Powered by TCPDF (www.tcpdf.

org)
 INDEX

Sr. No. Chapter Name Page No.

1 NPA – Non Performing Assets 02-08
2 Govt. Sponsored Schemes 09-13
3 Priority Sector Advances 14-19
4 KYC – Know Your Customer Guidelines 20-22
5 Banker Customer Relationship 23-25
6 Garnishee Order & Attachment Order 26-28
7 Bank Ombudsman Scheme 2006 29
8 Type of Customers 30-34
9 Nomination 35
10 CRR, SLR & MCLR 36-39
11 Customer Protection Act 1986 40
12 Foreign Exchange & LC 41-47
13 Govt. Schemes 48-51
14 Negotiable Instrument Act. 52-58
15 BASEL – III 59-61

pg. 1
 NPA - Non Performing Assets

 cSad dk ,slk Asset ftlus Perform djuk can dj fn;k gS mls NPA dgrs gSa
 lEifRr Asset : (esjs ikl gS vkSj esjh gS) tks esjh gS oks esjh Asset gS tSls Computer, Phone
 nkf;Ro Liability : tks esjs ikl gS ysfdu esjh ugha gS tSls Loan, m/kkj yh xbZ phtsa

Loan Deposit
SHYAM BANK RAM
Rs. 1 Lakh Rs. 1 Lakh

;s Loan cSad dh Asset gS ;s deposit cSad dh Liability gS

cSad blds cnys interest ysrk gS cSad blds cnys Interest nsrk gS
(Instalment)
cSad tc pkgs iSls okfil ys ldrk gS Ram tc pkgs iSls okfil ys ldrk gS
;s iSlk gS cSad (Bank) gS ;s iSlk gS Customer dk

NPA

When Account become NPA

1. Term Loan : If installment (Interest + Principal) overdue for more than 90 days.
(EMI become overdue on 4 Feb when account will become NPA, it will become NPA after 90 days 25+31
+30+May= 90, May =4, after 4 mean 5th May it become NPA sub-standard)
2. CC/OD :
(a) If account is out of order more than 90 days
(b) if limit not renewed within 180 days form due date of renewal
Out of Order
 If stock statement is 3 month old
 No credit in account for 90 days
 If credit in account insufficient to Recover interest in Account
Example : Credit in Account < interest debited
 An out of order Account becomes NPA after 90 days
Example : If stock statement not received within 180 days = NPA If balance O/S more than sanction
limit or DP in CC/OD Account, Account is out of order immediately
Example :

Date Limit DP O/S Balance Status

16.12.16 50 48 49.50 Out of order 16.12.16
NPA (Sub-standard) after 90 days w.e.f. 16.3.17
3. Other Accounts : Amount became due, not paid for > 90 days
4. Bills Account : Bill remain overdue for more than 90 days
5. Agriculture Loans : Instead of irregularity period of 90 days, crop seasons duration will be considered

 Short Duration Crop : if interest remains overdue for two crop seasons beyond the due date.
 Long Duration Crop : if interest remains overdue for one crop seasons beyond the due date.
Decision about crop duration to be taken by SLBC

6. Loan against Liquid Security

If loan against term Deposits, NSCs, LIC, KVP are given will not treated as NPA if security value > Balance
Account remains standard
Example : Loan against FD: Rs. 10 Lac
FDR Value: Rs. 10.50 Lac

pg. 2
 O/S Balance: Rs. 10.15 Lac
7. Consortium Loans : Each bank to classify the account on the basis of its own record of recovery
8. Loan Guaranteed by Government
 State Govt. Guaranteed Account
All normal rules of NPA applicable
 Central Govt. Guaranteed Account
i. Interest not to be debited unless recovered
ii. No Provision to be made
iii. Account to be classified as standard unless govt. refuse to make payment
9. Realisation Value of Security
 If RVS is ≤ 50% of the outstanding, the account to be shifted directly to doubtful category
 If RVS is ≤ 10% of the outstanding, the account to be shifted as loss account immediately
10. Recovery in NPA Account
In an NPA Account if entire due amount is recovered account upgraded to standard account immediately.
Limit A/c status O/S Due Amt. Date of Date of
Balance Amt. Recovered Recovery upgradation
20 Lac sub-standard 20.50 lac 5 lac 5.20 lac Jan 18 Jan 18
11. Restructured Accounts :
 Sanction new loan for increase EMI of loan
 It will be upgraded after 12 month from due date of 1st installment after restructuring if account is
satisfactory for last 12 months.
A/c O/S Due Date of Due Date of instalment Date of upgradation to
status Balance Amt. Restructuring Date paid standard

Doubtful 20 lac 20 lac 5.01.17 5.7.17 1.7.17 5.07.18

12. As Per Income Recognition Norm: In NPA account interest or other income will be considered as
income only when it is actually realised.

Asset Classification

Assets are classified into 4 categories

Standard | Sub-standard | Doubtful | Loss
except standard all others are NPAs
Standard Assets Accounts :
 If account are in order
 If account is irregular or out of order, it is called or classified as SMA (Special Mention Account) within
Standard Account
SMA-0 1 to 30 days
SMA-1 31 to 60 days
SMA-2 61 to 90th days
Sub-Standard Assets Accounts :
If standard account with irregularity or overdue, position remain more than 90 days it became Sub-Standard
Account on 91st days.
When account become NPA it is called sub-standard for a period not exceeding 12 months.
For Provisioning Purpose : Sub-standard

Unsecured Secured
Realization value at the time A/c other than
of sanction was 10% or less of the limit unsecured sub standard

pg. 3
Doubtful Assets :
 After 12 months it become doubtful, which remain NPA exceeding 12 months
 If account remains sub-standard > 12 months, it is classified as doubtful account
 In doubtful there are 3 categories
DF-1 Doubtful upto 1 year
DF-2 Doubtful > 1 year upto 3 year
DF-3 Doubtful > 3 year
Loss Assets :
 Accounts which have become unrealizable where losses have been identified by the bank/ internal/
external auditor or RBI inspectors.
 Its relation not with time but relation with security in case of loss of security even if there is regular
repayment the account becomes loss if initially account fully secured: now
Loss of Security > 90% than account immediately transferred to loss account
> 50% loss < 90% than account immediately transferred to doubtful

In Standard A/c
Balance Security value Security damage Classification of assets
10 lakh 10 lakh 30% status no need to change
10 lakh 10 lakh 53% Doubtful
10 lakh 10 lakh 95% Loss

Provisioning on NPA
Standard Direct to Agricultural Normal Rate Commercial Real Estate Housing Loan
SME, Industrial, Shop Office : 1% of Teaser Rate
Housing Loan outstanding
Residential : 0.75% of
outstanding
0.25% of O/S 0.40% of O/S 2% of O/S
Sub- Normal Rate (Secured) if A/c was unsecured from beginning
standard 15% of O/S infrastructure : 20% of O/S
Other Cases : 25% of O/S
Doubtful D1 (upto 1 year) D2 (upto 3 years) D3 (> 3 years)
25% of RVS 40% of RVS 100% of RVS
Loss 100% of outstanding amount
assets
 Doubtful - secured portion (RVS), unsecured portion (RVS)
 Provision on unsecured portion will be (100%)
 Provision on secured portion will be (25% to 100%)
Provision on Loan Accounts
 Provisioning refers to create a separate fund by debiting to P & L account, to meet future loan losses
 Provisioning is based on asset classification of account standard, sub-standard, doubtful, loss
 Provision are reported on liability side of schedule 5 balance sheet under the 'Head' other liability and
provision
 For calculating CAR, it is part of Tier-2 capital
(1) Example sub-standard (without bifurcating the balance into secured and unsecured balance)
 Balance = 20 Lac, Security Value = 19 Lac
 It is secured sub-standard
 Provision at 15% = 3.00 Lac
(2) Balance is Rs. 10 Lac and security is 0.95 Lac since time of sanction
 It is unsecured sub-standard
 Provision at 25% = 2.50 Lac
 Security include Primary and Collateral Security and guarantee from ECGC, DICGC, CGTMSE, Govt.
pg. 4
 No provision for percentage of amount covered by guarantee of ECGC, DICGC, CGTMSE, Govt. etc
 Net worth of borrower or 3rd party (guarantee) not to be taken as security
Example 1 :
Balance Rs. 20 Lac, Primary and Collateral Security value Rs. 8 Lac Guarantor's net worth Rs. 7 Lac

DF-1 DF-2 DF-3

Balance % prov. prov. % prov. prov. % prov. prov.
Balance 20.00
Security 8.00 25% 2.00 40% 3.20 100% 8.00
Unsecured 12.00 100% 12.00 100% 12.00 100% 12.00
Provision 14.00 15.20 20.00
Example 2 : Balance Rs. 10 lac, security value Rs. 4 lac, CGTMSE guarantee cover 80%

DF-1 DF-2 DF-3

Balance % prov. prov. % prov. prov. % prov. prov.
Balance 10
Security 4 25% 1.00 40% 1.60 100% 4
Unsecured 6
CGTMSE 80% 4.80 0% 00 0% 00 0% 00
Unsecured 1.20 100% 1.20 100% 1.20 100% 1.20
Provision 2.20 2.80 5.20
Provisioning Coverage Ratio
 Banks are to maintain PCR of 70% (Provision/Gross ratio/NPA) on ongoing basis w.e.f. 30.09.10
 It is to be disclosed in B-sheet
Method for Recovery of NPA
1 Compromise No legal action required
2 Restructuring Postponing installment, Fresh Finance
3 Legal Method Lok Adalat, DRT, Sarfaesi

DRT (Debt Recovery Tribunals)

DRTs are established under the Recovery of Debts. due to Banks and Financial Institutions Act 1993,
for speedy recovery.
 This Act is not applicable to J & K
 DRTs are special type of civil courts, dealing with loan recovery
 Limit for filing cases in DRT Rs. 20 lakh and above
DRT Set-up
 Head of DRT is Presiding Officer (qualified to be District Judge)
 Presiding officer hold office for a term of 5 year or until he attains age of 65 year whichever is earlier.
 Other officers under presiding officer
i. Recovery officer - Grievance against recovery officer to DRT Presiding Officer : 30 days
ii. Registrar (For filing of suit against their order - Grievance against registrar to DRT Presiding Officer :
15 days
 Decision by DRT within - Two Hearings
 Appeal against decision of DRT to be made to DRAT within 30 days from date of receipt or order
 If borrower appeals then he should deposit 50% of the Judgement Amount (amount of decree) it can be
reduced by DRAT to 25%
 Fees for DRT: Minimum - 12000, Maximum - 150000
DRAT Set-up
 Head of DRAT is chairperson (qualified to be High Court Judge)

pg. 5
 Presiding officer hold office for a term of 5 year or until he attains age of 67 year whichever is earlier
 Court Fees: Minimum 12000, Maximum - 30000

Lok Adalats

 The advantage of Lok Adalat is that there is no court fees.

 RBI has advised banks and FIs to use the forum of Lok Adalat in Compromise Settlement of their NPAs.
 Established under: Under Legal Services Authority Act 1987
 Minimum Claim: No Limit
 Maximum Claim: 20 Lakh
 If Lok Adalats arranged by DRT claim of more than 20 lakh can be filed
 Type of referred: Doubtful and Loss only
 Court Fees: Nil
 Why bank prefer to Lok Adalat: Because no court fees
 Appeal against Lok Adalat: Decision in Lok Adalat with mutual consent of bank and borrower, no
appeal can be filed in any court against decision of Lok Adalat
 Decision: The decision of Lok Adalat will have same force as a decision of a normal civil court.
 Repayment: Preferably Down-Payment, Maximum in 1-3 year
 Limitation: Limitation not extended by filing a case in Lok Adalat
If no settlement is arrived at the parties can continue with court proceedings, the case is referred back
to the appropriate court.

Sarfaesi Act

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002
Objective: SARFAESI Act was enacted to solve one of the biggest maladies of overdues/NPA faced by banks
which is basically because of Weak Creditors Right - The weak ability of lenders to recover dues from
borrowers.
When a loan goes into default, it is difficult for lenders to take control of collateral
Main Object: Speedy Recovery of NPA
Applicable: Throughout India including J & K
Power to Bank:
 Bank can take possession of the security
 After taking possession bank can sale security
 Bank can takeover management of asset
 Recover money receivable from 3rd parties
Competent Authority: Scale IV (chief manager) and above Board of Bank can delegate power to lower rank
official also
Condition : For loans eligible under SARFAESI Act.
 Account should be NPA
 Minimum outstanding is more than 1 lakh
 If loan given by banks under consortium consent of at least 60% share by value (Amount) required
 Security should be charged to the bank.
 The documents should be within limitation period.

Sarfaesi A/c not applicable to

 If outstanding amount upto 1 Lac
 If 80% of the due amount has been paid, outstanding should be of principal + interest > 20%
 Agriculture Land, Ship, Aircraft can't be sold
 Loan secured by way of Pledge, Lien, Security of Bank Deposit
 Security not charged to the Bank
Stages for Sale of Security
pg. 6
1st Stage: Possession of Security
2nd Stage: Sale of Security
1st Stage: Possession
 Once, the account is classified as NPA 60 days notice to issue under Sec 13(2) Sarfaesi to the defaulting
borrowers/mortgagors/guarantors before possession Sec (13-2)
 If borrower raise objection: Bank to justify the possession for notice, bank should reply within 15 days
 Possession will be taken with the help of District Magistrate/District Collector
 Bank will publish notice in two leading newspaper about taking the possession
 Borrower can approach DRT within 45 days after receipt of bank notice/reply, without deposit of any
amount
 Borrowers or bank can appeal to DRAT against DRT decision, within 30 days date of receipt of order
 If borrower makes appeal then he has to deposit 50% of the due amount this amount can be reduced upto
25% by DRAT.
2nd Stage- Sale
 30 days notice to borrower and Guarantor before sale
 In case of public auction notice in two newspaper (1 English, 1 Hindi or Local Language)
 Minimum sale price can't be less than Reserve Price fixed by bank
If sale below Reserve Price borrower consent is required
 Purchaser should deposit 25% amount of sale immediately
 Balance (75%) to be paid within 15 days, falling which amount already paid is forfeited
The Act envisaged the Formation of Assets Reconstruction Companies (ARCs)/ Securitisation
Companies (SCs)

Notice before possession 60 days

Reply to objection by borrower 15 days
Borrower can approach DRT against possession notice 45 days
Appeal to DRAT against decision of DRT 30 days
Notice before sale 30 days

ARC

 ARC is to purchase NPA from Banks/F's and Recover them

 ARCs are registered with RBI
 Minimum Net worth 100 crore and then atleast 15% of the Asset purchased all the time
 Minimum CAR - 15%

CERSAI (Central Electronic Registry under the Sarfaesi Act 2002)

Central Registry of Securitisation Asset Reconstruction and Security Interest Act of India (CERSAI)
established 31.3.2011
Setup – GOI, Ministry of Finance
Objective – To prevent frauds in loan involving multiple lending from different banks on the same
immovable property.
Type of Transactions – Transaction relating to Sarfaesi Act and those relating to mortgage by Deposit of title
deeds to secure any loan granted by banks are to be registered in the Central Registry.
Time Period for Registration
 30 days, which can be increased by 30 days by Central Registry.
 30 days from date of deposit of title deeds
 Form-1 : Registration & Modification of charge
 Form-2 : Satisfaction of charge

pg. 7
Fee : upto 5 Lac - Rs. 50 & Loan more than 5 Lac - Rs. 100

Penalty for delay in registering with CERSAI

Period of delay Loan upto 5 Lac Loan > 5 Lakh
31 to 40th day 2T Rs. 100 Rs. 200
41 to 50th day 5T Rs. 250 Rs. 500
51 to 60th day 10T Rs. 500 Rs. 1000

Sale and Purchase of NPAs by Banks

Condition for Selling Bank

 Account can be sold anytime after it become NPA
 The sale will be on cash basis and without recourse basis (Selling bank will not be responsible)
Condition for Purchasing Bank
 The Assets will be classified as standard asset in the book of Purchasing Bank for 1 st 90 days
 Purchasing Bank further can resell NPA after 12 month from date of purchase
 This Asset will carry a risk weight of 100% for CAR purpose
 Thereafter classification of asset on the basis of record of recovery.

Non Co-operative Borrower

 Who does not permit inspection of securities

 Who does not permit sale of securities
 Who does not repay bank loan though he has funds to repay.
Cut-off Point for Reporting
 Outstanding Rs. 5 Crore and above
 Reporting to CRILC (Central Repository of Information on Large Credits)
 Reporting is done monthly
Decision: Committee headed by ED, Reviewed by-CMD

Wilful Defaulters

 A person who has profit to repay but refuse to pay.

 Or does the diversion of funds (not used for specific purpose for which loan was given)
 Or siphon-off the fund (used for operation unrelated to the business)
Reporting of Wilful Defaulters
 Outstanding of 25 Lakh and above on monthly basis
 Reporting to credit information companies of which bank is member
Credit Information Companies in India
(1) CIBIL (Trans Union)
(2) EXPERIAN
(3) EQUIFAX
(4) CRIF-Highmark
Action by Banks
 No bank will grant any loan facility to any willful defaulter
 No loan to a new project floated by promoters of willful default company for 5 year from date of listing
by RBI
Declaration of Wilful default
 Wilful defaulters of Rs. 25 lac and above to be identified by a committee headed by an ED (Executive
Director)
 The order of the committee to be reviewed by committee headed by MD.
pg. 8
 Government Sponsored Schemes
Prime Minister's Employment Generation Programme (PMEGP)
Launched on : 10.10.2008 by merger of REGP (Rural Employment Generation Programme) and REGP
(Rural Employment Generation Programme)
Objective : To generate employment opportunities in rural as well as urban areas of the country through
setting up of new micro enterprises.
Eligibility :
Age : Above 18 year
Income : No income ceiling
Education : only in two cases 8th pass mandatory if
Project Cost > 10 Lac in Manufacturing
Project Cost > 5 Lac in Business or Service Sector
Project Cost:
Manufacturing Sector: Max 25 Lakh
Business/ Service Sector: Max: 10 Lakh
 PMEGP is meant only for new projects.
 Only one person from one family is eligible for obtaining financial assistance for setting up of project
under PMEGP
 The family include self and spouse
Subsidy :
 General Category: Urban - 15%, Rural - 25%
 Special Category: Urban - 25%, Rural - 35%
Special Category: SC/ST, OBC, Minorities, Women, Ex-Servicemen, Physically Handicapped, NER,
Hill Border Area etc.
 Subsidy will be kept as interest free FDR for 3 year
 No interest should be paid on the FDR
 No interest on loan on the corresponding amount
 Margin money should be credited to the loan account after three years from the date of disbursement, in
case of default (bad) loan before three year subsidy will be adjusted by the bank to liquidate the loan
facility.
Borrower Margin : 10% in general category
: 5% in special category
Security : No collateral security for loan upto 10 lakh
Repayment : 3 to 7 years after an initial moratorium as prescribed by bank.
Implementing Agencies : KVIC - Khadi Village Industries Commission
Identification of Beneficiaries : A task force will do the identification of beneficiaries at the district level
consisting of representatives from KVIC/State KVIB and State DICs and Banks.
Lending Target : 50% of cases from rural area

Deen Dayal Antyodaya Yojna

NRLM – National Rural Livelihood Mission

Launched by : Ministry of Rural Development, GOI by replacing the existing SGSY Scheme
Objectives: Reduction of Poverty in rural area, only women SHG will be financed, but males with
disabilities, elders, transgender, can also become members.
No. of Members: 10-20
In difficult area, groups with disabled persons, and in remote tribal areas- 5 to 20
Revolving Fund: Govt. provide Revolving Fund
Corpus of RF : Min 10,000 Max 15,000 per SHG
Condition for Revolving Fund
 SHG in existence from min 3-6 months
 Following 'Panchasutra'
1. Regular Saving
pg. 9
2. Regular Internal Lending
3. Regular Meeting
4. Regular Recoveries
5. Maintenance of proper books of accounts.
Subsidy : No capital subsidy under the scheme
Bank Finance : After 6 month from observation of account group observes 5 rules
Loan to be given in 4 doses as under: Depend upon economic activity and progress of economic activity
1st Dose : 6 times of group saving (Corpus) or min Rs. 100000 whichever is higher
Repayment Period: 6-12 months
2nd Dose: 8 times of group Corpus or min Rs. 200000
Repayment Period: 12-24 months
rd
3 Dose: Minimum of Rs. 3 Lac
Repayment Period: 2-3 years
4th Dose: Minimum of Rs. 5 Lac
Repayment Period: 3-6 years
Security and Margin – NIL for Loan upto 10 Lac
Interest Subvention:
 Available to all SHG Loans
 SHG to get finance at 7% for loans upto Rs. 300,000/-
 Difference between the Lending Rate of the banks and 7%, with a maximum of 5.5% to be provided as
subsidy
 Additional Subsidy for prompt Repayment: 3% to borrower if loan is repaid in time effective ROI - 4%

DDU NULM - National Urban Livelihood Mission

Started by GOI, Ministry of Housing and Urban Poverty allevation in place of SJSRY
Reservation : Women under SHG : 30%
Differently-abled : 3%
Minority : 15%
SCs and STs : In the ratio in local population
Individual Enterprises
 Age : 18 years at the time of applying for loan
 Project Cost : Max 2 Lac
 Collateral : No collateral required
 Repayment : (5-7) years after initial moratorium of 6-18 months
 Margin : NIL upto 50,000 above (5-10)% of project cost

Group Enterprises
 Eligibility : Min 3 members with a minimum of 70% members from urban poor families
 Project Cost : Max 10 Lac
 Collateral : No collateral required
 Repayment : (5-7) years after initial moratorium of 6-18 months
 Margin : NIL upto 50,000 above (5-10)% of project cost

Subsidy - No Capital Subsidy

ROI from borrower : 7%
Interest Subsidy : ROI charged by bank upto 3 Lac : 7%
If loan is repaid in time
Additional subvention of 3% only to Women SHGs if loan is repaid in time (for prompt payment)
Funding Pattern: Central: State Govt (75% : 25%)
In case of special category states ratio will be (90:10)
Special category states

pg. 10
Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, J & K, Himachal
Pradesh and Uttarakhand State

Differential Rate of Interest - DRI

Eligibility Norms : Individuals whose family income not to be exceed Rs. 18,000/- p.a. in Rural Areas
24,000/- p.a. in urban and semi urban areas.
Quantum of Loan: Maximum amount Rs. 15,000/-
 In addition loan to physically handicapped for instruments Rs. 5000/- (Artificial limbs, hearing aids)
 For housing loan can be granted upto Rs. 20,000 to SC/ST
Interest Rate: 4% p.a. simple
Max Repayment Period: 5 year including initial moratorium of 2 year
Margin – Nil
Collateral Security – No

Scheme for Rehabilitation of Manual Scavengers (SRMS)

Manual scavenger, mean a person engaged or employed by an individual or a local authority or an

agency for manually cleaning, disposing of
 Launched by National Safai Karamchari Finance and Development Corporation (NSKFDC)
 Cash Assistance : Cash assistance of Rs. 40,000/- payable in monthly installment of Rs. 7000
 Project Cost : Rs. 10 Lakh and 15 Lakh, in case of sanitation related projects
 Moratorium : upto 2 years
 Maximum Period of Training : 2 years and stipend during training period is Rs. 3000 per month
 Repayment : For project costing upto 5 lakh : 5 year
and for projects costing more than 5 lakh : 7 year
 ROI : Project cost upto 25000 : 5% (4% for women, above 6% p.a.)

Laghu Udhyami Credit Card (LUCC)

 Eligibility : Existing customers with a satisfactory track record (Standard Account for 3 years)
 Maximum Amount : 10 Lac
 For whom : Small Business, Retail Traders, Self Employed
 Validity of Card : 3 year subject to annual review
 Amount of Limit : Artisans, businessman, traders and small entrepreneurs: 20% of the annual
turnover declared for tax purposes
 Professional and Self employed: 50% of the gross annual fees

Joint Liability Group

 Members : 4 to 10
 Maximum Finance per member : Rs. 50,000
 Maximum Finance per group : Rs. 5,00,000
 Objective : raising credit from bank

SHG (Self Help Group)

 Objective : i. Mutual Help and Mutual Co-operation

ii. Development of savings habits
 No Objective : i. To make super profits
pg. 11
 ii. To raise loan from the bank
 No. of members : 10 to 20
 In difficulties area/disabled person group : 5 to 20
 Bank Finance after 6 month of formation of group

Pradhan Mantri Awas Yojana

Cat Income Carpet Area Subvention Max. Loan Subsidy
EWS upto 3,00,000 30 sq. m. 6 Lac 6.5% Max. 2,67,280
LIG 3,00,001 to 6,00,000 60 sq.m. 6 Lac 6.5% Max. 2,67,280
MIG-I 6,00,001 to 12,00,000 160 sq.m. 9 Lac 4% Max. 2,35,068
MIG-II 12,00,001 to 18,00,000 200 sq. m. 12 Lac 3% Max. 2,30,156
Subsidy will be available for 20 years
 Beneficiary Family: Husband, wife and unmarried children. The beneficiaries should not own a Pucca
House either in his/her name or in the name of any member of his/her family in any part of India
 Purpose: For purchase of new dwelling unit, construction and addition of rooms, kitchen, toilet etc.

Pradhan Mantri Fasal Bima Yojana (PMFBY)

 Implementing Agency: Agriculture Insurance Company of India and some Private Insurance Co.
like ICICI-Lombard, General Insurance Company Ltd. and others
 Crop Covered : Notified crop for which yield data is available for last 7 years.
 Compulsory : for Loanee Farmers
 Voluntary : for all other farmers
 Risk not covered : Loss due to war, nuclear risks, riots, theft
 Amount of Premium : Kharif : 2% of (SI), Rabi: 1.5% of (SI)
 Annual Commercial/ Horticultural crops: 5% of SI
 Sum Insured : Loanee Farmer : Amount of loan can be upto threshold yield
 Marginal Farmer : Land holding upto 1 Hactare
 Small Farmer : Land holding more than 1 Hactare upto 2 Hactare
 Risk covered : Loss due to natural calamities including prevented sowing, crop loss,
post harvesting loss

CGTMSE - Credit Guarantee Trust for Micro and Small Enterprises

 The scheme run by the trust is known as 'Credit Guarantee Fund Scheme for Micro and Small Enterprises'
 Scheme cover loans to micro and small enterprises
 Both Manufacturing and Service Enterprises
 Maximum loan of amount covered : upto 200 lakh
for Retail maximum : 100 lakh
for RRBs : 50 lakh
 Interest @ RBI guidelines
 Loan without collateral security (Bank take collateral security then unsecured portion will be covered)
Guarantee Fees: Charged Annually
 For 1st year fee is charged : on the guaranteed amount
 2nd year onwards - T/L : outstanding amount
 CC/OD : Maximum working capital limit availed during previous calendar year
 T/L : O/S amount on 31st December

pg. 12
Rate of Guarantee Fees: 3 component : Standard Rate + NPA Level + Claim Payout Ratio

unit covered
Others
Women, Micro Enterprises & NE Region
Loan upto 5 lakhs 1% + Risk Premium as per extent guidelines of the trust
Above 5 lakh up to 50 lakh 1.35% + RP 1.50% + RP
Above 50 lakh to 200 lac 1.80% + Risk Premium as per extent guidelines of the trust
For Retail Trade 2% + Risk Premium as per extent guidelines of the trust
In addition to this a risk premium will be charged based on level of NPA and claim made by the bank.

Claim Amount (Guarantee Cover) on amount of default

NE/Women Others
Loan upto 5 Lakh 85% of Amt. in default max. 425000
Loan > 5 lakh to 50 lakh 80% of default Amt. 75% of default Amt.
Max. 40 Lac Max. 37.5 Lac
Loan > 50 Lakh 75% of Amt. in default max. 150 lakh

Women & NE State Micro Others

upto 5 lakh 85% 85% 75%
> 5 to 50 lakh 80% 75% 75%
> 50 lakh upto 200 lakh 75% 75% 75%
 For Retail : Guarantee cover 50%
 Loan to women Enterprises : O/S Balance 60 Lac in default amount of Guarantee cover
 Loan 60 Lac, cover 75% then 60 × 75% = 45 Lac
Lock in Period:
 18 month from date of last disbursement OR
 Date of Payment of guarantee fee, whichever is later
Maximum Period for claim:
 If NPA is after lock-in-period: 3 year from date of NPA
 If NPA is before lock-in-period: 3 year from expiry of lock-in-period
Claim Payment
 Trust will pay 75% of the claim within 30 days of receiving claim form, balance on writing off the loan
 In claim paid account, if recovery happen, then send it to trust within 30 days. For any delay interest
payable @ BR + 4%
 Delay in payment of guarantee fee also attracts interest @ BR + 4% (Guarantee Fee is payable by 15 th
April)

pg. 13
 Priority Sector Advances

RBI revised the priority sector lending guidelines w.e.f. 23.04.15 on the basis of recommendations of Lily Vadera.
1. Agriculture
2. Micro, Small & Medium Enterprises
3. Export Credit
4. Education Loans
5. Housing Loans
6. Social Infrastructure
7. Renewable Energy
8. Other priority sector
Targets for priority sector
Targets are linked to ANBC or CEOBE whichever is higher
ANBC : Adjusted Net Bank Credit
CEOBE : Credit equivalent amount of off Balance Sheet Exposure
OFF Balance Sheet Exposure : Bank Guarantee/LC/FC
ANBC :
1. Bank Credit in India
2. Bills rediscounted with RBI
3. Net Bank Credit (1-2)
4. Investment in non-SLR bond & Bonds which are considered as priority sector
5. Investment in infra bonds & bonds for affordable housing.
6. Incremental NRE & FNR
ANBC = 3 + 4 – 5 – 6 / 1 – 2 + 4 – 5 – 6
Target for domestic Indian banks or Foreign banks with 20 or more branches
1. Overall priority sector 40% of ANBC or CEOBE whichever is higher
2. Agriculture 18% of ANBC
3. Small & Marginal Farmers 8% of ANBC
4. Weaker Section 10% of ANBC
5. Micro Enterprises 7.5% of ANBC

For foreign banks with less than 20 branches

Overall priority sector 40% of ANBC or CEOBC whichever higher to be achieved
by 31.03.20
31.03.16 – 32%, 31.3.17 – 34%
31.03.18 – 36%, 31.03.19 – 38%, 31.03.20 – 40%
RRBs
Overall Priority Sector 75% of A or C whichever higher
Target for annual growth in outstanding 20%
Target for annual growth in number 10%
Non-achievement of lending target
If commercial banks having any shortfall in to achieve priority sector target. Shortfall to be deposited in
RIDF (Rural Infrastructure Development Fund) established with NABARD/NHB/SIDBI as decided by RBI.

pg. 14
 Agriculture

1. Farm Credit
2. Agriculture Infrastructure
3. Allied Activities
Farm Credit
 Loan to Individual farmers /SHG/ JLG, directly engaged in agriculture and allied activities
 Crop Loan
 Loan to farmer against stored produced/ warehouse receipts max loan 50 lacs, max period 12 months
 Loan to poor farmers for repayment of loan to money lenders (called Rural Debt swap)
 Loan to small and marginal farmers for purchase of land for agricultural purposes
Marginal Farmers : upto 1 Hectare (2.5 Acre)
Small Farmer : 1-2 Hectare (5 Acre)
 Loan under KCC
 Loan to corporate farmers companies of Individual/ Farmers Partnership Firm engaged in Agricultural
and Allied Activity, Max Loan - 2 crore per borrower
Crop Loan
Loan for crop production - need based
Short duration crop - crop session up to 12 months
Long duration crop - crop more than 12 months
Decision regarding short duration/ long duration is made by SLBC
Rabi Crop : Oct. to March - Wheat, Gram
Kharif Crop : April to Sept. - Paddy, Jawar, Bajra
Scale of Finance : Loan per Hectare decided by DTC - District Technical Committee
Mixed Farming : Agricultural + Live Stock Rearing (more than 1 crop is raised simultaneously)
Annewari refers to damage to crop due to natural calamities like draught, flood hail storm etc.

Kisan Credit Card (KCC)

 Latest Committee : T.M. Bhasin Committee

 Amount: Crop Loan + Consumption Loan/ Loan against stored produced, investment credit, loan for
maintenance of F.A.
Calculation of amount for 1st year
 Crop Loan : Scale of Fin/Hec × Land holding
 Post Harvest Exp : 10% of Crop Loan
 Repair, Insurance etc : 20% of Crop Loan
 Total = 130% of Crop Loan
 KCC Limit will be increased by 10% every year upto 5 year
 Limit for 2nd year onwards
 = Add 10% as escalation cost to previous year limit
 Validity: At bank discretion (subject to annual renewal)
 Limit for Marginal Farmers: 10k to 50k
Personal Accident Insurance:
1. Rs. 50000 in case of death or permanent disability
2. Rs. 25000 for partial disability
PAI KCC holder age limit: 18 year to 70 year
Insurance Premium will be born by Bank and borrower
Ratio (2:1)
For Credit Balance: Saving Interest rate to be paid

pg. 15
 Interest Subvention Scheme
1. This scheme is applicable for short duration Crop Loan upto 3 Lakh
2. Bank will charge @ 7%
3. Subvention for banks from Central Govt. - 2%
4. Effective Interest to Bank 7+2 = 9%
5. Subvention is claim through RBI on HY Basis
6. Additional subsidy to farmer for prompt payment - 3%
7. Effective Interest to farmer 7-3 = 4%
8. It claim on annual basis

Agriculture Infrastructure

1. Loan for construction of warehouse, godown, cold storage to store agriculture products
2. Soil Conservation
3. Plant tissue culture
Max loan per borrower from banking system - 100 crore
Ancillary Activities
 Loan to Agri-clinics and Agribusiness centres
 Food and Agro Processing Industry
Max loan per borrower from banking system - 100 crore
 Loan to Co-operative societies of farmers for disposing of the produce of members - Rs. 5 crore
 Loan to MFIs (Micro Finance Institution)
 Loan to PACS (Primary Agricultural Credit Societies)
 Outstanding deposits under RIDF

MICRO, SMALL and MEDIUM ENTERPRISES

Manufacturing Sector Investment in Plant and Machinery
Micro Enterprises upto 25 Lakh
Small Enterprises > 25 Lakh upto 5 crore
Medium Enterprises > 5 crore upto 10 crore
Service Sector Investment in equipment
Micro Enterprises upto 10 Lakh
Small Enterprises > 10 Lakh upto 2 crore
Medium Enterprises > 2 crore upto 5 crore
Manufacturing – 0.25, 5, 10 cr, service – 0.10, 2, 5 cr

Change : RBI directions :

Any amount of loan given to micro/small/medium enterprises in manufacturing sector or service
sector it will be considered as priority sector advance – No ceiling

1. Khadi and Village Industries is Micro Enterprises irrespective of Investment in Plant and Machinery
2. Cost of Pollution Control equipment, generator set, tool is not included for calculation of cost of P & M
3. Overdraft upto Rs. 10000/- under PMJDY will be classified as Micro Enterprise

Export Credit

Domestic Banks :
Incremental export credit over previous year but maximum can be 2% of ANBC or CEOBE Exporter
Consideration
(i) Maximum sanction limit - 25 crore per borrower

pg. 16
(ii) Maximum turnover - 100 crore
Foreign banks with less than 20 branchs - 32% of ANBC or CEOBE whichever is higher

Education Loan

1. No restriction on amount of sanction

2. Maximum amount classified as Priority Sector restricted to 10 lakh irrespective of the sanction amount
Education Loan - IBA Model Scheme
Margin: upto 4 lakh - NIL
More than 4 lakh
 In India - 5%
 Studies Abroad - 15%
Moratorium : Course + 1 year
Repayment : Moratorium + 15 year
Security : upto 4 lakh - Nil Co-obligation of Parent
> 4 to 7.5 lakh - Co-obligation 3rd party guarantee
> 7.5 lakh - Collateral Security and Co-obligation parent
Interest Subvention : entire interest during moratorium period if amount if annual income upto 4.5 lakh

Housing

Metro (10 lakh and above)

Maximum loan: 35 lakh
Maximum cost of house: 45 lakh
For Construction/ Purchase
Other than Metro (Population less than 10 lakh and above)
Maximum loan: 25 lakh
Maximum cost of house: 30 lakh
Metro - 5 lakh
For Repair
Other than Metro - 2 lakh

 Govt agencies engaged in Construction of House or Slum Clearance Max Loan - Per dwelling 10 lakh
 Loan to Govt agencies/ Pvt Agencies for Construction of House for EWS and LIG - Max Loan - Per
dwelling - 10 lakh
 Loan to Housing Finance Company - Max loan per house - 10 lakh

Social Infrastructure

Purpose : Building Social Infrastructure in Tier II to Tier VI places population less than 50000
1. School
2. Drinking Water Supply Maximum Loan
3. Hospitals 5 Crore per project
4. Sanitation Facilities

Renewable Energy

For Individual Households : 10 lakh per borrower

For Community Lighting : 15 crore per borrower
Community Lighting : Solar Power Generators, Biomass based power generators, Wind Mills, Micro-Hydel
Plants, Remote Village Electrification
Other Priority Sector
 Loan upto 50000 per borrower to Individual or their SHG/ JLG

pg. 17
 (Annual income does not exceed 100000/- in Rural)
(Annual income does not exceed 160000/- other areas)
 Loan to distressed (very poor) persons (other than farmers) not exceeding 100000 per borrower for debt
swap
 Service Area approach discontinued except for Govt. sponsored schemes

Weaker Sections within Priority Sector

 Small and marginal farmers
 Scheduled castes and scheduled tribes
 Artisans, village & cottage industries – individual credit limits do not exceed Rs. 1,00,000.
 Beneficiaries under Govt. sponsored schemes such as NRLM, NULM and SRMS
 Self Help Groups
 Beneficiaries of DRI scheme
 Minority communities as may be notified by Govt.
 Persons with disabilities
 Distressed farmers indebted to non-institutional lenders
 Distressed persons other than farmers with loan amount not exceeding Rs. 1,00,000 per borrower to
prepay their debt to non-institutional lenders
 Individual women beneficiaries upto Rs. 1 lakh per borrower
 Overdrafts upto Rs. 10,000/- under PMJDY accounts, provided the borrower household annual income
does not exceed Rs. 1,00,000/- for rural areas and Rs. 1,60,000/- for non-rural areas.
Minority Communities
 Target for Financing Minority Communities = 15% of Priority Sector Advances
 IBA Model Scheme – Vocational Education & Training
 Finance : need based with maximum of
1. For courses of duration upto 3 months : Rs. 20,000
2. For courses of duration 3 to 6 months : Rs. 50,000
3. For courses of duration 6 months to 1 year : Rs. 75,000
4. For courses of duration above 1 Year : Rs. 1,50,000
Margin – Nil
Repayment period : Moratorium period plus (a) course upto 1 year : 2 to 5 years
5. Courses above : 3 to 7 years
Moratorium Period : For courses of duration upto 1 year: 6 months from the completion of the course, for
course above 1 year : 12 M from the completion of the course.

Collateral Security Norms

Agriculture No margin and no collateral upto Rs. 1 lakh
Agri-Clinic and Agri-Business No margin and no collateral upto Rs. 5 lakh
Small Enterprises (SSI) No Collateral
Normal Account upto 10 lakh
Good track record units upto 25 lakh
Account covered under CGTMSE upto 2 crore (Fund based and non fund based)
Education Loan No collateral upto Rs. 7.5 lakh
PMEGP and NRLM No collateral upto Rs. 10 lakh
HI-TECH Agriculture Concepts
Apiculture Rearing of Honey Bees
Sericulture Silk Production
Aquaculture Shrimp Farming, Fish Production in Artificial tanks/lakes
Floriculture Flower Production
Apriculture Mushroom Production
Clerical Culture Vegetable Cultivation
pg. 18
Mulberry Associated with Sericulture
Pisiculture Breeding of Fishes in pond
Tissue Culture Improvement of Plant varieties
Vermiculture Rearing of earth worm
Sylviculture Cultivation of trees
Green Revolution To increase Agricultural Production
White Revolution To increase Milk Production
Rainbow Revolution Connected with flowers
Yellow Revolution Increase oilseeds and pulses
Black Revolution Rubber
Brown Revolution Cocoa

pg. 19
 KYC – know your Customer Guidelines

These guidelines have been issued by RBI under Sec. 35A of the BR Act 1949.
Objective : To ensure
AML – Anti Money Laundering
CFT – combating of Financing of Terrorism
and prevent banks from criminal elements of Money Laundering Activities.
Money Laundering : It is process of converting illegal Money/ Money of crime to legitimate money, through
a complex chain of transactions.
Guidelines : Guidelines issued by FATF on Prevention of Money Laundering.
FATF – Financial Action Task Force
Components of KYC Policy
1. Customer acceptance policy
2. Customer identification procedures
3. Monitoring of transactions
4. Risk Management
1. Customer Acceptance Policy :
 Banks are required to verify the identify and address of customers before opening of accounts to avoid
fictitious/benami accounts.
 Customer should be categorised into Low, Medium, high risk
Risk Classification of the customer
High risk
1. NRI
2. Club societies, Trust
3. NGO's,
4. HNI-High Net Worth individuals.
5. Jewellers etc.
Medium risk
Partnership, Limited Co., HUF, Proprietorship etc.
Low risk
 Small A/c, BSBDA, Salaried Employees, Pensioners Government departments, Govt. owned Co.,
statutory bodies etc.
 Risk are classified/classification to reviewed once in 6 months.
2. Customer Identification Procedures
For opening a bank A/c bank shall undertake customer due diligence. Bank shall obtain the following
information from a individual.
1. Recent Photograph
2. Proof of Identity
3. Proof of Address
To open Bank A/c, the customer need to submit a 'proof of identity and proof of address' together with a
recent photograph. The Govt. notified six documents as officially valid document (OVDs) for proof of
identity.
1. Passport
2. Driving Licence
3. Pan Card
4. Voter Identity Card
5. MGNREGA card
6. Aadhaar card issued by UIDAI
If these documents also contain the address details, then it would be accepted as 'Proof of Address'.
 Introduction is not necessary
pg. 20
 If in case an individual customer who does not have Aadhaar/enrolment No. and PAN and desires to open
a bank A/c, bank shall open a 'Small A/c'.
Condition for Small Account :
 Maximum credit in a Financial Year – One lakh
 Maximum Balance at any point of time – Rs. 50,000
 Maximum amount of withdrawal per month – Rs. 10,000
 Foreign remittances cannot be credited
 Proof of ID & Address submitted within 12 months.
 If he has applied but not received further 12 months can be given, with the entire relaxation provisions to
be reviewed in respect of the said A/c after twenty four months.
Periodic Updation :
High risk customer at least once in 2 years
Medium risk customer at least once in 8 years
Low risk customer at least once in 10 years
This exercise would involve all formalities normally taken at the time of opening the account.
Failure of submit documents for period updation if the customer do not provide his KYC documents at the
time of period updation, Bank has option to close his A/c, before closing bank may impose partial freezing.
Partial Freezing
1. Banks has to give due notice of 3 months to customer before option of 'Partial Freezing'.
2. After that further 3 months reminder, thereafter 'Partial Freezing'.
3. If the A/c are still KYC no-complaint after 6 months of imposing Partial Freezing, Bank may disallow all
debits and credits from his A/cs.
3 + 3 Month Notices
i. 6 months : Partial Freezing – Debit Disallow, all credit allow
ii. 1 year : After 6 months of Partial Freezing – No debit or credit till compliance.
Customer staying at one city but Address Proof is of other city
 If local address differ from proof of identity then undertaking should be taken along with OVD Fresh
Proof of Address not required.
 If there is permanent change in the proof of address New Proof of Address to be taken within 6 months.
Alternative documents in case of Low risk customer
 Letter & Photo attested by Gudgeted officer.
 ID card issued by Central/State Govt. Deptt., Public Sector Undertakings.
Alternative for Proof of Address
 Utility bill not more than two months old.
 Bank A/c or post office saving A/c statement/passbook.

BSBDA – Basic Saving Bank Deposit Account

 It is normal banking facility, KYC compliance required.

 No minimum balance condition.
 No. of maximum withdrawals 4 in a month including through ATM without any limit on amount of
withdrawals.
 No restriction of no. of deposits.
 All other Saving Account in that bank should be close within 30 days of opening of BSBDA A/c.

Monitoring of Transactions

Banks to monitor and keep record of high value cash transactions of above 10 lac each.
It can be sum total of monthly transactions : (Debit/Credit separate) and send report of cash transactions to
Financial Intelligence Unit (FIU) at Finance Ministry.

pg. 21
CTR – Cash transaction report.
For each month should be submitted to FIU-IND
FIU-IND (Financial Intelligence Unit-India) by 15th of the succeeding month.
STR – Suspicious Transaction reports
To be sent within 7 days from confirmation of suspicion.
CCR – Counterfeit currency report.
To be sent with 15 days from date of detection.
Cross border wire transfers
All cross border wire transfers of the value of more than rupees 5 lakh or its equivalent in Foreign currency
where either the origin or destination of fund is in India to be reported to FIU-IND by 15 th of the succeeding
month.
Non Profit Organisation Transaction Report
All transactions involving receipt by non-profit organizations exceeding 10 lakh or its equivalent in Foreign
Currency. FIU-IND by 15th of succeeding month.

Central KYC Records Registry (CKYCR)

1. It is central repository of KYC records, in Financial Services Sector.

2. GOI has authorized the Central Registry of Securitization Asset Reconstruction and Security Interest of
India (CERSAI) to act as, and to perform the functions of the CKYCR.
3. Responsible for storing, safeguarding and retrieving KYC records.
4. All reporting entities including banks to file e-copy of KYC records within 3 days.
Code Name Digits
IFSC – Indian Financial System Code 11
MICR – Magnetic Ink Character Recognition 09
SWIFT – Society for Worldwide Interbank Financial Telecommunication 11
PAN – Permanent Account Number 10
UID – Unique Identification Number 12
PIN – Postal Index Number 06
CIN – Cheque Identification Number 07
BIC – Bank Identification Number 08

Maintenance and Preservation of Record

 Bank should maintain for at least five years from date of transaction between bank and the client.
 Record of documents 5 year the business relationship ended.

pg. 22
 Banker Customer Relationship

Bank defined as per BR Act (Sec. 5)

Bank customer is not defined in any act. However, it is defined in KYC norms.
 A person for whom bank agrees to open an A/c is called as customer of the bank.
 A person on whose behalf the transaction is carried by another person.
X opened A/c in the name of minor son under the guardianship.
Who is customer ∶ X, minor, both. Example
In this transaction : only minor is customer.

Type of Transaction Bank Customer

Deposit in the bank (CR balance in account) Debtor Creditor
Loan from Bank (Debit balance in account) Creditor Debtor
Safe Deposit Vault Lessor (Licensor) Lessee (Licensee)
Safe custody Bailee Bailor
Issue of draft (after issue of draft) Debtor Creditor
Payee of draft Trustee Beneficiary
Collection of cheque & Standing Instruction Agent Principal
Goods left negligently by customer Trustee Beneficiary
Purchase/sale of securities on behalf of customer Agent Principal
Currency Chest on behalf of RBI Agent RBI is principal
Money deposited. No instructions for its disposal Trustee Beneficiary
Beneficial owner
Company : A person holding > 25% of shares or
P-ship or HUF : A person holding > 15% of interest
Duties of Bank
 To maintain secrecy as per implied contract
 These duties committee even after close of A/c
 Balance in the A/c of an employee should not be disclosed to employer similarly, balance in the A/c of
wife not to be disclosed to husband and vice versa.
Exceptions
1. As per requirement of Law (Police, Court, IT, RBI)
2. Consent of the customer
3. To protect interest of the bank
Disclosure to Court & Police
Court : Under Civil Procedure Code (CPC) 1908, information to be given including certified copy of
documents
Copies to be certified as per provisions of Banker's Book Evidence Act. This will be treated equal to original
record.
Police/CBI – U/s 91 of Criminal Procedure Code (CPC) 1973 information to be given including certified
copy of DOC.
Information can be given if the request is signed by the incharge of the Police station.
Disclosure as per Income Tax Act
Sec. 131 Income Tax Act – Account specific information to be provided (X, Y, Z)
Sec. 282 : Statement of Financial Transactions Form No. 61-A by 31 st May.
Sec. 282 BA : Rule 114F – Information related to A/c of Foreign citizen, as per FATCA for US citizen & as
per AEOI for other countries (31st May) Form 61B
FATCA : Foreign Accounts Tax Compliance Act
: For US Citizen 61-B (31st May)
AEO1 : Automatic exchange of information
: For other country citizen 61-B (31st May)

pg. 23
Deposit : Debtor (Bank) Creditor (Customer)
Loan : Creditor (Bank) Debtor (Customer)
If CC Limit have credit balance then what is relationship at that time → It will be treated as deposit A/c
Demand Draft → when we issue a/ when we pay
Debit /Credit Trustee/Beneficiary
Duty : To honour cheque drawn by customer – This duty is as per Sec. 31 of NI Act.
Conditions : 1. Cheque in order
2. Balance sufficient
3. No garnishee order/attachment order
For wrongful dishonor of the cheque Bank will be liable to drawer (who write) of cheque not liable to payee
Banker's Right :
Bank also enjoy certain right, which can exercise at the time of need in accounts maintained by the customer.
Such rights are exercised or applied when the customer has failed to repay the dues/loan and simultaneously,
is having a credit balance in some other A/c.
1. Right of General Lien, set off, Appropriation
2. Right to act according to the mandate given by the customer

Lien

 Lien is right of creditor to retain possession of the goods & securities of debtors till the debts due to him
are paid.
 In case of Lien possession can be retained but goods cannot be sold.
General Lien (Section 171 of the Indian Contract Act) This right is available only to bankers, Factors
wharfingers, attorneys. (Right to retain the goods for all dues payable by him)
Banker Lien : It is an implied pledge because the banker has right to retain as well as sell goods of the
borrower after giving him reasonable notice.
Negative lien : Declaration from the borrower that he will not sell or create any charge over a property till
banks dues are not paid without Bank's permission.

Right of set off

 Set off is the right to combine two or more accounts having debit & credit balance.
 It is not defined in any act, it is available due to implied contract.
 Banks can exercise set off on SF/CA of customer to adjust overdue loan A/c for this purpose A/c at all
branches of the same bank are treated as one entity.
 Its not applicable on regular CC/OD/TL A/cs.
 For set-off both loan & deposit A/cs should be in same right and same capacity.
 The debt should be due and accuring due.
 Reasonable notice should be sent to Depositor before exercising set off.
If loan in the name of A deposit in the name of
A 
Prop (A) 
A and B (E or S) ×
Partnership ABC & Sons ×
Loan in the name of A and B deposit in the name of
A&B 
B&A 
A 
B 
Loan in the name of ABC & sons Partnership Firm Deposit in the name of
ABC & Sons 
A 
pg. 24
 Right of Appropriation

Sec. 59, 60, 61 of Indian Contract Act deal with appropriation of payments.
 Clayton's rule related to appropriation of payments.
 This rule is applicable in case of death, insolvency, insanity of a joint borrower or partner or guarantor or
retirement of a partner.
 Clayton's rule applicable in case of CC/OD A/c.
Loan in the name of XYZ & Sons, X died on 5.12.2018
5/12/18 Debit balance 20,00,000 Dr
6/12/18 Deposit + 5 15,00,000 Dr
7/12/18 Deposit + 12 3,00,000 Dr
8/12/18 Withdrawal – 18 21,00,000 Dr
Liability of deceased partner outstanding at the time of death-credit
= 20,00,000 – 5,00,000 – 12,00,000 = 3,00,000

RIGHT OF LIEN, SET OFF & APPROPRIATION

PARTICULARS LIEN SET-OFF APPROPRIATION

1. Legal Statute Indian Contract Act Customs and Practice Indian Contract Act (Sec. 59,
(Sec 170, 171) amongst bankers 60 and 61)
2. Meaning Right of creditor to Rights of the Bank to Method of crediting amount
retain possession of consolidate different deposited by the customer to
goods & securities accounts of same its outstanding loan in
until the debts have borrower to arrive at CC/Current (OD).
been repaid. the net sum due.
3. Banker Customer Creditor-Debtor Creditor – Debtor & Crediter – Debtor
Relationship Debtor – Creditor
4. Applicable on Goods & Securities Amount of claim Amount of claim
5. Applied to A/c in the same order A/c in the same order A/c in the same order same
same capacity same capacity capacity
6. Requirement of Required except in Required except in Not Applicable
legal notice case of death, case of death,
insolvency or receipt insolvency or receipt
of a G.O. of a G.O.
7. Limitation No Limitation. Bank No Limitation. Bank No Limitation. Bank can
can adjust lawful can adjust lawful time adjust lawful time barred
time barred debts. barred debts. debts.
8. Garnishee Order Banker's lien is a Bank should exercise Bk to exercise this right for
(GO) general lien is an this right for adjusting adjusting its own debts before
implied pledge. its own debts before complying with GO.
complying with GO.

WHERE RIGHT IS AVAILABLE OR NOT

DEPOSIT IN THE NAME OF LOAN IN THE NAME OF RIGHT AVAILABLE OR NOT

Single person Jointly with others Available
Partner in a firm Partnership firm Available
Single name Same name Available
Proprietor Proprietorship firm Available
Joint – former/survivor Former Available
Joint account One of joint holders Not Available
Partnership firm One of partners Not Available
Trust Trustee Not Available

pg. 25
 Garnishee Order and Attachment Order

The Garnishee order is issued under Sec 60 order 21 rule 46A-46E of code of civil procedure 1908.
 Garnishee order is issued by the court on the application made by the Judgement creditor in a situation
where the Judgement debtor refuses to pay debt payable to him. The garnishee order is issued on the
banker maintaining Account of the Judgement order.
 There are three parties
Garnishee - Bank
Judgement debtor - Customer
Judgement creditor - At whose instance the order is issued
Garnishee order is issued in two parts
(a) Order NISI
(b) Order Absolute
Order NISI : It is preliminary order wherein the court directs the banker to stop the payment and seek the
explanation from the garnishee as to why the funds lying in the name of Judgement debtor should not be
utilised for meeting the Judgement Creditor's claim.
Order Absolute : When on the basis of the report submitted by the bank. The court issues order to the banker
attaching the entire credit balance or a portion thereof to discharge the liability towards Judgement creditor.
Applicability:
1. Account should be in same order and same capacity
2. Garnishee order applies only to those accounts which have credit balance - SB/Current, all term deposit,
CC, OD Cr balance
3. Garnishee order will not be applicable to unutilized CC/OD limit loan
4. Garnishee order is applicable only on the amount available with bank at the receiving the order not on
future credit.
Case Deposit in name of Order in name of Applicability
1st A A 
nd
2 A A&B 
3rd A ABC Firm 
4th A&B A ×
5th ABC Firm A ×
6th Trust/Co. Trustee/Director ×
 Garnishee order issued in a single name does not apply to account in joint names of Judgement debtor
with other person (4th case as above)
 Garnishee order is issued in Joint name, it will apply to individual account also of the same debtors (2nd case as
above)
 When Garnishee order is in the name of a partner it will not apply to partnership account (5 th case as
above)
 When Garnishee order is in the name of Firm, account of individual partners are covered (3rd case as
above)
5. It will not applicable on the amount deposited after receiving the order or cheque sent for collection.
6. If Garnishee order is received before the actual Cash Payment even though the cheque has been passed for
payment and token issued, the banker must stop the payment of the said cheque as the Garnishee order is
applicable.
7. If amount is mention in order it will be attach that much amount.
8. If amount is not mentioned than it will attach entire amount.
9. Bank will exercise set off before making payment to court.
10. Garnishee order is not applicable to money held abroad.
11. Garnishee order is not applicable on the items in safe custody or in safe deposit lockers.
12. Garnishee order is applicable on the account of the Deceased because it pertains to the previous liability
already determined by the court but is not applicable of the insolvent person.
13. Order is not applicable in Minor Account

pg. 26
14. Order is not applicable on FD held as collateral security (specific purpose)
15. If loan given against FD, applicable on the amount after adjusting the loan amount.
16. All cheques issued by customer will be returned with the reason that garnishee order has been received.
In the event of non-compliance of garnishee order, the court may issue the order to bank which will be
equivalent of the decree passed by court against the bank.

Attachment orders

Attachment order refers to orders issued by statutory authorities for recovery of Govt. dues. Sec. 226
(3) of Income Tax Act 1961 on receipt of this order, banker is required to remit the desired amount to
income tax authorities.
1. Attachment order issued by Revenue Authorities-IT Service Tax.
2. If amount is not mention : Attachment order is invalid.
3. Right of set off is available to Bank before applying order.
4. Order applicable when relationship between bank and customer is of debtor and creditor (in deposit A/c
only).
5. In case banker fails to comply with attachment order, it will be liable for the amount of order and deemed
as an Assessee in default.
6. When both Garnishee or Attachment order are received simultaneously priority should be given to
attachment order.
How Attachment order is different from Garnishee order
(a) Attachment order applies to Money deposited in A/c after receipt of order also till it is fully satisfied
whereas GO does not apply to subsequent deposits.
(b) Attachment order in single name applies to Joint A/c also proportionately unless the country is proved
whereas Garnishee order in single name does not apply to Joint Accounts.
Garnishee Order & Attachment Order
Particulars Garnishee Order Attachment Order
1. Issuing Authority Competent Court at the request of Revenue/Tax authority
judgement creditor
2. Legal Provision Civil Procedure Code, 1908 Sec. Sec. 226 (3) of Income Tax Act,
60, Order 21, Rule 46 1961
3. Nature of liability Private liability (Private dues) Statutory liability (Govt. dues)
4. Stages First, Order Nisi and then Order Directly issued
Absolute
5. Nature or recovery Recovery of private dues Recovery of Govt. dues
6. Depositor Judgement debtor Assessee in default
7. Amount May be mentioned specifically Must be mentioned specifically
8. Bank Judgement debtor's debtor Assessees debtor
9. Applicable to which On clear balance available in the Applicable on subsequent
amount account at the time of receipt. balance also.
10. Limitation period 12 years being execution of 30 years being govt. dues
decree
11. Deposits Demand deposits and Time Demand deposits and time
deposits deposits
12. Right of Set- Available for certain and due Available for ascertainable and
off/Appropriation debts due debts
13. Joint A/cs, order in single Not applicable Equal share depending upon the
name number of account holders
14. Joint A/c & order in same Applicable upto the order amount Applicable upto the order
names amount
15. Order in the name of Not applicable for A/cs in the Not applicable for A/cs in the
Partner, Trustee, Co's, name of firm, trusts or accounts name of firm, trusts or A/cs in
Liquidator etc. in the representative capacity. the representative capacity.
16. Deceased A/c Applicable Applicable

pg. 27
 17. Undrawn CC or OD limit Not applicable Not applicable
18. Unutilised limit against Balance Amount of FDR Balance Amount of FDR
FDR
19. FDR as collateral security Not applicable Not applicable
20. Preference Attachment Order will have the Attachment Order will have the
preference over Garnishee Order preference over Garnishee Order
if both received Simultaneously. if both received simultaneously.
21. Failure to comply the Contempt of Court Assessee in default
order
22. Future credits Not attached attached
Clear Balance :
Attachment order is applicable on the clear balances available in accounts, at the time of receipt of order, if
the order is received at 10:30 am. For Rs. 5 lakh and balance in the account is 3 lakh out of which Rs. 1 lakh
pertains to those cheques, which have been sent in clearing, this 1 lakh represents uncleared balance and hence
on this amount Attachment order will not be applicable. However, attachment order will be applicable on Rs.
2 lakh only.
Subsequent Balance :
Attachment order is applicable on the subsequent balances also which means amounts which are deposited by
the customer after receipt of order till the time liability under the attachment order is not satisfied.

pg. 28
 Bank Ombudsman Scheme 2006

The word 'Ombudsman' in general mean a public official who is appointed to investigate the citizen's
complaints against the administration. In India, any person whose grievance against a bank is not
resolved within a given period he can approach the Banking Ombudsman.
1. The ombudsman scheme has been started by RBI under section 35-A of BR Act
2. Applicable : The scheme is applicable to all commercial banks, RRB/Co-op banks including J&K state
3. Appointment and Tenure: It can be RBI's General Manager or Chief General Manager. The
appointment will be for maximum 3 year at a time applied appointed by RBI
4. Role is like a arbitrator with mutual consent
5. Procedure :
 who can file a complaint: Any person who has a grievance or through his representative (other than an
Advocate)
 where to complaint: To that office of the ombudsman within whose jurisdiction the branch or office of the
bank is located
 when : i. customer not satisfied with reply from bank
ii. if complaint is rejected by bank
6. Maximum time period to file complaint
 within 1 year if received reply from bank reply
 In case reply not received, complaint can be lodged not later than one year & one month after the date of
making the complaint to bank (within 13 months)
7. Ombudsman will not entertain complaints :
 Case is pending in the court
 Case has already been decided by the court
 Similar case has already been decided by ombudsman
 The complaint is made after the expiry of the period of limitation
 The complaint is of Frivolous, Vexatous, Malafide without sufficient cause
8. Procedure:
 On receipt of complaint views of bank called to promote settlement by agreement, ombudsman to settle
the complaint within one month
 If not settled within 1 month, ombudsman to announce his award
 Copy of award is sent to customer/bank
9. Maximum Amount of Award: Rs. 20 lakh, in addition to this award upto 1 lakh for mental agony
10. Credit Card: Maximum claim Rs. 1 lakh
11. After the award/ customer action:
 After receiving the award, the complainant has the option to either accept or reject the award if he accepts
the award, he will have to intimate the concerned bank in writing within 30 days of receipt of the award. If
complainant accepts the award, the bank will have to comply with the award within one month. Bank
would implement the award within one month of its receipts.
 If he rejects, or award is not acceptable to complainant, he can file an appeal to Appellate Authority
(Deputy Governor, RBI) within 30 days of the date of receipt of Communication regarding award or
rejection of the complaint. Period can be extended by 30 days by Appellate Authority.
12. After the award/ Bank action
 Bank may also can file appeal with Deputy Governor, RBI within 30 days from the date on which the
bank receives letter of acceptance of award by complainant.
 In the case of bank, appeal may be filed by a bank only with previous sanction of CMD or ED or CEO of
the bank.
Non-Implementation :-
If award is not implemented, report to Customer Service Committee of the Board and make disclosure in
balance sheet of the bank.

pg. 29
 Type of Customers

Minors

Who is Minor
Person domicile in India < 18 years
Who is Major
Every person who is domicile in India will become major on completion of age of 18 years
Types of Guardian
 Natural
 Testamentary (appointed by will)
 Legal Guardian (appointed by court)

MINOR Guardian
Hindu son, unmarried daughter Father on death or religion change, mother
Hindu married daughter Husband, if Husband is minor/expired Father in law
Muslim Father, on death, appointed by will if no will grand-father

 As per RBI, Deposit Accounts can be opened U/G of mother even if father is alive.
 In case of Hindu if father appoints a guardian by will, he will take place only after death of father as well
as mother.
1. Minor is not competent to contract (Sec 11 of Indian Contract Act 1872)
2. Minor cannot appoint an agent. However, a minor can be appointed as an agent, Principal liable for action
of agent.
3. Minor can't make nomination. However, minor can be appointed nominee.
4. Bank do not grant loan to minor, because legally it cannot be recovered from minor.
5. Minor cannot ratify a contract after attaining majority.
6. Loan given to minor for his necessity can be recovered from his property.
7. Minor cannot be full fledged partner. A minor can be admitted to benefits of partnership with the consent
of all partners.
8. As per Sec 30(1) of the Partnership Act.
i. Within six months after he attains majority or
ii. When it comes to his knowledge after becoming major whichever 1 or 2 later
Minor will have to give public notice whether he wants to continue as a partner.
9. If he remains silent during this period, amount to his implied consent, deemed to be partner, he will be
held liable as a partner from the date he has been admitted to the benefit of the partnership firm.
10. Minor cannot give stop payment instructions but he has right to demand, statement of account from the
bank.
11. A bearer cheque presented for cash payment by a minor may be paid as minor can give a valid discharge.
12. According to Sec 26 of NI Act a minor can draw or endorse or negotiate a cheque or a bill but he cannot
be held liable on such cheque or bill he can make everybody liable except himself.
13. No loan if account self operated.
14. Premature payment of FD allowed as minor can give valid discharge.
15. Funds in the account belong to minor not to the guardian.
16. When minor becomes major, KYC will be done on minor, now cheques signed by guardian will not be
paid without consent of minor who has become major now.

Self operated account of Minor

 Age-minimum 10 year + able to sign

pg. 30
 No restriction on amount of deposit
 Only SB Account
 No nomination, agent, power of attorney, mandate
 Death – Payments to legal heirs of minor
Accounts under Guardianship
 Guardian can open SB/RD/FD
 Guardian can make nomination
 During minority-operations by guardian
 In case of minor's death, balance payable to guardian
Partnership Firms
 Partnership is governed by Indian Partnership Act 1932
 Partnership is created by Agreement (optional)
 Written contract called partnership deed
 Partnership is created to run a business for profit.
 Minimum number of partners is 2.
 Maximum number of partners – 100 as per Companies Act 2013
 If a number of partner in a firm is more than 100 it will be illegal association, which is automatically
dissolved.
Who can become partner Who cannot become partner
 An individual person except minor  Minor, Insolvent, insane
 Limited Company  HUF – as per Supreme Court Judgement
 Partnership Firm  NBFC

Relationship
 Relation between Firm and Partners
Firm is Principals
Partners is Agents of the Firm
 Relation between Partners
 Every partner is both Principal as well as agent of the other partner
 Partner's authority is called implied authority of a partner
 Every partner has authority to participate in the business of the firm and other partner will be liable for his
action.
What is not included in implied Authority
 Opening of Bank account on behalf of Firm in his own name
 Purchase, Sale of Property
 Court case - Withdraw/File
 Undertaking new liability - Giving guarantee behalf of Firm
 Appointment of Agent
Liability of a Partner
 Jointly as well as severally
 Liability is unlimited
Operational Authority
 Decision will be taken by all partners any change in operational authority with the consent of all partners
 Every partner including sleeping partner has authority to stop payment of a cheque issued by another
partner of the firm.
 Withdrawal/Revocation of stop payment consent of all partner or operational authority required.
Death of Partner

pg. 31
 Firm is dissolved.
 Operation in the account suspended.
 If account is in Cr, operations are allowed for winding up of the firm.
 If account is in Dr, operation is suspended to keep to estate of deceased partner and to avoid operations of
the Clayton's rule.
Assets of the Firm
 Assets of the Firm first for liability of the firm, surplus if any can be distributed and used to meet the
personal liability of the partners.
 Assets of the partner first for liability of partner if surplus than meet the liability of the Firm.

Limited Companies

 Company is an artificial person. It has separate legal entity.

 Companies are registered with registrars of companies.
 Shareholders are owners of the company.
 Directors are agents of the company to manage company
 Registrar of companies issues certificate of incorporation.
Types of Limited Companies
Private and Public Company
Particular Private Co. Public Co.
Minimum Members 2 7
Maximum Members 200 Unlimited
Minimum Director 2 3
Maximum Director Unlimited Unlimited
Minimum paid-up capital 1 Lakh 5 Lakh
Transfer of share Restrictions No-Restrictions
Such companies can appoint any number of Directors but if Director goes beyond 15 then they need to pass a
special resolution.
Public Company : When minimum 51% shares with government
An Individual can become Director of maximum 20 companies out of which Public Ltd. companies can be
maximum 10.
Documents for opening account
 Memorandum of Association
 Articles of Association
 Certificate of Incorporation
 Board Resolution

Memorandum of Association

 It is an outward charter it establishes the relationship of the company with the rest of the world.
 Which contains objects/names/ Authorised Capital and Registered office of the company.
 Directors can borrow only for the objects mentioned in the MOA.
 Anything done by Directors beyond the objects beyond MOA it will be ULTRA VIRES. The company
will not be liable for such actions.

Articles of Association

 Articles of Association are the bye-laws and internal rules and regulations of the company.
 It contain borrowing powers of director.

pg. 32
 If directors want to borrow more than the paid up capital and free reserves of the company.
 It has to seek consent of the shareholders in general body meeting.
Constructive Notice : As per doctrine of 'Constructive Notice' anybody dealing with company is assumed to
have knowledge of Memorandum and Articles of Association.
COI - Issued by the Registrar of Companies after the Company has been registered with it. Its most important
document for opening account of a company. If account opened without COI then bank will be trustee of the
funds.
Board Resolution : is passed by the Board of Directors authorising opening and operation of the account by
official name of company it should be signed by Chairman of the Meeting.
 A cheque signed by Director presented for payment after the death of director will be paid if date is before
death.
 Certificate of Commencement of business was discontinued by Company Act 2013 in 2013.
 Cheque favouring company should not be credited to the personal account of the directors
Registration of Charge
1. Duty to Register Charges: As per Sec. 77, it is the duty of the company to register any charge on its
Property of Asset, situated in or outside India with the registrar of companies within 30 days of its
creation, ROC can allow another 30 days by payment of Additional Fee.
2. Charge-Holder Creditor : If the company fails to register the charge within 30 days, the person in whose
favour the charge is created may apply to the ROC for registration.
3. Charge is not required in case of pledge.
4. Charge is registered with ROC in whose jurisdiction the registered office of company is located.
5. ROC can allow further 60 days on payment of late fees. Maximum 60+60 = 120 days (previously 300
days)
Form for Registration of Charge
CHG1 Fresh Charge
CHG1 Modification
CHG4 Satisfaction

Small Company
 Paid up capital : max. 10 crore
 Annual turnover : max. 100 crore

Hindu Undivided Family (HUF)

1. HUF is neither a legal person nor a natural person it

is not created by agreement. It is not incorporated under any Act. It is from a common ancestor and
membership is by birth or adoption.
2. Management: The HUF are managed by the eldest member called Karta as per latest amendment of
Hindu Succession Act, Female members of HUF enjoys the same rights as male members. The Karta is
now the eldest member of HUF, male or female he/she discharges function of Karta.
3. While giving loan to HUF :
 Karta is personally liable, liability absolute/unlimited.
 Co-Parcener liability is limited up to his share in HUF.
 He is not personally liable, liability of minor Co-Parcener is upto his share.
4. If Karta stays (lives) outside India, he continues to be Karta, he can give mandate to anyone, may be the
outsider or any member of the family to conduct business of HUF or operate the account.
5. A Co-parcener cannot stop payment of the cheque unless he is authorized to operate the account.
6. As per Supreme Court decision, HUF cannot become the partner in any other partnership firm.
7. In case of death, insanity or insolvency of Karta, next senior most member of family becomes Karta.
8. In case of death of Co-Parcener – HUF continues.

pg. 33
9. He can conduct HUF business agent, to open bank account or to obtain loan for HUF Business can create
charge on HUF assets.
10. Karta can open bank account for precaution, all major coparceners should sign AOF.

Trusts

No bank account of Public Trusts can be opened without taking the registration certificate issued by the
Charity Commissioner. For Private Trusts, registration is optional. For Public trusts, Registration
compulsory. Public Trusts are governed by Indian Trust Act 1882
Parties of a Trust
 The Settler : Person who setup the Trust.
 The Trustee : The person or a corporation who manages the Trust Assets (one or more) according to Trust
Deed.
 The Beneficiary : The person who receives benefits from the trust.
Operational Authority :
 The operation and other aspects of the book account are to be conducted as per the Trust deed.
 The loan should be for the objects as mentioned in the Trust Deed.
 Stop Payment of a cheque and revocation of stop payment as per Operational Authority.
Trustee's Death :
 If anyone trustee dies, the Provision of Trust deed operate.
 If sole trustee dies, further operation in the account should be stopped and cheque already signed be paid.
. If date of cheque prior to his death, the court can appoint a trustee.
 Trustee cannot delegate his powers
 Power/Trustee Rights - As per Trust Deed
 KYC Documents : Copy of trust deed + 1D of trustee
 Sign on AOF : Authorised Trustees as per Trust Deed

pg. 34
 Nomination

Nomination (Sec 45ZA-45ZF of BR ACT)

For Deposits Sec 45ZA and 45ZB
Safe Custody Sec 45ZC and 45ZD
Safe Locker Sec 45ZE and 45ZF
 Nomination is compulsory in single accounts unless customer refuse to make nomination.
Facility of Nomination
 All types of Deposit Account - SB, CA, FD, RD
 Foreign Currency Account - NRE, FCNR (B) and NRO
Who can be nominee :
 Only an individual can be appointed nominee. He can be Resident or Non-Resident. He or she can be
minor, very old person or even an insolvent person.
 If nominee is minor the depositor will mention name of a minor person to take payment on behalf of
minor.
 Ltd. Company, Trust, Partnership, Society, HUF can neither make nominee nor become nominee.

No. of Nominee
Deposit Account 1
Safe Custody Single Accounts (only 1)
Joint Accounts - nomination not allowed
Safe Deposit Locker Single accounts (only 1)
E/s - not allowed.
Joint Account - more than one but not more than two
Nominee is an agent : In nomination, the nominee is treated as an agent for receiving money i.e. Trustee of
the Legal heirs.
 In case of joint account, all person to sign the nomination
Premature Payment :
 Premature Payment to the nominee before due date is a valid discharge to bank in case of deceased
account, no loan.
Legal Heir Vs. Nominee :
 When both nominee and legal heirs approach the bank. For getting payment after the death of depositor or
locker holder, bank will make payment to the nominee and not to legal heirs unless there is court order to
make payment to legal heirs.
 Bank gets a valid discharge by payment to nominee.
Name of Nominee :
 On FD and passbook nomination registration will be written and if depositor agrees name will also be
print.
When does the right of nominee start?
 Right of nominee starts only after death of all depositors/locker holders/ safe custody articles lodger.
Forms for nomination
Deposit Safe custody Safe Locker
For Fresh nomination DA1 SC1 SL1
For cancellation DA2 SC2 SL2
For change in nomination DA3 SC3 SL3

pg. 35
 Cash Reserve Ratio (CRR)

1. CRR is maintained as per Sec 42(1) of RBI Act.

2. No minimum, No maximum as per act
3. Decided by RBI → Present it is 4% of NDTL
NDTL – Net Demand and Time Liabilities
4. It is kept as cash with RBI
5. RBI does not pay any interest on CRR Balance (2007)
6. Average cash with RBI in a fortnight of 14 days should be 4% of NDTL
7. Min. Daily Balance : should not fall below 90% of the average fortnight balance.
Example NDTL - 1 lakh crore, CRR - @ 4%, Average balance - 4000 crore
at any point of time minimum balance = 3600 crore
8. If it is less, penalty will be → Bank rate + 3% p.a.
If shortfall continue next day, penalty → Bank rate + 5% p.a.
9. A reduction in CRR increase liquidity, increase in CRR reduces liquidity.
10. NDTL = Total Demand and Time Liability – Less
 Paid up Capital
 Free Reserves
 Borrowings from RBI
 Refinance from RBI/NABARD/NHB
 Interbank Liabilities
10. CRR Statement
Form-A, fortnightly within 7 days

Statutory Liquidity Ratio (SLR)

1. It is maintained as per Sec 24 of BR Act.

2. No minimum as per act but maximum can be 40% of NDTL Presently - 19.5% of NDTL
3. Latest change - Starting from January 2019 SLR to be reduced by 25 basis points on quarterly basis till it
reaches to level of – 18% of NDTL.
4. Reduction in SLR increase liquidity
Increase in SLR reduces liquidity
5. If there is a shortfall in SLR on any day of the fortnight, penalty will be - Bank rate + 3%
if shortfall continues next day penalty will be - BR + 5%
6. SLR is maintained as
 Cash with bank
 Cash with other bank
 Excess cash with RBI
 Investment in gold and gold bonds
 Investment in Govt. Securities
7. SLR Statement
Form-8, monthly basis by 20th of every month

Repo Rate :

 Under Repo, RBI purchases govt. securities from banks to Increase Liquidity with banking system.
 In this process Govt. Securities moves bank to RBI and liquidity moves RBI to bank.
 This transaction is done at Repo rate.

Reverse Repo:
pg. 36
Under Reverse Repo RBI sells govt. securities to banks to reduce liquidity with the banking system.
In this process Govt. Securities moves RBI to Bank and liquidity moves Bank to RBI
This transaction is done at Reverse Repo Rate.

Marginal Standing Facility (MSF)

 Provided by RBI to those banks who has shortfall in SLR

 Maximum facility can be 2% of NDTL
 MSF Rate decided by RBI
 It is 0.25% more than the Repo Rate.

Marginal Cost Of Funds Based Lending Rate (MCLR)

1. Applicability : w.e.f. 1 April 2016

2. Objective : To improve the transmission of Policy rates into the lending rates of banks.
3. Component of MCLR
 Marginal cost of funds
 Negative carry of CRR
 Operating costs
 Tenor Premium
4. MCLR – is the interest rate below which a bank can't grant any advance
5. Accounts Covered : All rupee loan sanctioned and credit limits renewed w.e.f. 1/4/16
6. Exemptions from MCLR
(a) Loan covered by Govt Schemes or refinance schemes where interest rate is specified → NRLM, NULM
(b) Advances to banks depositors against their own deposits.
(c) Advances to banks' own employees including retired employees.
(d) Loan to CEO/whole time Directors.
(e) Loans linked to a market determined external benchmark - Floting rates
(f) Fixed rate loans granted by banks.
7. Review of MCLR : Review on a monthly basis on Pre-announced date.
8. Who fix MCLR : Board of director, ALC- Asset liability committee
9. A bank will declare MCLR For atleast five maturities
(a) 1 Day MCLR, (b) 1 month MCLR, (c) 3 months, (d) 6 months, (e) 12 months

Exposure Norms RBI Guidelines

 Credit exposure such as TL, working Capital Loan

 Non Fund based exposure - LC, B/G, other non fund exposure
 Capital Fund exposure mean Tier I + Tier II Capital
 Exposure mean 100% of fund based limit + Non fund base limit
 Group mean - Management and Control with the same person

Type of exposure Single Borrower Borrower group

Normal case 15% of Capital Fund 40% of C.F.
Infrastructure borrower 20% of Capital Fund 50% of C.F.
Oil Marketing Company 25% of Capital Fund –
 For additional exposure bank discretion 5% in single or group
Condition
1. with Board approval
2. Disclose to Bank Balance Sheet
pg. 37
Exposure norms are not applicable to
 Loan against own deposit
 Loan guaranteed by Central Govt.
 Food Credit
 Sick Unit
 Statutory Restriction and RBI Guidelines
Statutory Restriction
(1) Sec 19 (2) BR Act
 Maximum holding by bank in share of a Limited Co. 30% of the paid up Capital of Company or 30% of
paid up capital and reserves of the bank whichever is lower.
(2) Sec 20 of BR Act
 A bank will not grant loan against security of its own shares.

As per RBI loan to Individual Against Shares

Physical Shares Maximum Loan - 10 lakh
Minimum Margin - 50%
Demat Shares Maximum Loan - 20 lakh
Minimum Margin - 25%
No loan against partly paid shares

Loan to Directors of the Bank

As per Sec20(1) BR Act Banks can't grant loan to its own directors except when permitted by RBI
RBI has permitted following loans
 Loan against own deposit
 Loan against govt securities
 Loan against LIC
 Credit Card
 Staff loan to employee and officer director

Loans to Directors of other banks relatives of Directors of own & other Bank
If loan below 25 lakh Officer can give within his power subject to
repotting to Board
If Loan more than 25 lakh It will be sanction by Board only.
Loan to Value Ratio of Home Loans
,
LTV = = = 80%

HOUSING
Loan Maximum LTV
Loan up to 30 lakh 90%
above 30 lakh to 75 lakh 80%
above 75 lakh 75%
GOLD JEWELLERY 75%
 Cost of stamp duty and registration charges not to be included in value of securities for LTV Ratio for
house cost above Rs. 10 lac.
 Bank should not grant any Advance against Gold bullion/primary gold.
 Banks are permitted to grant Advances against gold ornaments and jewellery and specially minted gold
coins sold by banks weight of coin max. 50 gram per customer.
 Loan against pledge of gold.

pg. 38
 CRILC – Central Repository of Information on Large credits

Central Repository of Information on Large credits w.e.f. 1.04.2014

Two Reports
1. CRILC – Main
2. CRILC – SMA2

CRILC Main
 Sent Monthly
 Rs. 5 cr. and above Exposure to Large Borrowers
 Current A/c balance 1 cr and above
 Non co-operative borrowers

CRILC – SMA2
 submitted on 'as and when' basis
 Bank shall report to CRILIC all borrower accounts in default (with aggregate exposure of Rs. 50 million
and above) on weekly basis at the close of business on every Friday.

pg. 39
 CONSUMER PROTECTION ACT 1986

The act extends to whole of India except J & K. J & K has a separate act on similar lines.
WHAT IS THE LIMITATION PERIOD FOR FILING COMPLAINT
Two years from the date of cause of action (Sec. 24A).

WHAT IS THE JURISDICTION FOR COMPLAINT

OFFICE VALUE/COMPENSATION
National Consumer Disputes Redressal Commission (National More than Rs. 100 Lac
Commission)
State Consumer Disputes Redressal Commission (State More that Rs. 20 Lac & upto Rs. 100
Commission) Lac
District Consumer Disputes Redressal Commission (District Upto Rs. 20 Lac
Forum)

WHAT IS THE TIME LIMIT FOR DECIDING COMPLAINTS/APPEALS?

Admissibility of complaint 21 days
Without analysis/testing of commodities 3 months
With analysis/testing of commodities 5 months

WHICH IS THE OFFICE FOR APPEAL?

Appeal from one form to another can be made within 30 days of the order.

DECISION OF WHOM TO APPEAL

District Forum State Commission Deposit of 50% amt. or 25000, whichever is less
State Commission National Commission Rs. 35000
National Commission Supreme Court Rs. 50000
Frivolous Complaint – imprisonment 1 month to 3 years and fine 2000 to 10000

pg. 40
 Foreign Exchange

Buying rate : Rate at which Bank will purchase FX. It is called as Bid Rate, inflow of FC.
Selling rate : Rate at which foreign exchange sold by the bank. It is also called as offer rate.

Outflow of FC Buying rate Selling rate

US $ 1 = 63.63/83 63.63 63.83

Cash/Ready rate Same day settlement

TOM T + 1 day settlement
SPOT Rate T + 2 days settlement working days
Forward : Forward rates are rates beyond spot deliveries i.e. beyond T + 2 working days
 Forward rate can be at premium or discount
If it is at premium
FR = spot rate + premium FR > SR (SPOT rate)
If it is at discount
FR = spot rate – Discount FR < SR
Foreign exchange – Direct and Indirect Rates
Direct rate : Where Foreign currency is fixed & Home currency variable
Example US$1 = Rs. 60.00 (or 69.00)
Principle : Buy Low, Sell High
Indirect rate : Where Home currency if fixed & foreign currency variable
Example Rs. 100 = US$ 1.66 (or 1.70)
Principle : Buy high, sell low
 In India direct rates are applied
Types of Rates
 TT buying rate
 Bill buying rate
 Bill selling rate
 TT selling rate

1. TT buying rate : If NOSTRO A/c of the bank is credited before credit to customers A/c TT buying rate
will be applicable.
Example : i. Receipt of electronic remittance from abroad for credit to local A/c
ii. Payment of Foreign DD drawn on us
iii. Cancellation of outward TT, MT, PO, etc.
iv. Cancellation of forward sale contract
(budk iSlk gekjs [kkrs esa vk pqdk gS)
2. Bill Buying rate
 When customer in India is paid before credit in our NOSTRO A/c of the Bank.
Example : i. Purchase/Discounting of Bills and other instruments
ii. Where bank has to claim cover after payment.
3. Bill Selling rate
 is applied when there is outflow of fund.
 when along with forex import bills are handled.
 Transaction involving transfer of proceeds of import bill, the rate to be applied is bill selling rate.
4. TT Selling rate
 outward without handle import bills
Example

pg. 41
 i. Issue of Foreign DD
ii. Cancellation of Forward Purchase Contract
iii. Bill Purchased Returned unpaid
iv. Outward remittance such as DD, TC etc.

Correspondent Bank A/c

NOSTRO – our A/c with you

India USA
PNB BOA
A/c open in ($)

This A/c opened by PNB in BOA

⇒ A/c of a bank in India with a correspondent bank abroad in Foreign currency.
VOSTRO – You’re a/c with US
India USA
PNB BOA
A/c open in (Rs.)
This A/c opened by BOA in PNB
⇒ A/c of a foreign correspondent bank with a bank in India in Indian Rupees.
LORO – Their A/c with them
India USA
PNB BOA
open A/c in $
NOSTRO

OBC OBC
A/c used by OBC

PNB's NOSTRO

Become OBC LORO

⇒ If a domestic bank does not have A/c in Foreign and uses NOSTRO A/c of Domestic Bank in Foreign
called LORO A/c.

Letter of Credit (LC)

 LC is an unconditional undertaking given by the issuing Bank on behalf of applicant (Importer) in Favour
of Beneficiary (Exporter). Undertaking to make payment on presentation of documents as per the terms
and condition of LC.
 Main Parties to LC
 Applicant/Importer – Buyer or importer on whose request the LC is opened.
 Issuing/Opening Bank – Who is importer's Bank, which opens LC on behalf of importer.
 Beneficiary – In whose favour LC is opened (Exporter)
 Advising Bank – It is the Branch of issuing Bank or its correspondent in exporter's country to advise the
LC to the Beneficiary. This Bank is not liable for payment but it is liable for ensuring the genuineness of
LC.
 Confirming Bank – Gives additional undertaking to make payment in addition to undertaking of issuing
bank.
 Nominated Bank/ Negotiating Bank – Bank that checks the document and makes payment to
beneficiary within 5 working days.

pg. 42
 UCPDC (UCP) - 600

All LC transactions are subject to uniform customs and practice for documentary credits which come into
force from 1 July, 2007 issued by International Chamber of Commerce, Paris. When there is a contradiction
between terms of LC and UCPDC, provisions as stated in LC will prevail.
Main features of UCP-600 are contained in articles as follows
1. Article 5 : Banks deal with documents and not with goods and service.
2. Article 14 : The number of days available for examination of documents to Negotiating/Nominated Bank
and issuing/opening bank each have a maximum 5 Banking days for examination of documents.
 Presentation must be made by the beneficiary not later than 21 calendar days after the date of shipment
but not later than the expiry date of the credit. Otherwise it will be treated as State Bill of Lading.
3. Article 28 : If there is no indication in the credit of the insurance coverage required.
 Minimum amount of insurance 110% of CIF value.
 Currency of the insurance should be same as of LC
 CIF - Cost, Insurance, Freight
 Insurance Policy should cover risk from date of shipment.
4. Article 36 : This article deals with disclaimer on 'Force Majeure' now 'acts of terrorism' has been added in
this Article.
 if an expiry date of LC there is Public Holiday in the Bank then LC can be negotiated on next day.
 but if on expiry date of LC Bank are closed due to riots or strike or terrorism, Act of God then expiry date
will not be extended.
5. If words 'about' 'approximate' is written in LC with quantity or amount, then variation of ±10% is
permitted if word 'about' is not written in LC with quantity or amount, then variation of ±5% is permitted
in quantity but not in amount.

1000 about ± 10% variation allowed

1000 ± 5% variation allowed
Rs. 1000 only No variation allowed
6. If with date 'ON' or 'about' is written ±5 calendar days allow, both start and end dates included.
7. Meaning related to UCP months
beginning of the Month 1st to 10th day, all dates inclusive
Middle of the Month 11th to 20th day, all dates inclusive
End of the Month 21st to last day, all dates inclusive
Ist half 1st to 15th day, all later inclusive
2nd half 16th to the last day all dates inclusive

Types of Bill of Lading

On-board Bill of Lading It acknowledges that the goods have been put on board of the shipment.
Clean Bill of Lading which does not contain any Adverse Clause, no mention of defective Goods or
Packing.
Closed Bill of Lading which contain a clause from the shipping company indicating defective condition of
goods or packing.
Stale Bill of Lading where LC validity period expired.

 Partial shipment unless prohibited

 If goods are loaded on different dates, different ports but on the same ship it will not be considered as
Partial shipment.
With recourse LC- with liability of beneficiary
 where the beneficiary holds himself liable to the holder of the bill if dishonoured is - with recourse LC
Without recourse LC-without liability of beneficiary

pg. 43
 where ho does not hold himself liable - without Recourse.
Risk depend on type of LC, can be beneficiary or nominated bank risk.

Sight/DP or Lisance/DA LCs

DP : Applicant receives document against payment only
DA : Applicant receives document against acceptance only he make payment later on due date
INCHOTERMS (International Commercial Terms)
Abbreviation Contract terms Explanation
FOB Free on Board Seller delivers the goods only, the buyer will bear the costs and
risks thereafter.
CFR Cost & Freight FOB + Freight (Seller)
CIF Cost, Insurance & Fright FOB + Freight + Insurance (Seller)
C&I Cost & Insurance The seller delivers the goods and insures the same

1 Revocable LC
2 Irrevocable LC
3 Confirmed LC
4 Transferable LC
5 Stand by LC
6 Back to Back LC
7 Red Clause LC
8 Green Clause LC
9 Revolving LC
10 With recourse LC
11 Without recourse LC
Types of LCs
cancellable - which can be cancelled or modify by the Issuing Bank without
informing to the beneficiary.
Non-cancellable - Once an irrevocable LC is issued, it cannot be changed or
cancelled without the consent of the beneficiary. If nothing mentioned, LC
will be treated as irrevocable
LC that is guaranteed by second bank in addition to the issuing bank.
This LC can be transferred by 1st beneficiary in favour of 2nd beneficiary in
full or parts.
This LC is substitute for guarantee of payment. A stand by LC assures
payments to beneficiary in case of non-performance by opener of LC.
According to capital adequacy ratio this is most risky LC.
2nd LC issued on security of original LC by Beneficiary Bank in favour of
Beneficiary Supplier. Terms of LC will be same other than price.
An LC in which a provision is provided by the issuing bank for allowing Pre-
shipment Credit to the beneficiary for manufacturing and packing. It provide
advance to beneficiary before presentation of document.
Has provision for allowing Pre-shipment Credit to the beneficiary for
storage/warehouse facility prior to shipment on board. (its extension of Red-
Clause LC)
where business dealings are on going basis, such LCs are opened. There are
meant for more than one dealing. (it is used like CC limit)
With liability of beneficiary
Without liability of beneficiary

Forex

 Type of person-for the purpose of FEMA, a person can be classified as 1. Resident 2. Non-Resident
 Resident – who stays in India for more than 182 days in previous financial year.
 Non Resident – A person who is not resident in India is a non-resident.
 Two types of Non Resident
1. NRI, PIO
2. Foreigners.
NRI : A citizen of India but resident outside India in connection with his business, profession etc.
PIO :
i. who held Indian Passport at any time
pg. 44
 ii. Either of his Parents/Grand Parents were a Citizen of India and who is presently not a national of
Pakistan or Bangladesh Spouse of PIO considered as PIO
Foreigners-Other persons are foreigners
Foreign Exchange Facilities for Residents
 Remittance abroad without any specific purpose under LRS (including gifts/donation and excluding
prohibited activity)
 LRS -remittance upto USD 250000 per financial year allowed for current & capital A/c transactions.
 Time for purchase of Forex : Before 60 days of journey
 Mode of purchase of Forex paying cash : Rs. 50000
 Form of Forex currency : upto USD 3000 in FC
upto USD 5000 for Iraq and Libya
For Russia and Iran and CIS countries and for HAJ Pilgrimage - No ceiling
 Indian Resident and Non Residents are permitted to bring currency notes into country and taking out of
the country Indian currency notes upto Rs. 25000/- to any country including Nepal and Bhutan, except
Pakistan and Bangladesh.
Unspent Foreign Exchange:
 Foreign exchange upto US$ 2000 in coins + other forex or TCs can be retained by Resident Indians out of
unspent Foreign Exchange brought back by him, can be utilised.
 For subsequent visits abroad during the specified period. The balance (over US$2000) has to be
necessarily surrendered to Authorised Dealer within 180 days or deposit in RFC Account.
 There is no restriction on Residents holding Foreign coins.
 Resident can bring any amount of Foreign exchange from abroad, which may be in the form of currency
or FCTC.
 If amount exceeds USD$10000 or its equivalent in TC/currency or currency notes, exceeds USD$5000 or
its equivalent in FC, Resident has to declare to Customs Authority in CDF (Currency Declaration Form)
Total Amount > USD$10000, Currency notes > USD$5000
 Forex can neither be taken to nor brought from Nepal and Bhutan.
 Indian rupees can be taken to Nepal and Bhutan in the denomination of Rs. 100 or below upto any amount
for denomination above Rs. 100, the limit is Rs. 25000.
 Foreign exchange in the form of currency can be taken abroad up to USD 3000 and balance in the form of
traveller cheque or draft.

Forex Deposit Accounts

Residents
Resident Foreign Currency (RFC) Account
Resident Foreign Currency Domestic (RFC-D) Account
Exchange Earners Foreign Currency (EEFC) Account
Non-Residents
Foreign Currency Non-resident (Bank) Account
Non-resident External (Rupee) Account (NRERA)
Non-resident ordinary account (NRO)

Resident Foreign Currency Account

1. Who can open : This account can be opened by a resident individual who was NRI and returned to India
2. Stay period outside India : Min 1 year
3. Jointly with resident relative as joint holder on F/S basis
4. Type of Account : CA, SB, FD Account (7 days to 10 years)
5. ROI and period of FDR : Bank discretion (Normally not more than Domestic Rate)
6. Source of Funds : Foreign exchange received as pension or other benefits from employer realization of
Assets held abroad.
7. Outward remittance : No restrictions (Not part of LRS)
Balance in existing accounts (non-resident accounts)
pg. 45
8. Proceeds of FCNR/NRE can credited to RFC A/c when status changes to resident.
9. Loan is not allowed against deposit
10. FCNR balance transferable on maturity
11. NRE account can be transferred immediately
12. NRO Account will be designated as Resident account (Funds cannot be transferred from NRO Account to
FCNR)
13. Local Amount will not deposit in it.

Resident Foreign Currency Domestic Account (RFCD)

 can be opened by resident Indians
 only current account can be opened (No interest payable)
 FC amount credited during a particular month, to be converted into Indian currency by last day of next
month
 Remittance : can be used for permitted current and capital account transactions, within LRS limit.
 any amount received from outside through authorized channel that can be credited to this A/c.
 unused FC amount can be credited to this A/c.
 Joint Account : is allowed with resident individuals who are close relatives on former or survivor basis.

Exchange Earners' Foreign Currency (EEFC)

 Account can be opened by exporters (which earn FX)
 Type of A/c : Interest Free Current Account
 Joint (F/S) A/c with close resident relative allowed but relative cannot operate the account during life time
of main account holder.
 Amount : 100% of export earning can be deposited without any amount ceiling. (There is no restriction as
such)
 FC amount credited during a particular month to be converted into Indian currency by last day of next
month.

Balance can be used for

 Permitted current and capital account transactions
 Adjustment of pre-shipment and post-shipment loans

Foreign currency Non-resident Bank accounts (FCNRB)

 NRIs and PIOs can open

 They can open single A/c or Joint A/c also
 Single name or Joint A/c with NRI allowed
 Joint (F/S) A/c with close resident relative allowed
 Type of Account : FD only (1 to 5 years), RD cannot be opened.
 In any freely convertible currency (previously it can be opened in 6 currencies but now it can open in any
currency )
 Interest : Ceiling interest fixed by RBI (presently ceiling)
 LIBOR + 2% for 1 year to less than 3 year.
 LIBOR + 3% for 3 years to 5 years.
 Loan Against FD : Rupee/FC loan to depositor or 3rd party : upto full value of FDR minus Margin
 FC risk : to be borne by Bank (foreign currency rate increase or decrease)
 Remittance : Interest and principal fully repatriable (LRS not applicable)
 Tax : Interest not taxable, TDS not applicable.
 Proceeds on maturity can be sent in the name of 3rd parties on request from the account holder.
 Conversion of FCNR to NRE to be treated as pre-mature withdrawal.
 If FCNR (B) is upto one year, no compounding is allowed.

pg. 46
 Periodicity of Interest : After every 180 days
 No compounding for Non-Resident External Rupee Account FD upto 1 year.

 NRI and PIO can open

 Single name or Joint A/c with NRI allowed
 Joint (F/S) A/c with resident allowed
 Account : SB, CA, FD (period at bank A/c) RD allowed.
 Rate of Interest : Bank discretion but not more than domestic rates, interest is compounding quarterly.
 Loan : upto full value of FDR by keeping appropriate margin, to depositor or 3 rd party allowed.
Margin/ROI, at bank discretion.
 FC risk : to be borne by the customer.
 Account is opened in rupee by converting the FC at current exchange rate.
 Remittance : Interest and principal fully repatriable.
 Tax : Interest not taxable, TDS not applicable.
 Amount can be transferred from FCNR to NRE-RA at TT Buying rate and from NRE to FCNR, at TT
selling rate. (on Non-resident A/c – non covered by LRS schemes)

Non-resident Ordinary Account

 NRI and PIO (including from Bangladesh) can open

 Single or Joint A/c with resident or non-residents
 Source of Funds : Fresh Inward Remittance (FIR) or existing account designated as NRO on change of
status from resident to non-resident
 Local money also can be deposited in this A/c
 FDR : Interest and period of FDR to be decided by the bank (7 days to 10 years)
 Tax : All interest payments are taxable. TDS applies @ 30% on interest on local funds and 20% on FIR.
 Remittance : including the sale proceed of immovable property can be made abroad upto 1 million US$
per FY.
 Remittance : Interest and current income fully repatriable but principal is not.
 Repatriable funds can be transferred to NRE-RA account upto USD 1 million/per financial year.
 Type of A/c : SB, Current, FD, RD, Credits : Remittance from abroad + local income

pg. 47
 Govt. Schemes

SSA – Sukanya Samriddhi Account

1. SSA is a Government of India backed saving scheme targeted at the parents of girl children. The scheme
encourages parents to build a fund for the future education and marriage expenses of their female child.
2. The scheme was launched by Prime Minister Narendra Modi on 22 January 2015 in Panipat, Haryana.
The Accounts can be opened at any India Post Office or a branch of some authorized commercial banks.
3. The account can be opened anytime between the birth of a girl child and the time she attains 10 years age
by the parent/guardian.
4. Only one A/c is allowed per child. Parent can open a maximum of two accounts for each of their children
(exception allowed for twins and triplets). The account can be transferred to anywhere in India.
5. A minimum of Rs. 250 must be deposited in the account initially. Thereafter, any amount in multiples of
Rs. 100 can be deposited however, the maximum deposit limit is Rs. 1,50,000.
6. The girl can operate her account after she reaches the age of 10. The account allows 50% withdrawal at
the age of 18 for higher education purposes.
7. The account reaches maturity after time period of 21 year from date of opening it.
8. Deposits in the A/c can be made till the completion of 14 years, from the date of the opening of the
account.
Interest Rates Revisions

Sr. Financial Year Date Range Interest Rate Min. balance Max. investment
No.
1. 2014-15 1.4.14 to 31.3.15 9.1 1000 1,50,000
2. 2015-16 1.4.15 to 31.3.16 9.2 1000 1,50,000
3. 2016-17 1.4.16 to 31.12.16 8.6 1000 1,50,000
4. 2016-17 1.1.17 to 31.3.17 8.5 1000 1,50,000
5. 2017-18 1.4.17 to 30.6.17 8.4 1000 1,50,000
6. 2017-18 1.7.17 to 31.12.17 8.3 1000 1,50,000
7. 2018-19 1.1.18 to 30.9.18 8.1 250 1,50,000
8. 2018-19 1.10.18 to onward 8.5 250 1,50,000

1. How many number of deposits permitted in a year?

i. No fixed number of deposits
ii. The depositor can deposit a multiple of Rs. 100 through out the year.
iii. Maximum 12 number of deposits in a year
(a) only i and ii
(b) only i and iii
(c) only ii and iii
(d) i, ii and iii Ans. (c)
2. The account is limited for _________ of the parents.
(a) 3 girl children
(b) 1 girl child
(c) 2 girl children Ans. (d)
(d) 2 girl children or 3 in case of twin girls as second birth or the first birth itself results in 3 girl children.
3. SSY can be opened for ? (i) Your girl child (ii) Your boy child (iii) Your adopted girl child
(a) only (i) and (ii)
(b) only (i) and (iii)
(c) only (ii) and (iii)
(d) (i), (ii) and (iii) Ans. (b)

pg. 48
4. Pre-mature withdrawal of upto 50% of the amount is allowed after the account holder turns ______ for the
requirement of _________
(a) 21 year, marriage
(b) 18 year, marriage or higher education
(c) 18 year, marriage
(d) 21 year, marriage or higher education Ans. (b)
5. SSY account can be opened under the name of the girl child, till she attains an age of _______
(a) 10 years
(b) 11 years
(c) 12 years
(d) 14 years Ans. (a)
6. The maturity duration of the account is _______ from the date of opening of the account.
(a) 10 years
(b) 14 years
(c) 21 years
(d) 25 years Ans. (c)
7. The maximum limit for deposits in the SSY A/c is Rs. _____ per year.
(a) Rs. 1,00,000
(b) Rs. 1,50,000
(c) Rs. 2,00,000
(d) No limit Ans. (b)

PPF (Public Provident Fund)

 Account can be opened only in the name of individuals. Joint Accounts and HUF account not allowed.
 Contribution : Minimum Rs. 500 & maximum Rs. 1,50,000 p.a. (maximum 12 instalments in a year)
 Period : 15 years, can be extended by blocks of 5 years each.
 Nomination : allowed, nominees can be one or more than one
 Penalty for non deposit in a FY : Rs. 50 per FY
 Interest rate on deposits : Current 7.6%

Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)

 Cover Life for natural or accidental death

 The scheme would be offered/administered through LIC & other Life Insurance Companies.
 Scope : 18 to 50 years
 Cover period : 1 June to 31st May
 Insurance cover : 2 lakh
 Premium : 330 per annum
 Appropriation of premium
Insurance Co. BC Administrative Expenses to Bank
289 + 30 + 11 = 330

Pradhan Mantri Surakshya Bima Yojana (PMSBY)

 Is an Accident Insurance Scheme

 Scope : 18 to 70 years
 Cover period : 1 June to 31st May
 Benefits under the scheme
Death : 2 lakh
Both eyes/hands/feet/loss of sight : 2 Lakh
one eye or loss of use of one hand/foot : 1 Lakh
 Premium – 12 per annum
pg. 49
 Appropriation of premium
Insurance Co. BC Bank
10 + 1 + 1 = 12

Atal Pension Yojna (APY)

1. Atal Pension Yojana is a pension scheme mainly focused on the unorganized sector.
2. Eligibility : APY is open to all citizen of India have a Saving Bank A/c.
3. Age for joining : Minimum age is 18 years and Maximum 40 years
4. Pension : 1000 to 5000 per month after the age of 60 years until death.
5. The government would make a co-contribution @ 50% of the total contribution, or Rs. 1000 per annum,
whichever is lower for 5 years (FY 2015-16 to 2019-20) to all eligible subscribers who has joined APY
before 31.12.2015.
6. Incentive : Per capita incentive @ Rs. 100/- is available for mobilising new accounts.
7. On the death of subscriber, spouse can claim the pension. On the death of both the contributor and his/her
spouse, the nominee will be given the accumulated corpus of the subscriber.
8. Exit from APY may be permitted in special circumstances like terminal illness or death of the subscriber.
In such cases, the accumulated corpus will be returned to the subscriber or to the nominee, as the case
may be. In case of voluntary exit from APY before the age of 60 for other reasons, government's co-
contribution and returns thereon are not paid to subscriber.

Pradhan Mantri Jan Dhan Yojana (PMJDY)

Pillars of Financial Inclusion : 6 pillars namely

 Universal access to Banking Facilities.
 Providing Basic Banking Accounts with OD Facility and Rupay Debit cards to all householders
 Financial Literacy Programme
 Creation of Credit Guarantee Fund
 Micro Insurance
 Unorganized Sector Pension Schemes like APY.

Objective : Facility to the poorest of poor on Pan India basis Banking by using technology. Routing
governments benefits direct in the bank accounts of beneficiaries and DBT (Direct Benefit Transfer).
Features of PMJDY
 No requirement of minimum balance – zero balance A/c
 Accidental insurance of 1 lac.
 Life Insurance cover of Rs. 30,000/-
 OD facility upto Rs. 10,000 to be permitted on 6 months of satisfactory operation
 No condition attached for OD upto Rs. 2,000/-.

Pradhan Mantri Vaya Vandana Yojana

Introduction : GOI in the Budget Speech of 2018-19 has announced the enhancement of maximum limit
under PMYVY to Rs. 15 lakhs per senior citizen. The period of sale for this scheme has also been extended
upto 31st March 2020.
LIC of India has been given the sole privilege to operate the scheme.
Benefits
Pension Payment
Death Benefit
Maturity Benefit
Eligibility conditions
Minimum entry age : 60 years completed
Maximum entry age : No limit
pg. 50
Policy term : 10 years.
Minimum & maximum pension Rs. 1000 P.M. to 10,000 P.M.
Mode of pension : yearly, half yearly, quarterly, monthly

PMMY : Pradhan Mantri Mudra Yojana (8.04.15)

MUDRA : Micro Units and Development & Refinance Agency Ltd. It is new institution setup by Govt. to
provide funding to the non-corporate, non farm sector income generating activities of micro & small
enterprises whose credit need are below Rs. 10 lakh.

Schemes : Three schemes – Shishu, Kishor, Tarun

Shishu : covers loans upto Rs. 50,000
Kishore : covers loans above Rs. 50,000 and upto Rs. 5,00,000
Tarun : covers loans above Rs. 5,00,000/- and upto to Rs. 10,00,000
cover under Shishu Schemes : At least 60% of the credit should flow to Shishu category units and balance to
Kishor & Tarun categories
 under Mudra Scheme no collateral or loan application fee required
 Target : For 2018-19, Rs. 3,00,000 cr.
 All advance under MUDRA will be classified under MSME
 Mudra is set up as a subsidiary of SIDBI

Senior Citizen's Saving Scheme

Operated through : Post offices & banks maintaining PPF A/c

Age : 60 years & above in case of VRS/super annuation – 55 years & above
Joint A/c : Allowed only with spouse
Nomination : available, NRIs can be nominees.
Investment : Multiples of Rs. 1000/-, maximum – Rs. 15 lac
Tenor : 5 years that can be extended by 3 years
TDS : Applicable
Premature closure : with penalty after one year allowed.
Penalty 1.5 for closure before 2 years and 1% after 2 years.

pg. 51
 Negotiable Instrument Act

 Provisions relating to negotiable instruments are given in the NI Act 1881, applicable whole in India
including J & K
 Section 13 gives the meaning of NI
 As per sec. 13 of the Act, a promissory note, Bill of exchange or cheque payable either to order or to
bearer
 Some instruments like Bill of lading, Railway receipts, Dock warrant, Warehouse receipt, Delivery order
etc. are also treated as negotiable instrument as per Transfer of Property Act
 As per customs & usage certain instruments such as Govt. P/N, Certificate of deposit, Commercial paper,
Treasury bills are also negotiable instruments
 Basic features of negotiable instruments
(a) Freely transferability : The instrument should be freely transferable (i) it may be by delivery if it is
payable to bearer.
(ii) By endorsement and delivery if it is payable to order.
(B) The title of transferee will be better than the transferor.
(i) The person taking the instrument bonafide for value (known as holder in due course) gets an absolute
title to the instrument notwithstanding any defect in the title of the transferor or any prior party.

Types of Negotiable Instruments :

PROMISSORY NOTE : (Sec. 4 of NI Act)
There are two types of Promissory Notes i.e. Demand P/N i.e. payable on Demand and Usance P/N, payable
after a pre decided definite period.
A 'Promissory note' is an instrument in writing containing an unconditional undertaking. Signed by the maker
to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.
 It required to be stamped as Indian Stamp Act.
 There are 2 parties (Maker & Payee)
 Currency/bank Notes though fulfill the condition of P/N have been excluded from the definition of P/N.

Bill of Exchange : (Sec. 5 of NI Act)

A 'bill of exchange' is an instrument in writing containing an unconditional order, signed by maker, directing a
certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of
the instrument.
 There are 3 parties (Drawer, Drawee, Payee)
Drawer : The person ordering for payment (Seller)
Drawee : Directed to pay (Buyer)
Payee : Beneficiary (Person authorised to obtain payment)

CHEQUE : (Sec. 6 of NI Act)

A cheque is a bill of exchange, but always payable on demand and drawee is always a banker, it also include
truncated cheque and electronic cheque.
There are 3 parties (Drawer, Drawee, Payee)
Drawer : A/c holder
Drawee : Bank
Payee : Person named in the cheque
 Payable to order or bearer
 If order or bearer both written in cheque, cheque is to be treated payable to Bearer
 If order or bearer not written, cheque is to be treated 'order'
 As per Sec. 31 of RBI Act, no person other than Central Govt. or RBI or any other person authorized in
this behalf can issue bearer Promissory Notes and demand bill of exchange payable to bearer.

pg. 52
Electronic Cheque
 It is exact mirror (scanned) image of a paper cheque, signed by drawer, in secure payment system, with an
electronic signature and asymmetric crypto system
 Electronic signature has two keys
(1) Private key (used for signing)
(2) Public key (used for verification of signatures)

Inchoate Instruments : (Incomplete instruments)

Where cheque is signed but some other particular such as date, name of payee or amount is not stated is called
as inchoate or incomplete instrument.
 It can't be paid in this form.
 Incomplete cheque can be completed by its holder (Payee or endorsee) if the holder or drawer completes
it, it can be paid and the completion will not be treated as material alteration.

Ambiguous Instruments : It is defined in Sec. 17 of NI Act, 1881. Ambiguous instrument is an instrument

which in form is such that it may either be treated by holder as a Promissory note or Bill of exchange.

HOLDER : A person who is entitled to hold the negotiable instrument in his own name, to possess the
instrument and to recover or receive its amount due from the parties thereto is called a holder.

HOLDER IN DUE COURSE : A person who become possessor of NI for valuable consideration, in good
faith, before becoming due, and without having any reason to believe that the person transferring the
instrument was not entitled thereto.

HOLDER HOLDER In Due Course

Consideration Not essential Essential
Actual possession Not essential Essential
Defective title will affect the instrument will not affect the instrument
Section Section 8 Section 9

Payment of Cheques
Payment in due course : As per Sec. 10, a payment would be considered in due course if made
(a) Payment in good faith
(b) without negligence
(c) Payment as per apparent tenor
(d) to a person in possession of the instrument
(e) Do not afford a reasonable ground for believing that he is not entitled to receive payment of that amount.

Important condition to be satisfied before making payment

(1) Signatures as per record
(2) Sufficient balance in A/c
(3) Presented during business hours.
(1) Signatures as per record
 Signature should not be forged signatures
 Forged signatures : If there is the signatures, such an instrument is null and void. Paying banker will not
get protection if it pays such a cheque even though the drawer have received statement of accounts and
did not point out the mistake.
 However, if the cheque has been signed by the drawer himself but in different fashion example Naveen
Kumar Sharma signs as N.K. Sharma The banker will not be liable.
(2) Sufficient balance in A/c
 Sufficient balance in same Account

pg. 53
 If the balance in the A/c is insufficient to pay the cheque, it should not be paid relying on the balance in
some other account of the same customer or transferring the amount from the other account of the same
customer.
Example : Ram has SB A/c with Rs. 20,000 balance and C/A with average balance of Rs. 5 lac balance
 Cheque issued Rs. 25,000 in SB A/c can't be paid.
 If number of cheques are presented at the same time and balance is not sufficient to pay all the cheques,
then normally priority is given to cheques favouring revenue authorities, then public authorities and if
balance is left maximum number of cheques should be passed.
 Bank will have to pay the cheque if there is sufficient balance even after that balance below minimum
balance condition.
Example : Ram SB A/c has Rs. 20,000 balance, min. balance condition is for Rs. 1,500, cheque of Rs.
20,000 is presented by Shyam, the payee – Bank will have to pay.
(3) Presented during business hours : The payment of a
 Cheque should be made only during banking hours otherwise it will not be payment in due course.
 If payment is made to payee, bank will be liable for loss to the customer.
However in case of payment to drawer, the payment of a reasonable amount can be made, bank is not liable in
that condition even payment after banking hours.

Amount of cheque
 The amount should be written both in words and figures.
 As per Sec. 18 of the NI Act, if the amount written in words and figures differ, the amount written in
words should be paid.
Example : Amount is Rs. 2 lac in words and Rs. 2,000 in figures cheque to be paid for Rs. 2 lac
 Amount written in words is called : Legal amount
 Amount written in figures is called : Courtesy amount

Ink, Script, Handwriting on cheque

 A cheque can be drawn in different inks, handwritings or different scripts. Thus a cheque presented with
(a) different inks or
(b) different scripts or
(c) different handwritings
is a valid mandate or can be paid.

Language
 The cheque should be written in Hindi, English or Regional Language. Bank is within its power to return
a cheque written in language other than the language of that region.

Signature on Back
When a cheque is presented for payment, signature of the presenter are taken on the back as a witness of
payment. If the presenter refuses to sign, the bank can take receipt on a separate paper.

Format of cheque
 Form of cheque is not prescribed in any act, it is practice
 Design of CTS cheques is approved by RBI under its CTS 2010 Regulations
 All banks providing cheque facility to their customers, will issue only 'CTS-2010' standard cheques across
the country.
 W.e.f. 1.1.19 only CTS cheques for CTS clearing

Date on cheque

Ante dated cheque :

 A cheque dated prior to its date of presentation is called Ante dated cheque.
 It is valid mandate of the customer.

pg. 54
 If a cheque dated prior to the date of opening the account or issue of cheque book can be paid if otherwise
in order.
Example : A cheque written on Jan. 15, is dated as Jan. 10, A/c opened on Jan. 13, it will be paid

Post Dated Cheque :

 A cheque with a future date (subsequently to the date of presentation), it is a valid mandate.
 But it can be paid or becomes operative from the date written on the cheque or thereafter till it is stale.
 If it is paid before date on cheque, it is not payment in due course, bank will be liable to drawer.
 Cheque written on Feb. 10, 2018 is dated as Feb. 20, 2018. It is presented on Feb. 18, 2018 : it will not be
paid.

Stale Cheque :
 It is a cheque, the validity period of which has expired.
 As per RBI guidelines issued under Section 35A of BR Act, a cheque becomes stale after 3 months of its
issue (w.e.f. 1.4.12).
 The validity can be reduced by the drawer but it cannot be extended.
Example : Cheque dated 10 June 2019 becomes stale on 10 Sep 2019
 On a cheque becoming stale, the cheque can be revalidated upto 3 months at a time.
Example : If cheque revalidated on Aug. 20 is valid till Nov. 20.

Impossible date :
 Where date written on a cheque is a non-existed date, cheque treated dated as last date of that month, it
can be paid on that last day of the month or within three months of the last day of the month
Example : Cheque dated 31.06.17 is treated as dated 30.06.17

Alteration in Cheque

Alteration are of two categories

 Material Alteration
 Non material Alteration
(1) Material Alteration
 The change from order to bearer
 Cancellation of crossing or conversion special crossing to general crossing
 Change in date, amount or name of payee
 Multilation of cheque
If such cheque is paid, bank is liable.
Under Sec. 89 of NI Act, 1881 Paying banker gets protection
 In case of payment of materially altered cheques if the alteration is not visible, even when cheque is
examined with due care, payment has been made in due course.
 W.e.f. 31.12.10 CTS cheques with material alteration except revalidation of date will not be collected
even if confirmed by drawer.
 If any material alteration on a cheque it can be only after confirmation from drawer under the full
signatures.

(2) Non-material Alteration

 Completion of incomplete cheque by holder/payee
 Crossing of uncrossed cheque or conversion of bearer to order or converting general crossing to special
crossing.
 Alterations confirmed by drawer
A cheque with such alterations, can be paid.

Crosssing of cheques or demand draft

pg. 55
 Crossing is direction of drawer to paying bank or collecting bank
 Accordingly, crossed cheque can be paid to or through a bank only and not across the counter to payee or
holder.
 Payment to Payee's Bank can be in cash or in clearing or as transfer.
 Crossing is done by way 2 parallel lines on face of a cheque or a demand draft.
(Promissory note or Bill of exchange can't be cross)
 Who can cross a cheque
(a) Drawer himself before delivery.
(b) Holder (Payee or endorsee)
(c) Collecting Bank (Special crossing only)
Whosoever crosses, it is drawer's direction.

Types of crossing

 General crossing
 Special crossing
 Non negotiable crossing
 Account payee crossing

General crossing
 Two parallel lines can be with or without word
 Lines important not words
 Cheque presented with words 'Delhi' written in lines will be paid if presented in 'Mumbai'
 A general crossing can be converted into a special crossing.
Special crossing
 Name of a bank is written on the face of a cheque with or without two parallel lines.
 Name of bank important not the lines.
 Direction to paying bank for paying to that bank whose name is there on the face of the cheque.
 Cheque crossed to two or more branches of the same bank, is considered to one bank only.
 If a crossed specially to more than one bank (unless one bank is acting as collecting agent to another) the
payment shall be refused.

Not negotiable crossing (Section 130 of NI Act)

 If words 'Not Negotiable' are written between two parallel lines or with the name of a bank, the cheque
will continue to be transferable. It can be endorsed, it is warning to transferee of a cheque that he will not
have a better title than that of the transferor.

'Account Payee' Crossing

 Not recognized in any act
 It is outcome of custom and usuage
 It is a direction to the collecting banker
 Further endorsement/transfer is not allowed
 Account Payee Cheque can be collected for credit of the named payee only
 Cash payment not allowed
 RBI has clarified that, if amount is upto Rs. 50,000 a cheque in the name of member of primary credit
cooperative society can be collected in the A/c of society.
 Cancellation of crossing : can be done by drawer only under his full signatures by writing the words
crossing cancelled.
 If Joint A/c : both sign required.
 If E/S A/c : anyone of them.
 After cancellation of crossing payment can be made as open cheque.

pg. 56
When Banker must Refuse Payment
A paying banker must refuse payment on cheques if any of the following circumstances exist –
(1) on receipt of a notice of customer's death
(2) on customer/s becoming insolvent
(3) on receipt of a notice of the customer insanity
(4) on receipt of Garnishee/Attachment order
(5) post dated/stale cheque/incomplete cheque
(6) where the customer countermands the payment (stopped by the drawer)
(7) Insufficient balance/not presented during business hours/signatures not as per record
(8) On suspicious misuse by trustee.

Fraud Prevention

 Banks should use only CTS compliant cheques

 cheques of above Rs. 2 lac should be examined under ultra-violet ray lamp.
 Cheques of above Rs. 5 lac should be passed by using multiple level checking.

Transfer of a Negotiable Instrument and Endorsement

 Transfer of a NI : By Assignment or by Negotiation

 Negotiation of a Bearer Instrument : negotiated by mere delivery and no endorsement is required.
 Negotiation of an order instrument : can be negotiated by endorsement followed by delivery.
 Endorsement : Sec. 15 of the NI Act, defines endorsement which means signing on the reverse of an
instrument (or even on the piece of paper called allonge) for the purpose of negotiating the negotiable
instrument.
 Blank endorsement : If the endorser signs only his name without adding any instruction or directions it
can be converted into full by writing name of a person above signatures.
 Endorsement in Full : If it is made to a specified person.
 Sans recourse endorsement : excludes his personal liability by limiting the liability, in case of dishonour
of instrument, amount can't be recovered from such endorser.
 Conditional endorsement : If a condition is specified by the endorser example : pay to A on completion
of studies. Paying bank not ensure compliance of condition.
 Restrictive endorsement : If it is specified to one person only.
 Facultative endorsement : If the provisions of giving notice of dishonor is waived by the endorsee.

Protection to Collecting Banker

 If a bank collects a cheque for a customer, which not belong to the customer, it is conversion.
 Conversion mean an unauthorized act that wrongful or unlawful interference with another person's
property by another person, without his consent.
 Protection to collecting banker is available under Sect. 131 of the NI Act.
 Protection for collection of demand drafts that is as per Sec. 131A of NI Act.
 Protection is available only if
(1) The cheque/draft is crossed.
(2) It receives the payment in good faith & without negligence.
(3) The bank receives the payment for its customer.
(4) The bank acts as agent for collection and not holder for value.
 Sec. 89 protection for payment bank for materially altered instrument.
 Sec. 128 protection for payment in due course of crossed cheques.
 85-1 protected by payment in due course of order cheque.
 85-2 protected by payment in due course of bearer cheque.
pg. 57
 85-A protected to paying banker in case of Bank Draft.

Dishonour of Cheques due to insufficient balance

 As per Sec. 138 of the Act, when cheque is dishonoured for insufficient funds in the account of the
drawer, the payee (Holder) gets the right to file suit, subject to fulfillment of certain conditions.
 Suit can be field in the court of 1st class Judicial Magistrate or Metropolitan Magistrate.
 If cheque present across the counter : As per branch location where drawer maintains A/c.
 If cheque received for collection : As per branch location where payee has A/c.

Condition to become eligible to File suit

(a) The cheque should have been issued for discharge of lawful liability.
(b) Cheque should be returned with the reason 'Insufficient balance'.
(c) Cheque presented within 6 months or Validity period whichever is earlier.
Procedure before Filling Suit
(1) Notice by holder to drawer within 30 days of return of cheque or receipt of information about dishonour.
(2) Demanding payment within 15 days.
(3) The drawer can make payment within 15 days of the receipt of notice and only if he fails to do so
prosecution could take place.
(4) The complaint is to be made within one month of the cause of action arising i.e. expiry of notice period.
Punishment to drawer
(1) Punishment can be imprisonment upto 2 year or
(2) Maximum fine up to twice the amount of the cheque or both
Punishment in case of compromised
(1) Fine up to Rs. 5,000
(2) Imprisonment upto 1 year

Bill of Exchange

Demand bill : Payable on demand or at sight or on presentment

Usance Bill : Payable after some time
Documentary Bill : accompanied by document of title to goods
Clean Bill : which not accompanied by any document of title to goods
Inland bill : drawn or made in India and is either payable in India or on a person resident in India
Foreign bill : which is not an Inland bill drawn outside India
Accommodation Bill : mean a bill without consideration and dealing in such bills is called kite flying.

pg. 58
 BASEL - III

The Basel Standards are developed by the Basel Committee on Banking Supervision (BCBS), a ground
within the Bank For International Settlements (BIS) in Basel, Switzerland, to ensure safety, soundness
and solvency of the Banking System.

The BASEL Community on Banking Supervision (BCBS).

BASEL-II (2004) :-
It was implemented
mplemented in India from March 31, 2008.
BASEL-III (2010) :-
RBI guideline have becomes effective from 1 April 2013 in a phased manner. The BASEL III Capital Ratios
will be fully implemented as on March 31, 2019.

Objective :
1. Enhancing banking sector'ss ability to absorb shocks arising from Financial and economic stress.
2. To reduce risk of spillover from financial sector to real economy.

There are 3 mutual pillars of BASEL II & III

Minimum Capital Requirements –

Bank Will Bring Capital For Credit Risk, Market Risk & Operational Risk
CAR = Capital Fund/RWA × 100

Three Tiered Capital Fund

TIER - 1 ( Core or Permanent) Going Concern capital
TIER -2 (Supplementary) gone-concern
concern capital
TIER -33 (Not Allowed by RBI in India)
Tier – 1 Capital divided in 2 parts –
Common Equity Tier – 1 :- Mean amount contributed by owner or profit retained in business.
Additional Tier – 1 :- Mean borrowings from outsider on perpetual and permanent bases.

Capital Adequacy Ratio as Per RBI :-

:

India % BCBS %
1. Overall Capital Min. 9% of RWA 8%
Adequacy Ratio
2. Tier – 1 Ratio Min. 7% of RWA 6%
3. CET – 1 Ratio Min. 5.5% of RWA 4.5%
pg. 59
 4. AT – 1 Ratio Can be 1.5% of RWA 1.5%
5. Tier – 2 Ratio Can be 2% of RWA 2.00
6. will be

If AT – 1 is more than 1.5% than excess portion can be taken as Tier – 2 Capital.

In addition to this banks are required to bring Capital Conservation Buffer (CCB)
CCB will be brought as CET – 1 Therefore including CCB Ratio will be

1. Overall Capital Adequacy Ratio Min. 9 + 2.5 = 11.5% of RWA

2. Tier – 1 Ratio Min. 7 + 2.5 = 9.5% of RWA
3. CET – 1 Ratio Min. 5.5 + 2.5 = 8% of RWA

Component of Tier – 1
CET-1
1. Paid-up capital
2. Statutory Reserves
3. Share premium
4. Capital reserves from sale of assets
5. Other Disclose reserves
6. Revaluation reserves @ 55% discount (if reserves are of 100 crore then 45 would be taken)
7. FOREX translation reserves @ 25% discount

ii) Addition Tier 1 (AT-1)

1. Perpetual Non Cumulative Preference Share (PNCPS)
2. Perpetual (Permanent) Debt Instruments

Tier 2 Capital
1. General Provision and Loss Reserves (can be max. 1.25% of RWA)
2. Redeemable Cumulative Preference Share
3. Redeemable Debts Instruments
4. Redeemable Non Cumulative Preference Share
All preference share except PNCPS

Approach for calculation of capital

(1) Approach for Credit Risk

(a) Standardized approach
(b) Internal rating Based Approaches

(2) Approach for Market Risk

(a) Standardized Methods
(b) Internal Model Approach

pg. 60
 (3) Approach for Operational Risk
(a) Basic Indicator Approach
(b) Standardized Approach
(c) Advanced Measurement Approach

Risk Weights as per Standardize Approach

1. Cash 0%
2. Exposure to RBI 0%
3. Exposure to Central Govt. 0%
4. Exposure to State Govt. 0%
5. Loan Guaranteed by Central Govt. 0%
6. Loan Guaranteed by DICGC/CGFT/CGF for mudra loan 0%
7. Loan Guaranteed by ECGC 20%
8. Loan Guaranteed by State Govt. 20%
9. Exposure to Banks with CAR as per RBI 20%
10. AAA rated corporate 20%
11. Secured Staff Loans 20%
12. Un-secured staff Loans 75%
13. Retail Loans – Loans upto 5 cr. Max. annual sale < 5 cr. 75%
14. Credit card 125%
15. Personal Loan 125%
16. Consumer Loans 125%
17. Capital Market 125%
18. Venture Capital 150%
19. Commercial Real Estate
Residential Purpose 75%
Shop, Office 100%
20. Open Position in Foreign Currency & Gold 100%
21. Fixed Asset 100%
22. Other Assets 100%
23. NPA (If provision is < 20%) sub-st secured 15% 150%
24. NPA (If provision > 20% to < 50%) sub-st unsecured 25, dout-I/II 25-40 100%
25. NPA (If provision is > 50% Doubtful III, Loss 50%

Individual Housing Loan

LOAN LTV Risk Wt

Loan upto 30 Lakh LTV upto 80% 35%
Loan upto 30 Lakh LTV > 80 to 90% 50%
Loan > 30 lakh to 75 lakh ≤ 80 35%
> 75 lakh ≤ 75 50%

Corporate (Long Term Loan) Short Term Loan

Rating (RW)
AAA 20% A1 +
AA 30% A1
A 50% A2
BBB 100% A3
less than BBB 150% Below A3
Un-rated 100% 100%

pg. 61
All
The
Best

pg. 62
Powered by TCPDF (www.tcpdf.org)