LATEST

BANKING & FINANCIAL AWARENESS

JOURNAL OF
A.K. GUPTA’S
BANKERS TRAINING INSTITUTE (BTI)
VOLUME –I MAY 2010 ISSUE -11

HIGHLIGHTS
™ RBI’S ANNUAL POLICY STATEMENT: 2
™ RBI NOTIFICATIONS: 5 TO 11
™ WAYS & MEANS ADVANCES: 5
™ ROAD MAP FOR FINANCIAL SECTOR: 6
™ BASE RATE GUIDELINES : 11
™ MANAGEMENT QUESTIONS : 12
™ FINANCIAL & GENERAL AWARENESS: 14
™ ECONOMICS: 17
™ GOVERNMENT SECURITIES: 19
™ RECALLED QUESTIONS: 20

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 Latest Banking & Financial Awareness: MAY 2010
ANNUAL POLICY STATEMENT : 2010-11
State of the Economy
1. GDP growth: The final real GDP growth for 2009-10
may settle between 7.2 and 7.5 per cent.
2. Industrial Production: The index of industrial
production (IIP) recorded a growth of 17.6% in
December 2009, 16.7% in January 2010 and 15.1%
in February 2010. 14 out of 17 industry groups
recorded accelerated growth during April 2009-
February 2010.
3. Imports: After a continuous decline for eleven
months, imports expanded by 2.6% in November
2009, 32.4% in December 2009, 35.5% in January
2010 and 66.4% in February 2010.
4. Exports: After contracting for twelve straight months,
exports have turned around since October 2009
reflecting revival of external demand.
5. Growth in demand side components of growth:
private consumption (36%), govt. consumption
(14%), fixed investments (26%), net exports (20%).
6. Inflation:
(a) Headline inflation, as measured by year-on-year
variation in Wholesale Price Index (WPI), 9.9% in
March 2010.
(b) Year-on-year WPI non-food manufactured
products (weight: 52.2%) inflation, which was (-)
0.4% in Nov 2009, rose to 4.7% in March 2010.
(c) WPI inflation is no longer driven by supply side
factors alone. The contribution of non-food items to
overall WPI inflation, which was negative at (-)
0.4% in November 2009 rose sharply to 53.3% by
March 2010.
(d) Consumer price index (CPI) based measures of
inflation were in the range of 14.9-16.9 per cent in
January/February 2010.
7. Credit Growth: Year on year Non-food credit growth
was recorded at 16.9 per cent by March 2010.
8. Fiscal Deficit for 2010-11: Budgeted at 5.5% of GDP
in 2010-11 as compared with 6.7% in 2009-10.
9. Revenue deficit for 2010-11: Budgeted at 4% of GDP
in 2010-11 as compared with 5.3% in 2009-10
10. Current account deficit: During April-December 2009
it was US$ 30 billion as compared with US$ 28 billion
for the corresponding period of 2008.
11. Net capital inflows:at US$ 42 billion were also
substantially higher than US$ 7 billion in the
corresponding period last year.
12. Forex Reserves: Foreign exchange reserves stood at
US$ 279 billion as on March 31, 2010.
13. REER: The six-currency trade-based real effective
exchange rate (REER) (1993-94=100) appreciated by
15.5 per cent during 2009-10 up to February as
against 10.4 per cent depreciation in the
corresponding period of the previous year.
Outlook and Projections
1. IMF has projected that global growth will recover
from (-) 0.8 per cent in 2009 to 3.9 per cent in 2010
and further to 4.3 per cent in 2011. Three major
factors that have contributed to the improved global
outlook are the massive monetary and fiscal support,
improvement in confidence and a strong recovery in
Emerging Market Economies (EMEs).
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2. GDP growth for 2010-11: RBI projections for 2010-11
is placed at 8.0 per cent with an upside bias Inflation
3. Inflation: The baseline projection for WPI inflation for
March 2011 is placed at 5.5 per cent. This is based
on following factors. (i) Though there are some signs
of seasonal moderation in food prices, overall food
inflation continues at an elevated level. (ii) The
firming up of global commodity prices poses upside
risks to inflation. (iii) Corporates are increasingly
regaining their pricing power in many sectors. (iv)
Household inflation expectations have remained at an
elevated level.
4. M3 growth for 2010-11: is placed at 17.0 per cent.
5. Aggregate deposits of SCBs: to grow by 18%.
6. Non-food credit of SCBs: projected to grow by: 20%
7. Exchange Rate policy: RBI’s policy has been to retain
the flexibility to intervene in the market to manage
excessive volatility and disruptions to the
macroeconomic situation.
8. The overall size of the government borrowing
programme is still very large and can exert pressure
on interest rates. Fiscal consolidation has to shift
from one-off gains to structural improvements on
both tax and expenditure sides, and focus
increasingly on the quality of fiscal consolidation.
Policy Stance
Policy stance for 2010-11 has been guided by the
following three major considerations:
1. Recovery is consolidating. Growth in 2010-11 is
projected to be higher and more broad-based than in
2009-10. In the emerging scenario, lower policy rates
can complicate the inflation outlook and impair
inflationary expectations.
2. Inflationary pressures have accentuated in the recent
period. Inflation, which was earlier driven entirely by
supply side factors, is now getting increasingly
generalised. There is already some evidence that the
pricing power of corporates has returned. Inflation
expectations also remain at an elevated level. There
is, therefore, a need to ensure that demand side
inflation does not become entrenched.
3. Despite lower budgeted government borrowings in
2010-11 than in the year before, fresh issuance of
securities will be 36.3 per cent higher than in the
previous year. RBI has to do a fine balancing act and
ensure that while absorbing excess liquidity, the
government borrowing programme is not hampered.
Therefore, the stance of monetary policy of RBI is to:
1. Anchor inflation expectations
2. Actively manage liquidity to ensure that the growth in
demand for credit by both the private and public
sectors is satisfied in a non-disruptive way.
3. Maintain an interest rate regime consistent with
price, output and financial stability.
Monetary Measures
1. Bank Rate: retained at 6.0 per cent.
2. Repo Rate: increased by 25 basis points from 5.0 per
cent to 5.25 per cent with immediate effect.
3. Reverse Repo Rate: increased by 25 basis points
from 3.5 per cent to 3.75 per cent with immediate
effect.
4. Cash Reserve Ratio: increased by 25 basis points
from 5.75 per cent to 6.0 per cent of net demand
 Latest Banking & Financial Awareness: MAY 2010
and time liabilities (NDTL) effective the fortnight
beginning April 24, 2010. As a result of the increase
in the CRR, about Rs. 12,500 crore of excess liquidity
will be absorbed from the system.
Expected Outcomes
1. Inflation will be contained and inflationary
expectations will be anchored.
2. The recovery process will be sustained.
3. Government borrowing requirements and the private
credit demand will be met.
4. Policy instruments will be further aligned in a
manner consistent with the evolving state of the
economy.
Development and Regulatory Policies
1. The focus of the Reserve Bank’s regulation will
continue to be (i) to improve the efficiency of the
banking sector while maintaining financial stability.
(ii) vigorously pursue the financial inclusion agenda
to make financial sector development more inclusive.
2. Financial Stability: The first Financial Stability Report
(FSR) was released on March 25, 2010. The Financial
Stability Reports will be published half-yearly.
3. Interest Rate Policy: Guidelines on the Base Rate
system were issued on April 9, 2010. It is expected
that the Base Rate system will facilitate better pricing
of loans, enhance transparency in lending rates and
improve the assessment of transmission of monetary
policy.
Financial Markets
1. Interest Rate Futures: The Interest Rate Futures
contract on 10-year notional coupon bearing
Government of India security was introduced on
August 31, 2009. It is proposed to introduce Interest
Rate Futures on 5-year and 2-year notional coupon
bearing securities and 91-day Treasury Bills.
2. Introduction of Exchange-Traded Currency Option
Contracts: Currently, residents in India are permitted
to trade in futures contracts in four currency pairs on
two recognised stock exchanges. In order to expand
the menu of tools for hedging currency risk, the
recognised stock exchanges to be permitted to
introduce plain vanilla currency options on spot US
Dollar/Rupee exchange rate for residents.
Corporate Bond Market
1. Non-SLR Bonds of companies engaged in
infrastructure: Valuation: At present, banks’
investments in non-SLR bonds are classified either
under held for trading (HFT) or available for sale
(AFS) category and subjected to ‘mark to market’
requirements. Considering that the long-term bonds
issued by companies engaged in infrastructure
activities are generally held by banks for a long
period and not traded and also with a view to
incentivising banks to invest in such bonds, banks to
be allowed to classify their investments in non-SLR
bonds issued by companies engaged in infrastructure
activities and having a minimum residual maturity of
seven years under the held to maturity (HTM)
category.
2. Investment in Unlisted Non-SLR Securities: At
present, banks’ investments in unlisted non-SLR
securities should not exceed 10 per cent of their total
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investments in non-SLR securities as on March 31 of
the previous year. Since there is a time lag between
issuance and listing of security, banks may not be
able to participate in primary issues of non-SLR
securities, which are proposed to be listed but not
listed at the time of subscription. In view of the
above, investment in non-SLR debt securities (both
primary and secondary market) by banks where the
security is proposed to be listed on the Exchange(s)
may be considered as investment in listed security at
the time of making investment. If such security,
however, is not listed within the period specified, the
same will be reckoned for the 10 per cent limit
specified for unlisted non-SLR securities.
Financial Market Infrastructure
1. Reporting Platform for CD and CP: to be introduced
for all secondary market transactions in CDs and CPs.
Credit Delivery and Financial Inclusion
1. Financing MSE: Banks to be asked not to insist on
collateral security in case of loans up to Rs.10 lakh
extended to all units of the micro and small
enterprises (MSEs) sector.
2. High Level Task Force on MSMEs headed by Shri
T.K.A. Nair has recommended that: (i) all scheduled
commercial banks should achieve a 20 per cent year-
on-year growth in credit to micro and small
enterprises (ii) any shortfall in the achievement of
sub-target of 60 per cent for lending to micro
enterprises of the total advances granted to the
micro and small enterprises, would also be taken into
account for the purpose of allocating amounts for
contribution to rural infrastructure development fund
(RIDF) or any other Fund. (iii) all scheduled
commercial banks should achieve a 15 per cent
annual growth in the number of micro enterprise
accounts. Banks should take steps to increase the
flow of credit to the MSE sector, particularly to micro
enterprises.
3. Business Correspondents: Relaxations: With a view to
providing more flexibility to banks, banks to be
permitted to engage any individual, including those
operating Common Service Centres (CSCs), as BC,
subject to banks’ comfort level and their carrying out
suitable due diligence.
4. Priority Sector Lending Certificates: Working Group:
Working Group on Introduction of Priority Sector
Lending Certificates (PSLCs) (Chairman: Shri
V.K.Sharma) constituted by RBI to examine the pros
and cons of the recommendation made by the
Committee on Financial Sector Reforms (Chairman:
Dr. Raghuram G. Rajan) relating to PSLCs and make
suitable recommendations on its introduction and
their trading in the open market.
Customer Service
1. Committee to be set up to look into banking services
rendered to retail and small customers, including
pensioners.
2. Mechanism, for implementing the Reserve Bank’s
guidelines on customer service, to be strengthened
through on-site and off-site inspections.
3. Banks to devote exclusive time in a Board meeting
once every six months on customer service.
 Latest Banking & Financial Awareness: MAY 2010
Regulatory and Supervisory Measures
1. Convergence of Indian Accounting Standards with
International Financial Reporting Standards: All
scheduled commercial banks will convert their
opening balance sheet as at April 1, 2013 in
compliance with the IFRS converged IASs.
2. Infrastructure Financing: In terms of extant
instructions, rights, licenses and authorisations of
borrowers, charged to banks as collateral in respect
of project loans (including infrastructure projects) are
not eligible for being reckoned as tangible security
for the purpose of classifying an advance as secured
loan. As toll collection rights and annuities in the case
of road/highway projects confer certain material
benefits to lenders, RBI has proposed to treat
annuities under build-operate-transfer (BOT) model
in respect of road/highway projects and toll collection
rights, where there are provisions to compensate the
project sponsor if a certain level of traffic is not
achieved, as tangible securities subject to the
condition that banks’ right to receive annuities and
toll collection rights is legally enforceable and
irrevocable.
3. Provisioning of sub standard infrastructure loans:
Banks are required to make provision of 20% on
unsecured sub standard accounts. In view of certain
safeguards such as escrow accounts available in
respect of infrastructure lending, infrastructure loan
accounts classified as sub-standard will attract a
provisioning of 15 per cent instead of the current
prescription of 20 per cent.
4. Presence of Foreign Banks: to prepare a discussion
paper on the mode of presence of foreign banks
through branch or Wholly owned subsidiary.
5. Licensing of New Banks: RBI has proposed to
prepare a discussion paper marshalling the
international practices, the Indian experience as also
the extant ownership and governance (O&G)
guidelines for granting license to new banks.
6. Conversion of Term Deposits, Daily Deposits or
Recurring Deposits for Reinvestment in Term
Deposits: As per extant guidelines, banks should
allow conversion of term deposits, daily deposits or
recurring deposits to enable depositors to
immediately reinvest the amount lying in the
aforesaid deposits with the same bank in another
term deposit. Banks are required to pay interest in
respect of such term deposits without reducing the
interest by way of penalty, provided that the deposit
remains with the bank after reinvestment for a period
longer than the remaining period of the original
contract. On a review of the extant regulatory norms
and in order to facilitate better asset-liability
management (ALM), banks to be permitted to to
formulate their own policies towards conversion of
deposits.
7. Compensation Practices: RBI to issue comprehensive
guidelines based on Financial Stability Board (FSB)
principles on sound compensation practices by end-
June 2010. The guidelines will cover effective
governance of compensation, alignment of
compensation with prudent risk-taking and
disclosures for whole time directors (WTDs)/chief
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executive officers (CEOs) as well as risk takers of
banks.
8. Implementation of Pillar 2 of Basel II: RBI to
implement the Supervisory Review and Evaluation
Process (SREP) framework for banks from the
inspection cycle 2010-11 as an integral part of the
Annual Financial Inspection (AFI) of banks. One of
the major objectives of SREP is to evaluate whether
the capital maintained by the bank is adequate
keeping in view its risk profile and to determine the
supervisory capital ratio (SCR).
9. Cross-border Supervision: The Working Group
headed by Shri S. Karuppasamy examined the legal
position on cross-border supervision arrangements.
With a view to ensuring effective cross-border
supervision and supervisory co-operation, RBI has
proposed to enter into bilateral MoU with overseas
supervisory authorities within the existing legal
provisions, consistent with the Basel Committee on
Banking Supervision (BCBS) principles.
10. Information Technology and Related Issues: RBI to
set up a Working Group on information security,
electronic banking, technology risk management, and
tackling cyber frauds.
Institutional Developments
1. Core Investment Companies (CICs): CICs having an
asset size of Rs.100 crore and above to be treated as
systemically important core investment companies.
Such companies will be required to register with the
Reserve Bank. The CICs fulfilling minimum capital
and leverage criteria will be given exemption from
maintenance of net owned fund and exposure norms
applicable to NBFCs-ND-SI.
2. Securitisation Companies/Reconstruction Companies:
(i) SCs/RCs can acquire the assets either in their own
books or directly in the books of the trusts set up by
them.(ii) The period for realisation of assets acquired
by SCs/RCs can be extended from five years to eight
years by their Boards of Directors. (iii) Asset/Security
Receipts (SRs), which remain unresolved/not
redeemed as at the end of five years or eight years,
as the case may be, will henceforth be treated as
loss assets. (iv) It will be mandatory for SCs/RCs to
invest an amount not less than 5 per cent of each
class of SRs issued under a particular scheme and
continue to hold the investments till the time all the
SRs issued under that class are redeemed
completely. (v) With a view to bringing transparency
and market discipline in the functioning of SCs/RCs,
additional disclosures relating to assets realised
during the year, value of financial assets unresolved
as at the end of the year, value of SRs pending
redemption, among others, are being prescribed.
3. High Value Clearing: As a step towards encouraging
migration of paper-based high value payments to
more secure electronic modes, High value clearing
discontinued w.e.f. March 31, 2010.
4. NEFT: As at end-March 2010, over 66,500 branches
of 95 banks had participated in NEFT and the volume
of transactions processed increased with a record
volume of 8.3 million transactions in March 2010.
5. Mobile Banking in India: Currently, this channel is
used to settle on an average 1.9 lakh transactions of
average value 12 crore in a month.
 Latest Banking & Financial Awareness: MAY 2010
RBI NOTIFICATIONS : APRIL 2010
REPO AND REVERSE REPO RATES
RBI has increased the repo rate under the Liquidity
Adjustment Facility (LAF) by 25 basis points from 5.00 per
cent to 5.25 per cent and the reverse repo rate by 25 basis
points from 3.50% to 3.75% with effect from 20.4.10.
INCREASE IN CRR
RBI has increased the Cash Reserve Ratio (CRR) for
Scheduled Commercial Banks by 25 basis points from
5.75% to 6% of their net demand and time liabilities with
effect from the fortnight beginning April 24, 2010.
CONVERSION OF TERM DEPOSITS
Present guidelines: Banks should allow conversion of term
deposits, daily deposits or recurring deposits to enable
depositors to immediately reinvest the amount lying in the
aforesaid deposits with the same bank in another term
deposit. Banks are required to pay interest in respect of
such term deposits without reducing the interest by way of
penalty, provided that the deposit remains with the bank
after reinvestment for a period longer than the remaining
period of the original contract.
Revised guidelines: On a review of the extant regulatory
norms, and in order to facilitate better asset-liability
management (ALM), RBI has permitted banks to formulate
their own policies towards conversion of deposits with
immediate effect.
EDUCATIONAL LOANS: COLLATERAL FREE LOANS
Present instructions:No security may be insisted upon for
educational loans upto Rs.4 lakh.
Revised instructions: Banks must not, mandatorily, obtain
collateral security for educational loans upto Rs. 4 lakh.
EXPORT CREDIT FOR AGRICULTURE
RBI has clarified that loans granted by banks for agriculture
and allied activities, are eligible for classification under
priority sector irrespective of whether the borrowing entity
is engaged in export or otherwise. This will also include
working capital limits granted to units engaged in
agricultural and allied activities and to food and agro-based
processing units by way of export credit. The export credit
granted for agricultural and allied activities may be reported
separately under heading "Export credit to agriculture
sector".
USE OF BUSINESS CORRESPONDENTS (BCS)
Current guidelines: Only certain select categories of
individuals are permitted to be engaged as BCs. Banks
have been permitted to engage the following as BCs: (i)
retired bank employees, (ii) ex-servicemen (iii) retired
government employees, (iv) Individual kirana/medical/fair
price shop owners (v) Individual Public Call Office(PCO)
operators (vi) Agents of Small Savings Schemes of
Government of India/Insurance Companies (vii) Individuals
who own Petrol Pumps (viii) Retired teachers and (ix)
Authorised functionaries of well run Self Help Groups(SHGs)
linked to banks.
Revised guidelines: On a review and with a view to
providing more flexibility to banks, RBI has permitted banks
to engage any individual, including those operating
Common Service Centres (CSCs) as BC, subject to banks’
comfort level and their carrying out suitable due diligence
as also instituting additional safeguards as may be
considered appropriate to minimise the agency risks.
EXPORT CREDIT: INTEREST SUBVENTION
Period of Subvention: The Government of India has decided
to extend Interest Subvention of 2 percentage points w.e.f.
5
April 1, 2010 to March 31, 2011 on pre and post shipment
rupee credit.
Sectors eligible for export: Employment oriented export
sectors as under: (i) Handicrafts (ii) Carpets (iii) Handlooms
(iv) Small & Medium Enterprises (SME).
Effective Interest Rate: As per the existing guidelines, banks
charge interest rate not exceeding BPLR minus 2.5
percentage points on rupee pre-shipment credit up to 270
days and post-shipment credit up to 180 days. Banks will
now charge interest rate not exceeding BPLR minus 4.5
percentage points on pre-shipment credit up to 270 days
and post-shipment credit up to 180 days on the outstanding
amount for the period April 1, 2010 to March 31, 2011 to
the above mentioned sectors. However, the total
subvention will be subject to the condition that the interest
rate, after subvention will not fall below 7 per cent which is
the rate applicable to the agriculture sector under priority
sector lending. The banks may ensure that the benefit of
the 2 per cent interest subvention is passed on completely
to the eligible exporters.
Procedure for claiming subvention:
i) The amount of subvention would be reimbursed on the
basis of claim submitted as at the end of respective
quarters in the format enclosed.
ii) The amount of subvention will be calculated on the
amount of export credit from the date of disbursement (a)
up to the date of repayment; or (b) up to the date beyond
which the outstanding export credit becomes overdue; or
(c) for pre-shipment credit up to 270 days and post-
shipment credit up to 180 days, whichever is earlier.
iii) The claims should be accompanied by an External
Auditor's Certificate certifying that the claims for subvention
for the respective quarter is true and correct.
INTEREST RATE CEILING ON RUPEE EXPORT CREDIT
Present instructions: RBI has prescribed the ceilings on
interest rates on pre-shipment rupee export credit up to
270 days and post-shipment rupee export credit up to 180
days at BPLR minus 2.5 per cent, valid up to April 30, 2010.
Revised instructions: RBI has extended the validity of the
above dispensation up to June 30, 2010. Further, as BPLR
system is being replaced with a Base Rate System from July
1, 2010, RBI has decided to deregulate the interest rates on
pre-shipment rupee export credit up to 270 days and post-
shipment rupee export credit up to 180 days. Banks shall be
free to decide the lending rate on export credit at or above
the Base Rate with effect from July 1, 2010
WAYS AND MEANS ADVANCES (WMA)
Limit for Central Govt: The limit for Ways and Means
Advances (WMA) to Central Government for the year 2010-
11 will be as under: (i) Rs.30,000 crore for the first half of
the year (April to September) and Rs.10,000 crore for the
second half of the year (October to March). When 75 per
cent of the limit of WMA is utilised by the Government, the
Reserve Bank may trigger fresh floatation of market loans.
Interest rate on WMA/overdraft will be as under:
a) Ways and Means Advances: Repo Rate
b) Overdraft: Two percent above the Repo Rate
Minimum balance required to be maintained by the
Government of India with the Reserve Bank of India will not
be less than Rs.100 crore on Fridays, on the date of closure
of Government of India's financial year and on June 30, i.e.,
closure of the annual accounts of the Reserve Bank of India
and not less than Rs.10 crore on other days.
Maximum period: As per the provisions of the Agreement
dated March 26, 1997 between the Government of India
and the Reserve Bank of India, overdrafts beyond ten
consecutive working days will not be allowed.
 Latest Banking & Financial Awareness: MAY 2010
Limit for State Governments: The limit for Ways and Means
Advances to State Governments for the Fiscal Year 2010-11
will be same as was for 2009-10. The aggregate Normal
WMA limit for the State Governments inclusive of the
Government of Union Territory of Puducherry is placed at
Rs.9,925 crore for the year 2010-11.
ROAD MAP FOR THE FINANCIAL SECTOR
Background: A Core Group constituted by the Ministry of
Corporate Affairs for convergence of Indian Accounting
Standards with International Financial Reporting Standards
(IFRS) from the year 2011 has deliberated and approved
the roadmap in respect of insurance companies, banking
companies and non-banking finance companies.
Salient features of the roadmap are as under:
i) Insurance companies: All insurance companies will
convert their opening balance sheet as at 1st April, 2012 in
compliance with the converged Indian Accounting
Standards.
ii) Banking companies:
(a) All scheduled commercial banks and those urban co-
operative banks (UCBs) which have a net worth in excess
of Rs. 300 crores will convert their opening balance sheet as
at 1st April, 2013 in compliance with the first set of
Accounting Standards (i.e. the converged Indian Accounting
Standards).
(b) Urban co-operative banks which have a net worth in
excess of Rs. 200 crores but not exceeding Rs. 300 crores
will convert their opening balance sheets as at 1st April,
2014 in compliance with the first set of Accounting
Standards(i.e. the converged Indian Accounting Standards).
(c) Urban co-operative banks which have a net worth not
exceeding Rs. 200 crores and Regional Rural banks (RRBs)
will not be required to apply the first set of Accounting
Standards i.e. the converged Indian Accounting Standards
(though they may voluntarily opt to do so) and need to
follow only the existing notified Indian Accounting
Standards which are not converged with IFRSs.
iii) Non-Banking Financial companies
(a) The following categories of non-banking financial
companies (NBFCs) will convert their opening balance sheet
as at 1st April, 2013 if the financial year commences on 1st
April (or if the financial year commences on any other date,
then on the date immediately following 1st April, 2013) in
compliance with the first set of Accounting Standards (i.e
the converged Indian Accounting Standards). These NBFCs
are:-
a. Companies which are part of NSE – Nifty 50
b. Companies which are part of BSE - Sensex 30
c. Companies, whether listed or not, which have a net
worth in excess of Rs.1,000 crores.
(b) All listed NBFCs and those unlisted NBFCs which do not
fall in the above categories and which have a net worth in
excess of Rs. 500 crores will convert their opening balance
sheet as at 1st April 2014 if the financial year commences
on 1st April (or if the financial year commences on any
other date, then on that date following 1st April 2014) in
compliance with the first set of Accounting standards (i.e
converged Indian Accounting Standards).
(c) Unlisted NBFCs which have a net worth of Rs. 500
crores or less will not be required to follow the first set of
accounting standards (i.e the converged Indian accounting
standards), though they may voluntarily opt to do so, but
need to follow only the notified Indian accounting standards
which are not converged with the IFRSs.
INVESTMENT IN UNLISTED NON-SLR SECURITIES
Extant guidelines: (i) Bank’s investment in unlisted non-SLR
securities should not exceed 10 per cent of its total
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investment in non-SLR securities as on March 31, of the
previous year. (ii) Banks have been allowed to invest in
unrated bonds of companies engaged in infrastructure
activities within the ceiling of 10 per cent of unlisted non-
SLR securities.
Revised guidelines: Since there is a time lag between
issuance and listing of securities, which are proposed to be
listed but not listed at the time of subscription, banks may
not be able to participate in primary issues of non-SLR
securities. In view of the above, RBI has decided that: (i)
investment in non-SLR debt securities (both primary and
secondary market) by banks where the security is proposed
to be listed on the Exchange(s) may be considered as
investment in listed security at the time of making
investment. (ii) However, if such security is not listed within
the period specified, the same will be reckoned for the 10
per cent limit specified for unlisted non-SLR securities. In
case such investments included under unlisted non-SLR
securities lead to a breach of the 10 per cent limit, the bank
would not be allowed to make further investment in non-
SLR securities (both primary and secondary market) as also
in unrated bonds issued by companies engaged in
infrastructure activities till such time bank’s investment in
unlisted non-SLR securities comes within the limit of 10%.
PRUDENTIAL NORMS ON
ADVANCES TO INFRASTRUCTURE SECTOR
Extant instructions: (i) Rights, licenses and authorisations of
borrowers, charged to banks as collateral in respect of
project loans (including infrastructure projects) are not
eligible for being reckoned as tangible security for the
purpose of classifying an advance as secured loan. (ii) The
provisioning requirement for unsecured sub-standard
exposures, at present is 20% of the outstanding balance.
Revised instructions:
(i) As toll collection rights and annuities in the case of
road/highway projects confer certain material benefits to
lenders, banks may treat annuities under build-operate-
transfer (BOT) model in respect of road/highway projects
and toll collection rights, where there are provisions to
compensate the project sponsor if a certain level of traffic is
not achieved, as tangible securities subject to the condition
that banks’ right to receive annuities and toll collection
rights is legally enforceable and irrevocable.
(ii) In view of certain safeguards such as escrow accounts
available in respect of infrastructure lending, infrastructure
loan accounts which are classified as sub-standard will
attract a provisioning of 15 per cent instead of the current
prescription of 20 per cent. To avail of this benefit of lower
provisioning, the banks should have in place an appropriate
mechanism to escrow the cash flows and also have a clear
and legal first claim on these cash flows.
INVESTMENTS BY BANKS IN BONDS ISSUED BY COs
ENGAGED IN INFRASTRUCTURE ACTIVITIES
Present instructions: Banks’ investments in non-SLR bonds
are classified either under held for trading (HFT) or
available for sale (AFS) category and subjected to ‘mark to
market’ requirements.
Revised instructions: Considering that the long-term bonds
issued by companies engaged in infrastructure activities are
generally held by banks for a long period and not traded
and also with a view to incentivising banks to invest in such
bonds, RBI has decided that any investment by scheduled
commercial banks in the long-term bonds issued by
companies engaged in executing infrastructure projects and
having a minimum residual maturity of seven years may be
classified under HTM category. The modified composition of
HTM category is given below:
 Latest Banking & Financial Awareness: MAY 2010 7

Held to Maturity: RBI has already advised for adoption a system of "Online
i) The securities acquired by the banks with the intention to Alerts" to the cardholder for all 'card not present'
hold them up to maturity will be classified under 'Held to transactions of the value of Rs. 5,000/ and above.
Maturity (HTM)'.
ISSUE OF SHARES BY PRIVATE SECTOR BANKS
ii) Banks are allowed to include investments included under
Present instructions: All banks in private sector are required
HTM category up to 25 per cent of their total investments.
to obtain approval of RBI for issue of shares through Initial
The following investments are required to be classified
Public Offers (IPOs) and preferential issues.
under HTM but are not accounted for the purpose of ceiling
Revised instructions: SEBI had introduced an additional
of 25 per cent specified for this category: (a) Re-
capital raising route in May 2006 viz. Qualified Institutional
capitalisation bonds received from the Government of India
Placements (QIPs) that would enable listed companies to
towards their recapitalisation requirement and held in their
raise funds from the domestic market. Since in terms of
investment portfolio. This will not include re-capitalisation
SEBI Guidelines, the allotments under QIP are on private
bonds of other banks acquired for investment purposes.
placement basis, the QIP issues have been treated as
(b) Investment in subsidiaries and joint ventures (A Joint
preferential issue of shares which requires RBI's prior
Venture would be one which the bank, along with its
approval. Accordingly, the guidelines in respect of issue and
subsidiaries, holds more than 25 percent of the equity).
pricing of shares by private sector banks have been revised
(c) Investment in the long-term bonds (with a minimum
as given below:
residual maturity of seven years) issued by companies
(A) Initial Public Offers (lPOs): All banks should obtain RBI
engaged in infrastructure activities.
approval for IPOs. After listing on the stock exchanges,
iii) Banks are, however, allowed since September 2, 2004 to
banks are free to price their subsequent issues. Issue price
exceed the limit of 25 percent of total investment under
should be based on merchant banker's recommendation.
HTM category provided: (a) the excess comprises only of
(B) Rights issues: RBI approval is not required for rights
SLR securities, and (b) the total SLR securities held in the
issues by both listed and unlisted banks.
HTM is not more than 25 percent of their DTL as on the last
(C) Bonus issues: Private sector banks, both listed and
Friday of the second preceding fortnight.
unlisted, need not seek RBI's approval for bonus issues. The
iv) The non-SLR securities, held as part of HTM as on
issues would, however, be subject to SEBI's requirements
September 2, 2004 may remain in that category. No fresh
on issue of bonus shares, viz. bonus issues (a) should be
non-SLR securities, are permitted to be included in HTM,
made from free reserves built out of genuine profits or
except the following: (a) Fresh re-capitalisation bonds,
share premium, (b) should not dilute the value or rights of
received from the Government of India, towards their re-
partly or fully convertible debentures, (c) should not be in
capitalisation requirement and held in their investment
lieu of dividend and (d) should not be made unless all partly
portfolio. This will not include re-capitalisation bonds of
paid-up shares are fully paid-up. Further, bonus issues may
other banks acquired for investment purposes. (b) Fresh
be issued without linkage to rights issues.
investment in the equity of subsidiaries and joint ventures.
(D) Preferential issue: All preferential issues would require
(c) RIDF / SIDBI / RHDF deposits. (d) Investment in long-
prior approval of RBI. Pricing of preferential issues by listed
term bonds (with a minimum residual maturity of seven
banks may be as per SEBI formula, while for unlisted banks
years) issued by companies engaged in infrastructure
the fair value may be determined by a chartered accountant
activities.
or a merchant banker.
(v) To sum up, banks may hold the following securities
(E) Qualified Institutional Placement (QIP): Private Sector
under HTM:
Banks need to approach RBI for prior 'in principle' approval
(a) SLR Securities up to 25 percent of their DTL as on the
in case of Qualified Institutional Placements. Banks need to
last Friday of the second preceding fortnight.
approach RBI along with details of the issue once the
(b) Non-SLR securities included under HTM as on
bank’s Board approves the proposal of raising capital
September 2, 2004.
through this route. Further, allotment to the investors would
(c) Fresh re-capitalisation bonds received from the
be subject to compliance with SEBI guidelines on QIPs and
Government of India towards their re-capitalisation
RBI guidelines on acknowledgement of allotment / transfer
requirement and held in Investment portfolio.
of shares. Once the allotment process is complete, the
(d) Fresh investment in the equity of subsidiaries and joint
banks should furnish complete details of the issue to RBI for
ventures.
seeking post facto approval. This would be irrespective of
(e) RIDF / SIDBI / RHDF deposits.
whether any acquisition results in shareholding of 5% or
(f) Investment in long-term bonds (with a minimum residual
more of the paid up capital of the bank.
maturity of seven years) issued by companies engaged in
infrastructure activities. SUBSCRIPTION FORM
CREDIT/DEBIT CARD TRANSACTIONS NAME:___________________________________________
Present guidelines: In February 2009, RBI issued a directive ADDRESS:________________________________________
making it mandatory for banks to put in place additional
authentication/validation based on information not visible ________________________________________________
on the cards for all on-line card not present (CNP) ________________________________________________
transactions except IVR transactions. The system was to be
effective from 01.08.09. ________________________________Pin_____________
Revised guidelines: RBI has now decided to extend this EMAIL ID:_____________________Mobile:_____________
requirement of additional authentication/validation to all
CNP transactions including IVR transactions. Accordingly, Draft No.__________dated________Drawn on______Bank,
banks should implement these guidelines to all CNP for Rs 200 favouring Bankers Training Institute payable at
transactions with effect from January 01, 2011.
Delhi. Period: _______________to ________________
Subscription 1yr: Rs 200; 2 yrs: Rs 380; old issues Rs 25 per copy
 Latest Banking & Financial Awareness: MAY 2010
(F) In case of pricing of issues where RBI approval is not
required, pricing of issues should be as per SEBI guidelines;
in cases where prior approval of RBI is required, pricing
should take into account both SEBI and RBI guidelines.
READY FORWARD CONTRACTS IN
CORPORATE DEBT SECURITIES
Present guidelines: RBI had issued directions relating to
Repo in Corporate Debt Securities on Jan 8, 2010 which
indicated that the following entities are eligible to enter into
ready forward contracts in corporate debt securities:
(i) Any scheduled commercial bank excluding RRBs and
LABs; (ii) Any Primary Dealer authorized by the Reserve
Bank of India; (iii) Any non-banking financial company
registered with RBI (iv) All-India Financial Institutions,
namely, Exim Bank, NABARD, NHB and SIDBI; (v) Other
regulated entities, subject to the approval of the regulators
concerned, viz., Any mutual fund registered with the
Securities and Exchange Board of India; Any housing
finance company registered with the National Housing
Bank; and Any insurance company registered with the
Insurance Regulatory and Development Authority
Revised guidelines: In addition to above entities, India
Infrastructure Finance Company Limited (IIFCL) has been
permitted to undertake ready forward contracts in corporate
debt securities.
MAINTENANCE OF COLLATERAL BY FIIS FOR
TRANSACTIONS IN THE CASH SEGMENT
Present guidelines: FIIs are permitted to offer cash and
foreign sovereign securities with AAA rating as collateral to
the recognized Stock Exchanges in India for their
transactions in the derivative segment. As per the extant
Securities and Exchange Board of India (SEBI) norms, the
FIIs are required to post collaterals for their transactions in
the cash segment of the market.
Revised guidelines: RBI, in consultation with the
Government of India and the SEBI, has decided to permit
the FIIs to offer domestic Government Securities (subject to
the overall limits specified by the SEBI from time to time;
the current limit being USD 5 billion), and foreign sovereign
securities with AAA rating, as collateral to the recognized
KNOW YOUR FACULTY
SHRI A. K. GUPTA
1. Shri A.K. Gupta is a post graduate in commerce, LL.B,
CAIIB, PG Dip in Personnel Management and IR, PG Dip in
Marketing and Management, PG Diploma in Training and
Development, Cert in Industrial Finance;
2. Ex- Chief Manager, Punjab National Bank with an
experience of more than 28 years as a banker;
3. Experience of more than 12 years in training in the bank’s
training college (Principal for 5 years); helped thousands
of bankers in their banking career;
4. Has been examiner with Indian Institute of Banking &
Finance (IIBF, Mumbai) for about 5 years;
5. Remained associated with number of management
institutions at MBA level including Masters of Finance,
University of Delhi, International Management Institute etc
teaching Management of Banks, Financial Services,
Financial Management, Merchant Banking.
6. Conducted programmes in the area of Asset Liability
Management and Credit risk management for top
management executives in the rank of Chief General
Manager/General Manager/DGM/ AGMs of SIDBI, Central
Bank of India, Dena Bank, Punjab & Sind Bank
7. Was a student of University of Manchester for 3 months
for an advanced programme in Development Banking.
8. Has been visiting faculty to training colleges of several
banks like PNB, BOI, Canara, UCO etc.
8
Stock Exchanges in India, in addition to cash, for their
transactions in the cash segment of the market. However,
cross-margining of Government Securities (placed as
margins by the FIIs for their transactions in the cash
segment of the market) shall not be allowed between the
cash and the derivative segments of the market.
INVESTMENT PORTFOLIO OF PRIMARY DEALERS
Present guidelines: Standalone Primary Dealers (PDs) were
allowed in March 10, to categorize Government securities
up to 100% of their paid up capital in the Held to Maturity
(HTM) category.
Revised guidelines: RBI has decided to permit the PDs to
hold Government securities in the HTM category to the
extent of their audited net owned funds (NOF) as at the
end March of the preceding financial year.
Agricultural Debt Waiver and Debt Relief Scheme
The period for debt relief in respect of Other farmers was
extended by 6 months up to 30.6.10. In view of this six
month extension for the debt relief portion of the ADWDRS,
2008, the last date of receipt of grievances by Grievance
Redressal Officers of the lending institutions may also be
accordingly extended upto 31.7.2010.
The "Final" claims pertaining to "Debt Relief" arising till
December 31, 2009 (including the cases settled through the
Grievances Redressal Mechanism operating till January 31,
2010) may be submitted to RBI by June 30, 2010. As no
interest shall be paid by Government of India to the lending
institutions for the six month extension period of the
Scheme while reimbursing 25% amount to the lending
institutions, banks may forward a separate claim to RBI, in
respect of "Debt Relief" cases that may be settled during
the period January 1, 2010 to June 30, 2010 (including the
cases settled through the Grievances Redressal Mechanism
operating from February 1, 2010 to July 31, 2010).
CAPITAL ADEQUACY -INTERNAL MODELS APPROACH
FOR MARKET RISK
Background: RBI, vide circular dated July 7, 2009, had
advised that banks desirous of moving to advanced
approaches under Basel II can apply for migrating to
Internal Models Approach for market risk from April 1, 2010
onwards, provided they are adequately prepared.
Methods for calculation of capital for Market Risk:
Basel II Framework offers a choice between two broad
methodologies in measuring market risks for the purpose of
capital adequacy.
(i) Standardised Measurement Method (SMM) which is being
used by banks in India since March 31, 2005.
(ii) Internal Models Approach (IMA) which allows banks to
use risk measures derived from their own internal market
risk management models. The permissible models under
IMA are the ones which calculate a value-at-risk (VaR) -
based measure of exposure to market risk.
VaR-based models could be used to calculate measures of
both general market risk and specific risk. As compared to
the SMM, IMA is considered to be more risk sensitive and
aligns the capital charge for market risk more closely to the
actual losses likely to be faced by banks due to movements
in the market risk factors.
RBI has now issued guidelines governing use of internal
models for measuring the capital charge for market risk. To
begin with banks in India may model general market risk
and continue to use SMM for specific risk. However, banks
should endeavour to develop capabilities to model specific
risk including Incremental Risk.
 Latest Banking & Financial Awareness: MAY 2010
Banks interested in migrating to IMA for computing capital
charge for market risk should assess their preparedness
with reference to RBI guidelines and may first give to RBI a
notice of intention for the same. RBI will first make a
preliminary assessment of the bank’s risk management
system and its modelling process. If the result of this
preliminary assessment is satisfactory, then RBI will allow
the bank to make a formal application for migrating to IMA.
RBI will then perform a detailed analysis of its model with a
view to approving the same.
Approaches for other risks: Banks would have the discretion
to adopt IMA for market risk, while continuing with simpler
approaches for computation of capital charge for credit and
operational risks.
CAPITAL ADEQUACY AND MARKET DISCIPLINE –
PARALLEL RUN AND PRUDENTIAL FLOOR
Present guidelines: RBI, vide circular dated February 8,
2010, had advised that the banks should have parallel run
of the revised framework along with the then current
framework (Basel I). Banks were also advised that the
minimum capital maintained by them shall be subject to
the prudential floors indicated in the circular.
Revised guidelines: On a review of the implementation so
far, RBI has decided to continue with the prudential floor
until further advice. Accordingly, the foreign banks in India
and Indian banks having operational presence outside India
would continue to have the parallel run beyond the
specified date (i.e., March 31, 2010) and ensure that their
Basel II minimum capital requirement continues to be
higher than 80 % of the minimum capital requirement
computed as per Basel I framework for credit and market
risk. All other commercial banks (except LABs and RRBs)
would also continue to ensure compliance with the
prescribed prudential floor limits.
REMITTANCE OF GOVERNMENT REVENUES
A committee had been constituted by CGA to review the
expeditious movement of all categories of Government
revenues to its exchequer and other related issues. After
consideration of the recommendations of the Committee, it
has been decided that a period of T+12 working days
(excluding put through date, where T is the day when
money is available to the branch), is allowed with effect
from 01.01.2010 to Public Sector Banks for manual
remittance of Government receipts to CAS, RBI, Nagpur in
respect of branches located in Jammu & Kashmir, Leh,
Uttarakhand, Himachal Pradesh, Sikkim, North Eastern
Region (Arunachal Pradesh, Assam, Manipur, Meghalaya,
Mizoram, Nagaland and Tripura), Jharkhand and
Chhattisgarh. The above norms for remote, difficult and
hilly areas will not be applicable to remittance of funds
under the deposit schemes viz. PPF / SCSS etc. of Ministry
of Finance.
RELAXATION TO TRADE AND INDUSTRY IN THE STATE
OF JAMMU & KASHMIR
RBI has decided that the concessions/credit relaxations to
borrowers/customers in the State of Jammu & Kashmir, as
laid down in RBI circular dated April 21, 2004, will continue
to be operative up to March 31, 2011.
OVERSEAS INVESTMENTS – LIBERALISATION
Present instructions: Indian entities are permitted to invest
in overseas unincorporated entities in the oil sector, up to
400 per cent of the net worth of the Indian company, under
the automatic route.
Revised guidelines: As a measure of further liberalisation,
Indian companies have been allowed to participate in a
consortium with other international operators to construct
9
and maintain submarine cable systems on co-ownership
basis under the automatic route.
Accordingly, AD Category - I banks may allow remittances
by Indian companies for overseas direct investment, after
ensuring that the Indian company has obtained necessary
licence from the Department of Telecommunication,
Ministry of Telecommunication & Information Technology,
Government of India to establish, install, operate and
maintain International Long Distance Services and also by
obtaining a certified copy of the Board Resolution approving
such investment.
PRUDENTIAL ACCOUNTING NORMS
PROJECTS UNDER IMPLEMENTATION
Present instructions: For the purpose of retaining the
standard asset classification, a grace period of two years for
Infrastructure Projects, and six months for Industrial
projects, is available for commencement of commercial
operations after the original date of completion of the
project, provided the account is serviced regularly.
Revised instructions: There are occasions when the
completion of projects is delayed for legal and other
extraneous reasons like delays in Government approvals
etc. All these factors, which are beyond the control of the
promoters, may lead to delay in project implementation and
involve restructuring / reschedulement of loans by banks.
Accordingly, RBI has decided to modify the asset
classification norms for project loans before commencement
of commercial operations as per the guidelines given below.
These guidelines will, however, not be applicable to
restructuring of advances classified as Commercial Real
Estate exposures; Advances classified as Capital Market
exposure; and Consumer and Personal Advances.
Revised Guidelines on Asset Classification of Projects under
Implementation
1. ‘Project Loan’ would mean any term loan which has
been extended for the purpose of setting up of an economic
venture. Banks must fix a Date of Commencement of
Commercial Operations (DCCO) for all project loans at the
time of sanction of the loan/financial closure (in the case of
multiple banking or consortium arrangements). For this
purpose, all project loans have been divided into the
following two categories: (i) Project Loans for infrastructure
sector (ii) Project Loans for non-infrastructure sector
2. Project Loans for Infrastructure Sector
(a) A loan for an infrastructure project will be classified as
NPA during any time before commencement of commercial
operations (DCCO) as per record of recovery (90 days
overdue), unless it is restructured and becomes eligible for
classification as ‘standard asset’.
(b) A loan for an infrastructure project will be classified as
NPA if it fails to commence commercial operations within
two years from the original DCCO, even if it is regular as
per record of recovery, unless it is restructured and
becomes eligible for classification as ‘standard asset’.
(c) If a project loan classified as ‘standard asset’ is
restructured any time during the period up to two years
from the original date of commencement of commercial
operations (DCCO), it can be retained as a standard asset if
the fresh DCCO is fixed within the following limits, and
further provided the account continues to be serviced as
per the restructured terms.
(i) Infrastructure Projects involving court cases: Up to
another 2 years (beyond the existing extended period of 2
years i.e total extension of 4 years), in case the reason for
extension of date of commencement of production is
arbitration proceedings or a court case.
 Latest Banking & Financial Awareness: MAY 2010 10

(ii) Infrastructure Projects delayed for other reasons

beyond the control of promoters: Up to another 1 year CORRESPONDENCE
(beyond the existing extended period of 2 years i.e. total
extension of 3 years), in other than court cases. COURSE
The aforesaid provisions are applicable if the application for
restructuring is received before the expiry of period of two
years from the original DCCO and when the account is still
PROMOTION EXAM
standard as per record of recovery. The other conditions The course material is updated, very simple, lucid &
applicable would be: (a) In cases where there is concise. Prepared by highly qualified faculty with more than
moratorium for payment of interest, banks should not book 12 years teaching experience in bank’s training college and
income on accrual basis beyond two years from the original more than 3 years experience of teaching at top
DCCO, considering the high risk involved in such management institutions. Number of Bankers have been
restructured accounts. (b) Banks should maintain provisions benefited from this material. If you want to study at your
on such accounts as long as these are classified as standard respective place instead of attending classes, it will be
assets as under: Until two years from the original DCCO: extremely useful.
0.40% ; During the third and the fourth years after the
original DCCO: 1.00% . For the purpose of these
Course kit includes
guidelines, mere extension of DCCO will also be treated as
• Training kits covering select questions on
restructuring even if all other terms and conditions remain
the same. Banking Law & Practice, Advances, Ratio
3. Project Loans for Non-Infrastructure Sector Analysis, Forex, Priority Sector, IT, NPA,
(a) A loan for a non-infrastructure project will be classified • Mock Tests
as NPA during any time before commencement of • Recalled Questions including latest exams.
commercial operations as per record of recovery (90 days • Latest Financial Awareness based on RBI
overdue), unless it is restructured and becomes eligible for Notifications & other Material & GK
classification as ‘standard asset’.
(b) A loan for a non-infrastructure project will be classified The best part of the course is the
as NPA if it fails to commence commercial operations within Recalled Questions collected from our
six months from the original DCCO, even if is regular as per
record of recovery, unless it is restructured and becomes
participants which are updated
eligible for classification as ‘standard asset’.
Comments by some participants of Corresp Course
(c) In case of non-infrastructure projects, if the delay in
• Recalled Questions are very useful. Most of the
commencement of commercial operations extends beyond
questions were from Recalled Questions. Thank you
the period of six months from the date of completion as
very much for my promotion. (Shakuntala, Syndicate
determined at the time of financial closure, banks can
Bank, Bangalore)
prescribe a fresh DCCO, and retain the “standard”
• Sir most of the questions asked in our exam were from
classification by undertaking restructuring of accounts
questions supplied by you near the exam (P.K. Sharma,
provided the fresh DCCO does not extend beyond a period
Syndicate Bank Kurukshetra)
of twelve months from the original DCCO. This also imply
• Most of the questions were from important questions
that the restructuring application is received before the
on your website. ( An officer of PNB)
expiry of six months from the original DCCO, and when the
account is still “standard” as per the record of recovery. The
The fees for the complete set of study material is Rs 1500
other conditions applicable would be: (a) In cases where
which may be sent by DD for Rs 1500 (Rs One Thousand
there is moratorium for payment of interest, banks should
Five Hundred only) favouring “AKG INSTITUTE FOR
not book income on accrual basis beyond six months from
DISTANCE LEARNING” payable at NEW DELHI or by
the original DCCO, considering the high risk involved in such
crediting to account no. 150100 2100149730 with PNB,
restructured accounts. (b) Banks should maintain provisions
Punjabi Bagh, New Delhi (NEFT code PUNB0150100). For
on such accounts as long as these are classified as standard
enrolment, pl send following particulars in Block Letters.
assets as under: Until the first six months from the original
DCCO: 0.40%; During the next six months: 1.00%. For this
1. Name 2. Bank 3. Branch (complete address)
purpose, mere extension of DCCO will also be treated as
4. Address for correspondence 5. Mobile No. if any
restructuring even if all other terms and conditions remain
6. Phone No. (Resi & Office with STD code)
the same.
7. DD No dated drawn on 8. Present Grade
4. Other Issues (If amount credited to a/c, pl advise date of credit and
Any change in the repayment schedule of a project loan transaction ID No on Phone No. given below)
caused due to an increase in the project outlay on account
of increase in scope and size of the project, would not be FLAT No. 75, BLOCK BG-1, PASCHIM VIHAR,
treated as restructuring if: NEW DELHI – 110063;
(a) The increase in scope and size of the project takes TELE: 011 65476949, 011 25274157,
place before commencement of commercial operations of
email: akg.bti@gmail.com
the existing project. (b)The rise in cost excluding any cost-
overrun in respect of the original project is 25% or more of
CORRESPONDENCE COURSE ALSO AVAILABLE
the original outlay. (c) The bank re-assesses the viability of
the project before approving the enhancement of scope and
fixing a fresh DCCP.
(d) On re-rating, (if already rated) the new rating is not
CAIIB/JAIIB
below the previous rating by more than one notch.
 Latest Banking & Financial Awareness: MAY 2010
BASE RATE GUIDELINES
RBI has decided that banks should switch over to the system of
Base Rate with effect from July1, 2010.
Weaknesses of BPLR:
(i) The BPLR system, introduced in 2003, fell short of its original
objective of bringing transparency to lending rates. This was mainly
because under the BPLR system, banks could lend below BPLR.
(ii) It was also difficult to assess the transmission of policy rates of
the Reserve Bank to lending rates of banks.
Objective of Base Rate:
(i) Enhancing transparency in lending rates of banks
(ii) Enabling better assessment of transmission of monetary policy.
RBI guidelines for implementation:
1. The Base Rate system will replace the BPLR system with effect
from July 1, 2010.
2. Base Rate shall include all those elements of the lending rates
that are common across all categories of borrowers. (Some of
the criteria that could go into the determination of the Base
Rate are: (i) cost of deposits; (ii) adjustment for the negative
carry in respect of CRR and SLR; (iii) unallocatable overhead
cost for banks such as aggregate employee compensation
relating to administrative functions in corporate office,
directors’ and auditors’ fees, legal and premises expenses,
depreciation, cost of printing and stationery, expenses incurred
on communication and advertising, IT spending, and cost
incurred towards deposit insurance;and (iv) profit margin). An
illustration for computing the Base Rate is set out below.
3. Banks may choose any benchmark to arrive at the Base Rate
for a specific tenor that may be disclosed transparently.
4. Banks may determine their actual lending rates on loans and
advances with reference to the Base Rate and by including
such other customer specific charges as considered
appropriate. (For example product-specific operating costs,
credit risk premium and tenor premium etc).
5. In order to give banks some time to stabilize the system of
Base Rate calculation, banks are permitted to change the
benchmark and methodology any time during the initial six
month period i.e. end-December 2010.
6. The actual lending rates charged may be transparent and
consistent and be made available for supervisory
review/scrutiny, as and when required.
7. Applicability of Base Rate: All categories of loans should
henceforth be priced only with reference to the Base Rate.
However, the following categories of loans could be priced
without reference to the Base Rate: (a) DRI advances (b) loans
to banks’ own employees (c) loans to banks’ depositors against
their own deposits.
8. The Base Rate could also serve as the reference benchmark
rate for floating rate loan products, apart from external market
benchmark rates. The floating interest rate based on external
benchmarks should, however, be equal to or above the Base
Rate at the time of sanction or renewal.
9. Changes in the Base Rate shall be applicable in respect of all
existing loans linked to the Base Rate, in a transparent and
non-discriminatory manner.
10. Since the Base Rate will be the minimum rate for all loans,
banks are not permitted to resort to any lending below the
Base Rate.
11. The current stipulation of BPLR as the ceiling rate for loans up
to Rs. 2 lakh stands withdrawn. It is expected that the above
deregulation of lending rate will increase the credit flow to
small borrowers at reasonable rate and direct bank finance will
provide effective competition to other forms of high cost credit.
12. Reserve Bank of India will separately announce the stipulation
for export credit.
13. The Base Rate system would be applicable for all new loans
and for those old loans that come up for renewal. Existing
loans based on the BPLR system may run till their maturity. In
case existing borrowers want to switch to the new system,
before expiry of the existing contracts, an option may be given
to them, on mutually agreed terms. Banks, however, should
not charge any fee for such switch-over.
14. Banks may announce their Base Rates after seeking approval
from their respective ALCOs/ Boards.
15. Review of Base Rate: Banks are required to review the Base
Rate at least once in a quarter with the approval of the Board
11
or the Asset Liability Management Committees (ALCOs) as per
the bank’s practice.
16. Display of Base Rate: Since transparency in the pricing of
lending products has been a key objective, banks are required
to exhibit the information on their Base Rate at all branches
and also on their websites. Changes in the Base Rate should
also be conveyed to the general public from time to time
through appropriate channels.
17. Information to RBI: Banks are required to provide information
on the actual minimum and maximum lending rates to the
Reserve Bank on a quarterly basis.
18. Effective date: The above guidelines on the Base Rate system
will become effective on July 1, 2010.
19. Methodology for calculation of Base Rate: An illustration for
computing the Base Rate is given below. Banks are free to use
any other methodology, as considered appropriate, provided it
is consistent and is made available for supervisory
review/scrutiny, as and when required.
Illustrative Method for the Computation of the Base Rate
Base Rate= a + b + c + d
Where
a = Cost of Deposits or funds = Dcost
(benchmark)
b = Negative Carry on CRR and SLR =
[[{Dcost – (SLR* Tr)}/{1-(CRR+SLR)}]*100] - Dcost
c = Unallocatable Overhead Cost = Uc /Dply *100
d = Average Return on Net Worth = (NP/NW) X (NW/ Dply) X100
Where:
Dcost = Cost of Deposits or funds
D = Total Deposits =
Time Deposits + Current Deposits + Saving Deposits
Dply = Deployable Deposits = Total deposits less share of deposits
locked as CRR and SLR balances = D X [ 1- (CRR + SLR) ]
CRR : Cash Reserve Ratio
SLR : Statutory Liquidity Ratio
Tr : 364 T-Bill Rate
Uc : Unallocatable Overhead Cost
NP : Net Profit
NW : Net Worth = Capital + Free Reserves
Explanation:
1. Negative Carry on CRR and SLR: Negative carry on CRR and
SLR balances arises because the return on CRR balances is
nil,while the return on SLR balances (proxied using the 364-day
Treasury Bill rate) is lower than the cost of deposits. Negative
carry on CRR and SLR is arrived at in three steps. In the first
step, return on SLR investment was calculated using 364-day
Treasury Bills. In the second step, effective cost was calculated
by taking the ratio (expressed as a percentage) of cost of
deposits (adjusted for return on SLR investment) and
deployable deposits (total deposits less the deposits locked as
CRR and SLR balances). In the third step, negative carry cost
on SLR and CRR was arrived at by taking the difference
between the effective cost and the cost of deposits.
2. Unallocatable Overhead Cost: is calculated by taking the ratio
(expressed as a percentage) of unallocated overhead cost and
deployable deposits.
3. Average Return on Net Worth: Average Return on Net Worth is
computed as the product of net profit to net worth ratio and
net worth to deployable deposits ratio expressed as a
percentage.
VARIOUS RATES AT GLANCE
Bank Rate 06.00% 29.04.2003
CRR 6.00% 24.04.2010
SLR 25.00% 07.11.2009
Repo Rate 5.25% 20.04.2010
ReverseRepo Rate 3.75% 20.04.2010
 Latest Banking & Financial Awareness: MAY 2010 12

MANAGEMENT QUESTIONS a) Chester Barnard b) David McClelland

1. Which of the following is not correct about c) Abraham Maslow d) Warren Bennis
Human relations theory? 10. According to Fredrick Herzberg, the
a) It views organization as a psychological and determinants of job dissatisfaction include
social system. 1. Working conditions 2. Supervision
b) It takes the social view of man 3. Salary 4. Responsibility 5. Recognition
c) It emphasizes the physiological and Which of the above are correct?
mechanical aspects of organization a) 4 and 5 only b) 1, 2 and 3 only
d) Assumes that people are homogenous c) 1, 2, 3, 4 and 5 d) 1, 2,3 and 5 only
e) Both (c) & (d) 11. Which one of the following shows the
2. The behavioural approach is considered to correct sequence of the four basic steps in
be: the position classification job?
a) A human approach a) Job analysis – Grouping of positions –
b) Based on Hawthorne findings Standardization – Position allocation
c) Largely concerned with decision-making b) Standardization – Job analysis – Grouping of
d) Both (a) & (b) e) None positions – Position allocation
3. Which one of the following is not correct c) Grouping of position –Job analysis –
with regard to the systems theory of Position allocation – Standardization
organization? d) Job analysis – Grouping of positions –
a) A system is characterized by parts and sub- Position allocation – Standardization
parts. 12. Given below are different stages in problem
b) A change in one part affects changes in solving:
other parts 1. Collection of relevant information
c) A system is characterized by dynamic 2. Identification of the problem
disequilibrium 3. Analysis of the information
d) A system is open and interactive 4. Development of alternatives
4. Which one of the following principles of 5. Evaluation of choices
Henri Fayol is in contrast to F.W. Taylor’s Select the correct sequences of the above
concept of functional authority? from the codes given below –
a) Discipline b) Hierarchy a) 1, 2,3, 4 and 5 b) 2, 1, 3, 4 and 5
c) Departmentalization c) 4, 5, 2, 3 and 1 d) 4, 1, 5, 3 and 2
d) Unity of Command 13. Formal Communication usually flows in:
5. Which one of the following is not a) six directions b) four directions
propounded by F.W. Taylor? c) three directions d) nine directions
a) Differential piece rate system 14. Which one of the following is not correct
b) Time and motion study among the assumptions made by a Theory
c) Unit of command ‘Y’ leader?
d) Shop management a) Expenditure of energy is undesirable
6. According to Henri Fayol, decentralization is b) Self-direction and self-control is desirable
greater when: c) Self-actualization is a motivating force
a) Policy decisions are made at lower levels. d) Working conditions conducive for acceptance
b) Important decisions are made at lower of responsibilities are desirable
levels. 15. The four bases of organization as identified
c) More functions are affected by decisions at by Luther Gullick are :
lower levels. a) Planning, Organising, Coordinating,
d) Both (b) & (c) e) All these Controlling
7. Which of the following are not propounded b) Objective, People, Plan, Action
by the Theory Y of Douglas Mc-Gregor? c) Plead, Persuade, Order, Punish
A person in an organization: d) Purpose, Process, Persons, Place
a) Exercises self-direction in the service of 16. ‘Span of Control’ depends upon which of the
objectives that he seeks to realize following?
b) Has commitment to objectives as a function (1)centralized system of authority
of rewards (2) type of work to be supervised
c) Inherently likes work (3)competence of the supervisor
d) Has a capacity for imagination, ingenuity (4)techniques of supervision
and creativity e) None a) 1 and 2 b) 1, 2 and 3
8. Which one of the following leadership styles c) 2, 3 and 4 d) All the four
was identified by the Michigan University 17. A formal organization:
Leadership Studies as the most effective a) is a structure of authority
leadership style? b) is a division of functions
a) Democratic style leadership c) consists of individuals
b) Employee-centred leadership d) reflects social and psychological
c) Participative group leadership relationships
d) Team leadership e) Both (a) & (b)
9. Who among the following has observed that 18. Decentralization:
instead of hierarchy of needs, motivation a) improves administrative efficiency
should be understood in terms of series of b) reduces stress of responsibilities at the
needs? headquarter
 Latest Banking & Financial Awareness: MAY 2010 13

c) provides for involvement of insiders in a) Motivation b) Leadership

organizational functioning c) Communication d) Directing
d) is responsible for cost-escalation 31. MBO is a technique of –
e) Both (a) & (b) a) Planning only b) Controlling only
19. Which of the following statements about c) Neither planning nor controlling
‘Delegation of authority’ are not correct? d) Both planning and controlling
a) It should be made to an individual 32. Henry Fayol is known for –
b) It should be properly planned a) Scientific Management b) Rationalisation
c) It should be backed by adequate resources c) Industries Psychology
d) It can be conditional e) None d) Principles of Management
20. Which one of the following is not an 33. Unity of command implies having not more
intrinsic factor of job satisfaction as per the than one –
Hygiene Theory of Motivation? a) Subordinate b) Friend
a) Achievement b) Advancement c) Boss d) Unit
c) Opportunities for growth 34. ‘x’ and ‘y’ theory of Motivation has been
d) Job security propounded by –
21. Fredrick Herzbgerg’s Theory of Motivation a) McGregor b) Maslow
has listed some elements which are related c) Ouchi d) Herzberg
to job content. Their number is: 35. Coordination has the following features –
a) 5 b) 6 c) 8 d) 10 a) Continuous
22. “A communication that cannot be b) Vertical organization
understood can have no authority.” The c) Horizontal relationship d) All these
above statement is attributed to: 36 Which of the following is not a barrier in
a) Ordway Tead b) C.I. Bernard communication?
c) Millet d) Peter Drucker a) Noise b) Affection
23. The aspects of organizational c) Fear and distrust d) Perception
communication does not include: 37. Delegation of authority signifies the
a) Internal communication delegation of:
b) external communication a) Authority b) Responsibility
c) inter-personal communication c) Both of these d) None
d) intra-personal communication e) None 38. Management by exception implies focusing
24. Which one of the following as qualities of attention on –
leadership, a mentioned by Barnard is a) All variations b) Normal variations
correct? c) Abnormal variations
a) Vitality and Endurance d) Randomly selected variations
b) Decisiveness 39. Decentralisation –
c) Persuasiveness and Responsibility a) Increases the importance of supervision
d) All of these b) Decreases the importance of supervisors
25. Which one of the following statements about c) Increases the importance of subordinates
Decision-making is not correct? d) Decreases the importance of subordinates
a) Every decision is based upon two premises 40. Application of Theory ‘X’ implies practicing
b) A factual premise cannot be disproved of –
c) A value premise can be tested a) Free leadership
d) Ends and means have their importance b) Democratic leadership
26. Theory “Y” is connected with: c) Autocratic leadership d) None
a) Democratic leadership style 41. An association of banks is an example of –
b) Autocratic leadership style a) Diagonal combination
c) Laissez-faire leadership style b) Vertical combination
d) None c) Horizontal combination
27. Control function of management implies – d) Lateral Combination
a) To bring harmony in various activities 42. The technique of “Carrot and Stick” is used
b) To keep the workforce satisfied in business organization for –
c) To take corrective course of action a) Reducing absenteeism b) Motivation
d) To dictate the subordinates c) Effective leadership
28. Coordination function of management aims d) Rewarding workers
at –
a) Providing sufficient personnel 1 E 11 A 21 A 31 B 41 C
b) Bringing harmony in various activities 2 D 12 B 22 C 32 D 42 B
c) Taking up corrective course of action 3 C 13 C 23 D 33 C
d) All these 4 D 14 A 24 D 34 A
29. “Authority flows downwards from top to the
5 C 15 D 25 C 35 A
bottom whereas accountability flows
upwards from bottom to top.” It is found in– 6 D 16 C 26 A 36 B
a) Scalar chain 7 E 17 E 27 C 37 A
b) Functional organization 8 B 18 E 28 B 38 C
c) Committee structure 9 B 19 A 29 A 39 C
d) Multivariate Approach 10 B 20 D 30 A 40 C
30. Maslow’s needs hierarchy theory relates to-
 Latest Banking & Financial Awareness: MAY 2010
F IN AN CI AL & GENER AL AWAR ENES S
1. Barclays lays off 250 employees in India: as it has
decided to refocus its operations from mass retail
banking to mass affluent banking.The bank currently
has over 5,000 employees in India.
2. RBI says Yes to Nokia mobile money transfer: RBI
has permitted YES Bank to provide mobile money
services in association with Nokia.
3. Food inflation inches down on base effect (29.4):
The annual food price inflation, based on the wholesale
price index (WPI), rose 16.61 per cent during the week
ended April 17, slower than an annual rise of 17.65 per
cent in the previous week. The monthly WPI had risen
an annual 9.90 per cent in March, its fastest pace in 17
months, driven by high food and fuel prices.
4. SEBI seeks to move all ULIP cases to Supreme
Court: though IRDA wanted to file a joint application
under Section 90 of the Civil Procedure Code.
5. NSE defers gold ETF futures on regulatory
wrangle: NSE has deferred its decision to introduce
futures and options (F&O) trading in Gold ETF after the
commodity market regulator Forward Markets
Commission (FMC) raised an objection over regulatory
purview.
6. Govt bans import of Chinese telecom equipment:
including Huawei and ZTE. The Government had earlier
banned import of Chinese handsets without IMEI
number. The biggest gainers from the move could be
European and American vendors that have been losing
market share to aggressive Chinese equipment-makers.
7. Life insurers told to disclose agents' commission:
IRDA has asked life insurance companies to spell out the
commission paid to agents and the various charges to
be collected from policyholders. The circular will take
effect for sales that take place from July 1.
8. New bank wage agreement will give staff Rs
4,816 cr : Following this, banks' total wage bill will go
up by 17.5 per cent. Besides hike in salary, employees
(existing and retired) who had opted for Provident Fund,
have been given the option to get pension benefit. The
pension option was given subject to the condition that
non-pension optees will bear the burden of pension cost
to the extent of 2.8 times of their basic pay as of
November 2007.
9. India open to using Tobin-type tax to curb capital
inflows: Choice of instrument will be determined by
context, says RBI Governor.
10. Lok Sabha approves demands for grants,
appropriation Bills: The Lok Sabha on 27th April
approved the demands for grants of various Central
Ministries and departments after applying the guillotine.
11. Now, Portugal threatens to plunge EU into a new
crisis: After Greece's debt problems over the past few
months plunging the European Union into crisis,
alongside the currency, now it is Portugal that poses a
new threat to the 16-member euro zone. Though both
nations do have budget deficits well above the EU's
target of 3 per cent of GDP, Portugal's had 9.4 per cent
in 2009 compared to 13.6 per cent recorded by Greece
in 2009.
12. Refiners lose Rs 70,000 cr on fuel subsidies since
2004-05: Since 2004-05, IndianOil, Hindustan
Petroleum Corporation and Bharat Petroleum have
cumulatively lost over Rs 70,000 crore on sale of petrol,
diesel, kerosene and cooking gas. This is because,
barring 2008-09, their losses have never been squared
up in full.
14
13. Rangarajan to head panel on public expenditure:
to suggest measures for efficient management of public
expenditure. The committee has been set up by the
Planning Commission.
14. Tax filing made easy with Saral-II: The Finance
Ministry has come out with a format of income-tax
return (ITR-I) for salaried taxpayers. An assessee with
income from house property and/or having exempted
capital gains can also file returns with Saral-II.
15. Govt working to reduce transaction costs for
exporters: Mr Jyotiraditya Scindia.
16. Chirayu Amin made interim chief of IPL: The Board
of Control for Cricket in India (BCCI) has appointed Mr
Chirayu Amin as the interim Chairman of the
Indian Premier League.He takes over from Mr Lalit
Modi.
17. Govt issues 1.44 crore health insurance cards for
BPL families: The Government has provided smart
cards to 1.44 crore Below Poverty Line (BPL) families
under the Rashtriya Swasthya Bima Yojana (RSBY). The
Government has enacted the Unorganised Workers'
Social Security Act in May 2009. The Act provides for
registration of the unorganised workers to help in
formulating social security schemes for particular
occupations.
18. Punjab & Sind Bank plans IPO to raise Rs 400-
500 cr: PSB is the smallest public sector bank.
19. High minimum wages in Delhi push small
industries out: Delhi Government has increased
minimum wages by up to 49 per cent effective from
February this year and are the highest in the country.
20. SEBI tightens norms to check misuse of ‘power of
attorney' : The power of attorney executed in favour of
stockbrokers will not permit them to transfer securities
of clients for off market trades. It will also not permit
brokers to transfer funds from the bank accounts of the
client for trades executed by another stock broker.
21. Cane remunerative price for 2010-11 hiked
7.15% to Rs 139.12/quintal: The Centre has fixed
the ‘fair and remunerative price' (FRP) of sugarcane for
the ensuing 2010-11 sugar season (October-September)
at Rs 139.12 a quintal. This marks a 7.15 per cent
increase over the Rs 129.84 a quintal level for the
current season.
22. SBI goes green, installs windmill for captive use:
The windmill was inaugurated at Panapatti village,
Pollachi Taluk, Tamil Nadu. SBI has installed 10
windmills with an aggregate capacity of 15 MW in Tamil
Nadu, Maharashtra and Gujarat.
23. IIMK to create C.K. Prahalad endowment fund:
The Indian Institute of Management, Kozhikode , is
creating an endowment fund in the name Prof C.K.
Prahalad, renowned management guru, who passed
away recently.
24. Cabinet gives nod for capital infusion into PSBs:
Union Cabinet has given nod to infuse Rs 15,000 crore
in public sector banks (PSBs) during 2010-11.
Indications are that Bank of Maharashtra, Central Bank
of India, Dena Bank, and United Bank of India, among
others, would benefit from this.
25. Gujarat golden jubilee celebrations : Gujarat will
celebrate culmination of its year-long “Swarnim Gujarat”
(Golden Gujarat) programmes on May 1 to mark the
50th year of its coming in to existence.
26. Life insurance sector posts 25% growth in new
premium income: 50-60% of new biz premium will
come from ULIPs.
 Latest Banking & Financial Awareness: MAY 2010
27. IndiaFirst Life launches group insurance
business: IndiaFirst Life Insurance Company Ltd, a
joint venture between Bank of Baroda, Andhra Bank and
UK's Legal & General, has launched group insurance
business.
28. NPAs of public sector banks rise in March-Dec
'09: Net non-performing assets (NPAs) of public sector
banks grew 23 per cent between March and December
last year, as global economic downturn and drought
conditions in the country affected asset quality.
29. Pvt sector banks must get RBI nod to raise funds
via QIP: as allotments under QIP are on private
placement basis.
30. RBI sounds caution on rising realty, stock prices:
Property prices have run up by 20-30 per cent in the
last few months. The domestic equity market registered
an increase of 81% in prices.
31. Credit growth in 2009-10 surpasses RBI estimate
of 16%: PSBs' lending grows 19.5%, private sector
banks' by 11.7%.
32. Nathu La border trade to begin on May 3 : The fifth
season of the Nathu La border trade between Sikkim
and Tibet Autonomous Region (TAR) is scheduled to
commence on May 3. It will go on till November 30.
33. Solar Mission to award projects based on tariff
discounts: The Jawaharlal Nehru National Solar Mission
–plans to add 1,300 MW of solar power in next three
years, out of which 1,100 MW will be grid connected
and 200 MW off-grid. By 2022, the aim is to install 20
million sq metres solar thermal collectors in the country
and save about 7,500 MW power generation capacity.
34. MCX-SX steals a march on NSE in currency
trades: Registers 30% rise in daily turnover since Feb.
MCX-SX's market share in the currency futures segment
averaged 56 per cent since February, up from the 50
per cent share prior to that.
35. NIIT varsity to offer MBA: The not-for-profit NIIT
University has launched an MBA program.
36. Management guru C. K. Prahalad passes away:
His Competing for the Future (1994), co-authored with
Gary Hamel and printed in 14 languages, was among
the best-selling business books that year. The Future of
Competition (co-authored with Venkat Ramaswamy),
was translated into 12 languages.
37. UCO Bank will take service to villages on 35 vans:
To offer banking services in the “unbanked” villages of
the country, UCO Bank plans to launch 35 mobile
banking vans. The first such mobile branch was
inaugurated in Deuli village in Murshidabad district of
West Bengal by the Union Finance Minister, Mr Pranab
Mukherjee.
38. Eco-rural tourism could boost village economy':
According to a study by FICCI and YES Bank tourist
spending on eco-rural tourism in India could capture as
much as 5-8 per cent of total tourist expenditure.
39. Framework for mobile banking services
approved: The Government has approved the
framework for providing basic financial services through
mobile phones. Individual banks may start
implementation by July 31, 2010 and banks may
complete the rollout by December 2011.The National
Sample Survey data reveal that 51.4 per cent of nearly
89.3 million farmer households do not have access to
any credit from institutional or non-institutional sources.
Only 27 per cent of farm households are indebted to
formal sources. Only 13 per cent are availing loans from
the banks in the income bracket of less than Rs 50,000.
15
40. 3G spectrum price crosses Rs 5,000-cr mark: This
is 45.5 per cent higher than the initial base price of Rs
3,500 crore fixed at the start of the auction. The
Government is expecting to get over Rs 35,000 crore
from the auction of both 3G and broadband spectrum.
41. Inflation has peaked: Basu: The Indian economy is
likely to have grown by 8.6 per cent in the fourth
quarter of 2009-10 as per Dr Kaushik Basu, Chief
Economic Advisor to the Finance Ministry.
42. M&M to buy out Renault stake, make Logan on its
own: Mahindra & Mahindra will buy out Renault's 49
per cent stake in the five-year-old joint venture which
produces the Logan at Nashik. In the process, Mahindra
Renault will now become a wholly-owned arm of M&M.
43. Reliance Ind picks stake in logistics firm Deccan
360:
44. India-made cryogenic engine fails to lift GSLV-
D3: The launch of the GSLV-D3 rocket, which featured
for the first time an indigenously built cryogenic engine,
failed. The GSLV-D3 rocket cost about Rs 180 crore and
the satellite, Rs 150 crore.
45. Inflation rate edges towards the double-digit: The
year-on-year wholesale price inflation edged up to 9.9
per cent in March from the previous month's annual rise
of 9.89 per cent.
46. 1,793 visas-on-arrival in Jan-March: During the
first three months of the calendar year, 1,793 visa-on-
arrival were granted to tourists from five countries. The
Government launched the visa-on-arrival scheme for
citizens of Singapore, New Zealand, Japan, Luxembourg
and Finland in January this year on a pilot basis.
47. Dumping duty on Chinese vehicle parts: The
definitive anti-dumping duty is for five years and
imposed with effect from June 15, 2009.
48. President inaugurates tourist village in Gangtok:
The village is Khangchendzonga tourist village.
49. India poised for double-digit growth in 4 years:
According to Mr Basu, growth is likely to witness 8.5 per
cent growth this fiscal. Savings pattern in India, which
stood at 13 per cent of its national income up to 1968-
69, now stands at 32.5 per cent.
50. Govt objective is to achieve inclusive growth:
Pranab: The Finance Minister, Mr Pranab Mukherjee,
inaugurated the 5,000th branch of Punjab National Bank
at Chittaranjan Park in the Capital. He also declared the
completion of the implementation of 100 per cent core
banking solutions in all the six sponsored regional rural
banks with 1,408 branches.
51. ‘Clean' hydel project work to begin on April 17: in
Vadakara Taluk of Kozhikode district. The project is
envisaged under the Clean Development Mechanism
(CDM) scheme of United Nations Framework Convention
on Climate Change (UNFCCC).
52. Life insurers can seek nod for IPO after five years
of biz : Life insurance companies that have completed
five years of operations can apply for permission to go
public, according to the norms for initial public offerings
finalised by the Insurance Regulatory and Development
Authority.
53. Export duty slapped on cotton: The Government has
imposed export duty of Rs 2,500 a tonne on raw cotton
and 3 per cent of the free-on-board value of cotton
waste. The duty comes into effect from April 9.
54. Row brews over ULIPs: The Securities and Exchange
Board of India has said that its order banning sale of
ULIPs will continue to be applicable for new schemes
launched by insurance companies after April 9, the date
of its previous order.
 Latest Banking & Financial Awareness: MAY 2010
55. Ceiling for outstanding under MSS at Rs 50,000 cr
RBI has set the ceiling for the outstanding under the
Market Stabilisation Scheme (MSS), for the fiscal year
2010-11 at Rs 50,000 crore. This ceiling will be reviewed
when the outstandings reach the threshold limit of Rs
35,000 crore. The current MSS outstanding balance
(face value) is Rs 2,737 crore which is due for
redemption during the fiscal year 2010-11.
56. Nabard net operating surplus rises 9% : In
FY2010, refinance provided by the development bank
for crop loans was up by 44 per cent to Rs 24,216 crore
(Rs 16,803 crore).
57. Nabard to assist 10 lakh small farmers using self-
help group model: The development bank, will
organise joint liability groups (JLGs) comprising 7-10
farmers in the small and marginal category.
58. Feb industrial growth up 15% led by capital
goods: February marks the fourth consecutive month of
double-digit industrial growth. The cumulative growth
for the April-February period works out to 10.1 per cent,
as against 3 per cent for the corresponding 11 months
of 2008-09.
59. IDFC sees pvt sector adding 50,000 MW capacity
in 3 years: In the next three years, 50-60 per cent
growth in generating capacity is expected. More than a
third of the total generating capacity at the end of the
next three years will come from the private sector.
60. Coke to fund Chennai lake revival in water
recharge effort: Hindustan Coca-Cola Beverages Pvt
Ltd (HCCB) has launched a project to rejuvenate the
1,000-acre Nemam Lake in Tiruvallur district, near
Chennai. It has committed more than $1 million for the
purpose.
61. PF money can be parked in corporate bonds: The
Employees Provident Fund Organisation (EPFO) will be
able to invest its funds in corporate bonds of joint sector
companies where the Government has a minimum 26
per cent stake.Till now EPFO funds were mainly parked
in Government securities and bonds of companies in
which Government had over 51 per cent stake.
62. Ambit of CAG mandate may be widened: Auditing
of public-private partnership ventures, NGOs under
active consideration: Pranab. Currently, the CAG, has
no automatic legal mandate to audit PPP companies
even as substantial Plan funds are being spent through
this channel. A similar situation prevails in the case of
NGOs.
63. Domestic sales of Automobiles industry register
26% rise in 2009-10: The strong sales have made
India the second fastest growing market after China (42
per cent), followed by Germany (23 per cent).
64. EU to work with India on climate change: to
achieve specific and substantial outcome at the year-
end UN climate change conference at Cancun in Mexico.
65. Quarterly realty price index can be compiled from
loan data: RBI : Data obtained directly from banks
and housing finance companies are considered to be
more reliable source of information for monitoring real
estate prices. An RBI appointed expert group has also
recommended that real estate price index should be
compiled in quarterly intervals to capture property price
movements on a more frequent basis.
66. Reliance in $1.7-b deal with Atlas Energy to tap
gas in US : Gets 40% stake in shale gas acreage in
Pennsylvania.
67. Agri-insurance cover for farmers significantly
low: Only about 40-50 per cent of the loanee farmers
get the crop insurance cover from banks. One reason,
16
for the low coverage of loanee farmers, is the exclusion
of certain crops from the scheme. Among the
agricultural items that are not notified under the NAIS
are vegetables, horticulture, mango, banana, papaya
and beetle leafs.
68. Euro dives on Greece crisis: Greece's woes have
derailed the euro, the single currency crashing from the
neighbourhood of $1.5 to $1.3 as the crisis dragged on
without resolution.
69. Govt scheme payouts may be routed only through
banks: As an incentive to banks, the Government may
provide them a transaction fee of up to two per cent of
the payments. The move is also aimed at bringing more
transparency to the Government schemes.The
schemes/programmes that would be covered in this plan
would include the Mahatma Gandhi National Rural
Employment Guarantee (or MGNREGA with a Central
outlay of over Rs 40,000 crore), the proposed direct
fertiliser subsidy (of around Rs 50,000 crore), old age
pension, social security payments, insurance scheme for
below poverty line people, other rural development
programmes and State government schemes.
70. SAIL FPO, stake sale to fetch Rs 16,000 crore:
Steel Authority of India Ltd is set to shed 10 per cent of
government equity in the company. The Government's
share will go down to 69 per cent from 85.82 per cent
now. This is the first divestment in the current fiscal.
71. Geithner lauds India's financial inclusion
initiatives: The US Treasury Secretary, Mr Timothy
Geithner, lauded India's effectiveness in extending the
reach of the financial sector to people without access to
banking.
72. GIC Re wants insurers to underwrite risk more
prudently: The reinsurance agency, GIC Re has
decided to follow a sliding rate of commission from the
April renewals. The ceding commissions paid to the
general insurers by GIC Re will be linked to the claims
experience of these companies.
73. SEBI cuts listing time to 12 days after IPO: SEBI
has made it mandatory for companies to list shares
within 12 days (instead of 22 days) after the closure of
a public issue. This would be applicable to public issues
opening on or after May 1.
74. Award for State grameena bank: Nabard has
conferred the State-level award for best performance
under ‘Highest share of SHG business to overall
business' to Karnataka Vikas Grameena Bank (KVGB) for
2008-09.
75. Rupee rises to 18-month high on strong foreign
fund flows: The rupee closed at 44.44, on 5th April a
level last seen in 18 months ago, in September 2008.
76. Govt buildings to be Green rated: Government has
decided that all new Central Government and PSU
buildings will meet requirements of at least three star
rating under GRIHA (Green Rating for Integrated
Habitat Assessment). ADaRSH, an independent platform
for building professionals, developers and Government
officials has also been launched.
77. Key drivers in economic recovery: Less developed
nations will be the key drivers in the projected recovery
of the world economy when, according to the WTO
estimate, the growth of the world trade will be 9.5 per
cent. Developed nations will grow 7.5 per cent and the
rest of the world, 11 per cent.
78. IIM-C hikes fee by 50%: Indian Institute of
Management, Calcutta (IIM-C), has announced a 50 per
cent hike in fee for its two-year Post Graduate
 Latest Banking & Financial Awareness: MAY 2010
Programmes (PGP) to Rs 13.5 lakh from the present Rs
nine lakh.
79. Ministry rules out extending rural job scheme to
export sector: The Commerce Ministry has rejected a
proposal to extend the Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA) to the export
sector.
80. SBI customers can get complaints redressed with
‘SMS Unhappy': So far, the bank has received 7,865
unhappy messages (complaints), out of which 6,990
have been resolved.
81. Population count begins: The President, Ms Pratibha
Patil, on 1st April kicked off the decennial census
operation and preparation of the first ever national
population register.
82. India can be back to 9% growth by 2012: PM: As
per PM, India can get back to 9 per cent growth by the
end of the Eleventh Plan (2007-12). PM has asked
Planning Commission to explore the feasibility of
achieving 10 per cent inclusive growth in the Twelfth
Plan (2012-17) because of favourable factors like high
domestic savings rate (around 35 per cent of GDP),
domestic investment rate (around 37 per cent), a highly
entrepreneurial private sector and a critical mass of
quality human resource.
83. Right to Education Act comes into force: with
effect from 1st April. An estimated 92 lakh children, who
have either dropped out of schools or have never been
to any educational institution, will get elementary
education as it will be binding on the part of local and
State Governments to ensure that all children in the six
to 14 years age group get schooling. Private educational
institutions will also be required to reserve 25 per cent
seats for children from weaker sections. The Finance
Commission has provided Rs 25,000 crore to the States
for the implementation of the Act. The Centre and
States have agreed to share the funds required for
implementation in the ratio of 55:45.
84. External debt up 12% in April-Dec: India's external
debt as of end-December 2009 had risen by 11.9 per
cent to $251.4 billion.
85. SEBI extends KYC deadline to June 30: The earlier
deadline was March 31, 2010. SEBI had in December
last year asked that clients trading in the derivatives
segment of the stock market submit documentary
evidence of their annual income or their net worth to
their brokers.
86. NRI deposits surge 64% in April-Dec: which were
at $3.474 billion. Private transfer receipts, comprising
mainly remittances from Indians working overseas,
increased to $40.8 billion from $37.1 billion in the
corresponding period last year.
87. Rupee gains against euro too: In the last three
months, rupee has appreciated 3.5 per cent against the
dollar. In the same period, the Indian currency gained
10 per cent against the euro.
TYPES OF TAXAION
1. Advalorem Tax: Advalorem tax is a kind of indirect tax n
which goods are taxed by their values. In the case of
advolorem tax, the tax amount is calculated as the proportion
of the price of the goods. Value added Tax (VAT) is an
advolorem Tax.
2. Regressive Tax: It is a tax which rates of taxation falls with
an increase in income. In regressive taxation incidence falls
more on people having lower incomes than that of those
having higher incomes.
3. Progressive taxation: Taxation that takes a larger
proportion of a taxpayer’s income the higher the income is.
17
ECONOMICS TERMS
1. Closed Economy - An economy having no economic
relations with the rest of the world i.e. it doesn’t have
trade, financial or investment relations with other
countries.
2. Open Economy : An economy having economic
relations with the rest of the world, i.e. it has trade,
financial and investment relations with other countries.
3. National Income : It refers to the money value of all
goods and services produced within the domestic
territory of a country plus net factor Income from
abroad in a year.
4. Per capita income : It refers to the average income
of a resident of a country and is calculated by dividing
the national income by the population of the country.
5. Gross Domestic Product (GDP) : It is the money
value of all final goods and services produced in the
domestic territory of country in a year.
6. Net Domestic Product : obtained by reducing
consumption of fixed capital (depreciation) from the
GDP.
7. Gross National Product (GNP) : It is calculated by
adding net factor income from abroad (NFIA) to GDP.
8. Law of Demand: It states that other things being
equal, more of a commodity is demanded at a lower
price and less of it at a higher price.
9. Elasticity of Demand : It is the responsiveness of a
demand to a change in a any factor of demand.
10. Factors affecting elasticity of Demand : (a)
Nature of Commodity (b) Availability of substitute
goods (c) Share in the total expenditure (d) Diverse
uses of the commodity (e) Consumer’s behaviour etc.
11. Supply curve: A graph of the relationship between
the price of a good and the amount supplied at
different prices
12. Consumer surplus: The difference between what a
consumer would be willing to pay for a good or service
and what that consumer actually has to pay.
13. Sunk costs: When what is done cannot be undone.
Sunk costs are costs that have been incurred and
cannot be reversed.
14. Marginal Cost : It is the addition to the total cost as a
result of unit increase in production.
15. Propensity to Consume: The relationship between
change in income and the resultant change in
consumption.
16. Fiscal Measures : Measures to correct excess
/deficient demand thorugh budget proposals of
government are called fiscal measures. These include
tax changes, increase /reduction in government
expenditure etc.
17. Fiscal Policy: Fiscal policy is that part of government
economic policy which deals with taxation, expenditure,
borrowing, and the management of public debt in the
economy.
18. Fiscal deficit is the gap between the government's
total spending and the sum of its revenue receipts and
non-debt capital receipts. It represents the total
amount of borrowed funds required by the government
to completely meet its expenditure
19. Budget Deficit: Budget may take a shape of deficit
when the public revenue falls short to public
expenditure. Budget deficit is the difference between
the estimated public expenditure and public revenue.
The government meets this deficit by way of printing
net currency or by borrowing.
20. Primary Deficit: Fiscal Deficit minus Borrowings.
 Latest Banking & Financial Awareness: MAY 2010
21. Inflation: A situation of a steady and sustained rise in
general prices is usually known as inflation. Inflation is
a state in which the value of money is falling i.e. prices
are rising.
22. Cost-push Inflation: It arises due to an increase in
production cost. Such type of inflation is caused by
three factors: (i) an increase in wages, (ii) an increase
in the profit margin and (iii) imposition of heavy
taxation.
23. Deflation: Deflation is the reverse case of inflation.
Deflation is that state of falling prices which occurs at
that time when the output of goods and services
increases more rapidly than the volume of money in
the economy. In the deflation the general price level
falls and the value of money rises.
24. Recession: A period of slow or negative economic
growth, usually accompanied by rising unemployment.
25. Stagnation: A prolonged recession, but not as severe
as a depression.
26. Disinflation: A fall in the rate of inflation. This means
a slower increase in prices but not a fall in prices.
27. Depression: A prolonged recession in economic
activity. The textbook definition of a recession is two
consecutive quarters of declining outpur. A depression
is an even deeper and more prolonged slump.
28. Duopoly: A market structure in which two producers
of a commodity compete with each other.
29. Monopoly A market situation in which a product that
does not have close substitutes is being produced and
sold by a single seller.
30. Perfect competition A market situation characterized
by the existence of very many buyers and sellers of
homogeneous goods or services with perfect
knowledge and free entry so that no single buyer or
seller can influence the price of the good or service.
31. Buyer's market: A market in which supply seems
plentiful and prices seem low; the opposite of a seller's
market.
32. Tax haven: A country or designated zone that has low
or no taxes,
33. Tax avoidance: A legal action designed to reduce or
eliminate the taxes that one owes.
34. Tax evasion: An illegal strategy to decrease tax
burden by underreporting income, overstating
deductions, or using illegal tax shelters.
35. Monetary policy: The regulation of the money supply
and interest rates by a central bank in order to control
inflation and stabilize currency.
36. HDI: HDI (Human Development Index) is a composite
index measuring average achievement in three basic
dimensions of human life-a long and healthy life,
knowledge and a decent standard of living.
37. Engel’s Law: This law was formulated by Ernst Engel.
This law states that, with given taste and preference,
the portion of income spend on food diminishes as
income increases. According to this law, smaller a
person’s income, the greater the proportion of it that
he will spend on food and vice versa.
38. Giffin Goods: Giffin goods have the positive
relationship between price and quantity demanded and
as a result demand curve of Giffin goods slopes upward
from left to right.
39. Gresham’s Law: Bad money (if not limited in
quantity) drives good money out circulation
40. Laffer Curve: It represents relationship between total
tax revenue and corresponding tax rates.
41. Lorenz Curve: The Lorenz curve is a graphical
representation of the cumulative distribution function of
18
a probability distribution. This curve shows the degree
of inequalities of a frequency distribution in a graphical
manner.
42. Pareto efficiency: A situation in which nobody can be
made better off without making somebody else worse
off.
43. Pigou effect: A fall in the price level increases the real
value of people’s savings making them feel wealthier
and thus causing them to spend more. This increase in
demand can lead to higher employment
44. Okun’s Law: A relationship between an economy's
GDP gap and the actual unemployment rate. The
relationship is represented by a ratio of 1 to 2.5. Okun
found that an annual 2.5% increase in the rate of real
growth above the trend growth results in a 1%
decrease in the rate of unemployment.
45. Philips Curve: Inflation and unemployment have a
stable and inverse relationship. The theory states that
with economic growth comes inflation, which in turn
should lead to more jobs and less unemployment.
46. Say’s Law: Supply creates its own demand.
47. Real exchange rate: An exchange rate that has been
adjusted to take account of any difference in the rate
of inflation in the two countries whose currency is
being exchanged.
48. Real interest rate: The interest rate less the rate of
inflation.
49. Tick: The minimum price change possible in a financial
marketplace.
50. Tiger economies: The fast-growing developing
economies of Asia.
51. Tobin tax: A proposal to reduce speculative cross-
border flows of capital by levying a small tax on
foreign exchange transactions.
52. Predatory pricing: Charging low prices now so you
can charge much higher prices later.
53. PPP: Purchase Power Parity is the exchange rate that
equates the price of a basket of identical traded goods
and services in two countries.
54. Bubble: When the price of an asset rises far higher
than can be explained by fundamentals.
55. Bull: An investor who expects the price of a particular
security to rise; the opposite of a bear.
56. Contagion: The domino effect, such as when
economic problems in one country spread to another
57. Crowding out: When the state does something it may
discourage, or crowd out, private-sector attempts to do
the same thing. At times, excessive Government
borrowing has been blamed for low private-sector
borrowing.
58. Currency board: A means by which some countries
try to defend their currency from speculative attack. A
country that introduces a currency board commits itself
to converting its domestic currency on demand at a
fixed exchange rate.
59. Currency peg: When a Government announces that
the exchange rate of its currency is fixed against
another currency or currencies.
60. Dumping: Selling something for less than the cost of
producing it.
61. Fiscal drag: is the tendency of revenue from taxation
to rise as a share of GDP in a growing economy.
62. Fiscal neutrality: When the net effect of taxation and
public spending is neutral, neither stimulating nor
dampening demand
63. Hard currency: A hard currency is expected to retain
its value, or even benefit from appreciation, against
softer currencies.
 Latest Banking & Financial Awareness: MAY 2010
GOVERNMENT SECURITIES MARKET IN INDIA
1. What is a Government Security?
1. A Government security is a tradable instrument issued
by the Central Government or the State Governments.
It acknowledges the Government’s debt obligation.
2. Such securities are short term (usually called treasury
bills, with original maturities of less than one year) or
long term (usually called Government bonds or dated
securities with original maturity of one year or more).
3. In India, the Central Government issues both, treasury
bills and bonds or dated securities while the State
Governments issue only bonds or dated securities,
which are called the State Development Loans (SDLs).
4. Government securities carry practically no risk of
default and, hence, are called risk-free or gilt-edged
instruments.
5. Government of India also issues savings instruments
(Savings Bonds, National Saving Certifi cates (NSCs),
etc.) or special securities (oil bonds, Food Corporation
of India bonds, fertiliser bonds, power bonds, etc.).
They are, usually not fully tradable and are, therefore,
not eligible to be SLR securities.
2. Treasury Bills (T-bills)
1. Treasury bills or T-bills, which are money market
instruments, are short term debt instruments issued by
the Government of India and are presently issued in
three tenors, namely, 91 day, 182 day and 364 day.
2. Treasury bills are zero coupon securities and pay no
interest. They are issued at a discount and redeemed
at the face value at maturity.
3. The return to the investors is the difference between
the maturity value or the face value (that is Rs.100)
and the issue price.
4. The Reserve Bank of India conducts auctions usually
every Wednesday to issue T-bills. Payments for the T-
bills purchased are made on the following Friday.
5. The 91 day T-bills are auctioned on every Wednesday.
The T-bills of 182-days and 364-days tenure are
auctioned on alternate Wednesdays.
6. T-bills of 364-days tenure are auctioned on the
Wednesday preceding the reporting Friday while 182
day T-bills are auctioned on the Wednesday prior to
non-reporting Fridays.
3. Dated Government Securities
1. Dated Government securities are long term securities
and carry a fixed or floating coupon (interest rate)
which is paid on the face value, payable at fixed time
periods (usually half-yearly).
2. The tenor of dated securities can be up to 30 years.
3. The Public Debt Office (PDO) of the Reserve Bank acts
as the registry / depository of Government securities
and deals with the issue, interest payment and
repayment of principal at maturity. Most of the dated
securities are fixed coupon securities.
4. The nomenclature of a typical dated fixed coupon
Government security contains following features -
coupon, name of the issuer, maturity and face value.
For example, 7.49% GS 2017 would mean : Coupon:
7.49% paid on face value; Name of Issuer :
Government of India; Date of Issue : April 16, 2007;
Maturity : April 16, 2017; Coupon Payment Dates :
Half-yearly (October16 and April 16) every year;
Minimum Amount of issue/ sale : Rs.10,000.
5. In case there are two securities with the same coupon
and are maturing in the same year, then one of the
securities will have the month attached as suffix in the
nomenclature. For example, 6.05% GS 2019 FEB,
19
would mean that Government security having a coupon
of 6.05% that mature in February 2019 along with the
other security with the same coupon, namely, 6.05%
2019, which is maturing in June 2019.
6. If the coupon payment date falls on a Sunday or a
holiday, the coupon payment is made on the next
working day. However, if the maturity date falls on a
Sunday or a holiday, the redemption proceeds are paid
on the previous working day itself.
7. Dated securities of both, Government of India and
State Governments, are issued by the Reserve Bank
through auctions. The Reserve Bank announces the
auctions a week in advance.
4. Instruments
1. Fixed Rate Bonds – These are bonds on which the
coupon rate is fixed for the entire life of the bond. Most
government bonds are issued as fixed rate bonds.
2. Floating Rate Bonds – Floating Rate Bonds are
securities which do not have a fixed coupon rate. The
coupon is re-set at pre-announced intervals (say, every
six months or one year) by adding a spread over a
base rate. Floating Rate Bonds were first issued in
September 1995 in India.
3. Zero Coupon Bonds – Zero coupon bonds are bonds
with no coupon payments. Like Treasury Bills, they are
issued at a discount to the face value. The Government
of India issued such securities in the nineties. It has
not issued zero coupon bond after that.
4. Capital Indexed Bonds – These are bonds, the principal
of which is linked to an accepted index of inflation with
a view to protecting the holder from inflation. A capital
indexed bond, with the principal hedged against
inflation, was issued in December 1997. These bonds
matured in 2002.
5. Bonds with Call/ Put Options – Bonds can also be
issued with features of optionality where the issuer can
have the option to buy-back (call option) or the
investor can have the option to sell the bond (put
option) to the issuer during the currency of the bond.
6. Special Securities - In addition to Treasury Bills and
dated securities issued by the Government of India
under the market borrowing programme, the
Government of India also issues, from time to time,
special securities to entities like Oil Marketing
Companies, Fertilizer Companies, the Food Corporation
of India, etc., as compensation to these companies in
lieu of cash subsidies. These securities are usually long
dated securities carrying coupon with a spread of about
20-25 basis points over the yield of the dated securities
of comparable maturity. These securities are, however,
not eligible SLR securities but are eligible as collateral
for market repo transactions. The beneficiary oil
marketing companies may divest these securities in the
secondary market to banks, insurance companies /
Primary Dealers, etc., for raising cash.
7. STRIPS: are instruments wherein each cash flow of the
fixed coupon security is converted into a separate
tradable Zero Coupon Bond and traded. For example,
when Rs.100 of the 8.24% GS2018 is stripped, each
cash flow of coupon (Rs.4.12 each half year) will
become coupon STRIP and the principal payment
(Rs.100 at maturity) will become a principal STRIP.
These cash flows are traded separately as independent
securities in the secondary market.
(Source: RBI Website)
 Latest Banking & Financial Awareness: MAY 2010
RECALLED QUESTIONS
1. The mortgage created by deposit of title deeds is
called: Equitable Mortgage
2. Right of foreclosure is available in which type of
mortgage?: Mortgage by conditional sale
3. What is nature of Banker’s lien? : It is implied
pledge because Banker can dispose of the
goods after notice to the borrower
4. Shares are pledged with bank as security for a Bank
Guarantee by a borrower. Bank Guarantee stands
expired. Whether a temporary overdraft availed by
the borrower which is overdue can be got adjusted
by selling the shares held as security for issue of
guarantee?: Yes because the shares were
deposited in the ordinary course of business.
5. An account is opened in the name of A. Later on
depositor adds name of another person B with
instructions Either or survivor. Subsequently A dies.
Claim is put up by a third party as legal heirs of A. To
whom the money is payable?: Amount will be
payable to Survivor.
6. How much maximum educational loan can be
sanctioned for study abroad to be classified under
Priority sector: Rs. 20 lakhs.
7. Who is called testamentary guardian?: A guardian
appointed by Will of the deceased.
8. Committee on Financial Inclusion was headed by: Dr
C Rangarajan
9. Committee on Willful Defaulters was headed by: Sh.
SS Kohli
10. Committee on E.F.T. was headed by: Ms. Shere
11. In which situation, relationship of agency is not
terminated between principal & agent?: When
agent is declared Bankrupt.
12. What is Sans Recourse Endorsement?: An
endorsement in which endorser excludes his
liability.
13. There is a joint account in the name of A & B with
instructions Either or Survivor. Income Tax
attachment order is received in the name of B.
Whether joint account will be attached?: 50% of
the balance will be attachable
14. Stamping of Promissory notes is done as per which
act?: Indian Stamp Act
15. Which of the following is Intangible Assets (i) Stock
(ii) Book debt more than 6 month old (iii) Goodwill:
Ans Goodwill.
16. Which is the biggest foreign bank in India? :
Standard Chartered
17. Which ratio is given more importance while
appraising a term loan?: Debt Service Coverage
Ratio
18. A borrower has been sanctioned regular bills
discounting limit. While discounting bills, which bills
will not be discounted ?: Bills for purchase of
fixed assets
19. What is white Plastic?: Counterfeit card (Credit or
Debit card)
20. Who can change the terms & conditions of LC with
the consent of all? : Opening Bank/ Issuing Bank
21. Who is responsible for verifying the correctness of
documents under L/C? : Negotiating Bank
22. Charge of hypothecation on the assets of the Co. is
called : Floating or Equitable charge.
23. A locker holder has given power of attorney to
operate the locker. The power of attorney holder
comes with a request to surrender the locker?:
Request can not be acceded to.
20
24. Whether minor can endorse bills?: Yes. As per
section 26 of N I Act, minor can endorse and
bind all others except himself.
25. An Illiterate person who is the payee of a cheque
puts his thumb impression instead of signature for
purpose of endorsement. Whether endorsement is
regular? Yes, if is attested.
26. Committee on Corporate Governance in banks was
headed by : A.S. Ganguly
27. On the request of a valuable customer, who has
sufficient balance in the account, a cheque drawn on
his account is marked good for payment.
Subsequently the customer withdraws the amount in
cash & cheque which was marked good payment was
dishonoured. Whether bank is liable?: Yes Bank is
liable for payment.
28. As per Goiporia Committee, returned cheques should
be delivered to the depositor within: 24 hours
29. What is the maximum limit of housing loan that can
be sanctioned for coverage under priority sector in
rural areas?: Rs 20 lakhs.
30. Why banks do not allow advance against partly paid
shares? : These shares represent a Contingent
Liability and therefore such advance prohibited
by RBI.
31. While allowing advance against LIC policy, which
value is taken into consideration?: Surrender Value
32. Nomination has been made in the deposit account.
After the death of account holder, both nominee and
legal heirs approaches for payment. What should the
bank do? : Bank is fully discharged on making
payment to nominee.
33. Up to what amount processing fees is not levied in
Priority Sector Advances?: Rs.25000
34. Which is not a direct agricultural advance?: Major
Irrigation
35. What is the maximum no. of earned leaves that an
employee can accumulate?: 240 days
36. What is CDR?: Corporate Debt Restructuring
37. What is FCNR(B)?: Foreign Currency Non-
Resident (Banks)
38. What is DICGC?: Deposit Insurance and Credit
Guarantee Corporation
39. Who can be a nominee in a deposit account?: Any
Individual including minor.
40. Which type of LC is preferred by an exporter?:
Irrevocable/Confirmed LC
41. The drawer of a cheque has countermanded the
payment of a cheque. What reason would you
mention in the returning memo?: Payment
countermanded by drawer.
42. A Garnishee order has been served on your branch.
The customer also has an account in another branch
of your bank. Whether Garnishee order be applicable
on account with other branch also?: NO, it will
apply only to our branch.
43. You receive Garnishee order on account of A. You
find that certain cheques deposited by A have been
sent for collection. Whether the garnishee order
would apply on these cheques sent for collection? No
because Garnishee order is applicable only on
funds available with the bank at the time of
receipt of Garnishee order.
44. Which cost is recovered at Break Even Point? : Total
Cost i.e. both fixed and variable cost.
45. Why do banks prefer bill financing?: These are
short term and self liquidating.
Latest Banking & Financial Awareness: MAY 2010 21