PART.III..MATSMANAGEMENT OF BANKS SICK UNITS.

Any unit ( business)is not functioning normally and is facing lot problems due to internal or external factors which increases the risk for the lender and quality of assets deteriorate can be treated as a sick unit. THE ACCUMALATED LOSSES EQUAL OR EXCEEDS ITS NET WORTH. OF THE COMPANY. These units normally gives out warning signals indicating the problems they are facing. Banks or Institutions during their follow up should identify and find a solution in the form of Rephasement, rehabilitation or recall. CAUSES OF SICKNESS 1INTERNAL CAUSES. TECHNICAL FEASIBILITY Outdated production/technology Location disadvantages. ECONOMIC FEASIBILITY High costs of inputs Very high Break even. Under estimation of financial requirements. Large investment on fixed assets. PRODUCTION MANAGEMENT Poor quality control. High cost of production. Poor inventory management Single product.

LABOUR MANAGEMENT. Industrial relations. More labour power. High wage structure. MARKETING MANAGEMENT Single buyer Poor sales realization. Pricing policy Weak marketing strategy Lack market info and research. FINANCIAL MANAGEMENT Bad costing Financial indiscipline. Lack of control over expenditure. Wrong borrowings. High cost borrowings. MANAGEMENT Promoters ..lack of coordination. No second line management. Diversion of funds. No proper control. No Proper decision.

EXTERNAL FACTORS.. INFRASTRUCUTRE BOTTLENECKS. GOVERNMENT POLICIES. NATURAL CALAMITIES. CHANGE IN MARKET DEMAND.

The companies which become sick as defined in Sec 3(1) (o) of SICA act 1985 should be referred to B I F R A scheme of rehabilitation package to be submitted by Operating agency to BIFR with in 90 days. Operating agency can be any DFI1s and Commercial banks appointed by BIFR Rehabilitation package should define the reasons , and suggest a solution . This should be implemented in a specific time frame monitored by an appointed nodal agency. The unit must be viable with in 7 years of the package finalised. Of late the success of BIFR is not much as such it may be wound up as the institutions have their Rehabilitation package done by them . BIFR may be wound up in case Government orders are passed and gazetted. REFORMS IN BANKING SINCE 1985 NARASIMHAMCOMMITTEE RECOMMENDATIONS IRACPROVISIONS..CRARALM PRUDENTIAL NORMS INCOME RECOGNITIONASSET CLASSIFICATION AND PROVISIONING NORMS .PERTAINING TO ADVANCES. As per International practicesrecommendations made by Shri. M. Narasimham Committee on the Financial system. R B I introduced the norms in phased manner. Credit monitoring system..

INCOME RECOGNITION BANKS HAVE THE FOLLOWING TYPES OF INCOME .. INTEREST ON LENDING COMMISSION EXCHANGE DISCOUNT PROFIT ON SALE OF SECURITIES Income should be recognized based on the record of recovery. Not recognized on accruals basis. Booked as income only when it is actually received. Accordingly Banks will make arrangements to ensure that any income taken on accrual basis must be reversed or provided to give the correct picture. Each type of advances and loans and other exposures of the bank have different kinds of Income to be properly recognized. ASSET CLASSIFICATION STANDARD ASSETS. THE ASSET CREATED BY THE BANK WHICH DO NOT CARRY MORE THAN NORMAL RISKSATISFACTORILY CONDUCTED ACCOUNT INCOME GENERATED RECEIVED ACTUALLY NON PERFORMING ASSET(S) (N P A)..is one which do not generate any income for the Bank. SUB STANDARD ASSETS

A non performing asset with a defined credit weakness .distinct possibility of Banks sustain some loss..if not corrected .. Net worth of the Borrower.Guarantor.Market value of the security ..does not cover the amount due to the bank in full.. DOUBT FUL ASSETS. The weakness identified in the sub standard will be added with some more qualities ..the liquidation of Bank loans becomes questionable.improbable.. LOSS ASSETS. The assets which are identified as one from which the Dues to the bank are not collectable.Not a bankable assets. R B I in its policy defines the NPA norms and it will not be the same. R B I defines the NPA norms according to the market segment depending upon the meeting the interest and the principle commitment by the borrowers. Recently the NPA norms has been changed WEF..31.3.2004. Timely identification and proactive decision by the Banks will certainly improve the quality of lending ..and brings down the NPA position.. PROVISIONING NORMS.. Assuming that certain percentage of loans will go bad , banks have to set apart a portion of their profits to cover of such losses. Amount deducted from pretax income and set inside in a separate account. RBI recently hiked the Provision coverage ratio to 70%. Higher PCr denotes health of the bank. Banks has to provide from the profits the probable loss from NPA.. Finalised on the basis of the category of NPA.

Normally Loss assets are written off from the bank Books or provided 100%this ensures a proper picture of the performance of the bank.. Banks will provide for all the exposures of lending and investment .a regular review should be done. RBI in its policy defines the norms both on lending exposure and investment exposures of the Bank. WRITE OFF. When bank cannot recover the loan outstanding from the borrower after using all the available recourse can wrtite off the loan from the profits for which provision was made earlier. However Supreme Court has given a judgement . Writing off of Non performing assets by Bank is only an internal accounting procedure to clean up the Balance sheet and it does not affect the right of bank to proceed against borrowers to realize the dues. PRUDENTIAL NORMS ON CAPITAL ADEQUACY In 1992 ,,R B I introduced Basle committee frame work . A risk assets ratio system from Banks. Understand the strength of the banks from the financial statements. Bank exposures to fund based and non fund based and other off balance sheet items have prescribed with certain risk weights. Bank has to maintain the Capital according to risk weighted assets. As on date the bank has to maintain 9% CRAR. Foreign banks have additional classification of funds to be identified for capital. Basle committee norms introduced as per B I S ( Bank for International settlement). BIS is the central Bank of all Central banks of Developed and developing countries. R B I became of member of BIS in 1988. The objective of this is have a transparent financial statements of the Banks. CRARCAPITAL TO RISK WEIGHTED ASSETS RATIO

FRAME WORK OF CAPITAL FUNDS OF INDIAN BANKS. CAPITAL FUNDS ARE OF TWO TIERS . TIERIPERMANENT. Paid up capital, Statutory reserves, other undisclosed reserves if any, Sale proceeds of Assetsin Capital reserves. LESS investment in subsidiaries ..intagible assets..

TIER.IILESS PERMANENT . Undisclosed reserves and cumulative perpetual preference shares.Revaluation reserves. General provisions and Loss reservesHybrid debt capital instruments.Subordinated debt .

RISK MANAGEMENT Banks business is exposed to various risks .They should have a risk management system. MANAGING OF THE RISK INVOLVES.. RISK IDENTIFICATION . RISK MEASUREMENT( assessing magnitude) RISK MANAGEMENT. RISK POLICIES . BANKS ARE EXPOSED TO FOLLOWING RISKS.

Credit risk. Lending activity..possibility of lossdue to credit qualitydefault .concentration of loan portfolios.exposure to one group. WHAT IS TO DONE. Policy should be there to measure, monitor, and control the risk. Delegation of powers. Credit approving systems. Bench mark financial ratios Prudential exposure norms. Risk rating system Parameters. Operational /Financial performance of the unit. Bank accounts , securities available. Business and industry outlook. Promoters / management Evaluation of loan port folio on an ongoing basis.

.Interest risk.. Deregulation interest ratescompetitoninterest income. On a regular basis Bank has to consider both lending and mobilization of funds and their cost. Price risk.in investmentsa part of market risk.. Banks should evolve a definite time frame for moving over to VaR and duration approach for measurement of interest rate risk. Change of portfolio on a continuous basis.

Liquidity risk Mismatch of maturity in assets and liabilities.deposits have a shorter contractual maturity than loans. Banks have a risk of raising high cost funds to meet liquidity.more liquidity means idle funds Limit on inter bank borrowings, call funds, purchased funds, core deposits to core assets .contingent plans to meet the adverse liquidity conditions. FOREIGN EXCHANGE RISKrisk caused by exchange fluctuations of currency. Country risk..Overseas transactions with other countriespolitical economic situationrestricitions by their Central bank for funds transfer. Operational risks Changing internal processprocedures.work environment ..demotivateduntrained..incompetent Risk management of volume of transactions. Complex technical support and frauds etc.

ASSET-LIABILITY MANAGEMENT A L M System was formally introduced in Banks from 1.4.1999. AL management is defined as the process of adjusting Bank liabilities to meet Loan demands Liquidity needs. Safety requirements.

A L ..Philosophy Assets growth by adjusting liabilities. Long term operating viability and profitability Earnings growthrisk to be all time low. Appropriate strategies. To be evolved.depending upon the resources. A L M PROCESS. A L COMMITTEE TO BE FORMED IN BANKS. TOP LEVEL DECISION MAKING GROUP. FLOW OF INFORMATION IDENTIFY THE RISK OF THE ASSETS AND ITS SENSITIVITY. DURATION GAP ANALYSIS, VALUE AT RISKFOR INTEREST RISK MANAGEMENT

CAMEL. CAPITAL ADEQUACY ASSETS QUALITY MANAGEMENT EARNINGS LIQUIDITY 8. SARFAESI ACT

SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ORDINANCE.2002... SARFAESI ACT2002.

Securitisation is a process through a which illiquid assets are transferred into a more liquid form of assets and distributed to a broad range of investors through Capital markets. The lending institutions assets are removed from its balance sheet and are instead funded by investors through a negotiable financial instrument . The security is backed up by expected cash flows. Example HDFC HAS SANCTIONED HOME LOANS AGAINST THE SECURITY OF IMMOVABLE PROPERTIES. LOANS ARE REAPID BY THE BORROWERS. HDFC WOULD LIKE TO RAISE FUNDS FOR THEIR WORKING BY SECURITISING THE RECEIVABLES OUTSTANDING IN THE ABOVE LOANS. PROCESS.. POOLING OF HOMOGENOUS TYPES OF CREDIT, INTEREST RATE AND MATURITY. SPECIAL PURPOSE VEHICLE IS CREATED BY THE INSTITUTION. S P V ISSUES ASSET BACKED SECURITIES. H D F C CAN GET FUNDS FOR THE ILLIQUID ASSETS FOR ITS OPERATIONS. SERVICING OF THE DEBT INSTRUMENT IS FROM THE COLLECTION OF RECEIVABLES. MATURITY OF THE SYSTEM.. THIS PROCESS IS STILL TO HAVE CLEAR GUIDELINES FROM AMNY STRATUTES LIKE, I T AC T 1961, COMPANIES ACT 1956, TRANSFER OF PROPERTY ACT, STAMP ACT, AND SECONDARY MARKET FOR THE SECURITIES.

The instrument falls under the monetary transaction and capital market suitable regulations from RBI or SEBI is a must. RECONSTRUCTION OF FINANANCIAL ASSETS.. Registration of Securitisation or reconstruction companies. Certification of registration is a mustRBI. Owned funds differs from each class of companies. Acquisition of rights/ interest in the financial assets. This act defines the rights/obligations of such companies. ENFORCEMENT OF SECURITY INTEREST.. This act clearly defines thatany interest created in favour of any secured creditor may be enforced with out any intervention of court or tribunal in accordance with the provisions of this ordinance. Any repayment of the secured debt or installment thereof and this account on account of non payment has been classified by the secured creditor as Non performing assets, then the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within 60 days from the date of the notice failing which the secured creditor shall be entitled to exercise all or any of the rights under this act. In case the borrower fails to discharge the liability in full.. the secured creditor has the following option as per this ordinance. Take possession of the secured assets and right to sell, transfer, assign for realizing the proceeds of the secured assets. Take over the management of secured assets in including all the rights. Appoint any person to manage the secured assets.

BASEL ACCORD II.. Conceived by Basel committee in June 1999. Committee comprises of Central bank governors of G10 countries. Basel II identified three pillars to serve a s a positive strength of risk management system in banks . THREE PILLARS 1. MINIMUM CAPITAL REQUIREMENTS Already introduced in Basel I norms. Two approaches for calculation. aSTANDARD APPROACH Bank allocates risk weights for each of the assets as per balance sheet and off balance sheet item. This depends upon the ratings provided by approved external credit assessment institution. b..INTERNAL RATING BASED APPROACH.. The Bank rates, borrower, the results are translated into a potential future loss amount. Probability of default data for 5 years Loss given data for 5 years Exposure at default 7 years 2. SUPERVISORY REVIEW PROCESS . a. to maintain minimum capital requirement as per first pillar b. to use appropriate risk measurement technique in measuring and managing risk c. to make internal controls d. to comply with standards as per RBI.

3 MARKET DISCIPLINE .. a. Market discipline disclosures quantitative, qualitative disclosures made by banks to RA and Public risk, exposure and risk assessment. b. Disclosures must be in accordance with the management decision of the methodology of the risk. The Management of the banks should have a transparency and disclosure.

BASEL NORMS AND INDIA.. Basle norms I CARis being maintained. Basle II requires.skill developmentsexperience to handle new situations, credit rating mechanism. Most Banks are at initial stages. Train credit officers development .strengthen the existing CREDIT RISK Management PRACTICES. Most of the banks are ready to migrate to BASLEII AT A CONCEPTUAL LEVEL AND ACADEMIC LEVEL . Necessary changes in the frame work will take a long time. MICRO FINANCE INSTITUTIONS A new concept of reaching remote beneficiaries in rural areas. Concept built upon Self help groups . Highest growth in South India . Cluster financing . Started by NGO`s now NBFC`s are also in the race. Need for such type of services is for 600 million in India. Purpose is for poverty alleviation. Many banks have already have SHG`s in their fold with specific funding .

M & A ACTIVITIES IN BANKING Consolidation to become global players .important to have scale and size. Many PSU banks are not doing well. Study says Old generation pvt sector banks are loosing market share. Witnessing slow down. They have problem of capital mobilization and owner ship issues. Need to have scale to access Capital. Basel II implementation leads to consolidation Capital intensive business. SOME CASESSINCE 1991..

PNB acquires New bank of India.. Times bank merges with HDFC bank. DFI ICICImerges with ICICI BANK. GTB MERGES WITH O.B.C. NEDUNGADI BANK MERGES WITH P.N.B. GANESH BANK WITH FEDERAL BANK. IDBI BANK AMALGATES WITH PARENT IDBI . Bank of Punjab merges with Centurion bank. United western bank amalgates with IDBI bank. Lord Krishna bank merger s with CBOP. CBOP merges with HDFC bank.

Consolidation happens To protect depositors interest Commercial considerations. Rescue operations. Business considerations.

NBFC`S.. A NON BANKING FINANCIAL COMPANY IS A COMPANY REGISTERED UNDER THE Companies act 1956 and is engaged in the business of loans and advances , acquisitions of shares / stocks/securities issued by Government or local authority are other marketable securities , activities like leasing, hire purchase insurance business, chit business and does not include any institution whose principal business of agricultural activity, industrial activity etc.. NBFC cannot accept Demand deposits. It is not a part of payment and settlement system as such cannot issue cheques to its customers. DICGC FACILITY IS NOT AVAIALBLE FOR NBFC CUSTOMERS. CATEGORY.. Equipment leasing company Hire purchase company Loan Company Investment company All NBFC`s are entitled to accept Public deposits. Should be authorized and licensed to accept deposits and should minimum Net owned funds . Ceiling is there on accepting Public deposits. RBI has prescribed a ceiling on the payment of interest on deposits. Non deposit taking NBFC with Rs 100 crores or more of assets size must maintain 12 5 CRAR The capital adequacy will be increased to 15% from 1.4.2009 All NBFC`s must disclose from 31.3.2009 in their balance sheet matter relating to CRAR, derivative transactions, risks exposures exposure to real sector with maturity profile of assets and liabilities.

BANKING BANK EXPANSION.. BANK IS NOW TRANSFORMED TO BUYERS`MARKE T SECTOR. 250-350 MILLION PEOPLE NEED VARIOUS BANKING SERVICES. 60% OF OUR POPULATION HVE ACCESS TO BANKS 15% HAVE LOAN ACCOUNTS 70% OF FARMERS HAVE NOACCESS TO FORMAL BANK CREDIT.. BANKING HAS SCOPE TO DIVERSIFY BEYOND CITIES TO SEMI URBANAND RURAL AREAS IN RETAIL BANKING AND MICRO CREDIT.

SUB PRIME . When Bank lends money to people they broadly classify them into Prime and sub prime debtors. Prime debtors are credit worthy and latter less than first. Banks primary duty is not to lend to Non credit worthy borrowers. But they do at a higher rate of interest Crisis starts when Low income borrowers has to meet higher repayment and default happens. These asset backed securities are taken by investors and good times they make money and bad times it fails. Lesson from Sub prime crisis is that banks should check credentials before lending and the rating agencies doing the rating also should follow correct process.

BASEL.II Extract From an article .. Some of the benefits that can be expected from a well implemented basel programme are competitive advantage through better pricing, access to cheaper funds, through improved credit rating greater transparency and above all a well oiled risk management system. RBI has amended the G sec act to allow the investors to nomination, automatic redemption and credit interest through ECS. SEBI has come out with the regulations for issue and listing of debt securities CREDIT DEFAULT SWAPS The risk of change in borrowers ability to repay a debt is Credit risk. Banks as primary credit creators have too manage credit risk for which RBI has introduced Provisioning norms and Capital adequacy norms. International level banks have been allowed to manage the risk through ..risk transfer instruments. These are called Credit derivatives. Banks retain financial benefits of the loan and obviate the risk. RBI has introduced ..CREDIT DEFAULT SWAPS There are many disadvantages than advantages to the financial system. CREDIT GUARANTEE TRUST FOR SMALL INDUSTRIES Government of India and S I D B I formed a Trust in August 2000 as CGFTSI. (CREDIT GUARANTEE FUND TRUST FOR SMALL INDUSTRIES)

Object of the Trust was to see that the Banks lend to Small scale industries with out margin guarantee or collateral security to the extent of certain limits. All manufacturing , I.T. and Software industries are eligible. Only fund based facility of Term loan and Working capital.. Upto Rs.2.lakhs ..no margin or collateral. Rs 2 lakhs to Rs. 5 lakhs Margin may be stipulated but no collateral or third party guarantee . Rs. 5 lakhs to Rs. 25 lakhs margin of 10 %to 25% but no collateral or third party guarantee . This depends upon the track record of the unit. Interest rate will 3% above PLR . Guarantee fee and service charges shall be recovered from the unit. In case of default ..during the recovery process the Trust will pay the loan amount to the maximum of 75 % of the exposure.

DICGC CGC came into being in 1971 and later on it was known as DICGC. Policy is to encourage flow of credit to small borrowers on a significant scale . Becaue of scattered nature and non availability of tangible security the risk was high for small loans. IT was decided to cover the risk under a common and centralized scheme. WEF 1989 the cover is all priority sector advances. The guarantee covers lending of commercial banks , Co op banks, central, state, primary ,RRB`s and SFc`s . DICGC have structured credit guarantee schemes.

Banks have to pay premium to cover the loans. Guarantee cover is for 75% of the amount of default. The guarantee fee for banks have to paid annually. This institution covers the insurance for deposits upto Rs 1,00,000/- of the depositors in the banks. This guarantee will not cover NBFC`s activities. Export Credit Guarantee Corporation Two major risks in the International trade.. 1. Risk of loss or damage to goods. 2. risk of non realization of export proceeds. To Protect the exporters from such risk Export risk insurance corporation was set up in 1957. In 1964 ERIc was changed to ECGC. Wholly owned by G O I and under Ministry of Commerce. FOR EXPORTERS. A. WHOLE TURN OVER POLICY B. SPECIFIC POLICY C. FACTORING FOR BANKERS PACKING CREDIT GUARANTEE EXPORT PRODUCTIONFINANCE GUARANTEE POST SHIPMENT EXPORT CREDIT EXPORT FINANCE GUARANTEE EXPORT PERFORMANCE GUARANTEE TRANSFER GUARANTEE For exporters the commercial risk and Political risks are covered. FOR BANKS.

Protection of Banks from losses on account of their lendings to exporters. Both at preshipment and post shipment situation. MISCELLANEOUS .. A recent concept has come to banking system called FINANCIAL INCLUSIONThis is to ensure banks operating in their area of operations must ensure all those who come under the area operation should have a bank account and enjoy the services provided by the banks. Banking has to reach vast segment of population in rural areas towards achieving financial literacy , financial inclusion and social banking are important tools. INDIAN INSTITUTE OF BANKING AND FINANCE DEFINES Financial inclusion is delivery of banking services at an affordable cost to the vast section of disadvantaged and low income group. **

SCHEDULED BANKS.are those which are included in the Second schedule of the BR act1965, To be included in the second schedule a Bank Must have paid up capital of capital and reserves not less than Rs. 5 lakhs It must also satisfy RBI that its affairs are not conducted in a manner detrimental to the Interest of the depositors. Scheduled banks are required to maintain a certain amount of reserves with RBI. They in return enjoy the facility of financial accommodation and remittance facilities at concessional rates from RBI.

BANK RATE. The Bank rate is the rate of interest at which Reserve Bank Of India re discounts the first class bills of exchange from Commercial banks. Whenever R B I wants to reduce credit the Bank rate is raised and whenever credit has to be expanded the bank rate is reduced. CALL RATE.. The rate of interest paid on CALL LOANS IS THE CALL RATE. VARIES FROM DAY TO DAY. FROM HOUR TO HOUR. SENSITIVE TO CHANGES IN DEMAND AND SUPPLY. PRIME LENDING RATE. In the regulated situation each Bank/institutions have started fixing their PL R `s. Borrower with high credit standing and credit rating gets the loan at PLR. Others shall have to pay higher rates than PLR. PLR will be fixed according to the term STPLR.MTPLR.LTPLR. ACCRUED INTEREST.Interest has been earned but not received. CREDIT CRUNCH. Situation where supply of credit falls even though there is demand. LIEN. A lender`s claim on assets offered as security for loan.

HYPOTHECATION. the interest and possession of movable property remains with the borrower. It is done in case of Working capital loan. PLEDGE.. The lender acquires the possession of the property Interest and the ownership remains with the borrower. MORATGAGE Involves immovable property. In a mortagage an immovable property like a Land/building is provided as Collateral security against the loan. Charge is created by the lender. REPHASEMENT. A loan to be repaid over certain period has not started repayment..reasons may be genuine Review and fix a fresh repayment by rescheduling the principal repayment . This can be possible in a case to case to basis.

REHABILITATION. A unit after identified as SICK where in the review reveals that it can be brought back on the track a suitable package has to be worked to bring it back to normalcy. This will be fresh funding.rephasement.interest concession. This process will ensure the sick unit to revive and comes back to normal. Again the possibility is most important.

RECALL. Bank gets a feeling that being a sick unit risk of exposure increase if not get back the money lent.When either rephasement or rehabilitation is not possible.. the route will be legal one by filing a suit in the court of law for recovery. Either through Civil courtor DRTSARFAESI ACT .. SOME CASES O. T. S OR EXTENSION OF CONCESSIONARY RATE OF INTEREST IS POSSIBLE. K Y C .KNOW YOUR CUSTOMER RBI has issued guidelines relating to identification of depositors, put in place systems and procedures to help and control financial frauds, money laundering and other suspicious activities. Opening of accounts and monitoring the cash transactions . Maintenance of proper records.

BANKING RATIOS ACCOUNTING RATIOS ..NORMALLLY BANKS LOOKS INTO FROM THE FINANCIAL STATEMENT FRESHRENEWAL PROPOSALS. I. II. III. IV. EQUITY DEBT RATIO. D.S.C.R. (DEBT SERVICE COVERAGE RATIO) CURRENT RATIO. TOL/TNW

V. VI. VII. VIII. IX. X

PAT/SALES.% PBDIT/INTEREST.. ROCEPBDIT/TOTAL TANGIBLE ASSETS. FINISHED GOODS TO SALES. NO OF DAYS. R M STOCK TO ANNUAL CONSUMPTION NO OF DAYS RECEIVABLES TO ANNUAL SALES. NO OF DAYS

TO MEASURE

BANKS PERFORMANCE

CREDIT/DEPOSIT RATIO AVERAGE WORKING FUNDS INTEREST SPREAD/AWF NET PROFIT/AWF OPERATING EXPENSES/AWF COST OF DEPOSITS COST OF BORROWINGS BUSINESS PER BRANCH GROSS PROFIT PER BRANCH. BUSINESS PER EMPLOYEE. BANKING TERMINOLOGIES. MARKET SEGMENT. DEPOSITS. DEMAND .TIME LIABILITY. N D T L. INVESTMENT. ASSETS. LENDING CURRENT ASSETS FIXED ASSETS.

FUND BASED FACILITY NON FUND BASED FACILITY LETTER OF CREDIT BANK GUARANTEE ANCILLARY SERVICES. PROJECT APPRAISAL CREDIT APPRAISAL TERM LOAN DPG WORKING CAPITAL CASH CREDIT PRESHIPMENT FINANCE E.P.C. INVENTORY NORMS BILLS DISCOUNTING POST SHIPMENT FINANCE. REFINANCE SANCTION FOLLOW UP AND INSPECTION REPAYMENT EMI LIMIT DRAWING POWER IRREGULARITY PRIMARY SECURITY COLLATERAL SECURITY RENEWAL REVIEW ENHANCEMENT SICK UNIT REPHASEMENT REHABILITATION RECALL MONTHLY /QUARTERLY RESTS CONSORTIUM MULTIPLE BANKING PROVISIONING WRITE OFF ACKNOWLEDGEMENT OF DEBT REVIVAL LETTERS

PRIORITY SECTOR BANKING RATIOS. N.P.A. CRR SLR PLR PLEDGE HYPOTHECATION LIEN MORTAGAGE BREAK EVEN SENSITIVITY ANALYSIS. D. E RATIO D.S.C.R.

******************************** CORPORATE DEBT RESTRUCTURING. Based on the experience in other countries like U K , and others need was felt to put in place Institutional Mechanism for restructuring of Corporate debt . Introduced by RBI in 2001. Finance Minister announced in budget speech of 2002-2003. Two categories of debt restructuring . Standard.. Sub standardclassified by the lender as Category I Classified under Doubtful will be under Category..II. OBJECTIVE.. C D R is to ensure timely and transparent mechanism for restructuring the Corporate debts of viable entities facing problems ( Internal ..external )outside the purview of BIFR. DRT, and other legal proceedings for the benefit of all concerned.

STRUCTURE. CDR standing forum. Comprises of FI`s and CB`s representatives. Lays down policies guidelinesmonitor the progress. CDR empowered group. CDR cell. Look into the proposed rehabilitation plan submitted by Lenders and borrowers. If found prima-facie feasible .refer to Empowered group. The process to be completed in 180 days from approaching CDR cell. ELIGIBILITY. Corporates with outstandings of Rs.20 crs and above with multiple /consortium accounts. No cases of single bank cases, wilful default, fraud in the coprorates cannot be considered. CDR mechanism is a non statutory mechanism. This is based on Debtor creditor agreement (DCA) and Inter creditor agreement ( I C A ). The guidelines are very clear for implementation . RISKS.. Three major risks faced by the commercial BANKS.

1. Market risk mainly attributable mainly for change in interest rate, foreign exchange, forward trading, change in prices of shares. Bonds.. 2. Credit riskdefault in lendingrisk due to default by the borrower in respect of funded and non funded exposures. 3. Operational risk.human failure.intentional unintentional.process failuresystem failure. OMBUDSMAN. An official appointed by the Government to investigate an individual complaint against a public authority. It is an inexpensive institution for redressal of an individual grievances against public authorities. This institution has come into banking sector. In 1995 this scheme was introduced covering all the Banks in India. The redressal is to look into the Deficiency in services in the banking affecting the common man. The Ombudsman office is situated in RBI offices . ****************************

BANK BALANCE SHEET CAPITAL AND LIABILITIES ASSETS

CAPITAL

CASH AND BALANCES WITH R B I BALANCES WITH BANKS AND CALL AND SHORT NOTICE

RESERVES AND SURPLUS DEPOSITS INVESTMENTS BORROWINGS OTHER LIABILITIES AND PROVISIONS

ADVANCES FIXED ASSETS OTHER ASSETS *******************

STATUTES RELATED BANKING 1. RBI ACT 1934 2. THE NEGOTIABLE INSTRUMENTS ACT 3. THE COMPANIES ACT 4. THE PARTNERSHIP ACT 5. INDIAN CONTRACT ACT 6. INDIAN TRUST ACT

7. TRANSFER OF PROPERTY ACT 8. SALE OF GOODS ACT 9. LAW OF LIMITATION Micro ,small and medium enterprises development act 2006.. Micro enterprise.. Manufacturing .Investment in Plant and machinery not to exceedrs 25.00 lakhs ServiceInvestment in equipment not to exceed Rs 10.oo lakhs . Small enterprises Manufacturing . Investment in Plant and machinery more than Rs 25 lkhs and not to exceed rs 5.00 crs Services.. investment in equipment is more than rs 10.00 lakhs and not to exceed rs 200 lakhs Medium enterprises Manufacturing ..Investment in Plant and machinery more than Rs rs 5 crs and not to exceed rs 10 crs. Services.Investment in equipments more than rs 200 lakhs and not more than Rs.500 lakhs