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Outdated production/technology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.
2. 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)
generate any income for the Bank.

(N P A)..is one which do not

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..
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 fro 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
fluctuations of currency.

RISKrisk

caused

by

exchange

Country risk..Overseas transactions with other countriespolitical

economic situationrestricitions by their Central bank for funds
transfer.
.Operational risks
Changing
internal
processprocedures.work
..demotivateduntrained..incompetent

environment

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 institution`s 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, 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 A CLEAR GUIDELINES
FROM AMNY STRATUTES LIKE, I T AC T 1961 , COMPANI3S ACT
1956, TRANSFEROF PROPERTY ACT, STAMP ACT,
AND
SECONDARY MARKET FOR THE SECURITIES.
The instrument falls under the monetary transaction and capital market
a suitable regulations from RBI or SEBI is amust.

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 instalment 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 realising 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.
88888888888888888888
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
situations , credit rating mechanism.
Most Banks are at initial stages.

to hanldle new

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.
8888888888888888
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 BAMK 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 withmaturity 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 bank`s 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.
R BI 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
securities

for issue and listing of debt

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 advance s.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 et 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 lossess 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
STPLR.MTPLR.LTPLR.

to

the

term

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.
V.
VI.
VII.
VIII.
IX.
X

EQUITY DEBT RATIO.

D.S.C.R. (DEBT SERVICE COVERAGE RATIO)
CURRENT RATIO.
TOL/TNW
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.

TO MEASURE

NO OF DAYS

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 ( D CA ) 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

RESERVES AND SURPLUS

DEPOSITS
INVESTMENTS

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

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

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