Registration RNI No.

67802/98
Postal Regn. No.CHD/(0001)2012-14
Volume - XV No.09 September 2012
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B anking
Update
events

The
Journal of
Institute of Banking
Career & Studies,
Chandigarh

Contents of this Issue

BANKING POLICY : 4
EEFC, RFC-D accounts

Joint Either/Survivor account

Multi-city cheques
Clearing of local cheques

BANKING FEATURES : 4-8, 20

Revised Education Loan scheme

Basic Saving Bank account

Banking Problems - Ombudsman cases

RBI's Annual Report 2011-12

Those who win, are those, who think they can

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Asian Clearing Union (ACU)

Diary of events - Aug, 2012: 9

Policy, Economy
Banking Developments
Capital Markets & Insurance
General Awareness : 13
Multi-Option questions:15-19
Data Bank : 20

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www.nstoorBankingonline.com

Editor - Ms Gurmeet Toor, Executive Editor - S. Chand Singh, Editor in Chief - Sh. N S Toor

Banking events updatE September 2012

EEFC, RFC-D, DD Accounts

very little difference in maturities. This suggests inadequate liquidity management system and inadequate
As per circular dated Nov 30, 2006, all foreign exchange
pricing methodologies.
earners were permitted by RBI to retain 100% of their foreign exchange Banks have been advised (Aug 14, 2012) that Board/
earnings in EEFC account with any AD in India. Subsequently, in terms of ALCO should ensure that the variation in interest rates
circular dated May 10, 2012, it was stipulated, inter alia, that in respect of all on single term deposits of Rs.15 lakh and above and
future foreign exchange earnings, an exchange earner will be eligible to other term deposits (i.e. deposits less than Rs.15 lakh) is
retain only 50% of her/his export earnings in EEFC accounts and the balance minimal for corresponding maturities.
50% shall be surrendered for conversion to rupee balances. This provision
Delay in Clearance of Local Cheques
was, made applicable, to Diamond Dollar Account.
As per extant guidelines, banks are required to specify
For operational convenience, the regulations have been reviewed and RBI the time line for realisation of local and outstation cheques
has decided (Jul 31, 2012) to restore the erstwhile stipulation of allowing in their Cheque Collection Policies (CCP) including the
credit of 100% foreign exchange earnings to the EEFC account subject to the compensation payable for delayed credit, if any. RBI
condition that the sum total of the accruals in the account during a calendar observed that there is no mention about compensation
month should be converted into Rupees on or before the last day of the in respect of the delay in realisation of local cheques.
succeeding calendar month after adjusting for utilization of the balances for Instances of delayed credit to customers accounts
approved purposes or forward commitments. Accordingly, balances outstanding without any compensation for the delayed period beyond
in an EEFC account as on July 31, 2012 and those balances that would accrue the time line indicated in the CCPs, in respect of local
in the account with effect from August 1, 2012 shall get converted to Rupee cheques, have been brought to RBI notice.
balances on or before close of business on September 30, 2012. Similar In terms RBI circular dated Nov 24, 2008, banks are
procedure may be followed for accruals during the subsequent months.
required to specify the time line for realisation of cheques,
The stipulations also apply to RFC (Domestic) and Diamond Dollar accounts.
including local cheques, in their respective CCPs. The

ANKING
POLICY

FDI by citizen / entity incorporated in Pakistan

As per extant guidelines of RBI a person resident outside India who is a citizen
of Pakistan or an entity incorporated outside India in Pakistan, is not allowed
to purchase shares or convertible debentures of an Indian company under
Foreign Direct Investment Scheme. RBI has decided (Aug 22, 2012) a person
who is a citizen of Pakistan or an entity incorporated in Pakistan may, with the
prior approval of the Foreign Investment Promotion Board of the Government
of India, purchase shares and convertible debentures of an Indian company
under Foreign Direct Investment Scheme, further that the Indian company,
receiving such foreign direct investment, is not engaged or shall not engage
in sectors / activities pertaining to defence, space and atomic energy and
sectors/ activities prohibited for foreign investment.
Either or Survivor or Former or Survivor mandate
As per circular dated Nov 04, 2011 RBI had advised bank that in case joint
depositors of term/fixed deposits with Either or Survivor or Former or
Survivor mandate intend to allow premature withdrawal of their deposits by
one of the joint depositors on the death of the other, it would be open for
banks to allow the same, provided they have taken a specific joint mandate
from the depositors for the said purpose.
In terms of circular dated Jun 09, 2005, banks were advised to incorporate a
clause in the account opening form itself to the effect that in the event of
death of the depositor, premature termination of term deposits would be
allowed subject to the conditions which they may specify therein.
RBI has reiterated (Aug 16, 2012) that in case of term deposits with Either or
Survivor or Former or Survivor mandate, banks can allow premature withdrawal of the deposit by the surviving joint depositor on the death of the
other, only if, there is a joint mandate from the joint depositors to this effect.
The joint deposit holders may be permitted to give the mandate either at the
time of placing fixed deposit or anytime subsequently during the term/tenure
of the deposit. If such a mandate is obtained, banks can allow premature
withdrawal of term/fixed deposits by the surviving depositor without seeking
the concurrence of the legal heirs of the deceased joint deposit holder. RBI
also reiterated that such premature withdrawal would not attract penal charge.
Interest Rate on Deposits
As per circular dated April 29, 1998 banks were permitted by RBI to offer, at
their discretion, differential rates of interest on single term deposits of Rs.15
lakh and above, subject to the condition that schedule of interest rates on
deposits, including deposits on which differential interest is paid, is disclosed
in advance and not subject to negotiation between depositor and the bank.
RBI observed that there are wide variations in the interest rates offered by
banks on single term deposits of Rs.15 lakh and above and those offered on
other deposits (i.e. deposits less than Rs.15 lakh) of corresponding maturities. Further, banks are offering significantly different rates on deposits with

circular also states that in case of local cheques, banks

shall permit usage of the shadow credit afforded to the
customers account immediately after closure of relative
return clearing and in any case, withdrawal shall be
allowed on the same day or maximum within an hour of
the commencement of business on the next working day,
subject to usual safeguards.
Banks have been advised by RBI (Aug 13, 2012) to
reframe their CCPs to include compensation payable for
the delayed period in the case of collection of local
cheques as well. In case, no rate is specified in the CCP
for delay in realisation of local cheques, compensation at
savings bank interest rate shall be paid for the
corresponding period of delay.
Multicity / payable at all branches cheques
The new opportunities offered by CBS have enhanced
customer service by way of offering various payment
products and channels resulting in speedy movement of
funds across the country. Leveraging the CBS, banks
have started issuing payable at par / multi-city cheques
to select customers with separate transaction codes by
putting in place infrastructure for processing such
cheques at all CBS enabled branches. Vide circular dated
Oct 31, 2007, RBI had suggested that the facility of
payable at par / multi-city cheques should be made
available by all CBS enabled banks to all eligible and requesting customers taking into account the availability
of CBS in more than 35, 000 bank branches at that time.
On a review of the practice followed by banks in this
regard, RBI observed that banks are issuing these types
of cheques differently. Few banks are issuing payable
at par / multi-city cheques with value cap and other
banks issue these cheques as per category of account
(High Net-worth Customers). Instances of levying intersol
charges when such cheques are cleared at other than
base branch city have come to RBIs notice.
Taking into consideration the availability of processing
Devote
"A few days in a month, to do something better;
something speedier; something of high quality;
something which will make you proud; something which
will make a poorer person's life a little better ".
........ Dr. APJ Abdul Kalam, Ex-President of India

(COMPILATION- ARUNDEEP TOOR, in Sydney, Australia - on the basis of information available on RBI Website)

Banking events updatE September 2012

infrastructure for clearing outstation cheques at all clearing locations across the country
and to bring about further efficiency in cheque clearing, all CBS enabled banks have
been advised by RBI (Aug 10, 2012) to issue only payable at par / multi-city CTS 2010
Standard cheques to all eligible customers. Since such cheques (payable at par) are
cleared as local cheques in clearing houses, customers should not be levied extra charges.
The updated Board approved policy may be placed on the web-site of banks and customers notified.
Advances - Out of pocket expenses
As per extant practice, Indian Banks Association (IBA) had been prescribing out of
pocket expenses for member banks. IBA has reviewed the matter in consultation with
member banks. It has been observed that out of pocket expenses are linked to actual
costs incurred by banks towards specific activities like courier/dispatch of documents,
telecommunications and Swift operations and that the rates vary depending on the
agencies involved as well as the efficacy of services, which differ from bank to bank.
RBI has decided (Aug 01, 2012) that the practice of IBA prescribing out of pocket
expenses on behalf of member banks should be done away with and the decision to
recover out of pocket expenses should be left to the individual banks. Banks have been
advised that while recovering out of pocket expenses, they should ensure that the
charges are reasonable and on an actual cost basis.
MSE Sector Imperative of Financial Literacy and consultancy support
It has been observed from the 4th Census on MSMEs, that the extent of financial
exclusion in the MSME sector is very high (92%). It is, therefore, imperative for banks
that the excluded units are brought within the fold of the formal banking sector.
RBI emphasised (Aug 01, 2012) that the bank branches need to have a more proactive
role in the affairs of their MSE clients by providing them with financial literacy and
consultancy support. For this, banks could either separately set up special cells at their
branches, or vertically integrate this function in the Financial Literacy Centres (FLCs) set
up by them, as per their comparative advantage.
Simplification of the Procedure for Branch Licensing - RRBs
In order to expedite the process of disposal of applications RBI has decided (Aug 01,
2012) to delegate powers to the Regional Offices of the Reserve Bank to take a decision
on the applications of RRBs for opening, shifting, merger or conversion of branches
without reference to the concerned Empowered Committees. RRBs may continue to
submit applications to the concerned Regional Office of the Reserve Bank, through the
respective Regional Office of NABARD which will give its comments on the merits of the
application, with an advance copy being forwarded to the concerned Regional Office of
the Reserve Bank. If required, the Regional Offices of the Reserve Bank may consult the
concerned State Government. The approval of sub-group of District Consultative Committee (DCC) will be required, as hitherto, for shifting, merger and conversion of branches.
Relaxation in Branch Licensing Policy - Tier 2 Centres (RRBs)
RRBs have been allowed by RBI (Aug 01, 2012) to open branches in Tier 2 centres (with
population of 50,000 to 99,999 as per Census 2001) without the need to take permission
from the Reserve Bank in each case, subject to reporting, provided they fulfil the
following conditions, as per the latest inspection report (1)CRAR of at least 9%; (2)
Net NPA less than 5%;(3) No default in CRR / SLR for the last year; (4) Net profit in the
last financial year; (5) CBS compliant.
RRBs not fulfilling the conditions above will continue to approach RBI / NABARD. Opening of branches by RRBs in Tier 1 centres (population of 100,000 and above as per
Census 2001) will also continue to require prior permission of Reserve Bank of India.
Risk Management and Inter Bank Dealings
1. Under extant regulations, the facility of cancellation and rebooking is not permitted
for forward contracts, involving Rupee as one of the currencies, booked by residents to
hedge current and capital account transactions. RBI has decided (Jul 31, 2012) to allow
exporters to cancel and rebook forward contracts to the extent of 25% of the contracts
booked in a financial year for hedging their contracted export exposures.
2. Under extant regulations, Net Overnight Open Position Limit (NOOPL), for positions
involving Rupee as one of the currencies, of AD Category-I banks takes into account the
open positions of the overseas branches of the banks in India. Further, AD Category-I
banks also include the delta of the Options Position under NOOPL. On a review, so as to
provide some flexibility to them in managing their NOOPL, it has been decided to permit
AD Category I banks to exclude their Net Options Position and the positions taken by the
overseas branches from their NOOPL, for positions involving Rupee as one of the
currencies. Accordingly, limits for such positions, within the overall NOOPL, may be
separately fixed by the respective banks board and communicated to the Reserve Bank
for approval.

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Course Kit : The course kit include:
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(b) assignment to improve retention
(c) objective type practice exercise
(d) recalled questions
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Fee : Rs.2000 (may differ. - may be checked
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Banking events updatE September 2012

BANKING FEATURES

Revised Education Loan Scheme

month. Rejection with consent of controlling office only.

Based on the recommendations R J Kamath Committee, a

model scheme was prepared by the IBA and approved by
RBI in April 2001:
(Bank branch Near place of residence of parents or
educational institution).
Courses eligible for studies:
a. In India: All kinds of education. (Banks may approve job
oriented courses leading to technical/ professional
degrees, post graduate degrees/diplomas offered by
recognized institutions).
b. Abroad: Graduation, Post graduation, Courses
conducted by CIMA- London, CPA in USA etc.
Eligibility : Indian National having secured admission to
professional/ technical courses through Entrance Test/
Selection process or Secured admission to foreign
university/ Institutions after 10+2. Expenses considered
for loan : Fee and all other expense required to complete
the course.
Quantum of finance: Need based subject to repaying
capacity of parents/ students:
Studies in India - Maximum Rs.10 lacs.
Studies abroad - Maximum Rs.20 lacs
Margin: Upto Rs.4 lacs : Nil (India/abroad).
Above Rs. 4 lacs : India : 5%
Abroad : 15%
(Margin can be on year-to-year basis as and when disbursements are made on a pro-rata basis).
Collateral Security: Parents would be joint borrowers
(in case of married, the spouse or parents in law). For
loans above Rs.4 lac and up to Rs.7.50 lac, 3 rd party
guarantee may be obtained. For loans above Rs.7.50 lakh,
collateral security can be obtained.
Rate of interest : Base rate or above.
The interest to be debited quarterly/ half yearly on simple
basis during the repayment holiday/ moratorium period.
1% interest concession may be provided, where interest
is serviced during moratorium period.
Moratorium : Course period + 1 year OR 6 months after
getting job, whichever is earlier. (extension of completion
of course up to 2 years can be allowed if student could
not complete the course)
Repayment up to 10 years for loan up to Rs.7.50 lac and
up to 15 year for loan above Rs.7.50 lac, after
commencement of repayment. The accrued interest
during the repayment holiday period to be added to the
principal and repayment in Equated Monthly Instalments
(EMI) fixed. 1% interest concession is to be provided if
the interest is serviced during the study period.
Other conditions: 1. Existence of an earlier education
loan to brother/sister does not affect eligibility of another
student from the same family to obtain education loan. If
student is minor loan documents signed by parents to be
got rectified on his attaining the majority.
2. Time limit for decision on application 15 days to 1

IBA MODEL LOAN SCHEME FOR VOCATIONAL

EDUCATION AND TRAINING (w.e.f. 1.7.2012)
Student Eligibility: (1) The student should be an Indian
National (2) Have secured admission in a course run or
supported by a Ministry / Dept./ Organisation of the Govt.
or a company / society / organization supported by
National Skill Development Corporation or State Skill
Missions / State Skill Corporations, preferably leading to
a certificate / diploma / degree, etc. issued by a Govt.
organization or an organization recognized / authorized
by the Govt. to do so.
Courses Eligible: Vocational / Skill development courses
of duration from 2 months to 3 years run or supported by
a Ministry / Dept. / Organisation of the Govt. or a company
/ society / organization supported by National Skill
Development Corporation or State Skill Missions / State
Skill Corporations, preferably leading to a certificate /
diploma / degree, etc. issued by a Govt. organization or
an organization recognized / authorized by the Govt. to
do so. . State Level Bankers Committee (SLBC) / State
Level Coordination Committee (SLCC) may add other skill
development courses / programmes, having good
employability.
Minimum Age: There is no specific restriction with regard
to the age of the student to be eligible for the loan.
However, if the student was a minor, while the parent
executes documents for the loan, the bank will obtain a
letter of ratification from him / her upon attaining
majority.
Quantum of finance : For courses of duration upto 3
months Rs. 20,000 , 3 to 6 months Rs. 50,000, 6 months
to 1 year Rs. 75,000 and above 1 year Rs. 1,50,000/Expenses considered for loan: Tuition / course fee ,
Examination / Library / Laboratory fee, Caution deposit,
Purchase of books, equipments and instruments, any other
reasonable expenditure
Margin: Nil
Rate of interest: Min base rate of banks. Simple Interest
will be charged during the study period and upto
commencement of repayment. 1% interest concession may
be provided by the bank, if interest is serviced during the
study period and subsequent moratorium period prior to
commencement of repayment.
Processing charges: Nil
Security: No collateral or third party guarantee will be
taken. The parent will execute loan document along with
the student borrower as joint borrower.
Moratorium period: Upon completion of the course: For
courses of duration upto 1 year - 6 months. For courses
of duration above 1 year- 12 months.
Repayment: For courses upto 1 year 2 to 5 years
and for courses above 1 year - 3 to 7 years.

Compilation : Arundeep Toor (Sydney - Australia) (Source-RBI Website)

BANKING FEATURES

Banking events updatE September 2012

Basic Saving Bank Deposit Account

Revised KCC Scheme- Modifications

Banks were advised in November 2005 to make available a

basic banking no-frills account either with nil or very
low minimum balance as well as charges that would make
such accounts accessible to vast sections of population.
With a view to doing away with the stigma associated with
the nomenclature no-frills account and making the basic banking facilities available in a more uniform manner
across banking system, RBI has decided to modify the
guidelines on opening of basic banking no-frills accounts.
In supersession of instructions dated Nov 11, 2005 on Financial Inclusion, banks have been advised by RBI (Aug 10,
2012) to offer a Basic Savings Bank Deposit Account which
will offer following minimum common facilities to all their
customers:
i. The Basic Savings Bank Deposit Account should be considered a normal banking service available to all.
ii. This account shall not have the requirement of any
minimum balance.
iii. The services available in the account will include deposit and withdrawal of cash at bank branch as well as
ATMs; receipt/credit of money through electronic payment channels or by means of deposit/collection of
cheques drawn by Central/State Government agencies
and departments;
iv. While there will be no limit on the number of deposits
that can be made in a month, account holders will be
allowed a maximum of four withdrawals in a month, including ATM withdrawals; and
v. Facility of ATM card or ATM-cum-Debit Card;
The above facilities are to be provided without any
charges. Further, no charge will be levied for non-operation/activation of in-operative Basic Savings Bank
Deposit Account.
Banks are free to evolve other requirements including
pricing structure for additional value-added services
beyond the stipulated basic minimum services on reasonable and transparent basis and applied in a nondiscriminatory manner.
The Basic Savings Bank Deposit Account is subject to
RBI instructions on Know Your Customer (KYC) / AntiMoney Laundering (AML) for opening of bank accounts
issued from time to time. If such account is opened on
the basis of simplified KYC norms, the account would
additionally be treated as a Small Account and would
be subject to conditions stipulated for such accounts.
Holders of Basic Savings Bank Deposit Account will not
be eligible for opening any other savings bank deposit
account in that bank. If a customer has any other existing savings bank deposit account in that bank, he/
she will be required to close it within 30 days from the
date of opening a Basic Savings Bank Deposit Account.
The existing basic banking no-frills accounts should
be converted to Basic Savings Bank Deposit Account.

RBI decided (Aug 07, 2012) to make certain changes in

the revised KCC Scheme with effect from Aug 07, 2012.
1. Disbursement: The condition regarding each installment of the drawable limit drawn in a particular year will
have to be repaid within 12 months has been withdrawn.
2. Repayment period: As per existing condition, each
withdrawal under the short term sub-limit, be allowed to
be liquidated in 12 months without the need to bring the
debit balance in the account to zero at any point of time.
No withdrawal in the account should remain outstanding
for more than 12 months. As per revision, the repayment
period may be fixed by banks as per the anticipated harvesting and marketing period for the crops for which a
loan has been granted.
3. Other features: As per existing condition the KCC holder
should have the option to take benefit of Crop Insurance, Assets Insurance, Personal Accident Insurance
Scheme (PAIS) and Health Insurance (wherever product is
available) and have premium paid through his KCC account.
Necessary premium will have to be paid on the basis of
agreed ratio between bank and farmer to the insurance
companies from KCC accounts. Farmer beneficiaries should
be made aware of the insurance cover available and their
consent is to be obtained, at the application stage itself.
As per revised conditions, besides the mandatory crop
insurance, the KCC holder should have the option to take
benefit of Assets Insurance, Personal Accident Insurance
Scheme (PAIS), and Health Insurance (wherever product
is available) and have premium paid through his KCC account. Necessary premium will have to be paid on the
basis of agreed ratio between bank and farmer to the ins
companies from KCC accounts. Farmer beneficiaries should
be made aware of the insurance cover available and their
consent (except in case of crop insurance, it being mandatory) is to be obtained, at the application stage itself.
4. Classification of account as NPA : As per existing conditions, With a view to simplifying asset-classification, the
Committee has recommended that an account could be
treated as standard, when the balance outstanding is
less than or equal to drawing limit [short term (crop) loan]
at any point of time during the preceding one year. In
other words, it is suggested that the short term loan (with
major component of crop loan) sanctioned on the KCC
can be given the same treatment as a cash credit account for the purpose of applying prudential norms and
should not be treated as out of order if the balance
outstanding is less than or equal to the drawing limit and
each drawl is repaid within a period of 12 months. Term
loan under KCC has fixed repayment schedule and is to
be governed by extant prudential norms. As per revised
conditions, the extant prudential norms for income recognition, asset-classification and provisioning will continue
to apply for loans granted under revised KCC Scheme.
Change in Statutory Liquidity Ratio (SLR).
RBI on July 31, 2012, decided to reduce the Statutory Liquidity
Ratio (SLR) for Scheduled Commercial Banks from 24 per cent of
their Net Demand and Time Liabilities (NDTL) to 23 per cent with
effect from the fortnight beginning August 11, 2012.

Banking events updatE September 2012

RBI's Annual Report 2011-12

RBI released its Annual Report 2011-12 which is a statutory Report
of the Central Board of the Reserve Bank, on Aug 23, 2012.
The highlights of the Report are as under:
Assessment for 2011-12
Growth decelerated below the economys potential due to domestic and global factors. Inflation persistence and widening twin
deficits constrained the RBIs ability for counter-cyclical measures.
After 2 years, high inflation moderated in the later part of 201112 in response to monetary tightening and growth deceleration.
As growth slowed down, it further reduced the welfare of the
common man through adverse impact on employment and incomes.
Increased interest rates impacted investment. Real (net of inflation) Weighted Average Lending Rates was 3.8% in 2011-12 (7%
in 2003-04 to 2007-08) when investment had boomed.
Fiscal consolidation is needed to sustain growth. Subsidies have
risen from 1.3% of GDP in 2005-06 to 2.4% in 2011-12.
Deterioration in asset quality of banks emerged as a concern
during 2011-12, especially in case of public sector banks.
Prospects for 2012-13
Growth outlook : Growth is expected to stay at around the
previous years level of 6.5%.
With limited fiscal and monetary space available to provide a
direct stimulus, an expenditure-switching policy is needed that reduces revenue spending by cutting subsidies and using the released resources to step up public capital expenditures. Lower
interest rates alone, are unlikely to jumpstart investment cycle.
Inflation outlook: Inflation is likely to remain sticky at around
7% with upside risks emanating from deficient monsoon, large upward revision in Minimum Support Prices (MSP) on the back of cost
escalation and exchange rate depreciation during Q1 of 2012-13.
Need to address twin deficits (fiscal deficit & current account deficit) to contain risk to macro-financial stability
The emergence of twin deficits during 2011-12 was a major
cause of macro-economic weakness.
With growth remaining slow, budgetary targets are at risk. Shortfall in indirect tax revenue, decline in corporate earnings and expenditure overshooting due to under-provision of petroleum subsidies, are likely to put fiscal position under pressure.
Current account deficit (CAD) risks are maintained. With a lower
growth, the level of CAD is assessed at around 2.5% of GDP.
There is urgent need to step-up non-debt creating inflows, especially in form of Foreign Direct Investment (FDI).
Medium-term Challenges for the Indian Economy
3 illustrative medium-term challenges highlighted in the Report are:
(i) Preserving Indias growth story : Indias growth story in recent
past has been substantially driven by large infrastructure investments. New investments have slowed down and existing investments are at risk. Elongated gestation periods and input supply
shortages have affected the viability of projects going on-stream.
The envisaged total fixed investments in new projects that were
sanctioned financial assistance during 2011-12 dropped by 46% to
about Rs.2.1 trillion. Envisaged investment in infrastructure declined by 52 per cent to Rs.1 trillion with power and telecom accounting for most of this fall.
Road projects have slowed down due to problems relating to land
acquisition, legal, environmental clearances etc.
(ii) Strengthening banking soundness through Basel III.
RBI issued guidelines for implementation of Basel III capital regulation to be completed in a phased manner by March 31, 2018.
For full implementation of Basel III, public sector banks would
require common equity to the tune of Rs.1.4-1.5 trillion on top of

BANKING FEATURES
internal accruals, in addition to Rs.2.65-2.75 trillion in form of nonequity capital. Major private sector banks would require common
equity to the tune of Rs.200-250 billion on top of internal accruals,
in addition to Rs.500-600 billion in form of non-equity capital.
(iii) Financial inclusion, led by the Reserve Bank policies.
A World Bank study revealed that India scored poorly on financial
inclusion parameters than the global average in %age of population with formal accounts, credit cards, outstanding mortgages,
health insurance, origination of new loans and mobile banking.
Banks priority sector lending target for foreign banks with 20 or
more branches has been raised from 32% to 40%.
RBI has adopted ICT-based bank agent model through Business
Correspondents which is successful in addressing financial inclusion needs.
Financial inclusion is a substantially unfinished agenda and the
efforts need to be upscaled. The change from no-frills account to
Basic Saving Bank Deposit Account is an effort to integrate them
as part of basic banking services.
Money and Credit: There is significant evidence that the interest
rate channels and credit channels of monetary transmission have
been working effectively. Policy rate increases had a negative effect on output growth with a lag of 2 quarters and moderating
effect on inflation with a lag of 3 quarters. As banks adjust portfolios, a 100 bps increase in policy rate was found to reduce credit by
2.8% in nominal terms and 2.2% in real terms.
Government Finance: Fiscal targets may be again missed in
2012-13, unless immediate remedial measures are undertaken.
External Sector: The full-year CAD-GDP ratio reached 4.2%. In
view of the high dependence on debt flows to finance CAD during
2011-12, there is need for policy initiatives to augment non-debt
creating flows, especially by improving FDI inflows into sectors
such as insurance, retail, aviation and urban infrastructure. In
recent years outward FDI has increased significantly.
Working and Operations of the Reserve Bank of India
Monetary Policy Operations: During 2012-13, RBI used available space to cut policy rates and frontloaded the policy action, but
maintained status quo later as inflation concerns persisted.
Credit Delivery and Financial Inclusion: Improving credit
delivery and financial inclusion have remained key priorities. A major
step was to introduce biometric smart card system for the kisan
credit card (KCC), to be used in ATMs and hand held devices.
RBI has issued guidelines on the implementation of electronic
benefit transfer (EBT) and its convergence with FIP.
Regulation, Supervision and Financial Stability : During
2011-12, the banking sector remained robust with high capital
adequacy and rising NPA levels. The NPAs, are in part, a reflection
of overall slowdown in the economy.
Currency Management : RBI continued with its efforts to
strengthen security features of banknotes and increase public
awareness to address the challenge of counterfeit notes. Coins of
denomination of 25 paise and below ceased to be legal tender from
June 30, 2011.
Payment and Settlement Systems and Information
Technology : RBI has furthered its social responsibility by enabling
payment system services at low costs by promoting systems such
as Indian Financial Network (INFINET) and Next Generation Real
Time Gross Settlement (NG-RTGS) systems.
Reserve Banks Accounts for 2011-12 (July-June)
Balance sheet expanded by 22% during the accounting year.
RBIs gross income increased by 43.4%.
The transfer of surplus profit to Central Govt. is Rs.160.10 billion
compared to Rs.150.09 billion in the previous year.

BANKING FEATURES

Banking events updatE September 2012

Banking Problems based on Ombudsman Decisions

1. Non-payment of interest on the proceeds of the cheque collected: The cheque
for retirement benefits deposited by a customer was sent for collection by the bank in the
year 2000. The credit for the cheque was not received & the customer approached the
bank. From time to time, the bank denied having received the cheque. The customer finally
obtained a photocopy of paid cheque from the issuer. It was found that the cheque was
duly debited to issuers account and the bank who received the proceeds was same bank
where the customer maintained his account. The bank credited the amount of cheque to
customers account in January 2010 but did not pay any interest on the amount despite
representation. The customer approached the BO.
BO observed that there was gross deficiency of service on part of the bank. The complainant
was a person of small means. He was deprived of his retirement benefits for 10 years. The
bank did not make any serious efforts to trace the proceeds of the cheque. The bank was
directed to pay interest at applicable fixed deposit rate plus 2% for the period till July 31,
2007. For the period from August 1, 2007 till January 1, 2010, the bank was directed to pay
interest as per its compensation policy, which was stated to be effective from August 10,
2007. The bank was also directed to pay a compensation of Rs. 10,000/- to the complainant.
2. Fraudulent ATM withdrawals - Importance of video footage: A series of
complaints were received against a few banks alleging unauthorized debits in complainants
accounts as a result of fraudulent withdrawals through ATMs. Considering the volume,
value, timing and modus operandi of disputed transactions, the bank was advised to
preserve camera footage and submit all documentary evidences relating to these
transactions. The vital evidence, which helped in taking a firm view, came through the
camera recording provided by the bank. It was observed in all the cases that, a suspicious
looking person having covered his face was in possession of multiple cards and he had made
withdrawals of Rs. 20,000 in successive transactions. In the absence of SMS alert facility,
he succeeded in withdrawing almost Rs. 40,000 every day using most of the cards till
almost entire balance in the account was withdrawn or the accounts were blocked by the
customer or bank. Video footage also revealed that he chose midnight or early morning
hours for these operations which allowed him considerable time to be alone inside the ATMs.
On one occasion he carried out almost 40 transactions in a row using more than 25 cards.
All the complainants had claimed that they had not parted with their cards and PIN details
and were in possession thereof when actual withdrawals took place. Although the banks
usual stand had been that the money cannot be withdrawn without compromising with the
security of card and PIN details, in view of the overwhelming circumstantial evidence
suggesting that the withdrawals from ATMs were of fraudulent nature, awards were issued
in all cases and banks were told to pay the complainants, amounts fraudulently withdrawn.
3. Failure to honour terms of housing loan insurance policy: The complainant
informed that her late husband had taken 2 housing loans aggregating Rs. 8.00 lakhs from
a bank. He had assigned 2 personal insurance policies (Rs. 1.00 lakh and Rs. 5.00 lakh) as
collateral securities. On advice of the bank, he also obtained a Home Loan Surksha Bima
Policy from Insurance Company in favour of the bank covering the full amount of the loan
for 15 years. The borrower expired in a road accident. His wife requested the bank to lodge
insurance claim with the Insurance Company for closure of housing loan, and return both
the personal LIC policies of her deceased husband. The Insurance Company settled the
loan for Rs. 5.47 lakh i.e. less than the outstanding amount and the bank initiated action
for recovery of balance amount from the wife. She represented that the entire amount of
loan was covered under the Home Loan Surksha Bima Policy and the balance should be
claimed from the Insurance Company.
When issue was taken up with bank, it informed that since the Insurance Company had not
settled insurance claim for full amount of loan, the bank had a right to recover balance
amount from pledged LIC policies. While examining the documents produced by bank, it
was observed that the complainant had submitted a fresh claim request addressed to the
Insurance Company for settlement of entire outstanding amount which was merely forwarded
to the Insurance Company without any supporting documents for additional claim. The
bank could not produce terms & conditions of master policy obtained from Insurance
Company. Bank submitted an annexure to Home Loan Surksha Bima circular which provided
that only the first named borrower was covered at the cost of the bank. Since premium was
paid for Rs. 8.00 lakh loan, BO advised the bank to lodge a fresh claim with the Insurance
Company duly supported by all documentary evidences. The Insurance Company settled
full balance outstanding in loan account as on the date of death of borrower and paid
balance amount of Rs. 1,13,787 to the bank. The bank was advised to waive off remaining
balance outstanding in the loan accounts which represented interest etc. levied subsequent
to death of her husband. The bank was also advised to release two LIC policies pledged to
it by the borrower and issue No due certificate to the complainant and wash out reporting
to the CIBIL, if any.

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Banking events updatE September 2012

Pension Payment - Operative guidelines

Reserve Bank of India (the Bank) monitors disbursement
of pension by its agency banks in respect of all Central
Government Departments (except the Department of Post)
and certain State Governments. The Government employees can draw their pension from a treasury or from a post
office or from the authorized banks branches.
Pension sanctioning authority - The Ministry/ Department
/Office where the Government servant last served is the
pension sanctioning authority. The re-fixation of pay, if
any, is done by the pension paying bank based on the
instructions from the concerned Central/ State Government authority. The concerned pension paying authorities in the Ministries /Departments/ State Governments
forward the PPOs to the bank branches.
Pension account : The pension can be credited to existing savings/ current account. The account can be a Joint
Account with spouse including with former or survivor
OR either or survivor operations. But power of attorney
is not permitted.
Minimum balance : RBI has not stipulated any minimum
balance condition. Individual banks have framed their own
rules in this regard.
Credited of pension to the account : The disbursement is
spread over the last 4 working days of the month except
for the month of March when the pension is credited on
or after the first working day of April.
Transfer of account : Pensioner can transfer the account
from one branch to another branch of the same bank
within the same centre or at a different centre; OR from
one authorized bank to another within the same centre
(such transfers to be allowed only once in a year) or at a
different centre.
Procedure for payment of pension on transfer of PPO to
another branch or bank : Pension will be paid for 3 months
on the basis of the photocopy of the pensioners PPO at
the transferee (new) branch from the date of the last
payment made at the transferor (old) branch. Banks are
to ensure that the required documents are exchanged
within 3 months.
Life Certificate/Non-Employment Certificate or Employment Certificate : The pensioner is to furnish a Life Certificate/Non Employment Certificate or Employment Certificate to the bank in the month of November.
Deduction of Income Tax at source from pension payment : The pension paying bank is responsible for deduction of Income Tax from pension amount in accordance
with the rates prescribed by the Income Tax authorities.
Payment of Dearness Relief at revised rate : When any
additional relief on pension/family pension is sanctioned
by the Government, the same is intimated to the agency
banks for issuing suitable instructions to their pension
paying branches for payment of relief at the revised rates
to the pensioners without any delay. The orders issued
by Government Departments are also hosted on their

BANKING FEATURES
websites and banks have been advised to watch the latest instructions on the website and act accordingly without waiting for any further orders from RBI in this regard.
Pension slips: Pension paying banks are to issue pension
slips to the pensioners in prescribed form when the pension is paid for the first time and thereafter whenever
there is a change in quantum of pension.
Redressal of grievances : A pensioner can approach the
concerned Branch Manager and the Head Office of the
concerned bank for redressal of his/her complaint or the
Banking Ombudsman of the concerned State.
Compensation for delayed credit of pension/ arrears of
pension : A Pensioner is entitled for compensation for
delayed credit of pension/arrears thereof at the fixed
rate of 8% and the same would be credited to the
pensioners account automatically by the bank on the
same day when the bank affords delayed credit of such
pension / arrears etc without any claim from the pensioner.
Other requirements :
1. Before the commencement of pension, a pensioner
has to be present at the paying branch for identification.
The paying branch shall obtain the specimen signatures
or the thumb/toe impression from the pensioner.
2. If the pensioner is physically handicapped/incapacitated and unable to be present at the branch, the bank
official is to visit the pensioners place for identification
and obtaining specimen signature or thumb/toe impression.
3. The pensioner can retain half portion of the PPO. If
there is a revision the paying branch is to call for the
pensioners half of the PPO and record thereon the
changes.
4. The paying branch can recover the excess payment
made to the pensioners account due to delay in receipt
of any material information or due to any bonafide error.
The bank also has the right to recover the excess amount
of pension credited to the deceased pensioners account
from his/her legal heirs/nominees.
5. A pensioner, who is old, sick or lost both his/her hands
and, therefore, cannot sign, can put any mark or thumb/
toe impression on the form for opening of pension account. For withdrawing the pension amount he should be
identified by two independent witnesses known to the
bank one of whom should be a bank official.
6. If a pensioner is not able to sign or put thumb/toe
impression or unable to be present in the bank : He can
put any mark or impression on the cheque/ withdrawal
form and may indicate to the bank as to who would withdraw pension amount to be identified by two independent witnesses. The person who is actually drawing the
money from the bank should be asked to furnish his/her
specimen signature to the bank.
7. The family pension commences after the death of
the pensioner (it is payable to the person indicated in
the PPO).

Financial Events

Banking events updatE September 2012

CONSUMER FORUM RULING ON ACCOUNTABILITY OF INSURER: The

National Consumer Disputes Redressal Commission has ruled that when an
insurance company accepts without demur, personal cheques of its agents,
after the agent had collected premium from the insured favouring himself in the
first instance, it can not subsequently go out of its commitment to the insured.
ADOPTION OF E-DOCUMENTS FOR EXPORTERS: Ministry of Commerce,
has asked banks to adopt the electronic bank realization certificate (EBRC) as
this will reduce transaction costs for exporters and make them competitive.
This involves electronic transmission of documents and details of foreign exchange realization on exports from banks to the Directorate General of Foreign
Trade (DGFT). Currently, exporters get a manual certificate from banks. EBRC
will not only bring down transaction costs but it will also reduce paper work.
PM ANNOUNCES ROADMAP FOR INFRA PROJECTS: The Prime Ministers
Office announced a roadmap for implementation of flagship infrastructure
projects which include 3 airports, 2 major ports and rail corridors schemes with
a view to giving a push to investments and boost growth. The ministries concerned will be required to complete the formalities for implementation of the
projects in a time bound manner and will also regularly monitor the progress.
CCI MOVES TO CURB CARTELS: The Competition Commission of India has
been taking a strong stand against cartel allegations and imposing penalties
against companies accused of cartelization. CCIs actions are in line with the
international developments, with over 120 countries adopting and enforcing
anti-competitive laws. These aim to punish agreements or restricting competiton
and entities that abuse their dominance. They also regulate mergers and
acquisitions which may have an significantly adverse effect on competition.
SERVICE TAX REVAMPED: Notifications have been issued over
operationalising the new charging section and Negative List under service tax
from July1. First, all activities except those excluded under the Negative List or
exemption notifications have been made taxable. Second, the Place of provision of service rules have been introduced to achieve a destination based tax
which is broadly in line with global VAT principles. These rules provide clarity on
the treatment of export and import of services which have been a contention
between authorities and assesses.
PM SETS UP PANEL TO REVIEW TAXATION OF DEVELOPMENT CENTRES: The Prime Minister has constituted a committee to review taxation of
development centres and the information technology sector. It is headed by
former Chairman of IRDA and CBDT Mr. N. Ragachary. The committee will
engage in consultations with stakeholders and related government departments to finalise the approach to taxation of development centres . It will also
go for sectorwide consultations and finalise the safe harbour provisions.
GOVT ASKED BANKS TO SUPPORT FARMERS IN RAIN-DEFICIT AREAS:
The Department of Financial Services in the Finance Ministry has sent a missive
to the Top Management of Public Sector Banks to gear up their branches to
support farmers in the rain-deficit areas. The local machinery-branches-will be
asked to implement in full measure , if necessary, restructuring of loans in line
with the RBI guidelines.
FOREIGN INVESTMENT NORMS EASED FOR CORPORATE DEBT: According to the present norms, downstream investment by an Indian company,
owned or controlled by non-residents, into another domestic company would
be counted towards indirect foreign investment. Thus such investment faces

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Financial
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the danger of breaching the respective sectoral

FDI cap. Department of Industrial Policy and Promotion (DIPP) has relaxed the norms in this regard. These revised norms will help the banks to
restructure loans of companies.
NHB SLASHES REFINANCE RATES FOR LOWINCOME HOUSING: The housing finance regulator, National Housing Bank (NHB) has slashed the
refinance rates on loans up to Rs.5Lakh. For housing loans up to Rs.2 Lakh, refinance rates have
been slashed from 10% to 9%. In the case of
loans of Rs.2-5 Lakh the rates have been reduced to 9.25% from 10%.
ATMs TO COME WITH MORE FEATURES: Nine
Service Providers have won auction bids to set up
a pan-India network of about 62, 000 Automated
Teller Machines (ATMs) on behalf of Public Sector
Banks. They are looking at introducing dynamic
currency converters in tourist destinations. This
facility will allow customers to transact in multiple
currencies. Value added features like airline ticketing, mobile-top-ups and talking ATMs if banks
permit. In power-deficit rural geographies, Solarpowered ATMs will be installed. Nearly 15-20% of
the total deployment will be in this category. They
also plan to provide additional services such as
utility bill and income tax payments in multiple regional languages.
GOVT. RELAXED TRANSFER POLICY FOR
GOVT-OWNED LAND: Prime Minister approved
relaxations in the transfer policy for Governmentowned land, to speed up Public-Private partnership (PPP) projects in the infrastructure sector.
The government has decided to do away with
mandatory Cabinet clearance for land transfer.
Last year, the Government had restricted ministries from clearing land transfers due to corruption charges. That resulted delays in several road,
railway, port and civil aviation projects. The approved relaxation will supersede the ban on the
transfer of Government-owned land to any entity except, if the transfer is from one government department to another.
SEBI SIMPLIFIES DIRECT MARKET TRADING FACILITY: SEBI streamlined the Direct Market Access (DMA) facility which gives the investors direct access to the stock exchanges trading
system without any manual intervention by the

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Financial Events

Banking events updatE September 2012

broker. As per new guidelines, the investors seeking to avail DMA facility
would not have to enter into a separate Broker-Client Agreement and it
would be replaced by a simpler Terms and Conditions document.
PAKISTANS CENTRAL BANK ALLOWS ITS TWO BANKS TO OPERATE
IN INDIA: Following Indias move to allow investments from the neighboring
country, Pakistans Central bank has allowed 2 banks to open branches in
India as part of efforts to normalize economic and trade relations between
the 2 countries. State Bank of Pakistans Governor said that the National
Bank of Pakistan and the United Bank Ltd, have been given the green signal
to operate in India.
RBI GIVES MFI-NBFCs LOAN PRICING FLEXIBILITY: RBI has announced
a string of regulatory relaxations, including those related to pricing of loans.
MFI-NBFCs have been allowed operational flexibility whereby the interest
rate that they can charge on individual loans can exceed the earlier cap of
26%. However, the flexibility on pricing loans comes with a caveat that the
maximum variation permitted for individual loans between the minimum and
maximum interest rate can not exceed 4%.
RBI ASKS BANKS TO RAISE CAPITAL TO MEET BASE-III NORMS: RBI
Governor asked banks to prepare to raise an additional capital of Rs.1.61.75 Lakh Crore by March 2018 in order to conform to the new Basel-III
capital adequacy norms. Basel-III is a comprehensive set of reform measures developed by the Basel Committee on banking supervision to consolidate the regulation, supervision and risk management of the sector. These
aim at propping up the banking sectors ability to absorb shocks arising from
financial and economic stress and improve risk management.
RBI LAUNCHED MOBILE SECURITY LAB: RBI inaugurated a Mobile Banking Security Lab set up by the Institute for Development and Research in
Banking Technology. The Institute established by the RBI, supports the
Indian banking Industry through innovative technology initiatives and interventions. The security Lab will explore solutions to the emerging challenges
in mobile banking and security, through research and development. Apart
from providing guidance to banks in this regard, it will train participants from
banks and financial institutions.
HIGH COURT RULING ON TAXABILITY OF SUBVENTION PAYMENTS:
Subvention payments are amounts paid by one company to another within
the same taxation group, where the payer is typically the shareholder company. Generally, such payments arise where the subsidiary company or
recipient is in the early stages of its business life cycle and has incurred
losses. The Delhi High Court has adjudicated on the taxability of such payments. It observed that such amounts are to avoid losses and liabilities, and
not for supplementing the recipients trading receipts. The payments are
thus capital in nature, not taxable under the Indian tax Laws.
SEBI DECISION ON ISIN FOR IPO OF DEBT SECURITIES: SEBI has
decided to give International Securities Identification Number (ISIN) for an
IPO of Debt Securities only on the date of commencement of trading on
Exchanges. Earlier, this was applicable only to equity securities. It was introduced after the IPO scam to prevent misuse of ISIN using off-market transfers. Depositories have been directed to freeze new securities arising out of
FPOs (Follow-on-public offers), rights and bonus issues and preferential
allotment under a temporary ISIN. SEBI said that only on receipt of final
listing/ trading permission from exchanges, depositories can assign the preexisting ISIN.
TOP BANKS FOR OPENING BRANCHES IN PAKISTAN: Top Public Sector
Banks are willing to open branches in Pakistan. These include Punjab National
Bank, State Bank of India and Bank of India. For banks such as PNB and BOI,
it would be a sort of homecoming as their roots were in Pakistan, prior to
partition. Leading in race to once again establish presence in Pakistan is PNB,
which started its journey in Lahore in 1894. Authorities in Pakistan have inprinciple agreed to such a move.
RBI ON MICRO-FINANCE INSTITUTIONS: RBI has ruled out removal of
margin cap on micro-finance institutions for now. RBI had recently, relaxed

norms for non-banking financial companies and MFIs

by allowing them to charge interest rates over 26%
on loans. Prior to this, interest rates were capped at
26% as per the Malegam Committee recommendations. RBI had also specified that the cap on margins
may not exceed 10% for large MFIs (Loans portfolio
exceeding Rs.100 Core) and 12% for others.
SEBI CLEARANCE FOR AMFIs MF TRADING
PLATFORM: SEBI has cleared the proposal for the
launch of AMFIs Mutual Fund Transaction Routing
Platform. The platform will provide investors with a
common account number so that investors can invest across schemes and fund houses using this number. The MF Utility Platform will also have a single
cheques payment system and common account statement for all the schemes that investors have invested
in, across fund houses. At present, investors need
to have to give separate cheques for making investments in each scheme.
RISK INDEX FOR CORPORATE HOUSES: Credit
Information Bureau (India) Ltd. (CIBIL), the countrys
first credit information company, is planning to expand its portfolio of services by introducing a Risk
Index for corporate and business houses. The risk
index will help Indian banks and NBFCs, most of which
are shareholders in the company, in taking quicker
decisions on extending loans to corporate and business entities. The lower the company figures in the
Risk Index, the more confidence banks will have in
their ability to service the loan.
FLEXI TIMINGS FOR RBI OFFICERS: RBI plans to
offer flexi-timings, MNC style, for its 3000-odd officers in the rank of manager and above in phases. RBI
has said that during core time bands of 11 a.m to
1p.m and 3 to 4 p.m, officers have to be in office.
Also, they will have to put in the mandatory minimum
8 hours of work a day. By allowing them the flexibility, RBI hopes productivity will improve and officers
will come up with bright ideas for the various problems, including the slowdown, rising inflation, limited
fiscal and monetary room for policy action, and the
rising bad debts of banks.
PROPERTY BUYERS TO GET ACCESS TO CENTRAL REGISTRY: The Central Registry is a shared
platform for all lending institutions to file information
on the properties against which loans have been
sanctioned. It became operational on March 31,
2011. Currently, information about 60 Lakh transactions (equitable mortgages) have been filed with the
portal, pertaining mostly deals after April1, 2011.
NHB SCRAPS PREPAYMENT CHARGE ON DUAL
RATE LOAN: The National Housing Bank (NHB) has
scrapped pre-payment penalty on dual rate housing
schemes. In case of dual rate housing loans, the
pre-closing norm for floating rate will apply once the
loan has been converted into a floating rate loan,
after the expiry of the fixed interest rate period.
This is applicable on housing loans being foreclosed
from now on. Generally, Housing Finance Companies
charge 2-4% of the loan outstanding as early repayment charges. This deters customers from closing
the loan with the existing lender and move on to

Banking events updatE September 2012 11

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cheaper loans.
SEBI FOR DRAFT PLAN ON TAX BENEFIT FOR PENSION PRODUCTS: SEBI
has asked the Mutual Fund Advisory Committee and the Association for Mutual
Funds in India (AMFI) to prepare draft plan for pension products by mutual
funds. At present, mutual funds can launch pension products, but there is no
tax benefit to the investor, unlike similar schemes from insurance companies. On
receipt of draft plan, SEBI will move Finance Ministry for providing tax benefit.
MCX GETS NOD TO LAUNCH CALENDER SPREAD TRADE IN GOLD: The
Forward Markets Commission (FMC) that regulates the commodity markets has
given MCX the permission to launch Last-traded price-based calendar spread
in gold. A calendar spread means taking opposite positions in futures contract of
the same commodity with different expiry dates.
CHINAS POSITION OF EXPORTS, IMPORTS AND TRADE DEFICT: Chinas
exports and imports slowed for the second consecutive month in July, highlighting worsening conditions in the worlds second-biggest economy. Chinas exports grew at a marginal 1% in July from a year ago to $176.9 billion. Imports
rose 4.7% year-on-year to $151.8 billion compared with the June increase of
6.3% indicating slowing domestic demand. The trade surplus narrowed to $25.1
billion from $31.7 billion in June.
INDIA TO PLEDGE FOREX FOR EXTRA WORLD BANK LOAN: On the brink of
breaching its borrowing limit from the World Bank, India is planning to pledge
Forex Reserves for extra World Bank funding. The World Bank will issue Special
placement Bonds to the RBI. Additional funding of $4.3 billion will be provided by
the World Bank in lieu of these bonds. The Forex Reserves to be pledged with
the World Bank would work like collateral.
SEBI LIKELY TO MAKE ASBA MANDATORY FOR IPO INVESTORS: SEBI is
set to make Application Supported by Blocked Amount (ASBA) mandatory for
retail investors. ASBA is an arrangement where funds remain in a retail applicants
bank account till shares are allotted to him in a public offer. At present, retail
investors have two payment options in public offers: one, by issuing a cheques
along with the IPO application form, and second, through the ASBA facility.
FINMIN TO RBI FOR PAYING INTEREST ON CRR DEPOSITS: The Finance
Ministry has suggested that the RBI pay 7% interest on CRR deposits parked by
banks with them, one among several measures proposed to lower rates even if
the Central Bank does not ease the monetary policy. The RBI had stopped
paying interest to banks on CRR in 2007. The Finance ministry is of the view that
if RBI were to pay interest at the reverse Repo rate or the rate at which banks
park their surpluses with it, the banks will be able to lower their deposit rates and
eventually lending rates will fall.
GOVT. TO BANKS FOR ONE ACCOUNT PER FAMILY: The Government has
asked state-owned banks to ensure one account per family to facilitate direct
transfer of subsidy under 32 central schemes. In a communication to public
sector banks, the Department of financial services in the Finance Ministry has
asked them to use the latest voter list as a reference for verifying that every
household has a bank account.
REPORT OF COMMITTEE ON BLACK MONEY MADE PUBLIC: The Finance
Ministry appointed committee on black money has called for expediting the
setting up of Lok Pal and Lokayukta. At the same time, the committee has
recommended among others, criminal trials for economic offences, stricter provisions for participatory notes, limiting the fiscal incentives for buying a house,
and revising the Customs Duty on gold and specialized judicial services. The
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committee, under the chairmanship of then CBDT

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RBI PANEL FOR BANKS AND POST OFFICES
AS CHANNELS FOR G-SECS: According to RBI,
bank branches and post offices could be used as
distribution channels to get retail investors to invest in government securities. The Working Group
on Enhancing Liquidity in the Government Securities and Interest Rate derivatives Markets was
headed by R. Gandhi, ED of RBI. As retail investors currently have to pay large illiquidity premium when they try to sell illiquid securities, the
Panel said that this issue could be addressed by
involving primary dealers in the market-making
mechanism.
RBI UNVEILS DRAFT GUIDELINES FOR
BANKS GROUP EXPOSURE: RBI unveiled draft
guidelines prescribing quantitative limits for banks
financial intra-group transactions and exposures
(ITEs) and prudential measures for the Non-financial ITEs. RBI has pegged banks single group
entity exposure at 5% of paid-up capital and reserves in case of non-financial services companies and unregulated financial services companies. The single group entity exposure has been
set at 10% of paid-up capital and reserves in
case of regulated financial services companies.
RBI has pegged aggregate group exposure at
10% of the paid up capital and reserves in case
of all non financial services companies and unregulated financial services companies taken together. Further the aggregate group exposure
will be 20% of the paid up capital and reserves in
the case of group (All group entities-financial and
non-financial) taken together.
INDIAS LATEST EXPORTS AND IMPORTS
POSITION: Severe sluggishness in demand led
to Indias merchandise exports falling 14.8% to
$22.4 billion in July, compared to $26.3 billion in
the corresponding period of last year. This was
the steepest fall in 35 months. Imports fell 7.78%
to $37.9 billion, against 41.1 billion in July 2011.
SEBI OVERHAULS PRIMARY MARKET: SEBI
has announced large-scale changes to rules governing the primary market to improve the reach
of IPOs, ensure higher allotment to retail investors and bring more transparency in the fundraising process. SEBI also announced steps to
reenergize the mutual fund industry, including a
higher expense ratio for increasing the reach

Accounting &
Finance 6th Edn
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Banking 6th Edn
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12

Banking events updatE September 2012

beyond the top 15 cities and also allowed fungilibility of the
expense ratio. SEBI has said that every retail applicant,
irrespective of application size, will get allotment. Under the
system, allotment will be guaranteed to small investors. SEBI
has doubled the minimum application size of all retail investors from the current Rs.5000-7000 to Rs.10,000-15,000.
PMs COUNCIL ON FDI IN MULTI-BRAND RETAIL: The
Prime Ministers Economic Advisory Council has suggested a
compromise formula to break the deadlock on allowing majority foreign direct investment in multi-brand retail. The
Council has mooted allowing FDI in multi-brand retail up to
49% for channeling transfer of capital and technology. The
Council feels that lowering the FDI from 51% to 49% will
bring more people on board.
RAJIV GANDHI EQUITY SCHEME FOR MODIFICATION:
After General Anti-Avoidance Rules (GAAR) and the Retrospective Amendment, now the Rajiv Gandhi Equity Scheme
is likely to be modified. The Finance Ministry has indicated
that investments through mutual funds could also be allowed tax incentives in the Rajiv Gandhi Equity Scheme.
According to the original proposal, investments in equity by
a first time investor will be eligible for deduction up to
Rs.25,000 from his taxable income.
CHINA TIGHTENS LENDING RULES FOR TRUSTS, CORPORATE BILL MARKET: According to the China Banking
Regulatory Commission, Chinas big 4 managers of bad loans
(so-called Asset Management companies - AMCs) will be
banned from lending directly to investment trust companies
under the pretext of acquiring bad debts. Meanwhile, continuing a clampdown on the corporate bill that began in
2011, the Peoples Bank of China (PBOC) will, from next
year, stop bankers acceptances and similar products from
being used to camouflage off-balance-sheet lending to firms.
CABINET APPROVES PRUNING OF NEGATIVE LIST FOR
SAARC TRADE: In order to facilitate trade, especially with
Pakistan,the union Cabinet approved pruning of negative
list for trade with SAARC countries. This will allow reduction
of import duties of more items under bilateral trade. The
negative list denotes items on which import duties may not
be reduced. This change is in line with the South Asian Free
Trade Agreement.
FINMIN TO BANKS TO REJIG SEB ACCOUNTS: The Finance Ministry has asked Public Sector Banks to form a consortium to restructure the accounts of the State Electricity
Boards (SEBs). The Bank with the highest exposure to the
Electricity Board concerned should take the lead and form a
consortium while restructuring the loans of the Power Boards.
In a consortium-based restructuring, Electricity Board can
not borrow from one lender to repay another. Besides, consortium lending helps banks spread the risk and all documentation is done jointly. The credit is also monitored continuously.
ACCOUNTING NORMS FOR FOREX LOSSES RELAXED:
The Corporate Affairs Ministry has allowed companies to
capitalize exchange losses, if any; to the extent such losses
represent the difference in interest rates on local and overseas borrowing. This accounting flexibility will help bolster
profits for Indian corporates that have borrowed in foreign
currency. Until now, exchange losses on foreign currency
borrowings to the extent they are regarded as adjustment
to interest cost, had to be expensed in the profit and loss
account.

RBI TIGHTENS NORMS FOR SECRITISATION OF LOANS BY

NBFCs: RBI has tightened the NBFC securitization norms by stipulating that a non-banking finance company will have to retain at
least 5% of the loan being sold to another entity. The revised
guidelines issued by RBI also stipulate that NBFC can not sell or
securitise a loan unless three monthly instalments have been paid
by the borrower. These stipulations are aimed at checking unhealthy practices and distributing risk to a wide spectrum of investors.
GOVT. COMMUNICATION TO BANKS ON SHORT TERM LOANS:
The Government has asked the Public Sector Banks to phase out all
short term loans without collaterals by January end saying these
lendings create pressure on balance sheets of banks. The banks
have also been asked to frame a policy for sanctioning short-term
unsecured loans. According to the communication from the Finance
ministry, any sanctions without security in future should have the
approval of their boards as Most of these loans are unsecured and
therefore create pressure on PSBs for keeping such accounts standard.
FM ASKED BANKS FOR PRESSURE ON REAL ESTATE DEVELOPERS: The Finance Minister has asked Heads of the Governmentowned Banks to put pressure on real estate developers to lower
property prices in order to get the economy moving. He also told
bankers to impress upon builders the need to complete projects
according to schedule and lower the prices of apartments that are
ready for possession but not getting sold.
CREDIT FROM WORLD BANK FOR EDUCATION SCHEME: The
Cabinet Committee on Economic Affairs (CCEA) approved the Ministry of Human Resource Developments proposal to get funding
from the World Bank for the Rashtriya Madhyamik Shiksha Abhiyan
Scheme. The scheme is set to get $500 million in the form of credit
from the International Development Association (IDA) of the World
Bank. Additionally, it will also get grant-in-aid worth 80 million from
the UK Governments Department for International Development
and 25 million from the European Union. The approval is for total
grant-in-aid of about Rs.3315 Core for the project implementation
period 2012-16.
RBI SCRAPS PENALTY ON PRE-PAYMENT BY CUSTOMER TO
BANKS: RBI has come down heavily on banks by charging prepayment penalty on dual rate home loans and has issued a circular
banning such penalty. Earlier, RBI had barred banks from charging
pre-payment penalty on floating rate loans, which gave customers
the incentive to shift their loans from one bank to another, to take
advantage of the interest rate differential. Previously, RBI guidelines had not clarified if such a levy can be applicable on dual rate
home loans.
CENTRAL BANKS HIT HIGHEST RECORD OF GOLD PURCHASE:
According to the World Gold Council, gold purchases by the Central
Banks of various countries have hit a record high of 158 tonnes in
the June quarter. This is the Highest since Central Banks became
net purchasers in the second quarter of 2009 and more than double
the 66 tonnes purchased in the same quarter last year. The buoyant
demand from the Central Banks was in contrast to that of jewellery
and investment sectors.
PSUs TO DISCLOSE FINANCIAL IMPACT OF GOVT. LARGESSE:
The Standing Committee on Finance, headed by Yashwant Sinha,
has recommended that the financial impact of all Government directives on a public sector undertaking should be disclosed in the Board
of Directors Report of the PSU. Such a move would be in the interest of functional autonomy and operational efficiency of the PSU.
Such disclosure would also minimize government interference in the
management of PSUs.

Banking events updatE September 2012 13

State Bank of India raised $1.25 billion from

an overseasdollar-denominated bond sale.
This is the largest single-tranche offering
by a public sector bank from India.
Mr. Arvind Mayaram is the new Economic
Affairs Secretary. He succeeds Mr. R.
Gopalan who retires on July 3.
SBI, Drass under Chandigarh Local Head
Office (LHO) has become the First Bank in
the country to install an ATM at Drass
(Kargil) J&K to serve the locals as well as
soldiers guarding the frontiers in the coldest inhabited place in the hostile terrain of
Kargil/ Drass Sector.
British Financial Sector Regulator FSA has
entered into a fresh agreement with the
RBI for mutual assistance and information
exchange in supervision of banks operating in both the countries.
As per WTO Report, India has overtaken
China in exports growth rate recording an
increase of 16.1% in 2011.
Punjab National Bank marches ahead of
the countrys Largest private-sector lender
ICICI Bank in terms of total business though
it witnessed lesser increase in profit during
the quarter ended June 30.
The Central Bureau of Investigation has
given a clean chit to Public Sector Banks
that had given huge loans to operators who
secured telecom licences in 2008.
Private Sector lender HDFC Bank surpassed
state-owned State Bank of India as the
Most Valued Bank in terms of market capitalization for the First Time since January.
India has become the First Country in the
World to introduce National Standards for
organic textiles.
Prime Minister has asked the Parthsharti
Shome panel to look into the applicability of
the tax avoidance rules on past deals cut
by FIIs and portfolio investors.
Americas Oldest General Store, opened
one year before George Washington was
sworn in as the First President of the US,
has shut down after serving the community for 224 years.
China allowed more international investors
to buy bonds on the nations largest debt
market and purchase higher-yielding notes
for the First Time. Participants in the QFI
investor programme would now be allowed
to buy bond on the internet market.
According to the RBI, more than Rs.2400
Core is lying as unclaimed deposits in the
over one Crore bank accounts across the
country.
The Consumer Price Index (CPI) based inflation for industrial workers stood at
10.05% in June this year. This was lower
than the CPI-IW level of 10.16% in May
2012.

GENERAL AWARENESS
BSE launched an arbitrage product
called Cash Futures Spread (CFS) on
August 6. This instrument will trade the
price differential between cash and
futures market.
Indian economist Abhijit Banarjee is
among the 26 people who have been
named by the UN Secretary General
Man-Ki-Moon as members of a highlevel panel to resolve the World Body
on the Global Development Agenda
beyond 2015, the target date of the
Millennium Development Goals.
Ms Shyamala Gopinath, former RBI
Deputy Governor, has been appointed
as the Chairperson of Clearing Corporation of India Ltd (CCIL). Shri R.
Sridharan, former MD of SBI, has been
appointed as the MD of CCIL.
India is likely to have a Sovereign
Wealth Fund with an initial corpus of
Rs.1000 Crore to buy natural resource
assets such as coal blocks abroad. The
Fund could be a Trust or a Company
like the Specified Undertaking of the
Unit Trust of India.
According to the National Bureau of
Statistics, Chinas official factory Purchasing Managers Index slipped to
50.1 points in July, a slight drop from
50.2 points in June but also the lowest
figure in the last 8 months.
Google Inc acquired marketing startup Wildfire to help the Worlds Largest
Internet Search Company expand further into social media. Wildfire provides
software that links to Facebook, Twitter, Linkedin, Pinterest and other social networks, allowing customers to
manage their online brand/presence.
According to the Prime Ministers Economic Advisory Council, Indias GDP in
2012-13 is likely to be slightly higher
than 6.5%. Recently RBI had revised
downwards the growth projection for
2012-13 to 6.5% from 7.3%.
RBIs latest Consumer Confidence Survey for the June quarter indicates that
nearly three-fourths (74.8%) of Indian Consumers feel that current interest rates of bank loans are high,
while 77.2% say their deposits do not
attract enough interest.
Turkeys Ziaat Bank will use Tata
Consultancy Services Core Banking
Platform (TCS BaNcs) for international
growth.
RBIs cap on loan-to-value at 60% for
gold loan has hit NBFCs first quarter

results. The companies were lending almost

80-85% of the value of gold till the RBI
directives in March 2012.
India may lose its position as the SecondLargest Cotton Exporter in the coming
season starting October on weak global
demand and deficient monsoon. As per US
Department, Agriculture, India could slip
to the 4th position in cotton exports with
Brazil and Australia gaining.
Government plans to approve 3 more National Manufacturing and Investment Zones
(NMIZs). After green signal by the Govt.,
the number of NMIZs will go up to 12.
The people can now directly connect with
the President of India (Pranab Mukharjee)
through the revamped official Web site of
the President of India that allows people
to write to him.
The HSBC Purchasing Managers Index
(PMI) for Services was at three-month low,
but still held up at 54.2 points in July.
The MCX Stock Exchange (MCX-SX) has
been granted permission to launch currency
options on its platform by SEBI and RBI.
IRDA is set to increase equity exposure
for Life Insurance Corporation in a single
company to 20% from 10% now.
According to the Data Centre Risk Index,
Indias rank in a 30 country index is as low
as 29 for the risks likely to affect successful data centre operations.
Private Sector Lenders have turned down
a finance ministry proposal that banks
should form a Group and enter into a joint
lending agreement to corporate loans
above Rs.150 Crore. Except for six large
banks, others were not allowed to lend
more than Rs.150 Core to a single entity.
The Finance Ministry is planning a uniform
performance-linked incentive scheme in all
PSU Banks. Banks will have to give 100%
incentive to those meeting targets, against
the current practice of incentivising the top
25% performers, even if they miss the target.
Global Ratings Firm FITCH has revised the
outlook for the Indian Retail Sector for the
second half of 2012 to Negative from
Stable due to a sustained fall in discretionary spending ability of consumers,
which, according to them, is unlikely to improve over the short term.
RBI has allowed banks to lend to Telecom
Companies using Spectrum as collateral,
though on conditions.
According to the Equity Research Report,
in terms of concentration risk, the Indian
Banks ranked Higher than most of their
Asian and BRIC Peers.
The Central Board of Trustees allowed
EPFO to park its funds in fixed deposits up

14

Banking events updatE September 2012

DIARY OF EVENTS

to 5- years, short term securities and certificate of deposits of PSBs.

According to the Minister of Corporate Affairs, India will implement internationally accepted reporting rules, IFRS, from April1,
next year. Currently, the US, Japan and India are the 3 main economies that have not
adopted IFRS.
Board of Directors of India Mortgage Guarantee Corporation (IMGC) has elected
R.V.Verma as Chairman of the company. Mr.
Verma is currently CMD of National Housing
Bank (NHB), which has a stake of 38% in
IMGC.
The norms for selecting Public Sector Banks
Chiefs are likely to be tweaked again. The
Finance ministry has proposed to remove
from the guidelines a clause on the lateral
movement of small and mid-sized banks
Heads to large banks.
The Central Bank of England cuts annual
GDP growth to 2% in two years, compared
with a projection of 2.5%. It also brought
consumer-price-growth at about 1.6% by
then, below its 2%.
RBI will shortly issue 5-rupee coins in their
new shape and size. The obverse of the
coin shall bear the lion capital of Ashoka pillar with the legend Satyamev Jaitey , inscribed below.
A number of foreign institutional investors
(FIIs) have surrendered licences following
the SEBIs drive to identify funds belonging
to the same group.
The Government has issued the order for
appointment of Raghuram G. Rajan as the
new Chief Economic Advisor. He will succeed
Kaushik Basu, who demitted the office on
July31.
British Regulatory Authorities are preparing
to overhaul LIBOR, the now discredited inter-bank lending rate that serves as a benchmark for the pricing of trillions of dollars of
assets globally.
The Appointment Committee of the Cabinet
has given its nod for Praveen Mahajan to be
a full-fledged Chairperson of the Central
Board of Excise and Customs (CBEC). She is
the First Lady ever to head the HighestPolicy-Making Body on Indirect Taxes.
Hamid Ansari, Indias 12th Vice-president is
only the Second person after Sarvepalli
Radhakrishnan to get a second term.
Sushil Kumar became the First Indian
Sportsperson to win back-to-back Individual
Olympic Medals, having won a bronze at the
Beijing Games in 2008.
Ganjam became the First District in Odisha
to complete the first phase of the district
project, with the computerization of all its
23 tehsils and 199 revenue inspector circles.
Compilation : SP Sharma & Sapandeep Toor

The Standing Committee on Finance,

headed by BJP Leader Yashwant Sinha,
is in favour of making Corporate Social
responsibility (CSR) mandatory for companies. It is also to be ensured that
corporates spend 2% of their net profit
of CSR activities.
According to SEBI, Aadhar letter issued
by Unique Identification Authority of
India is admissible as proof of address.
The Board of State Bank of India has
given its approval for merger of Associate banks. Previously, SBI had merged
State Bank of Saurashtra with itself in
2008 and State Bank of Indore in 2010.
Wholesale price-based inflation stood
at 6.87% for July against 9.36% in
July last year. In June, the inflation
rate was 7.25%.
Father of the constitution
B.R.Ambedkar was voted as the
Greatest Indian in a poll spearheaded
by History TV18 and CNN IBN. Nearly 2
Crore votes were cast, making him the
Most Popular Indian Figure since the
launch of the initiative.
According to RBI, India lent about $221
million to three heavily indebted European Countries Ireland, Portugal and
Greece in the six months ended March
2012.
Bombay High Court has become 150
years old on 14th August 2012.The High
Court was established on 14th August
1862 under Indian High Courts Act
1861, enacted by the British Parliament. It was established under the
Patent of the Queen of England.
The Government has reappointed
K.C.Chakrabartys as Deputy Governor
of RBI till June 30, 2014.
The Sacred Lamp at Vaishnavite
Monestry in Jorhat Distt. (Assam) which
has been burning continuously past
484 years was formally recognized by
Asia Book Of Records.
A Group of Taiwanese farmers have
set a new World Record by transplanting 2.1 hectares of rice in just 16 minutes and 20 seconds.
According to the Finance Ministry, Public Sector Banks have to explore the
feasibility of setting up a Bank-wide
Portal for best services in various areas. Through such Portal, the customers can avoid the tedium of visiting the
branches of various banks or surfing
their web-sites, saving much time and
energy.
Foreign Direct Investment inflows into
Indias services sector declined by 18%

to $745 million (About Rs.4134 Core) during April-May this Fiscal due to uncertain
global economic conditions.
Over 3.5Lakh BPL and poor families will
get free LPG Cylinder and gas stove under the scheme launched by the Delhi
Chief Minister and it will make Delhi First
Kerosene-free City in the Country.
The Oldest Sibling, Consolata, is 104 old
and has 9 children, 24 grand-children and
25 great grandchildren and the longevity
of the Melis had been recognized as a
Guinness World Record.
The Finance Ministry and RBI have asked
the Public Sector Banks not to bid for bulk
deposits-a phenomenon that becomes
rampant during quarter ends when banks
rush for funds to meet targets, leading
to a spike in short term rates.
The Finance Ministry and RBI are considering a proposal under which banks could
treat escrow accounts as collateral for
projects where annuities are not backed
by a government guarantee.
Poonam Kishore Saxena has taken over
charge as Chairperson of the Central
Board of Direct Taxes (CBDT). Now both
CBDT and CBEC are headed by women.
According to the Finance Minister, under
the WTO, India is committed to allowing
foreign banks to open 12 branches in a
year. 7 Foreign Banks have been given
approval to open new branches in 2012.
The Union Cabinet cleared the conversion of optionally convertible debentures
(OCDs) of Rs.923 Crore held by the Government in IFCI into Equity. The conversion option will be exercised immediately,
paving the way for Industrial Finance
Corporation of India (IFCI) to be Government Company.
According to the Business Survey in UK,
the Euro Zone looks destined for its second recession in three years that showed
the economic rot is even spreading
through Germany, the Regions Largest
and Strongest Economy. The composite
Markits Purchasing Managers Index
(PMI), which measures manufacturing and
services together, nudged up to 46.6,
seventh month below 50, the dividing line
between contraction and growth.
Housing finance Companies have been
allowed by the Government to tap External Commercial Borrowings (ECB) route
for affordable dwellings.
The Castle Naggar, Himachal Pradesh
Tourism Development Corporations prime
hotel in Kullu valley has been given Heritage Status. The hotel was built in the
16th century.

Source : Financial Newspapers, Financial News-Magazines & Financial and Institutional Web-sites

MOCK-TEST
PAPER
Questions on Latest RBI Policy
01 A and B got an FDR issued with
Either or Survivor mandate signed
by them jointly. B died before
maturity and A wants to obtain the
payment before maturity. Z is the
nominee in the account. The
payment shall be made on request
of:
a A alone
b A and nominee jointly
c A and legal heirs of B jointly
d A, nominee and legal heirs of B jointly
02 A and B got an FDR issued with
Either or Survivor mandate signed
by them jointly. B died before
maturity and A wants to obtain the
payment after maturity. Z is the
nominee in the account. The
payment shall be made on request
of:
a A alone
b A and nominee jointly
c A and legal heirs of B jointly
d A, nominee and legal heirs of B jointly
03 As per RBI guidelines, the banks can
offer differential interest rate on
single FDR of Rs.15 lac and above.
The variation in interest rate on such
FDR compared with FDR of less than
Rs.15 lac, can be maximum:
a 2%
b 1%
c at discretion of bank for
corresponding maturity
d at discretion of bank, but should be
minimal for corresponding maturity.
04 In case of collection of local
cheques, banks are required to
permit usage of the shadow credit
afforded to the customers account
immediately after closure of relative
return clearing and in any case,
withdrawal shall be allowed on
_________ subject to usual
safeguards.
a next day
b same day or next day
c same day or within an hour of the

commencement of business on
the next working day.
d same day or immediately on the
commencement of business on
the next working day.
05 If cheque collection policy of a
bank does not provide for rate of
interest payable on the delayed
collection of local cheques,
compensation is to be paid to
customer at ____ for the
corresponding period of delay:
a FD rate of interest
b saving bank rate of interest
c bank rate
d base rate of the bank
06 Taking into consideration the
availability
of
processing
infrastructure for clearing
outstation cheques at all clearing
locations across the country and
to bring about further efficiency
in cheque clearing, all CBS enabled
banks have been advised by RBI
to issue only ____________ to all
eligible customers.
a payable at par only
b multi-city only
c multi-city CTS 2010 standard
cheques only
d payable at par or multi-city CTS
2010 standard cheques
07 What is the minimum balance that
the banks can stipulate in a basic
saving bank deposit account:
a no such condition can be imposed
b Rs.10
c Rs.100
d Rs.200
08 In a basic saving bank deposit
account which of the following
service can be allowed: (1) deposit
and withdrawal of cash at bank
branch as well as ATMs; (2)
receipt/credit of money through
electronic payment channels (3)
by means of deposit/collection of
cheques drawn by Central/State
Government agencies and
departments
a 1 only

Disclaimer : We have taken every care to provide information, we believe to be accurate

and reliable and do not assume responsibility of any kind nor shall be liable for losses &
consequence arising from use thereof. Since this information is based on the published
reports mostly, correctness or otherwise thereof may be verified by the user with the
original sources, in advance. .......................................................................Editor

Banking events updatE September 2012 15

b 1 and 2 only
c 1 to 3 all
d 2 and 3 only
09 In a basic saving bank deposit
account what is the maximum no.
of deposit and cash withdrawal
(including ATM) transactions:
a no such ceiling can be imposed
b 2
c 4
d 10
10 If a basic saving bank deposit
account is opened as a small
account as per KYC guidelines of
RBI, which of the following
conditions, will not be applicable (1)
max balance can be Rs.50000 (2)
max credit in a financial year can
be Rs.1 lac (3) per month
withdrawal or transfer is restricted
to Rs.10000
a no such condition is applicable
b only 1 and 2
c only 2 and 3
d 1 to 3 all
11 Which of the following types of
deposit accounts can be opened
by banks:
a basic saving bank deposit account
b no frill saving bank account
c no frill current account
d all the above type of accounts can
be opened
12 Out of pocket expenses courier/
dispatch
of
documents,
telecommunications and Swift
operations, recovered by banks are
prescribed by:
a Indian Banks Association
b at discretion of banks
c Reserve Bank of India
d Ministry of Finance
13 Statutory Liquidity Ratio (SLR) for
Scheduled Commercial Banks has
been reduced from _____ of their
Net Demand and Time Liabilities
(NDTL) to _______ with effect
from the fortnight beginning
August 11, 2012.
a 5% to 4.75%
b 7.5% to 7%
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16 Banking events updatE September 2012

c 25% to 24%
d 24% to 23%
14 What is the extent of foreign
exchange earning, that can be
deposited by the Exporters in EEFC
account:
a 100%
b 70%
c 50%
d 15%
15 As per RBI guidelines, the sum total
of the accruals in the EEFC account
or RFC (D) account or Diamond
Dollar Account, during a calendar
month should be converted into
Rupees __________, after
adjusting for utilization of the
balances for approved purposes or
forward commitments.
a on or before the last day of the
month
b on or before the last day of the
succeeding calendar month
c after the last day of the succeeding
calendar month
d after the last day of the current
calendar month
16 Banks can allow exporters to cancel
and rebook forward contracts to
the extent of _____ of the
contracts booked in a financial year
for hedging their contracted export
exposures.
a 100%
b 50%
c 25%
d 10%
Questions on Pension payments

17 Which of the following accounts

can be used by the govt.
pensioners for credit of their
pension? (1) existing saving bank
account can be used (2) existing
current account can be used(3)
new current account opened for
the purpose of pension (4) new
saving bank account opened for
the purpose of pension
a 1 to 4 any
b 3 and 4 only
c only 4
d only 2 and 4
18 Pension account can be:
a only a single name account in the
name of pension
b a joint account with the spouse to

be operated as former and survivor

only
c a joint account with the spouse to
be operated as either and survivor
only
d joint account with the spouse to
be operated as either or survivor
OR former and survivor OR jointly
operated account
19 What is the time limit during which
the pension should be credited in
account of the pensioner?
a it should be by last day of each
month
b it can be spread over last 4 working
days of the month and for March,
on or first working day of the next
month
c it should be credited on or after
first working day of the next month
d it can be spread over last 4 calendar
days of each month and for March
on or first working day of the April
next
20 If excess amount has been
credited to deceased pensioners
account:
a it can be recovered from the
account
b it cannot be recovered from the
account
c it can be recovered from the legal
heirs or nominee
d it can be recovered from legal heirs
only
21 The pensioner is required to furnish
to the bank (1) Life Certificate (2)
NonEmployment Certificate (3)
Employment Certificate in the
month of November every year.
a 1 to 3, whichever is applicable
b only 1
c 1 or 2 only
d 1 and 2 only
22 Which of the following is not
permitted in a pension account?
a operations by a power of attorney
holder
b cheque book facility
c acceptance of standing instructions
d all the above
23 A pensioner is old, sick or has lost
both his/her hands and, therefore,
cannot sign, wants to open a
pension saving bank account: (1)
he can put any mark on the form

for opening of pension account (2)

he can put thumb impression on
the form for opening of pension
account (3) he can put toe
impression on the form for opening
of pension account (4) he cannot
open such account.
a only 4
b only 2
c only 1 and 2
d any of 1 to 3
24 A Pensioner is entitled for
compensation for delayed credit of
pension/arrears thereof at ______
and the same would be credited
to the pensioners account
automatically by the bank on the
same day when the bank affords
delayed credit of such pension /
arrears etc. without any claim from
the pensioner.
a the saving bank rate
b the FDR rate of corresponding
maturity
c the fixed rate of 8%
d the base rate of the bank
Questions on CRR and SLR
25 RBI prescribes cash reserve ratio
(CRR) under which of the
following?
a Section 24, Banking Regulation Act
1949
b Section 42 (1), Banking Regulation
Act 1949
c Section 24, RBI Act 1934
d Section 42 (1), RBI Act 1934
26 The minimum and maximum (i.e.
floor and ceiling) CRR can be fixed
by RBI at _____% and ____ of net
demand time liabilities, respectively:
a RBI can fix without any floor or
ceiling
b no minimum, max 20%
c no minimum, max 40%
d min 3%, max 15%
27 For the purpose of demand and
time liabilities to calculate CRR,
which of the following is a demand
liability (1) current account balances
(2) overdue FD balance (3) term
deposit portion of saving bank (4)
margin held against LC or Bank
guarantee:
a 1 to 4 all
b only 1 and 2
c only 1, 2 and 4

d only 1, 2 and 3
28 Which of the following liability does
not form part of demand and time
liabilities for the purpose of CRR and
SLR (1) amount received from ECGC
or DICGC against claim and pending
adjustment thereof (2) paid-up
capital and reserves of the bank (3)
certificate of deposit (4) loan or
refinance from RBI / SIDBI / NABARD
/ NHB:
a 1 to 4 all
b 1, 2 and 4
c 1, 2 and 3
d 1, 3 and 4
29 Banks are exempted from
maintaining CRR on which of the
following group of liabilities:
a balances in FCNR-B accounts, credit
balance in ACU accounts, demand
and time liabilities in respect of offshore banking units
b liabilities towards the banking
system, credit balance in ACU
accounts, demand and time liabilities
in respect of off-shore banking units
c liabilities towards the banking
system, credit balance in ACU
accounts, balances in FCNR-B
accounts
d balances in FCNR-B accounts, liabilities
towards the banking system,
demand and time liabilities in respect
of off-shore banking units
30 CRR balances are maintained with
RBI as :
a average daily required balance, for
a reporting fortnight, on all days of
the fortnight
b minimum daily required balance, for
a reporting fortnight on all days of
the fortnight
c average daily required balance, for

a reporting Friday on all days of the

fortnight
d average daily required reserve for
a reporting month
31 The minimum balance in CRR
account with RBI should be ____
% of average daily required
reserve, for a reporting fortnight
on all days of the fortnight:
a 15%
b 25%
c 50%
d 70%
32 On CRR balances maintained with
RBI, banks get ______ rate of
interest with effect from the
fortnight beginning Mar 31, 2007:
a saving bank
b nil
c bank rate
d repo rate
33 Under Section 42 (2) of RBI Act,
the banks are required to submit
to RBI, a return for CRR purpose,
on Form A, within _____ days from
expiry of the relevant fortnight:
a provisional return within 3 days and
final return within 15 days
b provisional return within 3 days and
final return within 20 days
c provisional return within 7 days and
final return within 20 days
d provisional return within 7 days and
final return within 15 days
34 If minimum CRR balance of 70% is
not maintained on a daily basis, the
rate of interest that RBI recovers
for the period of default, is:
a 3% + bank rate for first day and
5% + bank rate for subsequent
period.
b 3% + Repo rate for first day and

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Banking events updatE September 2012 17

5% + Repo rate for subsequent
period.
c 3% + saving bank rate for first day
and 5% + saving bank rate for
subsequent period.
d at RBI discretion
35 RBI prescribes statutory liquidity
ratio (SLR) under which of the
following?
a Section 24, Banking Regulation Act
1949
b Section 42 (1), Banking Regulation
Act 1949
c Section 24, RBI Act 1934
d Section 42 (1), RBI Act 1934
36 The minimum and maximum (i.e.
floor and ceiling) SLR can be fixed
by RBI at _____% and ____ of net
demand time liabilities, respectively:
a RBI can fix without any floor or
ceiling
b no minimum, max 20%
c no minimum, max 40%
d min 3%, max 15%
37 SLR is maintained in the form of
specified liquid assets as a
percentage of net demand and
time liabilities as on:
a last day of the respective month
b last Friday of the second preceding
fortnight
c last day of the second preceding
fortnight
d at discretion of the concerned bank
38 SLR is maintained in the form of
specified unencumbered assets,
the value of which is taken on :
a daily basis
b weekly average basis
c fortnightly average basis
d monthly average basis
39 For SLR purpose, the investment

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18 Banking events updatE September 2012

SUBSCRIPTION FORM

in which of the following

unencumbered instrument is
treated SLR securities (1) dated
securities (2) treasury bills including
cash management bills issued by
Govt. of India (3) State
development loans of State Govt.
a 1 to 3 all
b 1 and 2 only
c 1 and 3 only
d 2 and 3 only
40 If a bank fails to maintain SLR, the
rate of interest that RBI recovers
for the period of default is:
a 3% + bank rate for first day and
5% + bank rate for subsequent
period.
b 3% + Repo rate for first day and
5% + Repo rate for subsequent
period.
c 3% + saving bank rate for first day
and 5% + saving bank rate for
subsequent period.
d at RBI discretion
41 Return regarding SLR is required to
be submitted by banks to RBI on
Form VIII under Banking Regulation
Act, on _____ basis within _____:
a monthly, 10 days
b monthly, 20 days
c quarterly, 20 days
d fortnightly, 10 days
42 Which of the following statement
regarding impact of change in CRR
is correct:
a increase in CRR increases liquidity in
the banking system
b decrease in CRR decreases liquidity
in the banking system
c decrease in CRR increases liquidity
in the banking system
d increase or decrease in CRR has no

impact of change in liquidity position

of the bank
43 Which of the following statement
regarding impact of change in SLR
is correct:
a increase in SLR reduces liquidity in
the banking system
b decrease in SLR increases liquidity
in the banking system
c increase or decrease in SLR
increases the amount of cash and
loans
d increase or decrease in SLR changes
the deployment pattern of available
funds
Case studies questions for CAIIBBank Financial Management
Problem: Modern Bank has the
following assets liabilities (other than
capital and reserves) in its balance
sheet: current deposits Rs.500 cr,
saving bank deposits Rs.1000 cr,
term deposits Rs.3000 cr, cash in
hand Rs.300 cr, call money Rs.400
cr and cash credit loans Rs.4000 cr.
There is change in interest rates as
under: saving bank - increase from
3.5% to 4%, FD - from 7.5% to
8.5%, call money - from 5% to 6%
and cash credit - from 12% to
12.5%
44 Calculate the adjusted gap in repricing assets and liabilities:
a Rs.200 cr negative
b Rs.200 cr positive
c Rs.400 cr negative
d Rs.400 cr positive
Explanation: Adjusted gap = (SB +
FD) (Call money + Cash credit) =
(1000 + 3000) (400 + 4000) = 400. Current account and cash not
to be taken, as these are not
subject to repricing.

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Infotech and Financial Services. PERIOD from ________ to________
( Old Subscn No. _______ )

45 On the basis of change in interest

rate, calculate the amount of repricing liabilities, as per standard gap
method in re-pricing assets and
liabilities.
a Rs.3000 cr
b Rs.3500 cr
c Rs.2500 cr
d Rs.2400 cr
Explanation: Repricing liabilities = (SB
+ FD) = 1000 x 0.5 + 3000 x 1 =
500 + 3000 = 3500 cr.
46 On the basis of change in interest
rate, calculate the amount of repricing assets, as per standard gap
method in re-pricing assets and
liabilities.
a Rs.3000 cr
b Rs.3500 cr
c Rs.2500 cr
d Rs.2400 cr
Explanation: Repricing assets = (Call
money + cash credit) = 400 x 1 +
4000 x 0.5 = 400 + 2000 = 2400
cr.
47 On the basis of above information,
calculate the standard gap of the
bank in re-pricing assets and
liabilities:
a 1000 cr negative
b 1000 cr positive
c 1100 cr negative
d 1100 cr positive
Explanation: Repricing liabilities = (SB
+ FD) = 1000 x 0.5 + 3000 x 1 =
500 + 3000 = 3500 cr.
Repricing assets = (Call money + cash
credit) = 400 x + 4000 x 0.5 =
400 + 2000 = 2400 cr.
Gap = 3500 2400 = 1100 cr
negative (liabilities more than
assets)
Problem: International Bank purchased
8% govt. securities, with face value
of Rs.1000 at Rs.1060 each for
8.5% yield. Due to change in yield
to 9%, the value of the securities
declined to Rs.1020.
48 On the basis of above information,
calculate change in basis point value
for each basis point increase in the
yield.
a Rs.40
b 50 paise
c 80 paise

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Banking events updatE September 2012 19

d inadequate information
Explanation: Change in value /
change in yield = (1060-1020) /
(9.00 8.50) = Rs.40 / 50 basis
points = 80 paise
49 If there is increase in yield by 100
basis points, instead of 50 basic
points as above, during this period,
what will be price of security:
a Rs.960
b Rs.980
c Rs.1040
d Rs.1080
Explanation: Change in basis point
= Change in value / change in yield
= (1060-1020) / (9.00 8.50) =
Rs.40 / 50 basis points = 80 paise.
Change for 100 basis points = 80
p x 100 = Rs.80. Value = Old price
change = 1060- 80 = 960
50 The bank decides to sell the
security immediately, to stop the
loss. How much it will lose on the
sale transaction ?
a Rs.20 per bond
b Rs.30 per bond
c Rs.40 per bond
d inadequate information.
Explanation: Loss = purchase price
current value at which it can be
sold = 1060 1020 = Rs.40
Problem : Commercial Bank advanced
a term loan of Rs.20 cr to Delhi
Corporation. As per terms of the
loan, there will be a moratorium
period of one year before the
repayment starts. The repayment
period will be 7 years after
moratorium. The loan has been
funded out of fixed deposits of (1)
Rs.10 cr with 5 years maturity
period, (2) Rs.5 cr with 3 years and
(3) Rs.5 cr with 2 years maturity
period. The borrower can prerepay the loan at his discretion.
The depositors also have the option
to withdraw the deposit before
maturity. Bank has also issued a
performance bank guarantee on
behalf of the borrower for Rs.60
lac. Based on this information,
answer the following questions?
51 If fixed deposit is withdrawn before
maturity or it is not renewed on
maturity, the bank will require new
sources to keep funding the term
loan. This situation in risk

terminology is called:
a call risk
b funding risk
c time risk
d basis risk
52 If loan instalment is not paid on time
by the borrower after the FDRs
mature, bank will be requiring
additional resources to make up the
short fall. It is called:
a call risk
b funding risk
c time risk
d basis risk
53 In case the borrower fails to
perform the obligation under bank
guarantee and the bank is asked
by the beneficiary to pay the
amount. This will be known as:
a call risk
b funding risk
c time risk
d basis risk
54 There is maturity mismatch
between the term loan and
deposits, used to fund the term
loan. This can result into which of
the following type of risk:
a credit risk
b market risk
c operational risk
d liquidity risk
55 In case the borrower defaults and
the loan account becomes a nonperforming advance, there is:
a credit risk
b market risk
c mismatch or gap risk
d liquidity risk
56 In this case, the term loan has
been funded from FDRs of different
amount and of different maturities.
There will be early re-pricing in case
of deposits which may create
unexpected change in interest
margin. This is called:
a credit risk
b market risk
c mismatch or gap risk
d basis risk
57 If term loan and FDRs are at
floating rate of interest, the
interests will change in different
magnitude over a time period,
which will affect the net interest

margin. Such risk is called:.

a credit risk
b embedded option risk
c mismatch or gap risk
d basis risk
58 As per terms of the agreement,
the borrower can pre-pay the loan
and the depositors are allowed to
withdraw the FDRs before
maturity. This is exposes the bank
to:
a reinvestment risk
b embedded option risk
c mismatch or gap risk
d basis risk
59 When repayment of term loan
begins after one year, bank will be
required to invest these funds at
different interest rates. This
exposes the bank to :
a reinvestment risk
b embedded option risk
c net interest position risk
d basis risk
60 If the term loan was partly funded
from current account balances, the
net interest income of the bank
will decline, if there is downward
movement of interest rates. This
exposes the bank to:
a reinvestment risk
b embedded option risk
c net interest position risk
d basis risk
61 In this case, if the borrower makes
use of the term loan for a different
purpose, exposing himself and the
bank to loss, this is called:
a credit risk
b operational risk
c default risk
d counterparty risk
Answers
01
06
11
16
21
26
31
36
41
46
51
56
61

a
d
a
c
a
a
d
c
b
d
b
c
b

02
07
12
17
22
27
32
37
42
47
52
57

a
a
b
a
a
c
b
b
c
c
c
d

03
08
13
18
23
28
33
38
43
48
53
58

d
c
d
d
d
b
c
a
d
c
a
b

04
09
14
19
24
29
34
39
44
49
54
59

c
c
a
b
c
b
a
a
c
a
d
a

05
10
15
20
25
30
35
40
45
50
55
60

b
d
b
c
d
a
a
a
b
c
a
c

Registration RNI No. 67802/98

20 Banking events updatE September 2012

Postal Regn No.CHD / (0001) 2012-14

Licensed to be Post Without Prepayment at BPO Centre, PO Sector 17, Chandigarh

DATA COLUMN

Asian Clearing Union

ACU was established with its head quarters at Tehran (Iran), on Dec 9, 1974
at the initiative of the United Nations Economic and Social Commission for
Asia and Pacific (UNESCAP), for promoting regional co-operation. The main
objective is to facilitate payments among member countries for eligible
transactions on a multilateral basis, thereby economizing on the use of
forex reserves/transfer costs & promote trade.
Members : The Central Banks / Monetary Authorities of Bangladesh, Bhutan,
India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka.
ACU transactions by Authorised Dealers (AD) in India : All transactions to
be settled through the ACU will be handled by AD Category-I banks in the
same manner as other normal forex transactions, through correspondent
arrangements.
Unit of settlement of ACU transactions : The Asian Monetary Units (AMUs)
is the common unit of account of ACU and is denominated as ACU Dollar
and ACU Euro, which is equivalent in value to one US Dollar and one Euro
respectively. All instruments of payments under ACU have to be denominated in AMUs. Settlement of such instruments may be made by AD Category-I banks through the ACU Dollar Accounts and ACU Euro Accounts,
which should be distinct from the other US Dollar and Euro accounts respectively maintained for non ACU transactions.
Procedure for settlement of ACU transactions:
i) Majority of transactions should be settled directly through the accounts
maintained by AD Category-l banks with banks in the other participating
countries and vice versa; only the spill-overs in either direction are required to be settled by the Central Banks in the countries concerned
through the Clearing Union. At all times, the balances maintained in the
ACU Dollar and ACU Euro accounts should be commensurate with requirements of the normal business.
ii) AD banks can settle commercial and other eligible transactions in much
the same manner as other normal foreign exchange transactions.
Opening of ACU Dollar and ACU Euro Accounts by AD Category-1 banks, in
the name of all banks in all member countries including Pakistan without
the prior approval of RBI : It is permissible.
Transactions eligible to be settled through the ACU:
i. from a resident in the territory of one participant to a resident in the
territory of another participant;
ii. for current international transactions as defined by the Articles of
Agreement to the International Monetary Fund;
iii. permitted by the country in which the payer resides;
iv. not declared ineligible
v. for export / import transaction between ACU member countries on
deferred payment terms.
Trade transaction with Myanmar may be settled in any freely convertible
currency, in addition to the ACU mechanism.
Payments not eligible to be settled through the ACU :
i. Payments between Nepal and India and Bhutan and India, exception
being made in the case of goods imported from India by an importer resident in Nepal who has been permitted by the Nepal Rastra Bank to make
payments in forex. Such payments may be settled through ACU mechanism;
ii. Payments which are not on account of current international transactions as defined by the IMFund, with the exception of such other transactions mutually accepted for settlement through ACU and
iii. All eligible current account transactions including trade transactions
with Iran should be settled in any permitted currency outside the ACU
mechanism until further notice.
Sh. N S Toor can be reached by readers at ns.toor@gmail.com

Business of Banks
(Rs.in cr)
Aggregate deposits
Cash in hand/RBI
Investments
Bank Credit:
-Food
-Non-Food
Cash-Deposit Ratio
Investment-Deposit
Credit-Deposit

Mar31'12
6329880
3493230
15000390
4959430
642830
38743760
6.71
28.82
75.68

Aug10'12
6282350
362420
1930670
4723460
99780
4623680
5.77
30.73
75.19

(Rs.in Cr)
Mar31'12
M3 (Out of which)
7359200
(a) Currency with public
1026500
(b) Demand deposits-Banks 704910
(c) Time Deposits - Banks
5624970
(d) Other deposits with RBI
2820

Aug10'12
7784590
1071360
661850
6047420
3960

(a) Net Bank credit to Govt 2369550

(b) Bank credit to Comrcl sector 4959430
(c) Net Forex assets of Banks 1543780

2579270
5074310
1641240

Money Stock

Sources of Money Supply

Important Banking Indicators

Bank rate
Statutory Liqdity Ratio
Cash Reserve Ratio
Base Rate
10.5
Reverse Repo Rate
Repo Rate
MSF Rate
Federal Reserve(US) rate:
Bank of England Rate
:
European Comm. Bank

09.00% (17.04.2012)
24.00% (18.12.2010)
04.75% (12.03.2012)
- 11.0% (Leading banks)
07.00%
(17.04.2012)
08.00%
(17.04.2012)
09.00%
(17.04.2012)
1.00%
0.50%
0.75%

Capital & Money Market Indicators

Parameter
end-Aug 12
Call rates (percent)
3.70
Dollar-spot TT (Rs.)
55.65
BSE - Sensex (points)
16712
NSE - Nifty(S&P CNX)
5108
Foreign reserves(Million $) 288919

A year back
5.10
45.35
15849
4748
318220

INDIAN ECONOMY-IMPORTANT PARAMETERS

RBI's growth estimate for 2012-13
: 7.3%
GDP growth-2010-11 (revised estimate) : 8.4%
GDP at factor cost 2012-13 (cr)
: 10159884
Share of service sector in GDP
: 64.5%
Share of manufacturing sector in GDP
: 18.2%
Share of agriculture sector in GDP
: 17.3%
Current Inflation Rate (Wholesale)
: 8.40%
Money Supply (M3) expansion
: 14.3%
Exports during 2011-12
: 291.3 bn
Imports during (2011-12)
: 347.4 Bn
Export target - 2012-13 (in $) 15% growth : 350 bn
India's share in world merchandise export : 1.45%
Food grain production (2007-08) -Estimate : 227.3
India's currency rating (S&P)
: BB Postv
India's external debt (Mar 2012) US $
: 346 Bn
Fiscal Deficit Target (2012-13) 5.1% of GDP : 513590 cr
Revenue Deficit Target (2012-13) 3.4.% of GDP : 350424 cr
Tax-GDP ratio (2008-09)
: 11.2%
Apr-May 2012:Export 50.13 bn Imports : 79.1 bn
Poverty line ratio (2004-05)
: 27.5%
Per capita Income 2010-11 (Rs.)
: 53331
Indian economy's ranking in world in PPP : 3rd
Indian economy's ranking in world in value: 10th

OUR PUBLICATIONS : REFER PAGE 11

DATE OF DESPATCH - Sept 7 / 10, 2012

Published by Gurmeet Toor (Mrs.) at 1008, Sector 45-B, Chandigarh- Printed by Gurmeet Toor (Mrs) at Golden Graphics 'n' Printers, Industrial Area, Ram Darbar, Chandigarh on
behalf of INFOTECH & FINANCIAL SERVICES (Prop-Gurmeet Toor Mrs) - Editor- Gurmeet Toor(Mrs)