JAIIB – Principles and Practices of Banking

1.            According to you what are the most important functions of Reserve Bank of India?

Ans:

a.    RBI is the Central Bank of the Country

b.    Acts as a Note Issuing Authority

c.    Acts as a Banker's Bank

d.    Acts as Banker to Government

e.        Supervise and Control Banks and financial Institute

f.     RBI is controlling inflation through Monetary and Credit Policy

g.    Regulates transactions in foreign exchange

2.            As per the Section 20 and Sec 21 of RBI Act RBI is obliged to transact banking business and mange the Public Debt of Central Government Can you elaborate the Role of RBI in the Public Debt

Ans:  Public Debt can be by way of long term bonds and or by way of Treasury Bills

a.            At present Treasury Bills are issued for periods of 91 days and 364 days. 

b.            The Treasury Bills are issued for meeting the Short Term requirements where as the Long Term Bonds are issued for various periods for meeting long term investments.

3.            What do you know by the Term Ways and Means Advances?

Ans:    As per Section 17 (5) of RBI Act, Bank can give the Central and State Government Advances which are repayable within 3 months.  This is thus a short term finance and bridge the interval between expenditure of the Government and the flow of revenue planned in the budget.

4.            Y.V.Reddy Committee has come out with a new concept of Monetary Aggregates and also Liquidity Aggregates.  What are they?

Ans:    M0, M1, M2, M3 are called Monetary Aggregage

and L 1, L2, L3 are called Liquidity Aggregates.

5.            What is Broad Money?

Ans:    M3 is known as Broad Money.

M1 - is known as Narrow Money and is

M1 = Currency is circulation + Bankers Deposit  with RBI + other deposits with RBI.

M3 =M1 + Certificate of Deposit issued by Banks + Term Deposit (excluding FCNR (B) with maturity upto one year + Term Deposti excluding FCNR (B) of more than one year + call borrowing by Banks from Non Depository Financial Corporate.

6.            What is L1, L2, L3 Liquidity Aggregates.

L1 = M3 + all deposits (Excluding NSEs)

L2 = L1 + Term Deposits/Term Borrowing/Certificate pf Deposits Issued by Term Lending Institution/Refinancing Institute.

L3 = L2 + Public Deposit of NBFCs.

7.            What is meant by Open Market Operation of RBI.

Ans:    The Buying and Selling of securities or other Assets like Foreign Exchange Gold by the Central Bank to alter the liquidity of the Banks is known as open Market Operation.  When RBI buys Government Securities from Banks the liquidity portion of the Banks increases.  Alternatively, when the Reserve Bank sells the securities to be Banks, the banks liquidity position is reduced.

8).What are the Quantitative Credit Control measures exercised by RBI.

Ans:

a.            Bank Rate

b.            Reserve Requirement

c.            Open Market Operation

d.            Interest Rate Policy

9). What is the Qualitative Control measures used by RBI.

Selective Credit Control is used by RBI to regulate cost and quantum of credit to select sectors.

10.       As per Section 45 ( c )       RBI has powers to direct Banks to submit details of credit extended by them - Elaborate.

Ans:   

RBI collects information on all the borrowers enjoying Secured Credit Limit of Rs.10 lacs and above and unsecured Credit Limit of Rs.5 lacs and above.

RBI also collects the details of all doubts loss of suit filed account with aggregate outstanding of RS.1 Crores and above and circulate the details to all Banks.

11.  What information is provided through BSR - I Return.

Ans:    BSR - I Part ( A ).  Branches are required to resort particulars of all borrowal accounts enjoying credit limit above of Rs.2 lacs.

BSR - I part B, details of limits of RS.2,00,000 and less are to be furnished.

12.  What are the components of NDTL.

Ans:

The Time, Savings and Current Depends, Sundry Creditors, Interest Accrual, Interest Accrued and Payable, Net of Liability to Banking System.

However, the same exclude the inside liability like, claim received from ECGC, amount received pending final adjustment towards the dues etc.,

13.  CRR is to be maintained as per RBI Act ------ Elaborate on this.

Ans:

a.            Cash Reserve Ratio as per Sec 42 of RBI Act.

b.            As per the latest Monetary Policy CRR is to be maintained @ 6% of NDTL for Scheduled Commercial Banks

c.            The Required Amount under CRR is to be kept with RBI in their Current Account in the case of Schedulesd Banks

14.  What is the mode of maintaining CRR

a.            CRR is to be maintained in the form of balance with CA of RBI.

15.  What are the major recommendations of Narasimhan Committee.

Ans:

a.            Introduction of Prudential Norms viz., Asset Classification, Income Recognition, Provisioning  and Capital Adequacy norms

b.            Reduction of SLR to 25% and CRR to a low level.

c.            Privatisation of Public Sector Banks.  Government Capital to be reduced to 51% in the first stage and then to 33% in the second stage.

d.            Introduction of new legal set up.  Set up DRT.

e.            Entry for Foreign Banks and also setting up of New Private Sector Banks.

f.             Recommended for setting up.  Board for Financial Supervision.

16.  What are the functions of Board for Financial Supervision

a.            Integrated Supervision over Commercial Banks, Financial Institution, Non Banking Financial Intermediaries. etc.,

b.            The Supervision will be both "on site" and "off site Supervision".

c.            For Off Site supervision RBI has introduced DSB Returns

17.  How many DSB Returns are introduced by RBI and which all areas they cover.

Ans:    There are seven types of DSB Returns.  Cover, Details of Assets and Liability of Banks, Capital Adequacy, NPA Assets, and Quality of Assets, Position of Unreconciled entries etc., etc.,

18.  What are the circumstances where disclosure of customers account is permitted

Ans:    Disclosure can be allowed as per order of court

a.            Order of Court

b.            As per sec 4S of Bankers Books Evidence Act 1891

c.            As per Income Tax ACt 1961 Sec 131 and Sec 133.

d.            As per Criminal Procedure Code

e.            As per Directions from Police Department, CBI etc.,

f.             FEMA and Money Laundering Act

g.            As per Companies Act 1956 as per Sec 251

h.            As per Sec 45 ( C ) of RBI Act, where credit information has to be disclosed

i.              Disclosure to another bank

j.              Disclosure in Public Interest

19.  What is the procedure to be followed when Garnishee Order Is received. Also explain what is Garnishee Order

a.            Order from Court called order Nishi.

b.            The order Nishi would instruct Bank to recover and Remit balance in the account of its creditors to court.

c.            Branch has to block the Account if it is not encumbered and then report to RO for further instruction.

d.            Branch has to intimate the customer also on the same.

e.            Branch has to then advise the details of Balance etc., to court.

f.             On receipt of final order from Court which is known as Order Absolute, branch has to remit the amount to court.

20.  What is the Speciality of Income Tax attachment  order compared to Garnishee Order.

Ans:   

a.            Garnishee order can be applied in the same capacity account

b.            Garnishee order does not attach account of Insolvent and Deceased customers account

c.            Only balance in account at the time of receipt attached.  Income tax attachment order on the other hand attaches,

d.            Deceased and also insolvent customers

e.            Inrespect of Joint account the order attaches 50% of the due

f.             Attach the available and also pipe line credits.

21.  What are the difference between Mandate and Power of Attorney.

Ans:    a.         Mandate is a simple letter of authority given by an Account Holder to another person to operate his account on his behalf.  To make, draw etc., of Bills or Negotiable Instruments.

b. Power of Attorney is a general  document used to convey powers for many other purposes besides the operation in the account.

a.            Mandate is given in Plain Paper

b.            Power of Attorney is given on a stamp paper

c.            Power of Attorney has to be executed in presence of a Notary Public.

d.            Power of Attorney can be Registered or Unregistered.

22.  What are the salient features of Capital Gains Tax Account 1988.

Ans:   

a.            For persons, firms and others, who have capital gain and wish to invest the same in house property etc., within a period of 3 years the mount of gain can be kept in an account known as Capital Tax Account.

b.            The Account can be either SB or Term Deposit.

c.            Nomination facility is available.

23.  What is a Probate.

"A copy of will certified under the seal of court of competent jurisdiction confirming that the will has been duly executed and is the valid one".

24.  What is the difference between Letter of Administration and Probate.

Ans:    Letter of Administration is issued where the party has not created a Will.

Probate is the certified approved will and is issued when the party has left a will.

25.  What is the present procedure for settlement of claim of deceased constituent.

Ans:

1.            Where ever Banks hold nominations in respect of deposit account holders, settlement should be done as per nominations.

2.            Where the settlement is sought as per Legal representation the same can be settled as per Court decisions.

3.            In other cases where Bank wish to settle without legal representations, Bank can call for

a.            Death Certificate

b.            Consent Letter

c.            Affidavit

d.            Enquiry forms

e.            Legal Heir Certificate

f.             Stamped Receipt

g.            Indemnity

26.  What are the important section of Negotiable Instrument which has relevance to day to day banking transactions.

Ans:

a.            Section 4,5,6 which define Promissory Note, Bill of Exchange and Cheque.

b.            Section 10 which defines payment in due course

c.            Section 31.  Obligation of a banker to meet customers mandate

d.            Section 85, 85 D - Protection to a paying banker paying an order instrument

e.            Section 89 - giving protection to a banker paying instruments with material alterations which are  not apparent.

f.             Sec 128, which gives protection to a banker paying a crossed cheque.

g.            Sec 131 gives protection to a banker collection a crossed cheque for a customer.

h.            Sec 138 - 142 Dishonour of cheque for want of Funds.

27.  What are the new guidelines on the NI Act relating to Sec 138 - 142.

Ans:

a.            The Amendment includes, imprisonment for 2 years and penalty twice amount of cheque.

b.            Time for initiating criminal action 30 days from the date of intimation of dishonour of cheque by the payee.

28.  What are the salient features of latest decided cases in respect of Dishonour of cheques under Section 138 - 142 of NI Act.

Ans:

The section is applicable to return of cheques

a)  By repeated presentations at the request of drawer

b)  In case of closure of account

29.  Which are committees constituted for improving Customer Services in Banks

a.            Talwar Committee

b.            Goiporia Committee

c.      Tarapore Committee

30.  What do you know of COPRA - 1986.

Ans:

1.            Consumer Protection Act 1986, provide the Consumer, a simple speedy and inexpensive way of redressal of grievance in case of any deficiency/defect in goods and services bought/used by him for a consideration.

2.            There are 3 types of agencies

a.            District Level Consumer Disputes redressal forum which can handle disputes upto Rs.20 lacs.

b.            State Consumer Disputes redressal commission which can handle disputes greater than20 lacs to Rs.100 lacs

c.            National Consumer Disputes Redressal Commission which can handle disputes exceeding RS.1 Crores

d.            The complaint has to be lodged within 2 years from the date of cause of action.

e.            No stamp duty is payable

31.  What is meant by credit clearing under Electronic Clearing Service (ECS)

Ans:

a.            This clearing service is introduced as per Saraf Committee Recommendations for handling repetitive or low value transactions like Interest dividend, pension etc., etc.,  For example - Dividend by UTI, its US 64 monthly interest on UTI schemes etc.,

32.  What is meant by ESC Debit clearing?

Ans:

This is for debit transactions like payment of electricity bills, telephone bills etc.,

33.  What is the importance of electronic funds transfer

Ans:   

a.         Saraf Committee recommended for the Introduction of EFT.

b.            Under EFT, funds can be transferred between branches of a bank and also between banks (via) electronic media

c.            RBI has recently developed a new EFT Special Electronic Funds transfer for transfer of Large Value Transaction.

34.  Elaborate on the back-stop facility declared in the Monetary Policy 2003-04.

Ans:

a.            Back stop interest rate will be at the reverse repo cut off rate at which funds were injected earlier.

b.            Where no reverse repo bid is accepted as per repo auction, the back stop interest will be 2% points over rep cut off rate of Pre-day under LAF.

c.            On days when no bids for repo or reverse repo auctions are received/accepted the back stop interest rate will be decidd by RBI on an ad-hoc basis.

35.  What is the purpose of the Information Technology Bill 2000

Ans:

a.            The Bill provide the legal frame work necessary for electronic commerce.

b.            Facilitate electronic filing of documents with Government agencies and

c.            Amend the Indian Penal Code, The Evidence Act, The Banker's Book of Evidence Act and The Reserve Bank of India Act.

36.  What all areas are covered by Information Technology Bill 2000

a.            Recognises, Authentication of Electronic records by the use of Asymmetric Cryptosystem and hash functions.

b.            It allows for information to be submitted to Government Department in electronic form.

c.            The Act recognises an electronic record which has been signed with a digital signature.

d.            It lays down the broad authority structure for implementing Public Key Infrastructure.

37.  What is RBS?

Ans:

a.            Risk based Supervision, which is developed as per Basle Committee Recommendations to strengthen the Banking System.

b.            What are the three Pillars of Basle II Accord.

Pillar I - Capital Adequacy Requirements

Pillar II            - Supervisory Review

Pillar III           - Market Discipline

38.  What is the quantum of Economic Capital that is stipulated by RBI.

Ans:                12% of the Regulatory Capital

39.  Under  Standadised approach what is the risk weight that is to be allowed for various Asset

Ans:

a.         Sovereign Asset                               0% to 150%

b.         Banks                                                 20% to 150%

c.         Others (Corporates)                         20% to 150%

depending on the rating of the Asset

40.  Under Internal Rating Based approach of rating the risk of various Assets, what are the types of credit risk considered.

a.            Corporates

b.            Banks

c.            Sovereign

d.            Retail

e.            Project Finance

f.             Equity

41.  What is the Fiscal Deficit

Fiscal Deficit = Revenue Deficit + Capital Expenditure -

Disinvestment receipts and loan Recoveries

42.  What is meant by Primary Fiscal Deficit

Ans:    Gross Fiscal Deficit - Interest Payment

43.  What do you know about CDR.

CDR is also known as Corporate Debt Restructuring

1.            It is a non statutory voluntary mechanism

2.            It is set up by Bank and Financial Institutional under advice to RBI

3.            It is to provide timely support to viable entities facing financial problems

4.            There is legal binding in this through debtor - creditor aggrements.

44.  What are the categories of accounts covered under CDR.

Ans:

a.         Accounts covered are those under Multiple Banking /Syndication/Consortium.

c.            Accounts with outstandings of Rs.10 Crores and above to Banks and Financial Institutions.

d.            The outstanding exposure may be fund based and non fund based

e.            Provides Restructuring to Standard and Substandard category and also for Doubtful category accounts including suitfiled and BIFR accounts

f.             Wilful defaulters not covered

g.            Atleast 75% of the lenders by value should agree for CDR package

45.  What are the structural Tiers of CDR

a.            CDR Standing Forum

This consist of CMD of IDBI, Chairman of SBI, ICICI Bank IBA and CMD's of all participating Banks/Financial Institutions

46.  What are the most important categories of risks for Bankers

Ans:   

1.            Credit Risk

2.            Market Risk

3.            Operational Risk

47.  What are the important factors of Credit Risk

Ans:

Credit Risk is a combination of Portfolio Risk + Transaction Risk

48.  What is Migration Risk ( a form of Credit Risk)

Ans:

The Risk associated with Migration of an Asset from Standard to Substandard.

49.  What are the tools available for Mitigating Credit Risk

Ans:

a.            Prudential Exposure Norms viz., Single Borrower exposure @ 15% etc.,

b.            Delegation of Power

c.            Multilayer Sanction

d.            Portfolio Selection

e.            Sector Allocation of Credit

50.  What are the major market Risk for a banker

Ans:

a.            Liquidity Risk

b.            Interest Rate Risk

c.            Exchange Rate Risk

51.  What are the hedging tools that are available for hedging Interest Rate Risk

Ans:

a.            Forward Rate Agreement

b.            Interest Rate Swap

52.  What are the hedging tools that are available for hedging exchange rate

Ans:

a.            Swaps

b.            Option

c.            Forward Rate Contract

d.            Futures

53.  What is the Periodicity of Inspection of "A" rated Branch

Ans:

a.            18 months duration is allowed.  For B Rated or C Rated Branches it will be 12 months.

54.  What is the Prudential exposure limit for a single borrower and group borrower.

Ans:   

a.            Single Borrower   15%

b.            Group Borrower          40%

c.            Single Borrower Infrastructure 20%

d.            Group Infrastructure                  50%

of the Tier I and Tier II Capital of the Bank.

55.  What is the cut off limit for conducting Stock Audit

Ans:

a)    For NPA accounts with outstanding of Rs 5 crores and above –once in a year in Dec.

b)    For new borrowal accounts of funds based working capital for 5 crores to 10 crores – once in a year in Dec .

c)    For new borrowal accounts with working capital facilities of rs 10 crores and above – two times a year in June and December .

d)    For existing borrowal accounts enjoing facilities of Rs 5 crores and above  for a period exeeding Two years–once in a year in Dec

56.  What is the credit limit for SSI units which no collateral security should be insisted

Ans:

For facilities under SSI upto Rs.5 lacs no Security to be insisted.

For advances for SSI upto Rs.25 lacs.  We need not insisted provided the party has got a good track record.

Advance to MSE sector up to Rs1.00 Crore covered under CGTMSE

List out few credit derivatives

Ans:

a.            Credit Default Swap

b.            Credit Default Linked Notes

c.            Credit Forward Contract

d.            Credit Default Option

57.  What do you know by Corporate Governance

Ans:

These are meant for

a.            Ensuring compliance with regulatory requirement and also for becoming responsive to the expectation of stake holders.

b.            Transparency of the system

c.            Audit and control of transaction in the organisation

58.  Into how many Liquidity buckets Assets and Liability are             classified

Ans:    Into 8 liquidity buckets with additional grouping of the first bucket into 1 day bucket, 2-7 day’s bucket and 8- 14 day’s bucket.

59.  Into which liquidity bucket the doubtful assets are grouped

Ans:

In the greater 5 year Asset Bucket