3. Bank of Baroda 12·95 14·67 384871 287377 1·33 0·54 4242
4. IDBI Bank — 14·58 210493 181158 0·82 1·61 2032
5. Syndicate Bank — 12·24 147707 110954 0·81 0·94 1313
6. Bank of India 11·57 11·95 318216 248833 0·72 1·47 2677
7. Canara Bank — 13·76 327054 232490 0·95 1·46 3283
8. Union Bank of India — 11·85 222869 181031 0·68 0·68 4305
9. Corporation Bank 12·06 13·12 136142 100469 — 1·06 1518
10. Bank of Maharashtra — 12·43 76528 56059 0·58 2·26 430
T rue or False
A savings account can be opened and oper- Only immovable properties can be mortgaged.
ated in joint names. TRUE
TRUE A bank cannot give loan against its own fixed
If a huge balance is maintained in a current ac- deposits.
count, interest can be paid in that account. FALSE
FALSE The banker can sue the guarantor even if he
A partnership firm can open a savings account has not exhausted all his recourse against the
with post offices. borrower.
FALSE TRUE
A fixed deposit receipt cannot be transferred. All regional rural banks are scheduled banks.
TRUE
TRUE
The management of all public sector banks is
If a fixed deposit is not claimed by the deposi-
vested with RBI.
tor after the due date, the bank can forfeit the
FALSE
amount.
Nationalization of banks first took place in 1969.
FALSE
TRUE
When the banker finds the account of the cus-
In India foreign exchange regulations are ad-
tomer undesirable or unremunerative he can
ministered by the RBI.
close the account immediately and remit the
balance in the account by a cheque. TRUE
TRUE The licence issued to a commercial bank can be
subsequently cancelled by RBI.
The banker enjoys special status in as much as
TRUE
he need not repay his depositors unless a de-
mand is made on him. TRUE SIDBI's headquarter is located at Lucknow.
The drawer of a cheque is always a banker. TRUE
FALSE SIDBI is also known as ‘Single Window Ser-
vice’.
A traveller’s cheque is a cheque issued by a
traveler. TRUE
FALSE IFCI is converted in company on July 1, 1993.
TRUE
Safe deposit lockers can be rented by banks
only to single persons. FALSE ICICI Ltd. is merged into ICICI Bank on May 3,
2002.
The banker can advance as much money as he
accepts as deposits. TRUE
FALSE The repo rate is 7·50 on March 19, 2013.
TRUE
An overdraft means the amount drawn in ex-
cess over the sanctioned amount. The present Bank Rate is 8·50%. TRUE
TRUE (As on March 19, 2013)
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