PRE-INDUCTION

READING MATERIAL
FOR
PROBATIONARY OFFICERS

Oct’ 2020

Indian Bank Management Academy for Growth & Excellence (IMAGE)

An ISO 9001:2015 Certified Academy

1
 Index

Sl. Topics Page no

1 Glorious journey of our Bank 3
2 Values and Ethics in Banking 10
3 Functions of RBI, Banking Regulation Act 15
4 Indian Contract Act, Partnership Act & Companies Act 21
5 Deposit Products 26
6 Types of Bank Customers, Banker - Customer Relationship 31
7 Know Your Customers (KYC) 37
8 Negotiable Instruments Act, 1881 -Important Provisions 44
9 50
Cash Management
10 Introduction to Foreign Exchange- NRI Accounts 59
11 Govt. Business, Small Savings Scheme 64
12 Digital Products and Cyber Security 72
13 Types of Loan Accounts 82
14 Nomination Rules - Settlement of Claims 89
15 Customer Grievance Redressal Mechanism 95
16 Priority Sector Lending-Targets and Classification 103
17 Agriculture Lending 111
18 Retail Lending 120
19 Different types of Charges in Bank 129
20 Credit Monitoring 135
21 142
Non Performing Assets (NPA) & Recovery Management

22 Branch Security 152

2
 1. GLORIOUS JOURNEY OF OUR BANK

Indian Bank is the only PSU bank continously making profit from 2001-02.
It is the one of the Best Public Sector Bank in India.
Indian Bank, headquartered at Chennai, stands tall among the Public Sector Banks in the country.
Established as part of the Swadeshi Movement, the Bank was incorporated on March 5, 1907 with an
authorised capital of Rs 20 lakhs.
On August 15, 1907, the Bank began functioning in a portion of Parry &Co. building in Madras (now
Chennai) and a Branch was opened in Madurai in December 1908.
In the year 1921, at the nominal values of Rs 100 each, 40000 shares were offered for public
subscription and Bank’s capital was raised to Rs 60 lakhs from Rs 20 lakhs.
The Bank celebrated its silver jubilee in 1932 and also opened its first overseas operations in Colombo.
Then the Bank extended its operation beyond Indian borders and opened Branches in Singapore,
Kuala Lumpur and Penang in 1942
Along with 13 other Banks, the Bank was nationalised on July 19,1969. On the eve of Nationalisation,
its Paid-up capital stood at Rs 88.67 Crore; reserves at Rs1.18 crore, deposits at Rs 89.66 crore and
advances at Rs 64.94 crore.
The Bank celebrated its Platinum Jubilee from August 14,1981 to August 14,1982. The celebrations
were marked by release of a book on the genesis and growth of the Bank. The Posts & Telegraphs
Department issued a Special Cover on August 14,1982 and provided a Special Cancellation at a Post
Office in Chennai to mark the Platinum Jubilee on the Bank
In 1984, the number of branches crossed 1000 mark and global deposits crossed Rs 2000 crore and
Bank set up a cell in Head Office to help Women entrepreneurs in the country.
The era of technology initiated with the installation of Mainframe at the Head Office in 1989 and in the
same year first ATM for our Bank was installed and our Bank was the first Public Sector Bank to do this.
In 1990. First drive -in ATM was installed in Chennai and Bank of Thanjavur Ltd. With 157 branches
was amalgamated with the Bank.
The Bank’s domestic deposits crossed Rs 15000 crore mark in 1999. Government of India infused a
sum of Rs 100 crore during March 1999 as additional capital. In 2002 Bank turned around by earning a
net profit of Rs33.22 crore, after a gap of 6 years. In 2004 our Bank received the Government of India
award for excellence in Agriculture lending. In 2006, the centenary year celebration of the Bank was
inaugurated by the then President of India (Late) Shri A P J Abdul Kalam on 4 th September.
In 2007, Bank went for Initial Public Offer. Bank’s business crossed Rs One Lakh crore mark in March
2008 and in the same year Bank turned 100 % Crore Banking Solutions compliant providing “Any Time
Anywhere Banking” to all its customers around the year.
Bank crossed Rs2 lakh crore mark in business in 2012. Received SKOCH Challenger Award 2012-
Banking for outstanding contribution in providing banking services to the unreached villages various
financial inclusion initiatives. In the same year received ‘Best Risk Master Award’ under PSB category
3
for FIBAC for the year 2011.In 2014, ranked first for lending to Micro Enterprises and was conferred
with ‘National Award for Excellence in Lending to Micro Enterprises’ for FY 2013, for the second
consecutive year. In 2016 Bank won the Best Bank award under “Strength &Soundness’ by Financial
Express.
On 1 April 2020 Indian bank and Allahabad bank Amalgamated. The oldest Joint Stock Bank of the
Country, Allahabad Bank was founded on 24 April 1865 by a group of Europeans at Allahabad. At that
juncture Organized Industry, Trade and Banking started taking shape in India. Thus, the History of
the Bank spread over three Centuries – Nineteenth, Twentieth and Twenty-First
Now as amalgamated entity Indian Bank has 6062 Domestic Branches, 3 Overseas Branches,4816
ATMS& BNAs,9109 BCs with 104 million customer base. The global business increased by 7% to
Rs.855895 crore with global deposits at Rs.489109 crore and global advance at Rs.366787 crore. CAR
as per Basel III guidelines was at 13.45 % as against regulatory requirement of 10.875%. Tier 1 CAR
was at 10.47% as against regulatory requirement of 8.875%. GNPA improved to 10.90% from 12.09%
as at June 2019. (as per first quarter results in 2020).

Financials of Public Sector Banks– Quarter ended 30.06.2020 (Rs in Crores)

CRA
Total
Sl. Operating R
Bank Business Net Profit Gross NPA Net NPA ROA
No Profit Basel
(Net)
III
Amount Amount Amount Amount % Amount % % %
1 Bank of
242727 710.07 101.02 10559 10.93 3677 4.10 13.21 0.22
Maharashtra
Bank of Baroda
1621133 4319.94 -864.26 69132 9.39 19450 2.83 12.84 -0.30
2
3 Bank of India
965850 2844.52 843.60 57789 13.91 13275 3.58 12.76 0.46

Canara Bank
1526738 4285.45 406.24 57526 8.84 24355 3.95 12.77 0.16
4
5 Central Bank of
476170 1290.97 135.43 31946 18.10 10469 6.76 11.50 0.17
India
6 0.25
Indian Bank 855895 2753.35 369.26 39965 10.90 12755 3.76 13.45

Indian
344780 1094.15 120.69 18291 13.90 6081 5.10 10.93 0.16
7 Overseas Bank
Punjab National
1731114 5280.05 308.45 101849 14.11 35303 5.39 12.63 0.09
8 Bank
9 Punjab & Sind
172425 225.91 -116.89 8848 14.34 4326 7.57 12.81 -0.45
Bank
State Bank of
5717709 16521.35 4189.34 129661 5.44 42704 1.86 13.40 0.42
10 India
UCO Bank
298888 1223.37 21.46 16576 14.38 5138 4.95 11.65 0.03
11
12 Union Bank of
1474259 4034.09 332.74 97190 14.95 28914 4.97 11.62 0.12
India

4
Growth and History of Erstwhile Allahabad Bank

 April 24, 1865’s: The Bank was founded at the confluence city of Allahabad by a group of
Europeans.
 1920’s :The Bank became a part of P & O Banking Corporation’s group with a bid price of
Rs..436 per share
 1923:The Head Office of the Bank shifted to Calcutta on Business considerations.
 July 19, 1969:Nationalized along with 13 other banks, Branches – 151 Deposits – Rs.119
crores, Advances – Rs.82 crores.
 October, 1989:United Industrial Bank Ltd. merged with Allahabad Bank.
 1991:Instituted AllBank Finance Ltd., a wholly owned subsidiary for Merchant Banking.
 October, 2002:The Bank came out with Initial Public Offer (IPO), of 10 crores share of face
value Rs.10 each, reducing Government shareholding to 71.16%.
 April, 2005:Follow on Public Offer (FPO) of 10 crores equity shares of face value Rs.10 each
with a premium of Rs.72, reducing Government shareholding to 55.23%.
 June, 2006:The Bank Transcended beyond the National Boundary, opening Representative
Office at Shenzen, China.
 Oct, 2006:Rolled out first Branch under CBS.
 February, 2007:The Bank opened its first overseas branch at Hong Kong and subsequently
become Representative office
 March 2007:Bank’s business crossed Rs.1,00,000 crores mark.
 March, 2010:Bank crosses Business figure of Rs.1,75,000/- crore with a growth rate of 23.06%
 March, 2011:Bank has implemented CBS in all its Branches
 March, 2012:Bank crosses its net work of 2500 branches.
 March, 2013:Bank crosses bench mark business figure Rs.3,00,000/- crore and enters in “Orbit
of Large Banks”
 April, 2014:Bank celebrates 150 years of foundation.
 April, 2020:Bank amalgamated into Indian Bank.

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 Stepping Stones of Indian Bank
1907 Bank was incorporated on March 5, 1907 with an Authorized Capital of `20 lakhs and
commenced its business on August 15, 1907.
1921 Bank's capital was raised to Rs 60 lakhs from Rs 20 Lakhs
1932 Bank celebrated its Silver Jubilee
Bank opened its first overseas operations in Colombo
1941 Singapore branch was opened
1952 Bank's deposits crossed Rs 20 crore at the end of 1952
1957 Bank celebrated its Golden Jubilee
1967 Bank celebrated its Diamond Jubilee
1970 Bank's Head Office housed in a rental building, moved into the new building.
1978 Indian Bank's logo was approved in July 1978 comprising of three
circling arrows arranged around a central point
1980 Bank's deposit crossed 1000 crore
1982 Bank celebrated its Platinum Jubilee
1983 Bank crossed its Rs 1000 crore mark in credit
1985 Global deposit crossed the Rs 3000 Crore mark
1986 Global credit crossed Rs 2000 Crore
1989 The era of technology initiated with the installation of Mainframe at the Head Office. Indian
Bank was the first Public Sector Bank to install ATM
1990 Bank of Thanjavur Ltd. (BoT) with 157 branches was amalgamated
with the Bank.
1993 The first total branch computerization project was inaugurated.
1999 Bank's domestic deposits crossed the Rs15000 crore mark during the year.
Government of India infused a sum of `Rs 100 crore during March 1999
as additional capital
2002 Bank turned around by earning a net profit of Rs 33.22 crore during the year after a
gap of 6 years.
Bank posted an operating profit of Rs 307.15 crore, with an increase of nearly 399%.
2006 The centenary year celebration of the Bank was inaugurated by His Excellency the
President of India Shri. APJ Abdul Kalam on 4th September.
2007 Bank went in for Initial Public Offer in February, 2007
2008 Bank's business crossed the Rs 1 lakh crore mark in March 2008.
Achieved 100 per cent Core Banking Solutions (CBS) COMPLIANCE
2011 Jaffna branch was opened on January 21, 2011
2012 Inauguration of new Hi-Tech Corporate Office, at Royapettah which is considered a
landmark in Chennai. Bank crossed the Rs 2 lakh crore mark in business
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2013 Bank crossed the 2000 mark in branch network.
First Corporate Office building among PSBs in India to get the ISO 9001:2008 Certification
2015 Bank's business crossed milestone of Rs 3 lakh crore in June 2015
2018 Bank was the only PSB which had not received capital from Govt. of
India
2019 Bank's business crossed Rs 4.5 lakh crore in December 2019
Tamil Nadu Grama Bank' commenced operations on 1st April 2019 after a successful
amalgamation of Pandyan Grama Bank of Indian Overseas Bank with Bank's Pallavan
Grama Bank.
2019 Government of India announced Amalgamation of Allahabad Bank – a bank with 155
years legacy into Indian Bank.

Covid -19 pandemic: 1st Bank to launch Covid Emergency line of

credit to support the Economy in times of distress.
2020 Allahabad Bank with 3172 branches was amalgamated with the Bank resulting in total
branches of 6062

Amalgamation of Allahabad Bank came into effect on April 1st 2020.

Net Profit stood at Rs. 369 Cr for the combined entity in quarter ended June’2020

~~~~~~~~~

7
 Check Your Progress

1. Who is the Present MD & CEO of Our Bank

a. Padmaja Chunduru
b. Ranjana Kumar
c. Rajneesh Kumar
d. Usha Ananthasubramanyam
________________________________________________________________________________________

2. Where is the Head Office of Indian bank located

a. Kolkata
b. Chennai
c. Bangalore
d. Mumbai
________________________________________________________________________________________
3. Which PSB is amalgamtaed with Indian Bank on 01.04.2020
a. Canara Bank
b. Bank of Baroda
c. Dena Bank
d. Allahabad Bank
________________________________________________________________________________________

4. What is the foundation date of Indian Bank.

a. March 15th
b. June 15th
c. August 15th
d. Dec 20th
_________________________________________________________________________________________

5. In which year Indian Bank was established

a. 1957
b. 1907
c. 1865
d. 2001
_________________________________________________________________________________________

6. In 1990 which Bank was amalgamtaed with Indian Bank

a. Bank of Punjab
b. Bank of Madurai
c. Bank of Thanjavur
d. Bank of India

7. What is the tagline of Indian bank

a. Har Kadam Aap Ke Sath
b. Your own Bank
c. Banking twice as good
d. Good people to grow with

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8. In which year Banks were nationalised
a. 1979
b. 1969
c. 1947
d. 1956
_________________________________________________________________________________________
9. Who was the Prime Minister of India at the time of Nationalisation of Banks
a. Atal Behari Bajpai
b. Chandrasekhar
c. Indiara gandhi
d. Rajiv Gandhi
_________________________________________________________________________________________

ANSWERS

1. A 2. C 3. D
4. C 5. B 6. C
7. B 8. B 9. C

9
 2. Values and Ethics in Banking

Values and Ethics in Banking:

In today’s competitive scenario, every bank wants to become the market leader, capture maximum
market share and have maximum customer base. As Banks deal with money Public & Govt. have
more trust on Banks. Hence Value & Ethics play important role for Banks.
Value & Ethics is a voluntary Code, which sets minimum standards of practices to be followed by
banks .It provides protection to customers and explains how banks are expected to deal with them
for their day-to-day operations

Universal Values Leading to an Ethical Banking Industry

1. Integrity, Trust & Transparency
2. Reliability, Accountability, & Responsibility
3. Honesty and Truthfulness
4. Consistency & Fairness

Objectives of Banking Ethics

1. To promote good and fair banking practices by setting minimum standards
2. To increase transparency so that customers can have a better understanding
3. To encourage market forces, through competition, to achieve higher operating standards
4. To promote a fair and cordial relationship between customers and their bank
5. To foster confidence in the banking system

Commitments in Banking Ethics

1. To act fairly and reasonably in all our dealings
2. To help customer to understand how our financial products and services work
3. To help customers how to they can operate their accounts in banks
4. To deal quickly and sympathetically with things that go wrong
5. To treat all customer’s personal information as private and confidential
6. To adopt and practice a Non - Discrimination Policy
7. Providing minimum banking facilities of receipt and payment of cash/cheques at the bank’s
counter
8. Meeting the commitments and standards for the products and services we offer
9. Making sure our products and services meet relevant laws and regulations in letter and spirit
10. Ensuring that our dealings with customer rest on ethical principles of integrity and transparency
11. Operating secure and reliable banking and payment systems

Impact of Values and Ethics in banking

a) It creates “Good Will” for the Bank
b) In long run, Created Good will benefits the Employer and Employee
c) Creating positive impact on society and environmental in which it is operating

Practicing Values and Ethics in banking

It is practiced through
 Product Policy
 Process Policy (Standard operating Procedure or SOP)
Banks run on public trust which, in turn, is a function of ethical principles and moral values. The world is
witness to numerous bank failures, small and large, which could not withstand the rigor of public trust.
10
Banks are back bone of any country’s economy. Banks directly control economical condition and
drive development of a country, so there is a need to have strong banking system which is only
possible with the practice of Value & Ethics.

Indian Bank’s Code of Ethics - related to Observance of Secrecy and Confidentiality:

“Strictest secrecy shall be maintained in the Bank's affairs and the affairs of its constituents and
information of confidential nature shall not be divulged directly or indirectly either to a member of the
public or to an outside agency or to any other employee of the Bank not entitled to such information
unless:
i. divulging of such information is in accordance with the law or in accordance with the practices and
usages customary amongst Banks;
ii. compelled to divulge such information by Judicial or other Authority;
iii. Instructed to do so by a superior Official in the discharge of the duties. “
Indian Bank’s Code of Ethics - related to “Workplace Behavior” :
“a) Every official shall wear the ID card provided to him / her. The ID card should be clean in
appearance and the letters should be legible to customers.
b) All Officials shall wear neat and crisp; wrinkle free Indian / Western formal dress with clean shoes /
footwear.
c) All officials shall ensure personal hygiene and grooming. They shall keep their hair properly combed
and men must be clean shaven and / or with trimmed beard and moustache.
2. Usage of personal mobile phones : Personal cell phones of all officials at Branches shall be kept
switched off during business hours.
3. Punctuality : All officials shall be present at the Branch / Office 15 minutes before the start of day for
that Branch / Office. All officials for whom biometric attendance is enabled shall record both entry and
exit on days on which they attend Office.
4. Consumption of intoxicating drinks and drugs
a) An official shall strictly abide by any law relating to intoxicating drinks or drugs in force in any area in
which he may happen to be for the time being;
b) An official shall not be under the influence of any intoxicating drink or drug during the course of his
duty and shall also take due care that the performance of his duties at any time is not affected in any
way by the influence of such drinks or drug;
c) An official shall refrain from consuming any intoxicating drink or drug in a public place;
d) An official shall not appear in a public place in a state of intoxication; and
e) An official shall not use any intoxicating drink or drug in excess.
5. Prohibition of sexual harassment of working women
a) No Official shall indulge in any act of sexual harassment of any woman at her work place.
11
b) Every Official who is in-charge of a work place shall take appropriate steps to prevent sexual
harassment to any woman at such work place.
c) For the purpose of this code, sexual harassment includes such unwelcome sexually determined
behavior (whether directly or otherwise) as :
i. Physical contact and advances;
ii. A demand or request for sexual favours;
iii. Sexually coloured remarks;
iv. Showing pornography; or
v. Any other unwelcome physical, verbal or non-verbal conduct of a sexual nature “

Indian Bank’s Code of Ethics - related to “Wearing Formal Attire at Work Place”
Formal dressing at work place helps an individual to make a mark of his/her own in the first meeting
itself. It requires an individual to dress according to the organization culture. It makes you feel confident
throughout the day and plays a crucial role in enhancing one’s personality. An individual well dressed
with a pleasing personality is respected and appreciated by all. He or she can easily charm anyone and
win people over.
Personal grooming and formal dressing go hand in hand. Personal grooming is essential for everyone
irrespective of the gender and nature of profession.
Formal dressing and personal hygiene are of utmost importance in service industry like banking, where
we deal with our customer on a 24x7 basis. One of the major elements that contribute to the emotional
value and image of a Bank, is the way the employees interact with the customers. Employees are
Brand Ambassadors of the Bank and therefore, how they appear and conduct themselves matter a lot
to Bank’s Business.
In the interest of Bank’s Business, it is essential for every employee to maintain personal hygiene and
grooming. Towards this end, the following guidelines are reiterated for implementation at all Branches
and Administrative Offices.
 Every employee shall wear the ID card provided to him / her. The ID card should be clean in
appearance and the letters should be legible to customers.
 All employees, including employees provided with uniform, shall wear neat and crisp, wrinkle free
Indian / Western formal dress with clean shoes / footwear.
 All employees shall ensure personal hygiene and grooming. They shall keep their hair properly
combed and men must be clean shaven and / or with trimmed beard and moustache.
 Casual wear like T – Shirts, Jeans, Shorts, Pants above ankle level, Sneakers/Sports Shoes etc shall
be avoided.
It is expected of the employees to become role models not only in terms of their performance but also
in terms of their attitude and behaviour to all our stakeholders.

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 Check Your Progress
1. Which of the following is society specific
a. Values
b. Ethics
c. Morals
d. Integrity
_________________________________________________________________________________________
2. Which of the following is individual specific
a. Values
b. Morals
c. Integrity
d. Ethics
_________________________________________________________________________________________

3. Internal ethics include

a. Well being of employees
b. Society
c. Govt Practices
d. Law
_________________________________________________________________________________________

4. The word Ethics means

a. Behaviour
b. Attitude
c. Anger
d. Disbelief
_________________________________________________________________________________________

5. Value & Ethics does not play important role for Banks
a. Depends up on person
b. FALSE
c. TRUE
d. Both B & C
_________________________________________________________________________________________

6. How many types of ethics are present

a. 1
b. 2
c. 3
d. 4

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7. Which provides protection to customers
a. RTI
b. Complaints Portal
c. Values & Ethics
d. Application forms

ANSWERS

1. A 2. D 3. A
4. E 5. C 6. B
7. C

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 3 Functions of RBI & Banking Regulation Act 1949
Reserve Bank of India Act, 1934, is the legislative act, under which, the Reserve Bank
of India, was formed.
Functions of RBI:
i.Issue of currency: Under section 22 of RBI act 1934, RBI is the sole authority in India to issue bank notes under the signature
of RBI Governor. Only one rupee note called currency note is issued by the Central Govt. and signed by Finance secretary.
ii. Banker to Govt.: Under section 20 for Central Govt. And under section 21 A State Govt., RBI transacts govt. business and
manages public debt. Public debt can be byway of long-term bonds or by way of Treasury bills. It also provides ways and means
advance to Govt. under section 17(5). SBI or any other bank is appointed agent where RBI does not have office.
iii. Banker’s Bank: RBI keeps a part of deposits of commercial banks as CRR and act as lender of last resort by providing
financial assistance to banks. Section 17(2) and 17 (3) enable banks to approach RBI for rediscounting of bills, refinance etc. It
provides refinance, Liquid Adjustment Facility and Marginal Standing Facility.
iv. Controller of bank: RBI issues licence to banks for operating in India. It acts as controller by including the banks in 2nd
schedule of the act. It issues directions, carries inspection and exercise management control.
v. Controller of credit: Under section 21 and 35A of Banking Regulation Act, RBI can fix interest rate, Bank rate and thereby
exercise selective credit control. For this, other tools like CRR, margin stipulation etc are also used. It also uses open market
mechanism for credit control.
vi. Collection of information: The RBI has powers to direct any banking company to submit such statements on such credit
information in such form and within such time as may be specified from time to time (sec 45C). It collects these information and
furnishes the same to different banks on request (sec 45D).
Provisions of the RBI Act 1934:
Section Provision
Sec 2(e) Schedule bank means a bank whose name is included in the 2nd schedule of RBI Act 1934.
Sec 18 RBI provides emergency loans to banks on liberal terms.
Sec 20 & 21 Banker to Govt- As per sec 20 and 21 RBI transacts Govt business and manage public debt of Central
Govt.. Under sec 21 (a), RBI performs similar functions for state Govt. also. RBI provides ways and means
advance to central and state govt. for a short period of not more than 3 months.
Sec 22 Issue notes- RBI is the authority to issue currency notes (called bank notes) except Rs.1 in India under
signature of Governor. One rupee note called currency note is issued by central govt. and signed by Finance
Secretary.
Sec 24 Bank notes can be issued in denomination of 2,5,10,50,100,500,1000, 5000, 10000. Central Govt. may
direct discontinuance or non issue of bank notes of any denomination. Rs.2 and Rs.5 are already
discontinued.
Sec 26 All bank notes issued by RBI are guaranteed by Central Govt. and are legal tender.
Sec 28 RBI can frame rules for exchange and refunding value of mutilated, soiled or imperfect notes as a matter of
grace.
Sec 31 Currency notes including bank notes are promissory notes payable to bearer on demand. Only RBI and
Central Govt. are authorised to issue such promissory notes.
Sec 33 RBI issues notes against security which consists of gold coins, bullions, rupee coins, foreign securities,
eligible promissory notes and other approved securities. Out of this the value of gold coins, bullions and
foreign securities/exchange reserves should not be less than Rs.200 crores out of which gold coins and
bullions should be at least of Rs.115 crores.
Sec 42 All schedule banks are required to maintain cash reserve with RBI. Cash Reserve is maintained by keeping
a specified percentage of its NDTL as current account balance with RBI. RBI is authorised to vary the cash
reserve requirement from 3% to 20% of NDTL.
Sec 45A-45F Empowers RBI to collect credit information from banks through different returns and periodicity
Sec 45H-45T It includes regulations relating to NBFC (as per amendment in 1997)

15
 Sec 48 It exempts RBI to pay income tax
Sec 49 It empowers RBI to publish Bank rate from time to time. Bank rate is the standard rate at which RBI is ready
to buy or rediscount bill of exchange or other commercial paper eligible for purchase under RBI act.

Banking Regulation Act 1949:

This act was originally passed as Banking Companies Act 1949 and made effective from16.03.1949. It was made applicable in
Jammu & Kashmir in the year 1956. This act was changed to Banking Regulation Act 1949 w.e.f 01.03.1966 and is applicable all
over India.
This act has 56 sections. Some important provisions/sections of this act are as under:
Section Subject Explanation
Sec 5a Approved Securities Means such securities authorised by Central Govt. under clause
(b)of sec 20 of Indian Trust Act 1882 ‘or’ in which a trustee may
invest trust money under sec 20 of Indian Trust Act 1882
Sec 5b Banking Means accepting for the purpose of lending or investment of
deposits of money from public repayable on demand or otherwise
and withdraw able by cheque, draft order or otherwise
Sec 6(1) Banking Business Means accepting deposits, borrowing money, lending money,
dealing in bills, buying and selling of Forex, providing safe
custody and safe deposit vault, issuing LC, traveller cheque,
insurance business s, mortgage, acting as trustee, acting as
agents etc or any other business which Central Govt. may notify
in the official Gazette
Sec 7 Use of word Bank o rBanking No company other than a banking company is permitted to use
as part of its name words like Bank/Banking/Banker
Sec 9 Immovable Property Banks cannot hold immovable property except for own use
maximum for 7 years from the date of acquisition. RBI may
extend this period by another 5 years
Sec 11 Paid up capital &reserve Minimum paid up capital and reserve required for Foreign bank
isRs.15 lacs. For Foreign banks having branches in Mumbai or
Kolkata or both will have to maintain minimum paid up capital
&reserve of Rs.20 lacs. For Domestic banks it should not be less
than Rs.5 lacs.
Sec 12 Capital structure Capital structure ratio of Authorised capital subscribed capital and
Paid up capital must be minimum 4:2:1. Voting right cannot be
more than 10% by a single shareholder irrespective of holding of
the shareholder.
Sec 17(1) Reserve Fund A bank should transfer to Reserve fund minimum 20% of net
profit before declaring Dividend or Bonus. But as per current
guidelines of RBI a schedule bank is required to transfer
minimum25% of its net profit to Reserve fund before declaring
dividend or bonus.
Sec 18 Cash Reserve As per this section non schedule banks are required to maintain
atleast 3% of its total demand and time liabilities by way of cash
reserve or as balance in current account with RBI.
Sec 19 Subsidiary company This section permits banks to form subsidiary company for certain
purposes.
Sec 19(2) Holding in other Company Banking company can hold shares in any company as pledge
mortgagee or absolute owners. Maximum holding can be 30% of
16
 its own paid up capital or 30% of the paid up capital of that
company whichever is less.
Sec 20(a) Loan against shares No banking company can grant any loans or advances on the
security of its own shares.
Sec 21 Credit control RBI issues directive to banks for loan policy (purpose, margin,
extent, interest rate or other condition) as selective credit control
measures.
Sec 21(a) Interest on loan With effect from 15.02.1984, a transaction between a banking
company & its debtor shall not be reopened by any court on the
ground that the rate of interest charged is excessive.
Sec 22 Licence for Bank To start a banking company, licence is essential from RBI.
Sec 23 Branch Licencing Without obtaining prior permission from RBI no bank can open a
new branch or change location of a place of business except
within the same city/town/village. But now RBI has given general
permission to banks to open new branches subject to fulfilment of
certain condition.
Sec 24 SLR Schedule and non-schedule banks to maintain by way of cash,
gold, unencumbered securities up to maximum of 40% of the
NDTL of t he bank as on last Friday of 2nd preceding fortnight.
Sec 26 Unclaimed Deposit Banks should transfer to RBI within 30 days of end of the
calendar year all deposits which have not been operated/claimed
for the last10 years
Sec 35 Inspection of Banks RBI is empowered to conduct inspection of any bank and to give
them directions as it deem appropriate. RBI has directed banks to
round off transactions to nearest rupee u/s 21 and sec 35.
Sec 35A Banking policy in public interest (Sec RBI is authorised to give directions in public interest of banking
35AA & AB incorporated as per BR policy.
Sec 35AA (amendment) act2017 and effective from Central Govt. can direct RBI to instruct a banking company to
25.08.2017) Initiate insolvency resolution process under IBC 2016.
Sec 35AB RBI can issue directions to a bank for resolution of stressed
assets.
Sec 36 Control over Board and employees of RBI can terminate any chairman or any employee of a bank
bank where it considers desirable to do so.
Sec 45 Reconstitution &Amalgamation RBI has powers to apply to Central Govt. for suspension of
business of a banking company and prepare scheme of
reconstitution or amalgamation.
Sec 45 Y Preservation ofr records Central Govt. is empowered to frame rules specifying period for
which a bank shall preserve its books/accounts/documents.
Sec 45 Z Return of paid instrument At the request of customer bank may return original paid
instrument to the customer by keeping true copy of the same
after realising the cost of true copy from the customer. But
customer has to preserve the original instrument as per Sec 45 Y.
Sec 45 ZA Nomination Nomination, its cancellation or change of nomination in deposit
Sec 45 ZF account – Sec 45ZA to 45ZBFor Safe custody- Sec 45ZC to
45ZD.
For Safe deposit locker- Sec 45ZE to 45ZF.
Sec 47A Penalty RBI is empowered to impose penalty for violations.

17
Sec 49A Use of cheque No people other than a bank/RBI can accept from the public
deposits of money withdraw able by cheque.

Sec 52 Power of Central Govt Central Govt. can make rules for all matters.

18
 Check your Progress
1. RBI was created on recommendation of
a. Hilton Young commision
b. Bimal jalan Committte
c. Thomas Rodrigues Committee
d. Lisbon brothers committee
_________________________________________________________________________________________

2. Which of the following is function of RBI

a. Issue of currency
b. Controller of Bank
c. Both A&B
d. Collection of Cheques
_________________________________________________________________________________________
3. Scheduled Banks are included under which Section of RBI
a. Section 24
b. Section 18
c. Section 2
d. Section 31
_________________________________________________________________________________________

4. All schedule banks are required to maintain cash reserve with RBI is under which section
a. Section 24
b. Section 42
c. Section 45A
d. Section 48
_________________________________________________________________________________________

5. Which section exempts RBI to pay income tax

a. Section 48
b. Section 42
c. Section 45A
d. Section 49
_________________________________________________________________________________________

6. Banking Regualtion Act was passed in the year

a. 1949
b. 1959
c. 1969
d. 1979

19
7. No company other than a banking company is permitted to use as part of its name words like
Bank/Banking/Banker is explained under which section
a. Section 9
b. Section 7
c. Section 5
d. Section 2
_________________________________________________________________________________________

8. Description about immovable property is explained under Which Section of Banking Regulation Act
a. Section 9
b. Section 7
c. Section 5
d. Section 2
_________________________________________________________________________________________

9. For Domestic banks it should not be less than Rs-------------- lacs.

a. 2
b. 5
c. 6
d. 10
_________________________________________________________________________________________

10. Which section permits banks to form subsidiary company for certain purposes
a. Sec 21
b. Sec 22
c. Sec 19
d. Sec 23
_________________________________________________________________________________________

ANSWERS

1. A 2. C 3. C
4. B 5. A 6. A
7. B 8. A 9. B
10. C

20
 4 .INDIAN CONTRACT ACT, INDIAN PARTNERSHIP ACT, COMPANIES ACT

INDIAN CONTRACT ACT:

It came into effect on the 1st of September 1872 and is applicable to the whole of India with the
exception of Jammu & Kashmir. The act is broadly divisible in two parts.
Part one describes the general principles of a contract which are applicable to all types of contracts.
The second part deals with special types of contracts namely indemnities, guarantees etc.

MEANING OF CONTRACT:
Contract means agreement enforceable by the law. It has two major constituents:
1. Agreement between two persons or more.
2. The agreement must be enforceable by law (i.e the rights &obligations arising out of it)

KEY COMPONENTS TO FORM A CONTRACT:

When one person signifies to another person, his willingness to do or not to do something, with a view
to obtaining the consent of that other person, he is said to make proposal.
When a person to whom the proposal is made, signifies his assent (consent), the proposal is said to
be accepted.
A proposal becomes a promise when it is accepted.
The person making the proposal is called the “promisor”.
The person accepting the proposal is called “promisee”.

ESSENTIALS OF A VALID CONTRACT:

1. Proposal and acceptance

There must be a lawful proposal by one party and the other party must accept the proposal.

2. An Agreement may be Oral or written:

Under certain laws, an agreement is required to be in writing only and is also required to be registered
and attested. If such formalities are not complied with, then the agreement cannot be enforced before
court of law. For example sale or mortgage of immovable property, lease, etc.

3. Consideration:
There must be a lawful consideration for both the parties to enter into an agreement. Consideration
here means “something in return”. Hence, when both (or more) parties to an agreement give something
to other party and get something in return, then the agreement becomes enforceable at law.

4. Free Consent:
Free consent of the parties to a contract is required. Consent is said to be free when the parties agree
to the same thing in the same sense.

5. Capacity to Contract:
The parties to an agreement must be competent to enter into contract. Section 11 of the Contract Act
lays down that every person is competent to enter into a contract if:
 He has attained the age of majority. And
 He is of sound mind and
He is not qualified from entering into contract by any law to which he is subject.

21
6. Minor’s Contract:
A minor is not liable to perform any promise made by him under any agreement.

INDIAN PARTNERSHIP ACT 1932:

Indian partnership Act, 1932 extends to the whole of India except the State of Jammu and Kashmir.
Section 4 of the Act says that a partnership is the relation between persons who have agreed to share
the profits of a business, carried on by all or any of them acting for all. The relationship between
partners is governed by partnership deed.

Legal Position of a Partnership:

Under law, the name of partnership firm is regarded as an abbreviation of the names of partners. The
Indian Partnership, 1932, provides for registration of a partnership and it is necessary that a banker
dealing with partnership firm should verify as to whether the firm is registered or not.

Authority of the Partners:

Section 19 of the Indian Partnership Act, 1932 deals with the implied authority of a partner as an agent
of the firm and section 22 deals with the mode of doing acts to bind the firm. In view of the provisions of
sections 19& 22, it should be noted that the act of a partner shall be binding on the firm if done,
1. in the usual business of partnership.
2. in the usual way of business.
3. as a partner i.e on behalf of the firm and not solely on his own behalf.

Business of Partnership firm:

In the case of partnership firm rights and duties of the partners are determined by deed of partnership.
It provides for opening of Bank accounts, borrowing powers, signing of cheques etc. A Banker dealing
with partnership firm should ensure that business is conducted as per the partnership deed.

Partnership Firm & transaction in immovable Property:

Section 19 of the Indian Partnership Act, 1932, states that a partner cannot effect transfer of immovable
property of the firm unless expressly authorised to create mortgage, then the banker should ensure that
all the partners jointly create the mortgage.

Insolvency of the Firm:

The banker on receiving notice of insolvency of the firm must immediately stop further transactions in
the account irrespective of the fact that the account is in credit or debit. In case there is credit balance,
and the banker doesn’t intend to set off the same against the dues in any other account, then the
balance has to be handed over to the official receiver appointed by the Court or as directed by the
court. In case the account is in debit then the banker would be required to prove his debt before the
Court and thereafter will be entitled to receive the same from the official receiver either in full or as per
the dividend declared by the Courts.

Insolvency of the Partner:

If at the time of insolvency of the one of the partners the firm’s account is in credit then the same can be
operated by other partners, but the banker should obtain a fresh mandate and all previous cheques
issued by the insolvent partner may be paid provided the other partners confirm the same. In case the
account is in debit then further transactions in the account should be stopped so that rule in Clayton’s
case doesn’t apply.

Death Of a Partner:
In case of death, the principles as stated in insolvency of a partner applies.
22
Companies Act 1956:
The Companies Act 1956 is administered by the Government of India through the Ministry of Corporate
Affairs and the Offices of Registrar of Companies, Official Liquidators, Public Trustee, Company Law
Board, Director of Inspection, etc. The Act is 658 sections long. The Act contains provisions about
Companies, directors of the companies, memorandum and articles of associations, etc. This act states
and discusses every single provision requires or may need to govern a company. It mentions what type
on companies their differences, constitution , management, members , capital, how should the shares
should be issues, debentures, registration of charge, at the end of the act it concludes the about
winding up of a company, discussing the situations a company needs to be winded up. The ways it
should be done by volunteer or through courts. Companies Act 1956 explains about the whole
procedure of the how to form a company, its fees procedure, name, constitution, its members, and the
motive behind the company, its share capital, about its general board meetings, management and
administration of the company including an important part which is the directors as they are the
decision makers and they take all the important decisions for the company their main responsibility and
liabilities about the company matter the most. The Act explains about the winding of the business as
well and what happens in detail during liquidation period.

Companies Act 2013:

The Companies Act 2013 regulates the formation and functioning of corporations or companies in India.
The first Companies Act after independence was passed in 1956, which governed business entities in
the country. The 1956 Act was based on the recommendations of the Bhabha Committee. This Act was
amended multiple times, and in 2013, major changes were introduced. By Section 135 of the 2013 Act,
India became the first country to make corporate social responsibility (CSR) spending mandatory by
law.

Companies Act 2013 Highlights:

he major highlights of the 2013 Act are given below:
 The maximum number of shareholders for a private company is 200 (the previous cap was at
50).
 The concept of a one-person company.
 Company Law Appellate Tribunal & Company Law Tribunal
 CSR made mandatory

Companies (Amendment) Act, 2019

This Act was passed by the Parliament in July 2019. The changes recommended under the latest
amendment to the Companies Act are as follows:
 Companies will have to keep an unspent amount into a special account for the purpose of
CSR.
 This amount, if left unspent after a period of 3 years, will be moved into a fund specified in
Schedule VII of the Act. This could even be the Prime Minister’s Relief Fund.
 Under this Act, the Registrar of Companies can initiate action for the removal of the company’s
name from the Register of Companies if it is not conducting business or operation as per the
Company Law.
 16 minor offences mentioned in the Act have been decriminalised (made civil defaults).

LLP: A limited liability partnership (LLP) is a partnership in which some or all partners (depending
on the jurisdiction) have limited liabilities. It therefore can exhibit elements of partnerships and
corporations. In an LLP, each partner is not responsible or liable for another partner's misconduct
or negligence.
*-****************************
23
 Check your Progress

1. Indian Partnership extends to whole of India except the state of

a. Himachal pradesh
b. Meghalaya
c. Jammu&Kashmir
d. Nagaland
_________________________________________________________________________________________

2. Banker on reciving the Notice of Insolvency

a. Must stop further transaction
b. Wait for six months
c. Wait for an year
d. both A&B
_________________________________________________________________________________________

3. Which section of the Indian Partnership Act ,1932, states that a partner cannot effect transfer of immovable
property
a. Section 19
b. Section 20
c. Section 21
d. Section 22
_________________________________________________________________________________________

4. Contract means
a. Agreement enforceable by law
b. Judgement enforceable by law
c. Decision enforceable by law
d. Rules enforceable by law
_________________________________________________________________________________________
5. The person making the proposal is called the
a. Promisor
b. Promisee
c. Leader
d. Proposer
_________________________________________________________________________________________

6. An agreement made by minor is

a. Valid
b. Void
c. subjected to court permssion
d. permissible

24
7. The first Companies Act after independence was passed in
a. 1955
b. 1956
c. 1957
d. 1958
_________________________________________________________________________________________

8. The maximum number of shareholders for a private company

a. 200
b. 100
c. 50
d. 60
_________________________________________________________________________________________

9. Dormant companies are those that have not engaged in business for -------years consecutively.
a. One
b. Two
c. Three
d. Four
_________________________________________________________________________________________
10. Which activity made mandatory in Compnies Act 2013
a. Corporate social responsibility
b. Investment
c. Mergers
d. Acquisition
_________________________________________________________________________________________

ANSWERS

1. C 2. A 3. A
4. A 5. A 6. B
7. B 8. A 9. B
10. A

25
 5 .DEPOSIT PRODUCTS
Deposits are classified as Savings Bank Account, Current Account and Term Deposit Accounts.
Current Accounts and Savings Bank Accounts put together is known as CASA deposits.
TYPE OF SAVINGS ACCOUNTS

S.No Name of the SB Product To be Opened by

General Public Individuals,Clubs, Societies or Associations,
Schools, Temples, Mosques, Churches or other religious and
1 Regular Savings Bank Account charitable institutions
IB-Corp SB Payroll Scheme for Salaried Salaried class/Pension/Defense Personnel
2 Class
HNI Individuals, High income earning Gen- X and Corporate
executives and Non Individual – Institutions and Corporates,
3 SB Platinum with “Sweep Facility” Firms, companies, Trusts etc.
4 IB Smart Kid Students/Youth/Minors
5 Capital Gain SB General Public
6 SB Pension Pensioners
Basic Savings Bank Deposit Account – Small accounts/BSBDA
7 BSBDA
8 Small Account Small accounts/BSBDA (with relaxed KYC)
SB for students receiving scholarship under Students/Youth/Minors
9 government schemes
SB for Direct Benefit Transfer (DBT) Beneficiaries of DBT by State/Central
10 beneficiaries
SB for Central/State Government & Consular Govt Depts/Consular Offices
11 Offices
12 INDPFMS for Government/Other Agencies Govt Depts/Trusts/Regd Society
IB DIGI – Online Opening of Savings Bank Online SB
13 Account
IB Sammaan – Savings Bank Account for Senior Citizens
14 Senior Citizen
Motor Accident Claim Tribunal (MACT) Motor Accident Claims Tribunals
15 Savings Bank Account
16 IB Mahila Shakti – For Women Women
IB Kishore – Savings Bank Account for Students/Youth/Minors
17 Minors
18 IB GenX – For the Vibrant Youth Students/Youth/Minors
IB Salaam – Special Account for Defense Salaried class/Pension/Defense Personnel
19 Personnel

26
 TYPE OF CURRENT ACCOUNTS
S.No Name of the Account To be Opened by
1 A person in his/her own name, Two persons or more than
Regular Current Account two persons in their joint names in anyone of the forms E or
S, F or S, A or S or Jointly or survivors. Accounts may also
be opened in the names of companies, proprietary concern,
partnership firms, clubs, associations, religious, educational,
charitable and other institutions on production of the
necessary documents, copies of rules, bye-laws, etc., duly
attested by authorized persons in strict conformity with RBI
guidelines
2 Government departments / bodies / agencies in respect of
CA for State/Central Government & Consular grants / subsidies released for implementation of various
Offices programmes / schemes sponsored by Central Government /
State Government subject to production of an authorization
from the respective Central / State Government Departments
3 Suitable for Corporates, Traders, Businessmen,
Premium Current Account with sweep facility Entrepreneurs and HNI's.
4 Central/State Government Departments & Institutions,
INDPFMS Current Account for Govt/Other Statutory bodies, Trusts, Registered Societies, Autonomous
Agencies Bodies and Local Bodies etc. on-boarded on PFMS platform.
5 Traders, Businessmen, Corporate Bodies, viz. Petrol Bunks,
IB – iFreedom Current Account Retail and Wholesale customers, Wholesale agents,
Corporates, Education Institutions and Government
Departments, Y Gen customers(or Millennials, born
between 1980 and 1994), Professionals and Software
Companies
6 Individuals - To cater to the needs of individuals who would
IB – Comfort Domestic/NRE Current Account like to maintain accounts without any interest component.

TYPE OF TERM DEPOSITS

S.No Name of the Account Scheme Feature
1 Term deposits repayable after a fixed period, agreed at the time
Fixed Deposit Scheme of deposit with interest payment periodicity as per the choice of
the customer viz., monthly or quarterly.
2 Money multiplier deposit is a scheme under which a fixed amount
Money Multiplier Deposit Scheme is placed as deposit for a fixed period (6 months or more) and the
interest earned thereon is reinvested at quarterly rests to yield
27
 compound interest. The principal and interest earned is repaid to
the depositor on maturity of the deposit.
3 Term deposits repayable after an agreed period (but term less
Short Term Deposit Scheme than 6 months) fixed at the time of deposit with interest payment
on maturity of the deposit along with the principal
4 The account holder deposits a fixed sum of money by way of
Recurring Deposit Scheme monthly instalments over a stipulated period and on the expiry of
this period, the instalments paid in are repaid along with interest
accumulated thereon, in a lump sum. Minimum term is 6 Months
and multiples of 3 months & Maximum 10 years.
5 Variable Recurring Deposit scheme has been designed to give
Variable Recurring Deposit Scheme the customer the option to vary his instalments every month
subject to certain conditions specified at the time of opening the
account with the term of RD exactly 3 years in our Bank.
6 ‘The Capital Gains Account Scheme 1988’ notified by RBI.
Capital Gain Scheme Eligible persons are individuals, HUF, Sole Proprietorship Firms,
Partnership Firms, Companies, Association of Persons, NRIs,
Artificial Judicial person who have capital gains taxable in India.
7 Central Government has formulated the Bank Term Deposit
Tax Saver Scheme Scheme, 2006 which would be eligible for deduction under
Section 80C of Income Tax Act and the maximum amount of
deposit is restricted to Rs.1.50 lakh in a Financial Year.
8 In terms of Honorable High Court of Delhi directions and as
Motor Accident Claim Tribunal Deposit advised by IBA, a special scheme has been formulated for
(MACAD) Scheme disbursement of compensation to the victims of the Road
Accidents & Train Accidents.
9 Banks, at their discretion, may accept preferential deposits and
Preferential Deposits offer differential rates of interest on domestic term deposits of the
same maturity.

The permission to offer varying rates of interest for deposits of the

same maturity will apply to domestic term deposits of Rs.2.00
crore and above.

Interest rates paid by the bank should be as per the schedule and
not be subject to negotiation between the depositor and the bank.

28
 Check your Progress

1. How many classification are there in Deposit products?

a. 1
b. 2
c. 3
d. 4
_________________________________________________________________________________________

2. What are the classification of Tern Deposits?

a. SB, CA, TD
b. RD, VRD
c. MMD, FD
d. NONE
_________________________________________________________________________________________

3. What is CASA?
a. RD+CA
b. CA+SB
c. MMD+ FD
d. NONE
_________________________________________________________________________________________
4. Which type of SB ac is suitable for Salaried class?
a. BSBD
b. SB SAMMAN
c. IB Corp SB
d. NONE
_________________________________________________________________________________________
5. Who can open IN SAMMAN ?
a. Senior citizen
b. General public
c. Super senior
d. NONE
_________________________________________________________________________________________

6. Which type of SB account is suitable for students?

a. Senior citizen
b. IB Kishore – Savings Bank Account for Minors
c. Super senior
d. NONE

29
7. What is the Rate of Interest for Current account?
a. 5
b. 3
c. 0
d. 4
_________________________________________________________________________________________

8. How many types of current account are there?

a. 6
b. 5
c. 4
d. 3
_________________________________________________________________________________________
9. How many types of Term Deposits are there?
a. 6
b. 9
c. 4
d. 3
_________________________________________________________________________________________
10. What is the minimum amount of Preferential deposit?
a. 1 Crores
b. 5 Crores
c. 3 Crores
d. 2 Crores
_________________________________________________________________________________________

ANSWERS

1. C 2. C 3. B
4. C 5. A 6. B
7. C 8. A 9. B
10. D

30
 6. Types of Bank Customers, Banker – Customer Relationship
Various type of customers:
A. Accounts of Individual: Any Individual can open a bank account except Lunatics.
a) Single Accounts: Operated by Self, Mandate, Power of Attorney Holder
b) Joint Accounts: Operated by Jointly by All, Either or Survivors, Former or
Survivors
B. Accounts of Firms
a) Proprietorship Firms
b) Partnership Firms [Including Limited Liability Partnership Firms
C. Accounts of Joint Stock Companies
a) Private Limited Companies
b) Public Limited Companies
c) Govt. Companies
D. Accounts of Trusts
E. Accounts of HUF [Hindu Undivided Family]
F. Accounts of Clubs &Societies
G. Accounts of Executors and Administrators

Some Special Category of individual Accounts:

1. Accounts of blind persons
 Like other persons, the blind persons are fully competent to enter into valid contract
due to which there is no legal bar in opening accounts in their name or getting loan
documents executed by them.
Opening and Operation of Account
 Signature and left hand thumb impression of the blind (even for literate) must be
obtained in the account opening form, which should be witnessed by a respectable
person who should certify that the contents are explained to the blind person in his
presence.
 Photographs should be obtained and used in the same way as is done in case of
illiterates.
 Cash payments or deposits should be made in the presence of a witness who
should be preferably a customer of the bank.
2. Accounts of illiterate persons
An illiterate is a person who cannot read or write. Such persons are competent to enter in to
valid contracts, but they can avoid a contract if they are able to prove that their consent was
obtained by mis representation.
Thumb Impression– For the purpose of entering into an agreement, they put their thumb
(generally, left hand in case of male and right hand in case of a female) impression. Marking
of Thumb impression is Must of Identification

3. Accounts of purdanashin women

 A purdanashin lady is a woman who remains in complete seclusion and does not
transact any business with people other than her family members.
 The contract entered into by her is not a contract free from all defects as a presumption
of undue influence always exists and she can avoid the contract where she complains
of undue influence, the onus of providing the absence of undue influence lies on the
other party.
 Account should be opened in the name of literate ladies only.
31
4. Accounts of MINORS
 A minor (of Indian domicile) is a person who has not completed 18 years of age as per
section 3 of Indian Majority Act 1875, amended w.e.f. Dec 16, 1999.
 Where a guardian is appointed by the Court (for minor’s person or property or both) or
where a Court of Ward is appointed a s guardian, a person attains majority on
completion of 21years of age.

.
Self operated Account:
 Minors who have completed 10 years of age and can sign uniformly, can open accounts in
their own name and operate the same in the light of Section 26 of NI Act.1881
 Minor cannot give mandate or power of attorney in this account.
 No nomination can be permitted, as minor is not competent for appointing a nominee.
 No loan against the security of a term deposit should be allowed.
 Pre-mature withdrawal of FDR can be allowed

B. ACCOUNTS OF FIRMS
PARTNERSHIP FIRMS:
 To enter into a partnership, there has to be a contract which may be oral or in
writing (called Partnership deed – required to be stamped as per State Govt. rates).
 Where there is no partnership deed, the rights and liabilities of the partners shall
be governed as per Partnership Act.1932.
WHO CAN BE A PARTNER:
Being a legal contract, persons having legal capacity to contract only, can enter into a
partnership. A company or a partnership firm can become partner in another firm.

Max. No. of Partners: At present 50 (may be up to 100)

A Minor can be admitted for the benefits, but not to be counted towards no. of members.
The number exceeding the above will make the firm an illegal association.
Where a firm is a partner in another firm, the individual number of partners will be counted
for the purpose of total number of partners.

C. ACCOUNT OF JOINT STOCK COMPANIES

 The Companies Act 1956 recognizes a joint stock company as a legal person. It is a
separate legal entity. Banks have to deal with them like a legal person, having no
physical existence through authorized persons.
 Generally bankers come across 3 types of companies:
1. Private Limited Companies
2. Public Limited Companies
3. Govt. Companies

1. PRIVATE LIMITED COMPANIES

 Private Limited Companies must have minimum 2 and maximum 200 shareholders
(excluding those who were or are at the time of allotment of shares in the employment
of the company).
2. PUBLIC LIMITEDCOMPANIES
 Public Limited Companies must have minimum 3 directors and minimum 7
32
 shareholders.
 There is no restriction on the maximum. Names of such companies must end
with the words ‘Limited’.
 They can invite, transfer shares to or from the public and such shares are
quoted in the stock market.
3. ACCOUNT OF GOVT. COMPANIES mean a company with at least 51% of share
capital held by Govt.
IMPORTANT DOCUMENTS:
o Memorandum of Association
o ARTICLES OF ASSOCIATION (Also known as document of indoor
management)
o CERTIFICATE OF INCORPORATION CERTIFICATE OF
COMMENCEMENT OF BUSINESS RESOLUTION OF THE BOARD:
D. TRUST ACCOUNTS
U/s 3 of Indian Trust Act 1882, “A trust is an obligation annexed to the ownership of property
and arising out of a confidence imposed in and accepted by the owner or declared and
accepted by him for the benefit of another and the owner.”
1. PARTIES – There are three parties i.e.
a. A Author-The person transferring the ownership is called the author of the trust
b. A Trustee-The person in whose favour the possession is transferred
c. A Beneficiary-The person/s for whose benefit the trust is formed is called beneficiary.

E. HINDU UNDIVIDED FAMILY (HUF)

 HUF property, business or estate is ancestral and its common possession, enjoyment
and ownership is the basis of formation of HUF.
 As per Hindu common law, the Hindus, Sikhs, Jains are the communities who can form
HUF.
 Joint owners of HUF are known as coparceners. HUF is also called Coparcenary.
 It consists of one common living ancestor and his male (female also w.e.f Sept 2005)
descendants up to three generation next to him.
Senior most coparcener is a Karta or Manager.
When the Karta expires or is declared personally insolvent or becomes insane, the next
senior male coparcener becomes the karta.
OPERATIONS IN HUF BANK ACCOUNTS:
 HUF declaration form or account opening form and loan documents should be
executed by the Karta in Karta’s capacity and by all the other adult (major)
coparceners in their personal capacity to make them personally liable.
 Minor’s consent is to be obtained on his attaining majority.

E. CO-OPERATIVESOCIETIES
 They can open account with co-operative banks and commercial banks by
permission from Registrar of Cooperative Societies.
 The bank can open accounts of unregistered clubs/ institutions, societies,
associations, schools after satisfaction about the reputation, responsibilities and
standing of the office bearers of such bodies

33
 Banker – Customer Relationship
Transaction Relationship Bank’s Position Customer’s
Position
Deposit in Bank A/c. by Customer Debtor-Creditor Debtor Creditor
Money Deposited but instructions not Trustee-Beneficiary Trustee Beneficiary
given for its disposal
Loan from Bank to Customer Creditor-Debtor Creditor Debtor
Locker Lessor - Lessee Lessor (Licensor) Lessee (Licensee)
Safe Custody Bailor-Bailee Bailee Bailor
Standing Instruction Principal-Agent Agent Principal
Collection of Cheques Principal-Agent Agent Principal
Purchaser of Draft Debtor-Creditor Debtor Creditor
Payee of Draft – Bank Trustee-Beneficiary Trustee Beneficiary
Articles left by Mistake Trustee-Beneficiary Trustee Beneficiary
Mortgage of Assets by borrower Mortgagor-Mortgagee Mortgagee Mortgagor
Hypothecation of Goods Hypothecator/Hypothecatee Hypothecatee Hypothecator
Sale Purchase of securities on behalf Agent-Principal Agent Principal
of customers
Pledge Pledgor-Pledgee Pledgee Pledger
(Pawnee) (Pawner)
Assignment of Life policies for Assignor - Assignee Assignee Assignor
securing loan

34
 Check Your Progress

1. Which of the following cannot be a partner in a partnership firm?

a. Pvt. Ltd. company
b. Public Ltd. Co.
c. HUF
d. A & B
_________________________________________________________________________________________
2. Can we open accounts of Lunatics? Which is not correct.
a. Not permitted as self-operated accounts ,as the person is of unsound mind
b. Open deposit accounts operated only by a Guardian or a Receiver appointed by a Competent Court.
c. We can open accounts with proper introduction
d. A & B
_________________________________________________________________________________________
3. The PAN consists of the following--
a. 10 digits only
b. 6 alphabet & 4 numerals
c. 4 alphabet & 6 numerals
d. 12 digits
_________________________________________________________________________________________

4. A minor whose guardian has been appointed by court, attains majority on completion of … years of age:
a. 21
b. 10
c. 18
d. 15
_________________________________________________________________________________________

5. A minor (of Indian domicile) is a person who has not completed 18 years of age.It comes under which act ?
a. Indian Majority act
b. Indian Minority act
c. RBI act
d. Contract act
_________________________________________________________________________________________

6. The banker customer relationship in case of Pledge is that of …

a. Bailee-bailor
b. Pledgee-Pledgor
c. Agent-Principal
d. Creditor-Debtors

35
7. The banker customer relationship in case of Mortgage of Assets by borrower is that of --
a. Mortgagee-Mortgagor
b. Trustee-beneficiary
c. Agent-Principal
d. Creditor-debtor
_________________________________________________________________________________________

8. The banker customer relationship in case of Collection of Cheques is that of …

a. Bailee-bailor
b. Trustee-beneficiary
c. Agent-Principal
d. Creditor-debtor
_________________________________________________________________________________________

9. The banker customer relationship in case of Deposit in Bank account by customer is that of …
a. Bailee-bailor
b. Trustee-beneficiary
c. Agent-Principal
d. Debtor-Creditor
_________________________________________________________________________________________

10. The banker customer relationship in case of a locker is that of …

a. Lessee-lessor
b. Trustee-beneficiary
c. Agent-Principal
d. Lessor – lessee
_________________________________________________________________________________________

ANSWERS

1. C 2. A 3. B
4. C 5. B 6. B
7. A 8. C 9. D
10. D

36
 7. Know Your Customer (KYC)

In terms of the provisions of Prevention of Money-Laundering Act (PMLA), 2002 and the Prevention of
Money-Laundering (Maintenance of Records) Rules, 2005, all Scheduled Commercial Banks (SCBs),
are required to follow certain customer identification procedures while undertaking a transaction either
by establishing an account-based relationship or otherwise and monitor their transactions. The
objective of this Policy is to prevent the Bank from being used, intentionally or unintentionally, by
criminal elements for money laundering or terrorist financing activities. Banks need to frame policies
which will enable the identification of the customer.

The KYC policy shall include following four key elements:

(a) Customer Acceptance Policy (CAP);

(b) Risk Management;
(c) Customer Identification Procedures (CIP); and
(d) Monitoring of Transactions

Customer Acceptance Policy(CAP)

In order to establish relationship with the intending customer, comprehensive information regarding the
new customer should be obtained at the initial stage. The prospective customer should be interviewed
by the Branch Manager/ Officer
to understand customer’s intended relationship with the Bank. Branch heads/officials, in the process of
establishing relationship with the customer and/or permitting opening of the account, should protect the
bank from the risks of doing business with any individual or entity whose identity cannot be determined
or who refuses to provide information, or who have provided information that contains significant
inconsistencies which cannot be resolved after due investigation.

The following guidelines should be followed while opening a new account:

a) No account is opened in anonymous or fictitious/benami name.

b) No account is opened where the Bank is unable to apply appropriate CDD (Customer Due
Diligence) measures, either due to non-cooperation of the customer or non-reliability of the
documents/information furnished by the customer.
c) No transaction or account-based relationship is undertaken without following the CDD
procedure.
d) The mandatory information to be sought for KYC purpose, while opening an account and
during the periodic updation, is specified.
e) ‘Optional’/additional information is obtained with the explicit consent of the customer after the
account is opened.
f) CDD procedure is followed at the UCIC (Unique Customer Identification Code) level. Thus, if
an existing KYC compliant customer of the Bank desires to open another account, there shall
be no need for a fresh CDD exercise.
g) CDD Procedure is followed for all the joint account holders, while opening a joint account.
h) Circumstances in which, a customer is permitted to act on behalf of another person/entity, is
clearly spelt out.
i) Suitable system is put in place to ensure that the identity of the customer does not match with
any person or entity, whose name appears in the sanctions lists circulated by Reserve Bank of
India.

37
 j) Where Permanent Account Number (PAN) is obtained, the same shall be verified from the
verification facility of the issuing authority.
k) Where an equivalent e-document is obtained from the customer, Bank shall verify the digital
signature as per the provisions of the Information Technology Act, 2000.

Customer Acceptance Policy shall not result in denial of banking/financial facility to members of the
general public, especially those, who are financially or socially disadvantaged.

Risk Management

For Risk Management, Bank shall have a risk based approach which includes the following:

a) Customers shall be categorised as LOW, MEDIUM and HIGH RISK category, based on the
assessment and risk perception of the Bank.
b) Risk categorisation shall be undertaken based on parameters such as customer’s identity,
social/financial status, nature of business activity, and information about the clients’ business
and their location etc. While considering customer’s identity, the ability to confirm identity
documents through online or other services offered by issuing authorities may also be factored
in.

Customer Identification Procedure (CIP)

Bank shall undertake identification of customers in the following cases:

a) Commencement of an account-based relationship with the customer.

b) Carrying out any international money transfer operations for a person who is not an account
holder of the bank.
c) When there is a doubt about the authenticity or adequacy of the customer identification data it
has obtained.
d) Selling third party products as agents, selling their own products, payment of dues of credit
cards/sale and reloading of prepaid/travel cards and any other product for more than rupees
fifty thousand.
e) Carrying out transactions for a non-account-based customer, that is a walk-in customer, where
the amount involved is equal to or exceeds rupees fifty thousand, whether conducted as a
single transaction or several transactions that appear to be connected.
f) When the Bank has reason to believe that a customer (account- based or walk-in) is
intentionally structuring a transaction into a series of transactions below the threshold of rupees
fifty thousand.
g) Bank shall ensure that introduction is not to be sought while opening accounts.

For the purpose of verifying the identity of customers at the time of commencement of an account-
based relationship, Bank, shall at their option, rely on customer due diligence done by a third party,
subject to the following conditions:

a) Records or the information of the customer due diligence carried out by the third party is
obtained within two days from the third party or from the Central KYC Records Registry.
b) Adequate steps are taken by Bank to satisfy themselves that copies of identification data and
other relevant documentation relating to the customer due diligence requirements shall be
made available from the third party upon request without delay.

38
 c) The third party is regulated, supervised or monitored for, and has measures in place for,
compliance with customer due diligence and record-keeping requirements in line with the
requirements and obligations under the PML Act.
d) The third party shall not be based in a country or jurisdiction assessed as high risk.
e) The ultimate responsibility for customer due diligence and undertaking enhanced due diligence
measures, as applicable, will be with the RE (Reporting Entity)

Customer Due Diligence (CDD) Procedure

Customer Due Diligence (CDD) can be defined as any measure undertaken by banks to collect and
verify information and positively establish the identity of a customer.

For undertaking CDD, Bank shall obtain the following from an individual while establishing an account
based relationship or while dealing with an individual who is a beneficial owner, authorised signatory or
the power of attorney holder related to any legal entity:

a. the Aadhaar number where,

(i) he is desirous of receiving any benefit or subsidy under any notified scheme or
(ii) he decides to submit his Aadhaar number voluntarily to a bank ; or
(aa) the proof of possession of Aadhaar number where offline verification can be
carried out; or
(ab) the proof of possession of Aadhaar number where offline verification cannot be
carried out or any OVD or the equivalent e-document thereof containing the details of
his identity and address; and
b. the Permanent Account Number(PAN) or the equivalent e-document thereof or Form No. 60 and
c. such other documents including, in respect of the nature of business and financial status of the
customer, or the equivalent e-documents thereof as may be required by the Bank.

Provided that where the customer has submitted,

i. Aadhaar number under clause (a) above to the bank or to a RE, such bank or RE shall carry out
authentication of the customer’s Aadhaar number using e-KYC authentication facility provided by
the Unique Identification Authority of India(UIDAI). Further, in such a case, if customer wants to
provide a current address, different from the address as per the identity information available in
the Central Identities Data Repository, he may give a self-declaration to that effect to the Bank.
ii. Proof of possession of Aadhaar under clause (aa) above where offline verification can be carried
out, the Bank shall carry out offline verification.
iii. An equivalent e-document of any OVD, the Bank shall verify the digital signature as per the
provisions of the Information Technology Act, 2000
iv. Any OVD (Official valid document – Voter ID Card, Passport, Driving Licence, NREGA Job card,
Letter issued by National Population Control Register containing details of name, address) or
proof of possession of Aadhaar number under clause (ab) above where offline verification cannot
be carried out, the Bank shall carry out verification through digital KYC.

Monitoring of transactions:

By monitoring transactions, banks ensure that new accounts are not opened by a trickster or a money
launderer for fraudulent transactions. Using computer capability, data mining can assist the assimilation
of multitude of transactions in a customer account and furnish multifarious analysed data like customer
preference, spending habits, pattern of transactions, size of operations etc. Cheques issued to new
accounts are affixed with a “New Account” stamp to help quick identification. Transactions involving
39
large amounts in newly opened accounts are scrutinized and inquired into. System keeps on throwing
alerts whenever high value transactions/cash transactions are effected at branches. The branches are
required to give compliance on the genuineness of the customer. Similarly, system also throws alerts
when transactions involving receipts by non-profit organizations of a certain amount (Rs. 10 lacs and
more) take place. Suspicious transactions are also to be monitored and reported to appropriate
authorities like RBI and FIU - IND.

Bank shall undertake on-going due diligence of customers to ensure that their transactions are
consistent with their knowledge about the customers, customers’ business & risk profile, and the source
of funds.

KYC for non face-to-face customer:

Accounts opened using OTP based e-KYC, in non-face-to-face mode, are subject to the following
conditions:

i. There must be a specific consent from the customer for authentication

ii. The aggregate balance of all the deposit accounts of the customer shall not exceed rupees one
lakh. In case, the balance exceeds the threshold, the account shall cease to be operational, till
KYC at branch is completed.
iii. The aggregate of all credits in a financial year, in all the deposit accounts take together, shall not
exceed rupees two lakh.
iv. As regards borrowal accounts, only term loans shall be sanctioned. The aggregate amount of
term loans sanctioned shall not exceed rupees sixty thousand in a year.
v. Accounts, both deposit and borrowal, opened using OTP based e-KYC shall not be allowed for
more than one year within which identification at branch is carried out.
vi. If the CDD procedure as mentioned above is not completed within a year, in respect of deposit
accounts, the same shall be closed immediately. In respect of borrowal accounts no further
debits shall be allowed.

Small Account:

These accounts are opened under relaxed KYC norms and have certain limitations. Small accounts are
subject to following limitations:

i. the aggregate of all credits in a financial year does not exceed rupees one lakh;
ii. the aggregate of all withdrawals and transfers in a month does not exceed rupees ten thousand;
and
iii. The balance at any point of time does not exceed rupees fifty thousand.

Further, while opening small accounts:

a. The bank shall obtain a self-attested photograph from the customer.
b. The designated officer of the bank certifies under his signature that the person opening the
account has affixed his signature or thumb impression in his presence.
c. Such accounts are opened only at Core Banking Solution (CBS) linked branches or in a branch
where it is possible to manually monitor and ensure that foreign remittances are not credited to
the account.
d. The account shall remain operational initially for a period of 12 months which can be extended
for a further period of twelve months, provided the account holder applies and furnishes

40
 evidence of having applied for any of the OVDs during the first 12 months of the opening of the
said account.
e. The entire relaxation provisions shall be reviewed after 24 months.
f. The account shall be monitored and when there is suspicion of money laundering or financing of
terrorism activities or other high risk scenarios.

Periodic Updation of KYC

Periodic updation shall be carried out at least once in every 2 years for high risk customers, once in
every 8 years for medium risk customers and once in every 10 years for low risk customers

Record Management

Under the relevant provisions of PML Act and Rules, bank shall,
a. maintain all necessary records of transactions between the RE and the customer, both domestic
and international, for at least 5 years from the date of transaction;
b. preserve the records pertaining to the identification of the customers and their addresses obtained
while opening the account and during the course of business relationship, for at least 5 years after
the business relationship is ended;
c. make available the identification records and transaction data to the competent authorities upon
request;

41
 Check Your Progess

1. Which one of these is not a key element of KYC policy?

a. Monitoring of Transactions
b. Due Diligence
c. Customer Acceptance Policy
d. Risk Management
_________________________________________________________________________________________

2. In order to mitigate risk, customers are categorised into how many risk categories?
a. 3
b. 4
c. 5
d. 6
_________________________________________________________________________________________

3. Which one of these is not an official valid document?

a. Passport
b. NREGA Jobcard
c. Driving Licence
d. PAN
_________________________________________________________________________________________
4. The aggregate balance of all the deposit accounts of non face to face customer shall not exceed rupees------
a. 50,000/-
b. 75,000/-
c. 1,00,000/-
d. 2,00,000/-
_________________________________________________________________________________________

5. In case of non face to face customer, the aggregate of all credits in a financial year, in all the deposit accounts
take together, shall not exceed rupees
a. 50,000/-
b. 75,000/-
c. 1,00,000/-
d. 2,00,000/-
_________________________________________________________________________________________

6. As regards borrowal accounts, only term loans shall be sanctioned for non face to face customers. The
aggregate amount of term loans sanctioned shall not exceed rupees-- in a year
a. 50,000/-
b. 60,000/-
c. 1,00,000/-
d. 2,00,000/-

42
7. In small accounts, the aggregate of all credits in a financial year does not exceed rupees ----
a. 50,000/-
b. 75,000/-
c. 1,00,000/-
d. 2,00,000/-
_________________________________________________________________________________________

8. For small accounts, The aggregate of all withdrawals and transfers in a month does not exceed rupees ten
thousand; and
a. 7,500/-
b. 10,000/-
c. 15,000/-
d. 25,000/-
_________________________________________________________________________________________

9. The balance in small accounts at any point of time does not exceed rupees--
a. 50,000/-
b. 60,000/-
c. 1,00,000/-
d. 2,00,000/-
_________________________________________________________________________________________

10. What is the periodicity of KYC updation for medium risk customers?
a. 2 years
b. 5 years
c. 8 years
d. 10 years
_________________________________________________________________________________________

ANSWERS

1. B 2. A 3. D
4. C 5. D 6. B
7. C 8. B 9. A
10. C

43
 8. Negotiable Instruments Act, 1881 - Important Provisions

The NI Act states in its preamble that it seeks to define the law relating to promissory note, bill of
exchange and cheques. NI Act came into force W.E.F March 01,1882. This act is applicable to entire
India. The term negotiable instrument is not defined in the Act. Section 13 says that Promissory Notes,
Bills of Exchange and Cheques are negotiable instruments

Promissory note and essential elements of Promissory note

Promissory note is defined under section 4. ''A Promissory Note is an instrument in writing (not being
a bank note or a currency note) 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.
A promissory note that is dependent on contingency would tantamount to being an uncertain
undertaking and hence cannot be treated as a promissory note.

Essential elements of a promissory note are

It must be in writing;

There must be express promise to pay;
The promise must be unconditional;
It must be signed by the maker of the note;
The payee must be certain;
The amount payable must be certain;
The promise should be to pay money only and not anything other than money;
The amount may be payable on demand or after a certain time;
The promissory note cannot be made payable to bearer on demand. Section 31 of the RBI Act
prohibits issue of such a Promissory note except by the RBI or Central Government

Bill of exchange and the essential elements of Bill of exchange

Bill of exchange is defined under section 5. ''A bill exchange is an instrument in writing containing an
unconditional order, signed by the 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.

The essential elements of a bill of exchange are

It must be in writing;

It must contain an order to pay;
The order must be unconditional;
The parties must be certain;
The sum payable must be certain;
It must contain an order to pay money.

Cheque and the essential elements of cheque

Cheque is defined under section 6. ''A cheque is a bill of exchange drawn on a specified banker and
not expressed to be payable otherwise than on demand and it includes the electronic image of a
truncated cheque and a cheque in the electronic form.

44
 The essential elements of a cheque are

A cheque is a kind of bill of exchange;

It is always drawn on a specified banker, which means the drawee of a cheque can be a banker;
It is always payable on demand; and
Cheque includes electronic image of a truncated cheque and a cheque in an electronic form.

Holder & Holder in Due Course:

Transaction Holder Holder In Due Course

Consideration Not Essential Essential
Good Faith Not Essential Essential
Same as Good even when transferor‟s
Title
transferor(Defective/good) defective
Time Before or after maturity Before maturity only
Inchoate Instrument Can Complete Can Complete
Possession of the Instrument May be/may not be Possession Essential
Authority Can sue in his own name Can sue in his own name
Forged Instrument Cannot be holder Cannot be holder in due course

Parties to negotiable instruments:

In a Bill of Exchange: - There are minimum three parties - Drawer, Drawee, Payee. There can be
other parties -Acceptor, Holder, Endorser, Endorsee, Drawee in case of Need and Acceptor for
Honour.
In a cheque, like a bill there are minimum three parties: - Drawer, Drawee (a banker), Payee. There
can be other parties - Holder, Endorser and Endorsee.
In a promissory note: - There are minimum two parties - Maker & Payee. There can be other parties -
Holder, Endorser and Endorsee.
 The person who makes a promissory note is called the maker. The person who makes or draws a bill
or cheque is called the drawer.
 The person on whom the bill or cheque is drawn and who is directed to pay is called drawee. In case
of a cheque the drawee is always a banker.
 In case of a bill, when the drawee accepts the bill, he will become the acceptor.
 The person named in a pronote, bill or cheque, to whom or to whose order, the money is to be paid,
is called the payee. In a bill or a cheque, the drawer himself may be the payee.
 The person who endorses the negotiable instrument to another person is called the endorser.
The person to whom the negotiable instrument is endorsed is called the endorsee. When in a bill or
any endorsement thereon, the name of any person is given in addition to the drawee, to be resorted
to in case of need, such person is called drawee in case of need.
 When a bill is dishonoured by non-acceptance, the holder may allow any person to accept it for the
honour of the drawer or any of the endorsers. The person so accepting is called the Acceptor for
honour.

45
 “Holder in due course” is a person who takes a negotiable instrument for the value receivable by
him in good faith and taken due care and caution while taking such instrument and he had no
suspicion or reason to believe any defect existed in the title of the person, from whom he derived title
possession of the instrument.

Bearer and order instruments

A negotiable instrument can be either a ‘bearer’ or an ‘order’ instrument. A bearer instrument is

payable to
the bearer of the instrument. Generally no identification of the bearer is necessary. An order instrument
can be paid to the payee or endorsee, only on proper identification, which is satisfactory to the paying
bank.

Crossing of cheques:

There are two types of crossing namely general crossing and special crossing.
 When a cheque bears across its face two transverse parallel lines it amounts to general crossing.
The word “and Company” or any abbreviation of it may or may not appear between the parallel
lines. The general crossing may or may not contain the word “not negotiable”.
 If a cheque is crossed generally, the drawee bank can pay the cheque only through a banker.
 When a cheque bears on its face, the name of a banker, it shall be deemed to be a special
crossing and is crossed to that bank. In such a case the cheque can be paid only to the bank to
which it is crossed. The two transverse parallel lines are not necessary for a special crossing.
 If a cheque is crossed to two banks, the drawee bank cannot pay it unless one bank is acting as an
agent for the other bank.
 Not negotiable crossing is a general crossing. It does not mean that the cheque cannot be
negotiated. It implies that the transferee of the cheque cannot get a better title to the cheque than
that of the transferor. If the title of the transferor is defective, the title of the transferee will also be
defective.
 The Act does not provide for Account payee crossing. But, in practice this type of crossing has
been
recognized. A cheque crossed Account Payee cannot be paid to, or collected for, any person other
than the named payee.
 A bearer cheque crossed Account Payee, in effect, is not a bearer cheque. It is payable to the
payee only through a bank.

Protection to collecting banker

Section 131 of the Act provides protection to a collecting banker. The banker will be protected even if
the title of the person for whom the cheque is collected is defective. However, the following conditions
are to be fulfilled to avail the protection.
 The collecting banker should have acted in good faith and without negligence.
 The cheque should have been crossed before it comes in to the hands of the collecting bank.
 The collecting banker has received the payment for a customer and not in his own account.

Protection to collecting banker

Section 131 of the Act provides protection to a collecting banker. The banker will be protected even if

46
 the title of the person for whom the cheque is collected is defective. However, the following conditions
are to be fulfilled to avail the protection.
 The collecting banker should have acted in good faith and without negligence.
 The cheque should have been crossed before it comes in to the hands of the collecting bank.
 The collecting banker has received the payment for a customer and not in his own account.

Criminal liability for bouncing of cheque (Section 138)

The drawer of a cheque shall be deemed to have committed an offence, if

 The cheque has been returned due to insufficiency of funds or exceeds arrangements;
 The cheque has been issued for legally enforceable debt;
 The cheque is not stale as on the date of presentation;
 The holder issued a notice demanding the payment from the drawer within 30 days from the date of
receipt of intimation of dishonour;
 The drawer fails to make payment within 15 days of receipt of the notice

Section 139 in The Negotiable Instruments Act, 1881

 Presumption in favour of holder.—It shall be presumed, unless the contrary is proved, that the
holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in
whole or in part, of any debt or other liability.
 Section 139 of the N. I. Act
inserted by amendment in the year 1988 to provide penalties in the case of dishonour certain of
certain cheques, strengthens the presumption of
consideration under Section 118 (a) of the N. I. Act. It speaks that it shall be
presumed until the contrary is proved, that the holder of a cheque received
cheque of the nature referred to in Section 138 for the discharge while or in
part of any debt or other liability.
Other important provisions of the Act:

 When the day on which a promissory note or bill of exchange is at maturity is a public holiday, the
instrument shall deemed to be due on the next preceding business day.
 Sec 18: Difference in amount in words and figures, amount in words to be paid
 Sec 22: days grace allowed for usance bill of exchange and promissory note.
 Sec 26: A minor can validly draw, endorse or negotiate an instrument. By doing so he can make the
other parties to the instrument liable. But, the minor is not liable.
 Sec 31: a banker having sufficient balance in the account of a customer shall honour the cheque
drawn on the account, provided the balance is properly applicable for payment of the cheque. For
example, if a cheque is presented on an account and the account is having sufficient balance, but a
garnishee order is issued covering the balance in the account, the balance is not properly applicable
for payment of the cheque.
 Sec 58: Instrument obtained by unlawful means / consideration-no title possess
 Sec 85: Protection to paying banker.
 Sec 87: Any alteration on a negotiable instrument which alters any material part of it, is termed as
material alteration; and this renders the instrument void, except where the parties concerned
consent for such an alteration. The drawer with his full signature should authenticate any material
alteration in a cheque
 Sec 123: General Crossing
 Sec 124: Special Crossing
47
 Check Your Progress

1. NI Act came into force w.e.f

a. Jan 1881
b. June 1881
c. 1st March 1882
d. April 1882
_________________________________________________________________________________________

2. Which of the following negotiable instruments comes outside of NI Act ?

a. promissory
b. note
c. Bill of lading
d. Bill of exchange
_________________________________________________________________________________________

3. A collecting bank gets statutory protection under

a. RBI Act
b. Banking Regulation Act
c. Negotiable Instruments Act
d. Indian Contract Act
_________________________________________________________________________________________

4. Crossing is direction to the ________ bank to pay the cheque to the payee through a bank
a. Drawer
b. Negotiating
c. Paying
d. Collecting
_________________________________________________________________________________________

5. Following crossing is not provided in N I Act

a. General Crossing
b. Special Crossing
c. Negotiable Crossing
d. Account payee crossing
_________________________________________________________________________________________

6. If the words "not negotiable" are used with special crossing in a cheque, the cheque is
a. not transferable
b. transferable
c. negotiable under certain circumstances
d. none of the above

48
7. A paying banker is absolved from his responsibility if he ...
a. Pays the cheque in due course
b. Pays within prescribed time
c. Pays according to apparent tenor
d. None of the above
_________________________________________________________________________________________

8. A cheque of Punjab national bank is containing two parallel lines and between the lines Canara bank. & not
negotiable. This crossing is known as
a. general crossing
b. special crossing
c. not negotiable crossing
d. simple crossing
_________________________________________________________________________________________

9. Protection to a collecting banker is not available in the case of

a. uncrossed cheque
b. crossed bearer cheques
c. crossed order cheques
d. cheques cross not negotiable
_________________________________________________________________________________________
10. Person named in the instrument to whom money is directed to be paid:
a. Drawer
b. Acceptor
c. Maker
d. Payee
_________________________________________________________________________________________

ANSWERS

1. C 2. B 3. C
4. C 5. D 6. A
7. A 8. B 9. A
10. D

49
 9. CASH MANAGEMENT
INTRODUCTION
The Reserve Bank of India (RBI), established on 1 April 1934 and nationalised in 1948, is the central
bank of the country. RBI was nationalised in order to control inflation in the country effectively and to
use it as an instrument of economic change in the country. Amongst its functions, RBI issues and
regulates currency and coin in India, acts as a banker to government and acts as a banker to
commercial banks.
In terms of Sec.22 of RBI Act, 1934, The Reserve Bank is the nation's sole note issuing authority. Along
with the Government of India, RBI is responsible for the design, production and overall management of
the nation's currency, with the goal of ensuring an adequate supply of clean and genuine notes.
The Government of India is the issuing authority of coins and supplies coins to the Reserve Bank on
demand. The Reserve Bank puts the coins into circulation on behalf of the Central Government.
The Department of Currency Management at Central Office, Mumbai, in cooperation with the Issue
Departments of the Reserve Bank’s Regional Offices across India oversees currency management.
The function includes supplying and distributing adequate quantity of currency throughout the country
and ensuring the quality of banknotes in circulation by continuous supply of clean notes and timely
withdrawal of soiled notes.
This is achieved through a wide network of more than 4000 currency chests of commercial banks.
Currency chests are extended arms of the Reserve Bank Issue Departments and are responsible for
meeting the currency requirements of their respective regions.
1. FORMATION OF CURRENCY CHESTS/SMALL COIN DEPOTS
a. Section 45 of the RBI Act, 1934
• To facilitate putting of Notes in circulation at all places in the country, the RBI has adopted an
Agency system and currency chests/Small Coin Depots have been established with banks.

• The Reserve Bank has appointed the following types of banks as agents: SBI and Associates,
Public Sector Banks, Private Sector Banks, Co-operative banks, Foreign Banks, RRBs.

• The entire arrangements are regulated by an Agency agreement entered into between the RBI
and the Agency concerned.

b. Purpose for Establishment of Currency Chests

• To meet the currency requirements of the public.
• To maintain the quality of currency in circulation by withdrawing unfit notes.
• To afford exchange facilities of one denomination into another.
• To meet the payments of Governments/banks/public.
• To operate remittance facilities conveniently.
• To arrange for exchange of mutilated and other notes as per Note Refund Rules.
• To obviate the necessity of physical transfer of cash from one place to another at frequent
intervals and,
• To enable the banks and treasuries to work with minimum cash balance of their own.

50
c. What is a Currency Chest?
• Nothing but an extended storehouse of the Issue Department
• In these strong rooms, rupee coins and stocks of fresh, re-issuable and also soiled bank notes
are stored.
• Notes stored in the currency chests are the property of RBI
• Responsibility of the Agent holding the Currency Chests to ensure the safety and the security
of the balances held in the chests.

d.Small Coin Depots

• RBI and its Agencies also maintain Small Coin Depots for storing and supplying small coins to
the public.
• Coins of 0.50 paise is called small coin.
• There are 3813 SCDs in the country. Small Coins Depots are the property of Government of
India.
• Any withdrawals from the SCD at RBI or its Agencies are credited to Govt. A/c and similarly the
deposits into the SCD will be debited to the Government of India A/c

2. RBI Sole Authority to Issue Bank Notes

• RBI Act-1934 empowers only RBI to issue bank notes
• Design and pattern of notes recommended by RBI & approved by Government of India
• Notes in circulation are Rs. 1, 2, 5, 10, 10(N),20,20(N), 50, 50(N),100,100(N), 200(N), 500(N)
and 2000(N)

Government Note and Bank Note

Government note” means any note issued by the Central Government or supplied by the Central
Government to the Bank and issued by the Bank, provided the liability for the payment of the value in
respect of such note has devolved on and been taken over by the Bank.
"Bank note"means any note issued by the Bank, but does not include a Government note other than
one-rupeenotes.
NOTE REFUND RULES-2009
a. Definition of Notes (Defined under Note Refund Rules, 2009)
• Soiled Note- a note which has become dirty due to usage and also includes a two-piece note
pasted together wherein both the pieces presented belong to the same note, and form the
entire note.
• Mutilated Note –a note of which a portion is missing or is composed of more than two pieces.
• Imperfect Note – a note which is wholly or partially - obliterated, shrunk, washed, altered or
indecipherable but does not include a mutilated note.
• Mismatched Note – a note which has been formed by joining a half note of any one note to a
half note of another note.

b. Claims not to be Entertained:

51
 i) No claim in respect of note: which is alleged to have been stolen, lost or wholly destroyed, shall be
entertained.
ii) Which cannot be identified with certainty asa genuine note for which the Bank is liable under the Act;
iii) Which has been made imperfect or mutilated, thereby causing the note to appear to be of a higher
denomination or has been deliberately cut, torn, defaced, altered for making of a false claim
iv) carries any extrinsic words or visible representations intended to convey or capable of conveying
any message of a political or religious character or furthering the interest of any person or entity;
v) has been imported into India by the claimant from any place outside India in contravention any
law;etc.

c. Details of Area of One, Two, Five, Ten , Twenty ,Fifty Rupees and above Notes
Denomination Length Width Area (in Minimum area (in
(centimetre) (centimetre) 2
centimetre )
2
centimetre ) required for
payment* Full Value
1 9.7 6.3 61.11 31

2 10.7 6.3 67.41 34

5 11.7 6.3 73.71 37
10 (10 New) 13.7 (12.3) 6.3 86.31(77.49) 44(39)

20(20 New) 14.7 (12.9) 6.3 92.61(81.27) 47(41)

50(50N) 14.7 (13.5) 7.3(6.6) 107.31(89.1) 86(72)

100(100N) 15.7 (14.2) 7.3(6.6) 114.61 92(75)

(93.72)
200 14.6 6.6 96.36 78

500 15 6.6 99 80

2000 16.6 6.6 109.56 88

d. Payment Procedure for Mutilated Notes Re.1 to Rs.20

If the area of the single largest undivided piece of note is more than 50 % of area of respective
denomination, rounded off to the next complete square centimeter, full value shall be payable.
Value Payable in Exchange
(i) Full Value - area of the single largest undivided piece of the note presented is more than 50
percent of the area of the respective denomination, rounded off to the next complete square cm.
(ii) Rejected - area of the largest undivided piece of the note presented is less than or equal to 50
percent of the area of the note, the claim shall be.

52
e. Payment Procedure for Mutilated Notes.20Fifty Rupees and above
Value Payable in Exchange
i) Full Value - area of the single largest undivided piece of the note is more than 80 percent of the area
of the respective denomination rounded off to the next complete square centimeter.
ii) HalfValue - area of the single largest undivided piece of the note presented is equal to or more than
40 percent and less than or equal to 80 percent of the area of the respective denomination rounded off
to the next complete square centimeter.
iii) Rejected - area of the single largest undivided piece of the note is less than 40 percent
3.a. Essential Featuresof Currency Notes

 Name of the Issuing authority [Reserve Bank of IndiaRs 2, 5, 10, 20, 50, 100, 200,500 and
2000 and Government of India for Re 1]
 Guarantee Clause [GUARANTEED BY THE CENTRAL GOVERNMENT]
 Promissory Clause
 Mahatma Gandhi Portrait/Ashoka Pillar

b .Security Features of new Currency Notes

Security Features in a new bank note are of two types
1) OVERT SECURITY FEATURES are those features which can be seen with naked eye

Overt Features
 Paper Quality
 Intaglio Printing
 Guarantee and Promissory Clause
 Signature of RBI Governor
 Ashoka Pillar emblem
 Identification Mark & Bleed Lines for visually challenged
 Ascending font size of panels
 Year of Printing
 See Through Register
 Water Mark
 Multi- Directional Line
 Latent Image
 Electrolyte watermark
 Number Panel
 Optically Variable Ink (OVI)
 Security Thread

2) COVERT SECURITY FEATURES are those which cannot be seen with naked eye

 Micro-lettering:Below the chin of MG, micro lettering has been done which is visible only with
the help of a magnifying glass. The micro lettering has a distinct pattern for each denomination.
 Optical Fibers.

53
  UV illumination:Change of colour of security Thread under U/V Light

c.Distinguishing Features in an Indian Currency Note

 Number Pane on one side Re.1/-2/-&Re5/- and on both sides of remaining denomination.
 Mark for visually impaired.
 Value is indicated
 In currency notes up to Rs.20/- suffix comprises {77A 000000} of two numerical and one
alphabet while in currency notes of Rs.50/- and above it comprises of one numerical and two
alphabets {6 CC OOOOOO}

4. Forged Indian Currency Notes (FICN)?

 Are not genuine bank notes;
 Are not issued by RBI or GOI;
 Are not Legal Tender

a. Some deficiencies observed in a forged note

• Paper Quality is poor
• Non-Intaglio printing
• Mismatched value/ pattern in Registry)
• Watermark is dislocated/Blurry/ eye balls are not visible
• Security Thread is improper/superimposed/ not embedded
• Micro Lettering is missing
• Water marks of all types are missing.
• Security thread does not change colour under UV light
• Value portion not optically variable.
• Optical fibers are missing almost in all forged notes.
• Paper is oily, gives feeling of roughness and thickness.
• No crackling sounds.
• Number panel does not glow under UV light
• In some cases, the number panel is small as compared to a genuine currency note and is
darker
• When seen under U/V light the security thread is white [Reverse side], in a genuine currency
note it is yellowish green
• WATER MARK- GANDHI PORTRAIT IS DRAWN WITH A VERY FINE LINE [IN A GENUINE
NOTE THE OUTLINE IS THICKER]

b.What is Impounding of a Counterfeit Note ?

Impounding means confiscating counterfeit notes received in RBI whether for exchange or for opinion
are not returned to the tenderers but are taken possession of for police investigations
c. Who can Impound Counterfeit Note?
• A counterfeit note can be impounded by: -
• All branches of Public Sector banks;
• All branches of Private banks and Foreign banks;
• All branches of Co-operative banks and Regional Rural banks;
54
 • All Treasuries and sub-treasuries;
• All RBI Issue Offices.

d. Authorities to Judge Genuineness of Bank Notes

The expert opinion on genuineness of bank note are furnished by:
 Currency Note Press, Nashik (Maharashtra)
 Bank Note Press, Dewas (Madhya Pradesh),
 BRBNMPL (Mysore)
 BRBNMPL (Salboni)
 State & Central forensic labs
 Government Examiners of the Questioned Documenteris acceptable as evidence
in the Court under section 292 of Indian Criminal Procedure.
Provision: RBI can give opinion on genuineness or otherwise of notes but the same is not admissible as
evidence in the Court of Law. It is meant to facilitate investigation only.

e. Additional Instructions to Bank Branches

 Each such impounded note shall be recorded in a separate Register, under authentication.
 After impounding forwarded to nodal bank officer who in turn shall forward the same to the
nodal police station for investigation by filing the FIR/GD.
 A copy of the monthly consolidated report/FIR shall be sent to the Forged Note Vigilance Cell
constituted at the Head Office of the bank.

 Each bank should designate Nodal Bank Officer, district-wise and notify the same to the
concerned Regional Office of RBI and Police Authorities.
 Each bank shall establish at its Head Office, a Forged Note Vigilance Cell
 Data on counterfeit notes detected by all the branches of the bank shall be reported in the
prescribed format, on a monthly basisto Issue Offices of RBI
 Under Rule 3 of Prevention of Money Laundering Rules, 2005, Principal Officers of banks are
also required to report information on cash transactions where forged notes have been used as
genuine note to The Director, FIU-IND, Financial Intelligence Unit- India, 6th Floor, Hotel
Samrat, Chanakyapuri, New Delhi-110021, within seven working days.
 If FICN detected in the note sent by currency chest to RBI, penalty of same amount.
 The progress made by banks in detection & reporting of FICN to police, RBI, etc. and problems
thereof should be discussed regularly in the meetings of various state level committees viz.
SLBC, SCCM(standing committee on Cy. Mgmt.), SLSC, etc.
 Data on FICN detected by all the branches of the bank shall be reported in prescribed format,
on a monthly basis to Issue Offices of RBI by 7th of the next month.
 The Forged note vigilance cell set up at the HO shall submit a monthly Return by e-mail to
DCM, RBI, CO.
 All counterfeit notes received back from the police authorities/courts may be carefully
preserved in the safe custody of the bank and a record thereof should be maintained by the
branch.
 These counterfeit notes should be subjected to verification on a half-yearly basis on March 31
& Sept. 30 by the officer-in-charge of the branch.

55
5. CLEAN NOTE POLICY
WHAT IS A CLEAN NOTE?
• It is clean i.e. not soiled, discolored, tainted, etc.
• It does not contain more than one figure graffiti i.e. scribbling
• It does not contain large number of pin holes in the water mark area
• It does not contain any tear/s or tape/s
• It does not have any missing portion.

a. Objective:

 To provide the citizens of the country good quality currency notes and coins
 Major Thrust Given in the year 1999 when the Clean Note Policy was announced
 To make available good quality notes in the hands of the public by adequate supply of fresh
notes and salvaging only clean and good notes as re-issuable for redistribution to the public.
 To mop up the soiled and mutilated notes from circulation through note exchange facility at all
designated branches of the banks and RBI

b. Disposal of Forged Notes

• FIR to be lodged in all cases

• Reporting to RBI (RBI is to know which of the security features have been copied so as to
replace them)
• Financial Intelligence Unit (FIU) -IND to be informed (in cases large number of forged notes are
tendered by any customer)
c. Don'ts for branches
• Please do not return the note back to the customer even after it has been branded “FORGED”
• Do not tear off the note.
• Banks are not authorized to give their opinion in writing to Police/ Court about genuineness or
otherwise of a currency note
• Only Note Printing Presses, RBI and the Examiners of Disputed documents are authorized

56
 Check Your Progress

1. Which is the Note Issuing Authority of India

a. IBA
b. RBI
c. NABARD
d. Government of India
_________________________________________________________________________________________

2. What is mismatched Note?

a. Dirty Note and a two piece note pasted together
b. obliterated, shrunk, washed and altered note
c. Mutilated note
d. Note formed by joining half portion of one note and half portion of another note
_________________________________________________________________________________________

3. What is the length of a 200 Rs Denomination note(in Cm)

a. 14.6 cm
b. 14.8 cm
c. 14.7 cm
d. 14.2 cm
_________________________________________________________________________________________

4. Which of the following is Covert security feature of a new currency note?

a. Paper Quality
b. Intaglio printing
c. Water mark
d. latent image
_________________________________________________________________________________________

5. What is the Abbreviation of FICN?

a. Forged Indian Currency Note
b. Free Inner Currency Note
c. Fake Internation Currency Note
d. Free Indian Currency Note
_________________________________________________________________________________________

6. Who can impound a counter feit Note?

a. All branches of Public Sector Banks
b. All branches of Private Banks
c. All branches of Foreign Banks
d. All Treasuries and sub treasuries

57
7. When was Clean Note Policy introduced by RBI?
a. 1999
b. 1997
c. 1995
d. 1998
_________________________________________________________________________________________

8. Which agency is to be informed in case of Forged Note?

a. FIU-IND
b. National Crime Agency
c. AML Compliance Officer
d. FATCA
_________________________________________________________________________________________

9. Who is the issuing authority of Coins?

a. Government of India
b. RBI
c. IBA
d. NABARD
_________________________________________________________________________________________

10. Currncy Chest formation comes under which act?

a. Section 43 of RBI Act 1934
b. Section 45 of RBI Act 1934
c. Section 47 of RBI Act 1934
d. Section 39 of RBI Act 1934
_________________________________________________________________________________________

ANSWERS

1. B 2. D 3. A
4. E 5. A 6. E
7. A 8. A 9. A
10. B

58
 10. INTRODUCTION TO FOREIGN EXCHANGE – NRI ACCOUNTS

The Banking services like transfer of funds, Savings, Investment of their earnings are being used by the
Non Resident Indians residing abroad.

Who is a NRI?
A person resident outside India who is an Indian Citizen or PIO Who goes abroad for
Doing business
Employment or Vocation
Higher studies

Till Financial year 2019-20 NRI & PIO who visited/resided in India less than 182 days in FY as NRIs.

From 2020-21 the period of stay in India is less than 120 days during the financial year.
If the period of stay in India for less than 365 days during the 4 years preceding the Previous Financial
Year and less than 60 days in the Previous financial year.

Who is a PIO?

Person of Indian Origin, other than Pakistan and Bangladesh

Who held an Indian passport
Who or whose either parents or either grandparents were Indian citizens
Who is a spouse of an Indian citizen or of (a) or (b)

The Banking Laws for NRIs allow Deposit Schemes viz Accounts with authorized Dealers – Banks and
Financial Institutions which is authorized by RBI to deal in Foreign exchange which is to be maintained
in indian rupees and in Foreign Currency.

The Opening, holding and maintaining foreign currency accounts is regulated by Foreign Exchange
Management Act 1999 (FEMA). Maintenance of deposits/ accounts between a person resident in India
and a person resident outside India is regulated in terms of sub-section (3) of section 6 of the Foreign
Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Deposit)
Regulations, 2016.

The Reserve Bank of India issues directions to Authorised Persons under Section 11 of the Foreign
Exchange Management Act (FEMA), 1999. These directions lay down the modalities as to how the
foreign exchange business has to be conducted by the Authorised Persons with their
customers/constituents with a view to implementing the regulations framed.

Deposits Accounts:

Non-Resident (Ordinary) Rupee Account (NRO)

• The existing resident account of a person is re-designated as NRO when that person becomes
an NRI. Or a new account can be opened by an NRI.

59
 • SB, C/A, Term Deposit a/c (Both MMD/FDR/STD) and RD a/c.

• Minimum period and maximum period is as good as domestic deposits.

• USD 1 million per financial year can be repatriated

• Interest income from NRO account is taxable.

Non-Resident (External) Account (NRE)

• The account can be opened in rupees, only with remittances received from abroad or transfer
from another NRE account.

• It can be opened as SB, C/A, Term Deposit a/c (MMD/FDR)

• For time deposits, minimum period is 1 year and maximum period is 10 years

• Both principal and interest are fully repatriable.

• Interest income is exempt from Income Tax.

FCNR Accounts- Foreign Currency Non-Resident Account (Banks Scheme)- FCNR[B]

Maintained in 8 currencies by Indian Bank. RBI allows to open in any permitted currency Viz., USD,
GBP, EUR, JPY, CAD, AUD, CHF, SGD

TDR only and Minimum period is 1 year and maximum period is 5 years.

Fully repatriable.

Interest income is exempted from Income Tax.

Exchange risk is borne by the bank.

Resident Foreign Currency Account (RFC)

NRIs who are coming back to India on permanent basis (i.e. Returning Indians) can open this account.
The balance in NRE and FCNRB accounts of the returning NRI can be credited to this account

RIGHTS OF NRI

1. Right to Vote – by Physically Present

2. Income earned in India is taxable in India

60
3. Income earned abroad is not taxable

3. Right to Deposit

4. Right to Purchase immovable Property

Categorization of branches

A category branches can conduct all types of foreign exchange transactions. They can also open and
maintain a Nostro account of the bank in their name

B category branches can conduct all types of foreign exchange transactions, but they cannot
maintain a Nostro account in their name

C category branch can handle forex transactions through any of the above branches

Type of Accounts

Nostro---our account with foreign bank

Vostro---foreign bank’s account with us

Loro— their account (other bank in India) with foreign bank

Under Liberalised Remittance Scheme (LRS), authorized dealers may allow remittances by resident
individuals up to $250,000 per financial year for any permitted current account / capital account
transaction or combination of both

Liberalised Remittance Scheme is not available for remittance to countries identified as non co-
operative countries by Financial Action Task Force (FATF) and or as notified by RBI

Ceiling for encashment of foreign currency or foreign currency travelers cheques for tourists visiting
India?

• No ceiling

• But if the aggregate amount of foreign currency and foreign currency travelers cheques exceed
the equivalent of $10,000

• or if the amount of foreign currency alone exceeds the equivalent of $5000,

• CDF is compulsory – Currency Declaration Form

61
 Check Your Progress

1. Who is NRI?
a. A person resident outside india who is an Indian Citizen or PIO Who goes abroad for Doing Business
b. A person resident outside india who is an Indian Citizen or PIO Who goes abroad for Employment or
Vocation
c. A person resident outside india who is an Indian Citizen or PIO Who goes abroad for Higher studies
d. All the above
_________________________________________________________________________________________

2. The Opening, holding and maintaining foreign currency accounts is regulated by whom?
a. FEMA
b. FERA
c. RBI
d. None of the above
_________________________________________________________________________________________

3. What is NOSTRO account?

a. Our account with foreign bank
b. Foreign bank’s account with us
c. Their account (other bank in India) with foreign bank
d. Non of the above
________________________________________________________________________________________
4. In how many currencies permitted by RBI to open NRI Deposits?
a. Seven
b. Eight
c. Ten
d. Nine
_________________________________________________________________________________________

5. What is the Ceiling for encashment of foreign currency or foreign currency travelers cheques for tourists
visiting India?
a. Rs. 2.50 lakhs
b. Rs. 10 lakhs
c. USD 10000
d. No Ceiling
_________________________________________________________________________________________

6. The deposit account by NRIs who are coming back to India on permanent basis (i.e. Returning Indians) can
open is called?
a. FCNR
b. RFC
c. NRO
d. MMD
__________________________________________________________________________________

62
7. The maximum amount permitted under LRS is?
a. Upto $1000000
b. upto Rs. 250000
c. upto $250000
d. upto $ 10000
_________________________________________________________________________________________

8. Which category branches can conduct all types of foreign exchange transactions?
a. Category A
b. Category B
c. Category C
d. Category D
_________________________________________________________________________________________

9. The minimum and Maximum period of Deposit under FCNR B is

a. Minimum 1 & Max 5 years
b. Minimum 1 & Max 10 years
c. Minimum 5& Max 10 years
d. Minimum 6 month & Max 5 years
_________________________________________________________________________________________

10. What is NRE account?

a. The account opened in rupees, with remittances received from India
b. The account opened in Foreign currency, only with remittances received from abroad or transfer from
anotherDomestic account.
c. The account opened in rupees, only with remittances received from abroad or transfer from another NRE
account.
d. The account opened as Domestic Deposit, only with remittances received from abroad or transfer from
another NRE account.
_________________________________________________________________________________________

ANSWERS

1. D 2. A 3. A
4. B 5. D 6. B
7. C 8. A 9. A
10. C

63
 11.GOVERNMENT BUSINESS, SMALL SAVINGS SCHEMES

GOVERNMENT BUSINESS
 Collection of Various Taxes
 1.A-CBDT-Central Board of Direct Taxes-Various Direct Taxes
 1-B–CBEC/CBIC-Central Board of Excise and Customs-Various Indirect Taxes
 1-C-GST-Goods and Services Tax-With an aim of one Nation and one Tax
 1.D-CGAS-Capital Gains Account Scheme (CGAS)
 PENSION-Various Types of Pension Payments
 ED-Enforcement Directorate
 OTHERS-Various Social Security Schemes
 PPF-1968
 SSA-2015
 SCSS-2004
 PMSBY-2015
 PMJJBY-2015
 PMJDY-2015
 Various Central and State Governments Department Accounts (DMF Accounts)
 State Government Local Taxes (Muncipal,Property etc)

WHAT IS A SMALL SAVI NGS SCHEME?

 Small Saving Schemes (SSSs) are an important source of household savings in India. Different
small saving schemes have mobilized money from households and channelized it to the
government so that the centre and states can finance a part of their expenditure.

 The Central Government operates Small Savings Schemes (SSS) through the nationwide network
of post offices, Public-Sector Banks and select private sector banks and small savings agents.
Different schemes

 Social Security Schemes: Public Provident Fund, Senior Citizens Savings Scheme, and Sukanya
Samriddhi Account.

National Small Savings Fund (NSSF)

 National Small Savings Fund (NSSF) was established in 1999 within the Public Account of
India for pooling the money from different SSSs.

 Collections from all small savings schemes are credited to the NSSF. Similarly, withdrawals
under small savings schemes by the depositors are made out of this Fund.

 The money in the account is used by the centre and states to finance their fiscal deficit. The
balance in the Fund is invested in Central and State Government Securities.

 Funds collected under SSS are the liabilities of the Union government accounted for in the Public
Accounts of India and government acts like a banker or trustee.

64
 As per the recommendations of the Fourteenth Finance Commission, the government has
excluded states (except four states) from the use of Small Saving Scheme money. This is because
the SSSs have slightly higher interest rates than the loans procured by states.

 The NSSFs will be used by the centre and the interest and principal will be the liability of the central
government. Previously, states have used the proceeds from NSSF.

Importance of small savings schemes

 Small saving schemes helps to support the social security objectives at the same time, helping as a
tool of resource mobilization for the government.

 Several small saving schemes like Senior Citizens Savings Fund, Sukanya Samridhi Yojana and
PPF are supporting social securities of different sections. Government also gives a slightly high
interest rate for these schemes compared to the average interest in other financial instruments.

Rationalizing the interest rate structure of Small Saving Schemes

 The SSSs are similar to bank saving schemes and there is competition between the two. Hence,
there is a need to align the interest rate of SSSs with that of bank savings.

 Since April 2016, interest rates of all small saving schemes have been revised on a quarterly
basis. Interest on Financial Markets rate will be fixed on the basis of G-Sec yields of the
previous three months.

PUBLIC PROVIDENT FUND (PPF) 1968

SALIENT FEATURES:
 Interest rate of 7.10% per annum w.e.f. 01-07-2020 (2nd Quarter-01.07.2020 to 30.09.2020) [
Interest Rates Are fixed Quarterly & Compounded Annually]
 Minimum deposit is 500/- per annum. Maximum deposit is Rs. 1,50,000/- per annum
 The scheme is for 15 years.
 Can be extended for further 5 year in the 15th year and no restriction extension number of
times.
 Investment up to Rs 1,50,000/- per annum qualifies for Income Tax Rebate under section
80C of IT Act.
 Interest is completely tax-free.
 Deposits can be made in lump sum or in 12 installments.
 One deposit with a minimum amount of Rs 500/- is mandatory in each financial year.
 Withdrawal is permissible from 6th financial year.

65
  Loan facility available from 3rd financial year up to 5th financial year. The rate of interest
charged on loan taken by the subscriber of a PPF account on or after 01.12.2011 shall be 2%
p.a. However, the rate of interest of 1% p.a. shall continue to be charged on the loans
already taken or taken up to 30.11.2011.
 Free from court attachment.
 Nomination facility Available
 Non-Resident Indians (NRIs) not eligible.
 An individual cannot invest on behalf of HUF (Hindu Undivided Family) or Association of
persons.
 Ideal investment option for both salaried as well as self employed classes. [ For more

SENIOR CITIZEN'S SAVINGS SCHEME-2004

SALIENT FEATURES:
 Interest @ 7.40% per annum from the date of deposit on quarterly basis w.e.f. 01-07-2020 (
for Quarter-II ie 01-07-2020 to 30-09-2020)
 Minimum deposit is Rs 1000 and multiples thereof. Maximum limit of 15 lakhs.
 Maturity period is 5 years and can be extended for a further period of 3 years.
 Age should be 60 years or more, and 55 years or more but less than 60 years who has
retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme
on the date of opening of the account within three months from the date of retirement.
 No age limit for the retired personnel of Defense services provided they fulfill other specified
conditions.
 The account may be opened in individual capacity or jointly with spouse.
 TDS is deducted at source on interest if the interest amount is more than Rs 10,000/- per
annum.
 Investment up to Rs 1,50,000/- per annum qualifies for Income Tax Rebate under section
80C of IT Act.
 Interest can be automatically credited to savings account provided both the accounts stand
in the same bank
 Premature closure is allowed after one year on deduction of 1.5% of the deposit and after 2
years on deduction of 1%.

66
  No withdrawal permitted before the expiry of a period of 5 years from the date of opening
of the account.
 Non-resident Indians (NRIs) and Hindu Undivided Family (HUF) are not eligible to open an
account.
 Nomination facility Available

SUKANYA SAMRIDDHI ACCOUNT YOJANA (SSA)

 Interest rate for SSA would be 7.60% Qtr-II (01.07.2020 to 30.09.2020) .The rates may vary with
each financial year’s budget, with a quarterly review
 Parents or legal guardians of the girl child can open this account with any post office or
nationalized banks listed by RBI for this scheme with an initial deposit of Rs 250 or more From
01-7-2018 [Earlier It was-Rs.1000/-]. A multiple of Rs 100 can be deposited to the account any
number of times grossing to a maximum of Rs 1,50,000 per fiscal year.
 Account would be opened in the name of the girl child by the parents or legal guardian of the
child.
 Only one account can be opened per girl child. That means, a girl can not have more than one
account across all post offices and banks.
 A maximum of two girl child would be covered under the scheme for any given parents(exception
in case of twins in second issue)
 opening of account can take place for any girl child till she attains a maximum age of 10 years.
 There is a minimum amount of Rs 1,000 to be deposited every year. In case if it does not
happen in a particular year, the account would be discontinued. However, it can be reactivated by
paying a penalty of just Rs 50 along with the minimum deposit amount of Rs 1,000 for that
financial year (the penalty also specified from time to time)
 Partial withdrawal is allowed up to a maximum of 50 per cent of the balance during the
preceding year of withdrawal. It is noteworthy that this could only be done in case of the marriage
of the girl child or for her higher education; both after 18 years of her age.
 Account will mature after 21 years from the date of opening of the account. In case if the girl
child does not wish to close the account after maturity, the deposits would keep growing at the
same rate of interest as per the scheme for every financial year.
 All contributions or deposits made towards Sukanya Samriddhi Account would be exempted
from income tax under section 80C. Since the features of the scheme may keep improving every
financial year.
 Overall, Sukanya Samriddhi Account is an excellent mode of saving for parents of the girl child.
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 Nomination facility Available
As per agency bank agreement, RBI pays agency commission to the banks and other designated
agencies/organisations at rates determined by it. The rates applicable with effect from July 1, 2019 are
as under:
Sr.
Type of Transaction Unit Revised Rate
No.
a. (i) Receipts - Physical mode Per transaction ₹ 40/-
(ii) Receipts - e-mode Per transaction ₹ 9/-
b.@ Pension Payments Per transaction ₹ 75/-
c.@ Payments other than Pension Per ₹ 100 turnover 6.5 paise per ₹ 100

@Pension payments and other Departmental accounts will be discussed separately

68
 CHECK YOUR PROGRESS

1. Senior Citizen`s Saving Scheme is applicable to the persons of age---- execept the Defence Service person.
a. who has attained the age of 60 years or above
b. A person who has attained the age of 55 years or more but less than 60 years and retired on
superannuation or otherwise
c. either A or B
d. None
_________________________________________________________________________________________

2. The Senior Citizen`s Saving Scheme can be opened by--

a. Post offices
b. authorized banks
c. both A & B
d. None
_________________________________________________________________________________________

3. The Senior Citizen`s Saving Scheme can be opened for a period of -----
a. 5 years and may be extended for another 3 years
b. 5 years and may be extended for another 2 years
c. 5 years and may be extended for another 1 year
d. 5 years and can not be extended any period
_________________________________________________________________________________________

4. Girl Child of -----years of age is eligible for opening the Sukanya Samriddhi Account
a. below 10
b. 10
c. 15
d. 18
_________________________________________________________________________________________

5. Who can open account in the name of Girl Child under SSA?
a. Guardian
b. Only Mother
c. any person
d. None
_________________________________________________________________________________________

6. Minimum amount for opening of Sukanya Samridhi Account is--

a. Rs.250 (Subsequent deposit should be in multiple of Rs.50/-)
b. Rs.500 (Subsequent deposit should be in multiple of Rs.100)
c. Rs.1000 (Subsequent deposit should be in multiple of Rs.1000
d. Rs.500 (Subsequent deposit should be in multiple of Rs.500)
__________________________________________________________________________________

69
7. Maximum amount that can be deposited in a financial year in Sukanya Samridhi Account is--
a. Rs. 50000/-
b. Rs. 75000/-
c. Rs. 100000/-
d. Rs. 150,000/-
_________________________________________________________________________________________

8. The PPF (Public Provident Fund) is a -------term Government backed Small Savings Scheme
a. Short term
b. Medium term
c. Long Term
d. None
_________________________________________________________________________________________

9. How many accounts a person can open under PPF scheme?

a. 1
b. 2
c. 3
d. 4
_________________________________________________________________________________________

10. Minimum Duration of PPF investment is ----- years

a. 10
b. 15
c. 20
d. 25
_________________________________________________________________________________________

ANSWERS

1. C 2. C 3. A
4. A 5. A 6. A
7. D 8. C 9. A
10.B

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71
 12. Digital Products and Cyber security
Digital Products:

Mobile Banking: Ind Pay

Indian Bank offers all in one mobile banking application for the customers with several enhanced features
providing all banking facilities at a single platform.
It enables user to perform major banking operation through application on 24 x 7 basis anywhere and
anytime without visiting the branch.

Financial Services
Fund transfer within Indian Bank and Other Bank through NEFT/IMPS and Instapay (Instant Payment),
Mobile and DTH recharge, Electricity, Water and Telephone Bill Payment, Credit Card Bill Payment, Opening
of Term Deposit Account.

Non Financial Services Balance Enquiry, M-Passbook (Mini Statement with last 50 transaction), Stop
payment of cheque, Raise cheque book request, Password reset
Value Added Services, Standing Instruction, Transaction Lock / Unlock Facility, Raise Complaint, Locate
Nearest Branch, Closure of FD/RD/VRD/STD/MMD, Scan and Pay facility for with bank fund transfer
Language Available English/ Hindi/ Tamil/ Marathi/ Guajarati/ Malayalam
Internet Banking:
Indian bank provides anywhere, anytime banking facility to the customer through Internet banking- a quick ,
simple and convenient way of Banking for the customer.
Self Registration for Internet Banking through internet can be done for single account holder.
ATM Card credentials are necessary for INB self-registration.
Joint account holders and current account holder need to contact branch for INB facility.
Financial Services
 Fund transfer within Indian Bank and Other Bank through NEFT/IMPS and Easy pay (Instant
Payment)
 Mobile and DTH recharge
 Pay Taxes
 Electricity, Water and Telephone Bill Payment
 Credit Card Bill Payment
 Opening of Term Deposit/NPS Account
Non Financial Services
 Account statement for specific period
 Mini Statement
 Stop payment of cheque

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  Cheque Status Enquiry
 Raise Cheque book request
Value Added Services
 Standing Instruction, Instant beneficiary Addition, Account wise TDS Details, APY, PMJJBY, PNSBY
registration, Application for ASBA, E-Filing of Income Tax, E-Interest Certificate, TDS Certificate,
Submit Form 15-G or 15-H, A2, Get Form 26 S, Aadhaar seeding facility,Tax E-receipt, Download
Form 16 A, E mail statement subscription, Transaction Lock / Unlock Facility, Raise Complaint,
Locate Nearest Branch, Closure of FD/RD/VRD/STD/MMD
POS: Indian Bank offers Point of sale solution for enabling merchants to accept cashless payment for
goods/services using all types of debit/credit/prepaid cards
 Cashless, hassle free collection
 Next day settlement
 No charges for – Installation, POS stationary, Late batch settlement
 365 day 24x7 Training/Handholding/support for the merchants
 Rent free for IB i-freedom prime account holders/ Merchants with transaction volume more than 5
Lakh per months. Variable rent based on transaction volume for others.
Cash@POS facility enables cash withdrawal at Indian Bank POS terminal using any Bank’s Debit or prepaid
cards at different merchant establishments in order to allow more cash point and for greater customer
convenience.
 Available only against Debit card or Pre-Paid card issued in India by any bank.
 The minimum amount of withdrawal per day will be Rs.100 and thereafter in multiples of Rs.100/-
subject to maximum of Rs. 2000/. Maximum no. Of Transactions per day per card is 3 and Rs.2000/-
.
 No charges will be collected from the card holder for cash withdrawal by merchant.
 An incentive at 0.50% of the transaction amount with a minimum of Rs.1/- and maximum of Rs.5/- on
each successful cash transaction will be paid to the merchant. The amount is inclusive of GST

IB V collect:
Indian Bank offers a Digital Collection Product with real time MIS regarding remitter details to empower
Educational Institutions, Corporate, Finance companies etc. To receive funds from different sources through
branch counters or net banking of any banks
 6 digits virtual ID of Institutions/Merchant’s choice-mapped to account number.
 Validating correctness of Remitter ID/Amount
 Real Time confirmation of receipt
 Automated MIS reports

 Virtual ID of Institution’s choice

 Avoiding wrong credits into the Account
 Real Time Confirmation of Receipt
 Hassle Free reconciliation
 No exposure of real Account Number
IB collect Plus:
Indian Bank Provides Free online Fee Collection Software to corporate, Institutions, Agencies, NGOs,
Finance companies, Government Departments etc to collect money from Agents, Distributors, Students,
73
Donors, Subscriber, Borrowers, Tax Payers etc.
Debit Cards:
ATMs and Debit cards constitute the most used Alternate Delivery Channel in the Banking Industry today. As
a result of the increase in the number of avenues for usage of cards and the initiatives like Financial Inclusion
and Promotion of Digital Transactions, the number of users and transactions through the debit card has
increased manifold.
 All Individuals having savings bank / current accounts / Proprietorship accounts including visually
challenged and illiterate customers.
 Minors above 12 years, if the account is opened under “IB Smart Kid”.
 Add on cards can be issuer in the second customer’s name, for accounts opened under E or S, A or
S. 4. Non-resident account holders.
 Kisan Credit Card customers.
 Mudra account customers.
Master Card World International Debit Card with wide acceptance globally

Image Card (My design International Designer card with a back ground image of your choice with wide
Card) acceptance globally.
E-Purse Debit card that acts like a wallet, Can be gifted to family members as
allowance/to manage budget, Apply through Internet Banking, Transfer
amount from your account to e-purse card through Internet Banking/Ind Pay.
RuPay Platinum Card Fuel surcharge waiver, airport lounge access and various other offers.
PMJDY Card Rupay Card for PMJDY Account Holders, Overdraft in PMJDY accounts
enables for eligible accounts in ATM.
Mudra Card Rupay card product for MUDRA loan customer
Senior Citizen Debit Card Special Debit Card for senior citizen customer with photo, blood group and
Date of Birth affixed on the card
IB Surabhi Platinum Card Exclusively for woman customers having IB Surabhi Account
RuPay Debit select Card Top most variant of RuPay cards with value added benefits.
IB DIGI – Rupay Classic For IB DIGI accounts opened through our website and IB Customer Mobile
Card App
Credit Card:
Bank issues General Purpose Credit Cards in association with M/s Visa International as its Primary Member.
Following variants of Visa cards are offered in the Personal Card segment:
i) Global Gold Card
ii) Global Platinum Card
iii) Domestic Bharat Card
iv) Secure Card

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Merchant acquisition is primarily referred to as the mechanism of providing necessary infrastructure for
facilitating payment of goods and services purchased.
Merchant Acquisition in our Bank can be carried through the modes as mentioned below-
I. Point of Sale (POS) machines
II. QR (Quick Response) Code
III. Aadhaar Pay
IV. Unified Payment Interface (UPI)
V. Payment Gateway Services

QR Code generated for every merchant will be unique which contains the details of merchant’s bank account
or pointers to merchant’s bank account. Customers use their Mobile Payment App to scan the QR Code and
make payment from their account to the merchant’s account. Both merchant and customer get an SMS
informing the details of the payment transaction for the sale made

In Aadhaar Pay which is developed in association with UIDAI and NPCI, merchant needs a smart mobile
device with Aadhaar Pay App installed along with biometric fingerprint scanning facility. While making a
purchase, merchant will enter the sale details, enter the Aadhaar number of the customer and fingerprint of
the customer will get captured. The fingerprint is authenticated by UIDAI and the amount will be debited
account mapped to Aadhaar number in the Aadhaar Payment Bridge with NPCI. Merchant will get a
notification in the mobile App and customer and SMS

UPI:Merchants will download the UPI App of our Bank in their smart mobile phone; register their virtual
address in UPI. Merchants will inform their virtual address to the customer for making payment for the
purchase. Customers will transfer funds from their account to merchant’s account using the virtual address

Payment Gate way service: Merchant can receive their payments through Internet where customer can
make payment using net banking, cards, UPI etc.
Prepaid Payment Instruments (PPIs) are payment instruments that facilitate purchase of goods and
services, including financial services, remittance facilities, etc., against the value stored on such instruments.
PPIs may be issued as cards, wallets, and any such form/ instrument which can be used to access the PPI
and to use the amount therein

75
 Introduction: Cyber Security

Cyber security is the technique of protecting systems, networks, and programs from cyber
attacks which are usually aimed at accessing, changing or destroying sensitive information;
extorting money from users; interrupting normal business processes by way of deliberate
exploitation of computer systems, technology-dependent enterprises and networks.

It generally focuses on the measures to protect information from malicious threat

sources which affect confidentially, integrity and availability of information.

 What is cyber risk?

'Cyber risk' means any risk of financial loss, disruption or damage to the reputation of an
organization from some sort of failure of its information technology systems.

 Elements of cyber security:

i) Network security
ii) Application security
iii) Endpoint security
iv) Data security
v) Identity management
vi) Database and infrastructure security
vii) Cloud security
viii) Mobile security
ix) Disaster recovery/business continuity planning
x) End-user education

1. What is a Cyber Attack?

A cyber-attack is a deliberate exploitation of computer systems, technology-dependent
enterprises and networks. Hackers often use malicious code and software to alter
computer code, logic or data, resulting in disruptive consequences that can compromise
data which may lead to cyber-crimes such as – loss of financial information and identity
theft or system infiltration.

2. Some common Cyber-attack types and techniques :

i) Viruses: Viruses are the oldest form of cyber-attacks. Viruses are basically lines of
code embedded in malware or phishing mails. When executed, it replicates itself by
modifying other computer programs and inserting its own code.

ii) Malware: Malware literally means "malicious software". Malware can be spyware,
ransomware or adware, that installs like a software and can carry a virus. It can take
control of your PC, monitor your actions and keystrokes and send all sorts of
confidential data from your computer or network to the attacker silently. This is also
called Keylogging. Criminal-minded organizations, groups and individuals cyber-
terrorist groups, Black hat hackers, malware developers etc are those who can
deploy malwares to any target system or network in order to deface that system.

iii) Ransomware: Ransomware is a type of malware that blocks access to a victim's

files through encryption and demands money to restore that access. If victims do not
pay in time, the ransom ware destroys the decryption key and the victim's files are
rendered useless.

iv) SQL Injection Attack: It involves injecting malicious code into a website, and
thereby Stealing or dumping customer information from the website, such as credit
76
 card numbers, usernames and passwords, or other personally identifiable
information.

v) Cross-Site Scripting (XSS): The attacker aims to execute malicious scripts in a web
browser of the victim by including malicious code in a legitimate web page or web
application. The actual attack occurs when the victim visits the web page or web
application that executes the malicious code. The web page or web application
becomes a vehicle to deliver the malicious script to the user’s browser. Vulnerable
vehicles that are commonly used for Cross-site Scripting attacks are forums,
message boards, and web pages that allow comments.

vi) Cross Site Request Forgery (CSRF): It is an attack that forces an end user to
execute unwanted actions on a web application in which they’re currently
authenticated. With a little help of social engineering (such as sending a link via email
or chat), an attacker may trick the users of a web application into executing actions of
the attacker’s choosing. If the victim is a normal user, a successful CSRF attack can
force the user to perform state changing requests like transferring funds, changing
their email address, and so forth. If the victim is an administrative account, CSRF can
compromise the entire web application.

vii) Distributed Denial-of-Service (DDOS): It involves targeting a system with flood of

incoming messages, connection requests or malformed packets by a number of
compromised systems to slow down or crash it.

viii) Botnets : Botnets are the millions of systems infected with malware under hacker
control in order to carry out Distributed Denial-of-Service attacks. These bots or
zombie systems are used to carry out attacks against the target systems, often
overwhelming the target system’s bandwidth and processing capabilities. These
Distributed Denial-of-Service attacks are difficult to trace because botnets are located
in differing geographic locations.

ix) Drive-by attack: Drive-by download attacks are a common method of spreading
malware. Hackers look for insecure websites and plant a malicious code on one of
the pages. This code might install malware directly onto the computer of someone
who visits the site, or it might re-direct the victim to a site controlled by the hackers.
Drive-by downloads can happen when visiting a website or viewing an email
message or a pop-up window. Unlike many other types of cyber security attacks, a
drive-by doesn’t rely on a user to do anything to actively enable the attack — you
don’t have to click a download button or open a malicious email attachment to
become infected. A drive-by download can take advantage of an app, operating
system or web browser that contains security flaws due to unsuccessful updates or
lack of updates.

x) Eavesdropping Attack: An Eavesdropping breach, also known as snooping or

sniffing, is a network security attack where an individual tries to steal the information
that smartphones, computers and other digital devices send or receive. This hack
capitalizes on unsecured network transmissions to access the data being
transmitted. Eavesdropping is difficult to detect since it doesn’t cause abnormal data
transmissions.

xi) Man-in-the-middle (MitM): A MitM attack occurs when a hacker inserts itself
between the communications of a client and a server. It may create a server with a
relay address.

77
 xii) Social engineering: Cybercriminals use social engineering techniques to manipulate
human trust and extract information in support of network exploitation efforts that
cannot be achieved via technical means. Whether using email, a fake website, or
popup to entice the used, obtaining information from an individual over the Internet is
a computer-based type of social engineering.

xiii) Malicious Emails:

Phishing- An attempt to trick users into sharing personal details or credentials.
Phishing is typically a potential attacker posing, or impersonating, a financial
institution.Spear Phishing attacks send carefully crafted emails to smaller lists of
targets.

Business email compromise (BEC) - also known as CEO fraud or Whale

Phishing, where a cybercriminal impersonates an executive (often the CEO), and
attempts to get an employee, customer, or vendor to transfer funds or sensitive
information to the phisher.

xiv) Smishing and Vishing: With both smishing and vishing, telephones replace emails
as the method of communication. Smishing involves criminals sending text messages
(the content of which is much the same as with email phishing), and vishing involves
a telephone conversation. Passive stack fingerprinting uses sniffing technologies
instead of scanning.

xv) Angler phishing: A relatively new attack vector, social media offers a number of
ways for criminals to trick people. Fake URLs; cloned websites, posts, and tweets;
and instant messaging (which is essentially the same as smishing) can all be used to
persuade people to divulge sensitive information or download malware.

xvi) Advanced Persistent Threats: Long, directed cyber-attacks that are most often
state sponsored. An organization or individual illegally, and secretively, accesses an
organization's LAN or internal internet through an employee access gateway or any
vulnerability and extracts information or implements other malicious measures.
3. Cloud Security Issues:

Cloud storage is a Web-based service that provides storage space on a remote

server. However, since the Cloud is often shared between a lot of users, these
security issues become an immediate concern for Cloud owners.

 Security and unauthorized access:

Employee negligence and unauthorized access through misuse of employee credentials
are some of the significant security threats in cloud computing. Modern employees
might log in to cloud solutions from their mobile phones, home tablets, and home
desktop PCs, making the system vulnerable to many external threats.
 Lack of visibility in cloud applications:
The lack of visibility drives public cloud Security Risk and can lead to unauthorized
access to data, improper handling, and replication of data leading to the removal of
confidential data from infrastructure. It can affect the ability of the organization to verify
the effectiveness of their security controls (because there is no visibility into tools and
data of the cloud).
 Insecure interfaces and APIs:
Application programming interfaces (APIs) helps customers with customization of their
cloud experience. However, APIs can be a threat to cloud security due to their nature.
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 APIs can serve different purposes to developers to ease out their life but can also leave
many exploitable security risks leading to an infrastructure vulnerable to threats.
 Security Compliance:
Being compliant against different industry standards became a headache for the
majority of cloud security professionals. Organizations need to follow one of several
governments and industry regulations. Therefore, companies need to know where their
data is, who can access it and how it is protected.
 System Vulnerabilities:

Cloud infrastructure is always prone to system vulnerabilities due to complex

networks and multiple third-party platforms.
Once the vulnerability is known to hackers – exposed by an integrated third party system –
they can easily use that loophole to breach the infrastructure

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 CHECK YOUR PROGRESS

1. The full form of Malware is ________

a. Malfunctioned Software
b. Multipurpose Software
c. Malicious Software
d. Malfunctioning of Security
_________________________________________________________________________________________

2. _____________ is a code injecting method used for attacking the database of a system / website.
a. HTML injection
b. SQL Injection
c. Malicious code injection
d. 2. XML Injection
_________________________________________________________________________________________

3. XSS is abbreviated as __________

a. Extreme Secure Scripting
b. Cross Site Security
c. X Site Scripting
d. Cross Site Scripting
_________________________________________________________________________________________

4. This attack can be deployed by infusing a malicious code in a website’s comment section. What is “this”
attack referred to here?
a. SQL injection
b. HTML Injection
c. Cross Site Scripting (XSS)
d. Cross Site Request Forgery (XSRF)
_________________________________________________________________________________________

5. An attempt to harm, damage or cause threat to a system or network is broadly termed as ______
a. Cyber-crime
b. Cyber Attack
c. System hijacking
d. Digital crime
_________________________________________________________________________________________

6. Which method of hacking will record all your keystrokes?

a. Keyhijacking
b. Keyjacking
c. Keylogging
d. Keyboard monitoring

_______________________________________________________________________________________

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7. What is the purpose of a Distributed Denial of Service attack?
a. Exploit a weakness in the TCP/IP stack
b. To execute a Trojan on a system
c. To overload a system so it is no longer operational
d. To shutdown services by turning them off
_________________________________________________________________________________________

8. Sniffing is used to perform ______________ fingerprinting

a. Passive stack
b. Active stack
c. Passive banner grabbing
d. Scanned
_________________________________________________________________________________________

9. Phishing is a form of ____________________.

a. Spamming
b. Identify Theft
c. Impersonation
d. Scanning
_________________________________________________________________________________________

10. Having individuals provide personal information to obtain a free offer provided through the Internet is
considered what type of social engineering?
a. Web-based
b. Human-based
c. User-based
d. Computer-based
_________________________________________________________________________________________

ANSWERS
1. c 2. b 3. b
4. c 5. b 6. c
7. c 8. a 9. c
10.d

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 13 .TYPE OF LOAN ACCOUNTS
Any enterprise, in order to undertake manufacturing activity, essentially needs the following:
Fixed assets like Land & Building, plant and Machinery. To acquire fixed assets, an entrepreneur
requires funds either by raising loan or by contributing capital or borrowings from friends and relatives.
After acquisition, he needs consumable stores and spares, raw material for manufacturing i.e.
processing into finished products. The process also requires staff, fuel, power, labour etc. An enterprise
therefore requires funds for carrying on day to day manufacturing operations. Trade and Service Sector
also require capital funds to run their business operations.
Based on the above, we can assess the needs of the enterprise.
1. Working Capital  For meeting day to day business/manufacturing activity.
2. Term Loan  For acquiring fixed assets like Land, Building, Plant and Machinery.

Cash Credit:
Cash credit facility sanctioned based on the borrower’s maximum working capital requirement. Primary
security taken is stock and Book debt) and collateral security taken like fixed asset (such as property).
Secured overdraft (SOD)
In SOD facility, Banks sanction overdrafts as a form of working capital credit. These limits are secured
by primary security of property and collateral security taken current asset (stock, Book debt).
Term Loans:
A term loan is an advance for a fixed period generally granted for financing acquisition of fixed assets
like land, buildings, machinery and vehicles. Term loan is a single transaction, where the loan amount
is disbursed either in lump sum or in stages and is repaid in installments together with interest.
Semantically, term loans will include all rupee loans, foreign currency loans, corporate loans for general
purpose credit, etc.
Term Loans can be generally classified into three categories viz.,
Short Term Loan: Loans that are sanctioned for a repayment period of upto 3 years or less than 3
years.
Medium Term Loans: Loans sanctioned for a repayment period of above 3 years and less than 5
years.
Long Term Loans: Loans sanctioned for a period of more than 5 years.
As per our Bank’s Credit Policy 2020-21, the important points to be kept while sanctioning term loans
are:
 The implication of granting a term loan has to be carefully analyzed because of the direct
bearing it has got on Bank’s asset-liability Management.
 All loans with maturity in excess of one year may be classified under term loan category.
 Term loans to be considered based on projected cash flow statements and financial ratios like
Debt Service Coverage Ratio(DSCR), Debt Equity Ratio(DER), Total Outside

82
 Liabilities(TOL)/Tangible Net worth(TNW), Interest Coverage Ratio(ICR), Security Coverage
Ratio, etc.,
 For long term loans, it is to be ensured that primary security coverage ratio determined at the
time of sanction or stipulated as per loan policy is maintained throughout the life of the loan,
despite applied depreciations
 Term Loan facilities sanctioned but not availed within a period of six months from the date of
sanction requires revalidation.

Repayment Period of Term Loans:

 Repayment for commercial activity is to be fixed based on life cycle of the project, on the cash
flows, on ballooning basis, or as bullet payment or in EMI form.
 The quantum of credit dispensation in the form of term loans should be in accordance with the
Bank’s policy to reduce the blocking of funds for longer period, to facilitate planning and
management of the maturity pattern of Bank’s assets and liabilities.
 Generally maximum repayment period of 15 years may be allowed including moratorium
period. For infrastructure projects/industry specific cases, maximum repayment period of 25
years (including moratorium) may be allowed on case-to-case basis.
 Repayment under EMI shall be applicable only for PSLPs, Structured products in Agriculture /
MSME (wherever specifically mentioned) and for other products where it is specifically
permitted.

Non fund-based facility is a contingent liability which may occur in future date. Fee charged by bank
for issuing LC/Bank guarantee; which will increase bank non-interest income.

Letter of credit (LC): is an undertaking issued by bank on behalf of the buyer to the seller to pay for
goods and services provided. The seller presents the documents which comply with terms and
conditions of the LC. An LC is widely used payment mechanism in both domestic and international
trade transaction. LC bridge the gap of trust deficit between seller and buyer.

An additional advantage of an LC is that the bill of Exchange drawn by the seller under the LC can be
negotiated or discounted by the seller banks. The seller receives immediate payment of goods sold,
regardless of the credit period offer by buyer.

The purpose of a LC is to ensure that:

the exporter is assured of payment once he fulfils his obligations under the contract and produces
documentary evidence to that effect, and by stipulating the relevant documents the importer is assured
that no payment is made unless the goods under the sale contract have been dispatched. In defining
the rights and obligations of parties involved in a LC transaction almost all the countries have agreed to
follow the rules enunciated in the Uniform Customs and Practice for Documentary Credits (UCPDC).

Parties of LC: A LC transaction has the following parties.

 An applicant – The buyer either domestic purchase or import

83
  Issuing Bank (LC Opening Bank) becomes a primary obligor under the LC. Once LC is issued,
the bank has substituted the buyer for credit risk. (The credit risk is transferred from the buyer
to the bank)

 Advising Bank (typical when the seller and the buyer are in different countries)

 Confirming Bank (if a confirmation is required) Assumes the responsibilities of the issuing bank
towards the beneficiary. The confirming bank has the recourse to the issuing bank, provided it
hasn’t paid the beneficiary or discrepant documents.

 Beneficiary -the seller

 Negotiating bank – negotiates the bill of exchange drawn on the buyer, and pays the
beneficiary before claiming reimbursement from the opening or confirming bank

 Nominated Bank – The nominated bank is the bank where the LC is available. In most of the
cases, the LC is available from any bank. Such an LC is called “a freely negotiable LC”. As per
industry practice, in most of the cases, the nominated bank (and hence negotiating bank is the
bank) with which the buyer has a banking relationship.

Types of LC:

I. Sight/Demand LC: the LC does not provide buyer with a credit period. The buyer must pay
immediately once the LC documents are received and found to be in order.

II. Deferred Payment Credit/Usance LC: seller allows the buyer a credit period as stated in the
LC. The buyer accepts the documents if they are found in order but doesn’t have to pay until
the stated due date.

Negotiation Credit
In a negotiation credit no paying bank is mentioned. The credit may allow negotiation by
any bank by including a clause on the following lines We hereby engage with drawers and/or holders
that drafts drawn and negotiated in conformity with the terms of this credit will be duly honored on
presentation. The credit may restrict negotiation to a bank. Such LCs are known as ‘restricted LCs.

Acceptance Credit:
Under acceptance credit drawing of an usance bill of exchange is mandatory. The bill of exchange shall
be drawn on a specified bank indicating the tenor. Such drawee bank will accept the drafts and honor
the same by making payment on the determined due date.

Revocable LC:
The undertaking given by the LC opening bank can be revoked i.e., cancelled or amended at anytime
without notice to, or consultation with the beneficiary. The issuing bank however remain liable for bills
negotiated before the LC was cancelled. These types of credits are not generally acceptable to banks.

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Irrevocable LC:
An irrevocable LC is the most used type of credit. The undertaking on the part of the issuing bank under
an irrevocable credit cannot be cancelled or amended without the consent of all parties to LC. As per
Article 3 of UCPDC 600, in the absence of any indication to the effect that it is revocable or irrevocable,
the credit shall be deemed to be irrevocable.

Confirmed LC:
A confirmed LC is one which bears an additional undertaking by a bank in the exporter’s country that
the payment will be made to the exporter if he meets the terms of the credit. The bank which adds
confirmation is known as confirming bank and becomes a party to the contract of LC.Confirmation can
be added only to an irrevocable LC.

Revolving LC:
Under a revolving LC, the amount availed is reinstated and is available for negotiation again. There are
two types of revolving credits. In the first type called Automatic revolving LC, the limits are reinstated
immediately irrespective of the fact whether advice of payment has been Received by the negotiating
bank or not.

Transferable LC:

It is a credit which can be transferred by the original beneficiary in favour of a second beneficiary or
several second beneficiaries. A transferable LC can be transferred only once. Consequently, the credit
cannot be transferred at the request of the second beneficiary to any subsequent third beneficiary. A
retransfer to the first beneficiary does not constitute a prohibited transfer. A credit can be transferred
only if it is specifically indicated on the LC.

Back-to-Back Credit:
This is a credit which is opened against the security of another credit. It may be a local credit opened
based on export LC. The back to back credit is opened when the benefit under a LC is to be transferred
to a third party, but the original LC is not transferable. The back to back LC has no protection that is
available under a transferable credit. It should be opened only in favor of a sound supplier and on
behalf of a reliable and established client with good track record.

Red-clause Credit:

Red clause credit is one which enables the beneficiary to avail credit amount at the pre-shipment stage.
It is an unsecured advance made by the advising bank on the strength of the LC. In the event of the
beneficiary defaulting, then the lending bank will recover the amount from the LC opening bank. The
financing clause was traditionally printed in red and hence the name Red clause credit.

Green Clause LC: Green clause credit is an extension of the red clause LC, as it enables the advance
of not only the purchase of raw materials, processing and packaging of goods but it also takes pre-
shipment warehousing at the port of origin and insurance into account.

Standby LC:

Standby LC is not an ordinary Letter of Credit, but it is a sort of Standby or back-up credit. These
credits are rarely used in India but is extensively used in USA where banks are, by law, precluded from
issuing guarantees such as performance or other financial guarantees. Thus, this type of LC is a

85
substitute for guarantee and are issued to cover situations of non performance. No transport document
is called for under this credit.

Bank guarantees:
A bank guarantee (BG) is a contract between three parties: the bank, the applicant, and the beneficiary
which is dependent upon the main contract between the applicant and the beneficiary. A guarantee, if
invoked, Bank must do payment on demand of beneficiary. The issuance of guarantees does not result
in outlay of funds. The bank's liability arises only when the customer fails to perform the act for which
the guarantee has been issued and the bank is required to part with any money to the beneficiary of the
guarantee. This is the main reason for the guarantee limits being classified as non-fund-based limits
and such limits are not included for ascertaining the total sanctioned credit limits under the Credit
Monitoring Arrangement (CMA) of Reserve Bank of India

Bank is issuing three different types of guarantee which are

 Financial/money guarantee.
 Performance guarantee.
 Deferred payment guarantee.

Assessment of Financial Guarantees: At the time of assessing the requirement for financial
guarantees, it should be examined whether the customer would be in a position to reimburse the Bank
in case the Bank is required to make payment under the guarantee on the basis of cash flows over the
time horizon of the specific contracts and determining the viability of the project.
Assessment of Performance Guarantees:
In case of performance guarantees, branches should exercise due caution while assessing the
requirements and satisfy themselves that the customer’s prior dealings indicate that the customer has
necessary experience, capacity and means to perform the obligations under the contract and is not
likely to default.
Deferred Payment Guarantees:
The requirement of DPG will be evaluated on similar lines as for term loans. These guarantees normally
arise in the case of purchase of machinery or such other capital equipment by customers (from
suppliers in India or outside). The manufacturer of the machinery supplies the machinery against a
cash payment of say, 10% or 15% and gets accepted bills for the balance amount by the purchaser's
bank or alternatively for the balance amount, the seller of the machinery gets guarantees issued. Such
guarantees are known as Deferred Payment Guarantees.

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 CHECK YOUR PROGRESS

1. which of the following are not type of working capital finance?

a. cash credit
b. SOD
c. term loan
d. none of these
_________________________________________________________________________________________

2. Term loan facility sanction by borrower for the purpose of_____

a. Acquiring fixed asset
b. raw material
c. book debt
d. none of these
_________________________________________________________________________________________

3. Which one of the following is not a party to BG transaction?

a. The Issuing Bank
b. The Benficary's Bank
c. The Beneficiary
d. The applicant
_________________________________________________________________________________________

4. Which one of the following is not a party to LC transaction?

a. Applicant
b. negotiating bank
c. Benficiary
d. Export customer of the applicant
_________________________________________________________________________________________

5. which is not type of LC?

a. Red Clause
b. Green Clause
c. Yellow clause
d. Back to Back
_________________________________________________________________________________________

6. Bank is issuing guarantee which are

a. Financial Guarantee
b. Performance Guarantee
c. DPG
d. all of these

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7. Which one is fund based facility
a. Bill discounting
b. Bank guarantee
c. LC
d. none of these
_________________________________________________________________________________________

8. Non-fund based facility is a____

a. term liability
b. contingent liability
c. short term liability
d. none of these
_________________________________________________________________________________________

9. DSCR accronym for

a. Debt Service Coverage Ratio
b. Demand service call ratio
c. Debt service call ratio
d. none of these
_________________________________________________________________________________________

10. Sight/demand LC IS
a. LC does not provide buyer with a credit period
b. LC provide buyer with a credit period
c. can not say
d. none of these
_________________________________________________________________________________________

ANSWERS

1. C 2. A 3. B
4. D 5. C 6. D
7. A 8. B 9. A
10. A

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 14. Nomination Rules- Settlement of Claims.
Deposit Policy of the Bank
One of the important functions of the Bank is to accept deposits from the public for the purpose of
lending. In fact, depositors are the major stakeholders of the Banking System. The depositors and their
interests form the key area of the regulatory framework for Banking in India and this has been
enshrined in the Banking Regulation Act, 1949. The Reserve Bank of India is empowered to issue
directives / advices on interest rates on deposits and other aspects regarding conduct of deposit
accounts from time to time.
With liberalization in the financial system and deregulation of interest rates, banks are now free to
formulate deposit products within the broad guidelines issued by RBI. This policy document on deposits
outlines the guiding principles in respect of formulation of various deposit products offered by the Bank
and terms and conditions governing the conduct of the account. The document recognizes the rights of
depositors and aims at dissemination of information with regard to various aspects of acceptance of
deposits from the members of the public, conduct and operations of various deposits accounts,
payment of interest on various deposit accounts, closure of deposit accounts, method of disposal of
deposits of deceased depositors, product approval process, annual survey of depositor satisfaction and
the triennial audit of such services etc., for the benefit of customers. It is expected that this document
will impart greater transparency in dealing with the individual customers and create awareness among
customers of their rights.
The ultimate objective is that the customer will get services they are rightfully entitled to receive without
demand. While adopting this policy, the bank reiterates its commitments to individual customers
outlined in Bankers’ Fair Practice Code of Indian Banks’ Association and ‘Code of Bank’s Commitment
to customers’. This document is a broad framework under which the rights of common depositors are
recognized. Guidelines of RBI/Government issued from time to time shall automatically form part of the
Policy.
Nomination Rules
Nomination is a facility that is being extended by the Bank to all the customers in respect of Deposits,
Safe Deposit Lockers and Safe custody accounts.
This is a facility that enables a deposit account holder(s) (Individual or Sole Proprietor) or Safe Deposit
Locker holder(s) to nominate an individual, who can claim the proceeds of the deposit account(s) or
contents of the Safe Deposit locker(s), post demise of the original depositor(s) or locker holder(s).
As per RBI directions, the nomination should be a rule and not an exception
When to do nomination for an account?
Nomination can be made at the time of opening the deposit/account or at any time later during the
currency of the deposit/account. The customer has to indicate his options in the account opening form
whether he intends availing nomination facility or not.
If the customer does not want to avail the nomination facility, the same should be recorded in the
opening form under his signature.

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Which are the accounts eligible for nomination?
Nomination can be made in respect of Deposits/Accounts which are held in the individual capacity or in
the name of sole proprietary concerns only.
If the proprietary concern undergoes a change in constitution (for example – as a partnership or limited
company) the nomination made will stand cancelled.
Nomination shall not be accepted in accounts held in any representative capacity such as accounts of
Trust, Association, clubs, society or any other organization or any office bearer thereof in his official
capacity.
Nomination shall not be made if more than one person jointly deposits articles for safe custody.
Who can be nominated?
The Nomination shall be in favour of an individual only
Nomination shall not be made in favour of non-individuals such as temples, associations, institutions
etc.
Important points in Nomination
The depositor or the depositors together, shall nominate in the prescribed manner only one Individual to
whom the amount of deposit shall be paid in the event of death of the depositor(s).
In case of deposits in the name of minors, persons lawfully entitled to act on behalf of minors shall
make the nomination.
Where the Nominee is a Minor, the depositor(s) may while making the nomination appoint some other
individual (lawful guardian) who is not a minor, to receive the amount/articles on behalf of the nominee
during the minority of the nominee. Date of birth of the minor to be noted in bank records.
In deposit of articles for safe custody, nomination can be made only if the deposit is made by a single
individual or sole proprietary concern.
Nomination should not be accepted for safety lockers held in joint names with mode of operation with
survivorship clause as “Either or Survivor” or “Anyone or Survivors”.
If the depositor furnishes a mandate in the Nomination Form, the name of the Nominee can also be
entered in the Pass Book / Term Deposit Receipt concerned.
Where the nomination is made in prescribed manner, the nominee shall, on the death of sole depositor
or on the death of all the depositors, as the case may be, become entitled to all the rights of the sole
depositor or depositors in relation to such deposits to the exclusion of all other persons, unless the
nomination is varied or cancelled.
Settlement of Claims
The Reserve Bank of India continuouslyadvising Banks to settle the death claims expeditiously i.e.
within15 days from the date of the claim. The claims in respect of deceased depositors and release of
payments to survivor(s)/nominees will be made within a period not exceeding 15 days from the date of
receipt of the claim subject to the production of proof of death of the depositor and suitable identification
of the claimant(s) to the bank's satisfaction.
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Settlement of claims of a deceased depositor’s account where nomination is registered:
In case of a deposit account of a deceased depositor where the depositor had utilized the nomination
facility and made a valid nomination or where the account was opened with the survivorship clause
(“either or survivor”, or “anyone or survivor”, or “former or survivor” or “latter or survivor”), the payment
of the balance in the deposit account to the survivor(s)/ nominee of a deceased deposit account holder
will be made provided.
The identity of the survivor(s) / nominee (s) and the fact of the death of the account holder are
established through appropriate documentary evidence.
There is no order from the competent court restraining the bank from making the payment from the
account of the deceased
It has been made clear to the survivor(s)/ nominee that he/she would be receiving the payment from the
bank as a trustee of the legal heirs of the deceased depositor, i.e., such payment to him/her shall not
affect the right or claim which any person may have against the survivor(s)/ nominee to whom the
payment is made.
Nominee’s right in case of joint deposit account
In case of a joint deposit account, nominee’s right arises only after the unfortunate event of death of all
the depositors
In a joint deposit account, when one of the joint account holders dies, the Bank is required to make
payment jointly to the legal heirs of the deceased person and the surviving depositor(s).
If the joint account holders had given mandate for disposal of the balance in the account in the forms
such as “Either or Survivor, Former or Survivor, Anyone of Survivors or Survivor etc.” the payment will
be made as per the mandate to avoid delays in production of legal papers by the heirs of the deceased.
The payment made to the survivor(s) /nominee, subject to the foregoing conditions, would constitute a
full discharge of the bank’s liability.
Payment to the survivor(s)/nominee of the deceased depositors would be made without insisting on
production of succession certificate, letter of administration or probate, etc., or obtaining any bond of
indemnity or surety from the survivor(s)/nominee, irrespective of the amount standing to the credit of the
deceased account holder.
Accounts without the survivor/nominee clause:-
The deceased depositor had not made any nomination or for the accounts other than those styled as
“either or survivor” (such as single or jointly operated accounts), Bank will adopt a simplified procedure
for repayment to legal heir(s) of the depositor keeping in view the imperative need to avoid
inconvenience and undue hardship to the common person.
Keeping in view the Bank’s risk management systems, Bank will fix a minimum threshold limit, for the
balance in the account of the deceased depositors, up to which claims in respect of the deceased
depositors could be settled without insisting on production of any legal representation (in the form of
succession certificate, letter of administration or probate) other than a letter of indemnity.

91
In case of the splitting of the amount of term deposit at the request from the claimant/s of deceased
depositors or joint account holders, no penalty for premature withdrawal of the term deposit shall be
levied if the period and aggregate amount of the deposit do not undergo any change.
Formalities to be completed in respect of claims made in deceased depositors’ accounts:
Claim form with all necessary enclosures and annexures will have to be submitted by the claimant/s to
the respective branch/es where the deceased had account/s. The claim form consists the following:
 Claim form (4 pages)  Two vouching letters  Consent letter  Format for affixing claimants photo

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 CHECK YOUR PROGRESS

1. What is the most important function of the Bank

a. Accepting Deposits
b. Lending
c. Both A and B
d. Receiving cash
_________________________________________________________________________________________

2. Who is empowered to issue directives/advices on interest rates on deposits ?

a. Reserve Bank of India
b. Govt.of India
c. Commercial Banks
d. World Bank
_________________________________________________________________________________________

3. What is/are the benefits of nomination

a. The nomination facility is to facilitate expeditious settlement of claims in the accounts of deceased
depositors
b. The nominee would be receiving the stock from the bank as a trustee of the legal heirs
c. Nomination facility helps for early settlement of claims in the event of death of Customers without leaving
any scope for technical or legal complications
d. All the three
_________________________________________________________________________________________

4. Our ----------------------- continuously advising Banks to settle the death claims expeditiously within 15 days
from the date of the claim.
a. IBA
b. Ministry of Finance
c. Reserve Bank Of India
d. SEBI
_________________________________________________________________________________________

5. The claims in respect of deceased depositors and release of payments to survivor(s)/nominees will be made
within a period not exceeding ---------- days from the date of receipt of the claim
a. 7
b. 10
c. 15
d. 21
_________________________________________________________________________________________

6. Which one of the following would be allowed in the event of death of the depositor in the case of term deposit
a. Premature termination of term deposit
b. Premature withdarwal of term deposit
c. Premature withdrawal of term deposit without penal charge
d. All the three

93
7. Which one of the following is/are true
a. In case of a joint deposit account, nominee’s right arises only after the unfortunate event of death of all
the depositors
b. The settlement of claims of missing persons would be governed by the provisions of Section 107 / 108 of
the Indian Evidence Act, 1874.
c. One of the joint account holders dies, the Bank is required to make payment individually to the legal heirs
of the deceased person and the surviving depositor(s).
d. Both A & B
_________________________________________________________________________________________

8. The death claim form consists of ------

a. Two vouching letters
b. consent letter
c. Format for affixing claimants photo
d. All the three
_________________________________________________________________________________________

9. In case of joint deposit account,when will nominee's right arise?

a. When one depositor dies
b. When two or more depositors die
c. after the unfortunate event of death of all the depositors
d. None
_________________________________________________________________________________________

10. The nomination shall be in favour of ----------

a. individual only
b. two or more number of persons
c. company
d. Partners
_________________________________________________________________________________________

ANSWERS

1. C 2. A 3. D
4. C 5. C 6. D
7. A 8. D 9. C
10.A

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 15. CUSTOMER GRIEVANCE REDRESSAL MECHANISM
Customer Service
Customer service normally falls under the ambit of following 6 types; Technical Aspect deals with
accuracy in conduct of various services. Efficiency deals with speedy & prompt service. Advisory
aspects relates to professional advice by a banker to the customers. Behavioral aspect involves
treating customers well & extending normal courtesy to the customer. After Sales service relates to
assurance by the Bank to its customer that he is committing himself to a better service in purchasing.
Bank‘s products. Comfort & Ambience at the banking premises.

Complaints
When there is a shortfall in the service complaints are filed by, Borrowers, Depositors and Others.
Complaints are oriented towards: Negligence in Service/ Delay in Service/ Unfair Trade Practice/
Shortfall in Customer Service.

Banking Ombudsman:
Banking Ombudsman is a person appointed by the Reserve Bank of India to redress customer
complaints against certain deficiency in banking services.

Does the Banking Ombudsman have any legal power?

The Banking Ombudsman is a quasi judicial authority. It has power to summon both the parties -
bank and the complainant, to facilitate resolution of complaint through mediation.

How many Banking Ombudsmen have been appointed and where are they located?
As on date, there are 22 Regional offices of Banking Ombudsman in India located mostly in the State
Capitals. The addresses of the Banking Ombudsman offices have been provided in the RBI website.

Coverage
All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks
are covered under the Scheme. The Scheme also provides for online submission of complaints . It has
an 'appellate authority' – Dy.Governor, RBI, for providing scope for appeal against an award passed
by the Ombudsman, both by the bank as well as the complainant; will consider complaints from Non-
Resident Indians having accounts in India in relation to their remittances from abroad, deposits and
other bank-related matters.

95
Filing of complaint
A complaint can be made to Banking Ombudsman, if the reply is not received from the bank within a
period of one month; after the bank concerned has received his representation the bank rejects the
complaint; the complainant is not satisfied with the reply given to him by the bank. For filing a complaint
before the Banking Ombudsman, it is essential for a complainant to first attempt to find a satisfactory
solution directly with his bank by making a written representation to the bank named in the complaint.
The complaint should, however, be made before expiry of period of one year after the cause of
action has arisen. The complaint should not be for the same subject matter for the same parties that
was settled through the office of the Banking Ombudsman in any previous proceedings. No complaint
be made before a Banking Ombudsman on the same subject matter for which any proceedings before
any court, tribunal or arbitrator or any other forum is pending or a decree or award or a final order, has
already been passed by any such competent court, tribunal, arbitrator or forum.
Type of Complaints
The Banking Ombudsman can receive and consider any complaint relating to the deficiency in
banking services; any other matter relating to the violation of the directives issued by the Reserve
Bank in relation to banking or other services.

Redressal Process
Reply to BO to be sent within the stipulated time; if information is called, necessary information is
provided; Banking Ombudsman endeavors for settlement on receipt of the reply and proceed to settle
the matter through mediation; the Banking Ombudsman is not bound by any legal rule of evidence; The
Banking Ombudsman will then either REJECT or AWARD the complaint. AWARD will be passed
sometimes subject to indemnity by the complainant; For passing an award, the Banking Ombudsman is
guided by the documentary evidence placed before him by the parties, the principles of banking law
and practice, directions, instructions and guidelines issued by the Reserve Bank of India and such other
factors, which in his opinion are necessary in the interest of justice (Max compensation Rs. 20 Lacs).
RBI amends banking ombudsman scheme; to now include complaints on mis-selling, mobile
banking from 1st July 2017

The Reserve Bank of India (RBI) has finally added complaints related to misselling of financial products
to its banking ombudsman scheme. The country's apex bank has also added mobile and electronic
banking related complaints to its ombudsman scheme.

The Banking Ombudsman Scheme 2006, is now been amended as of 1 July and, among other things,
will now include deficiencies arising out of sale of insurance/ mutual fund/ other third party investment
products by banks. Deficiencies could be of various types such as

96
 Improper, unsuitable sale of third party financial products
Non-transparency or lack of adequate transparency in sale
Non-disclosure of grievance redressal mechanism available
Delay or refusal to facilitate after sales service by banks

Ombudsman will also entertain complaints relating to mobile and electronic banking. For instance,
delay or failure to effect online payment / fund transfer, and unauthorised electronic payment / fund
transfer. Considering that online financial crimes and vulnerability has increased in India, it was high
time issues like these were included as part of the ombudsman scheme. The best part of the latest
amendment is that banking ombudsman will now be able to pass an Award (compensation) of a higher
amount, which will be Rs 2 million from the existing Rs 1 million.

BANKING CODES AND STANDARDS BOARD OF INDIA (BCSBI)

BANKING CODES AND STANDARDS BOARD OF INDIA

The Banking Codes and Standards Board of India is an independent banking industry watchdog that
protects consumers of banking services in India. The board oversees compliance with the "Code of
Bank's Commitment to Customers"
This is a Code of Customer Rights, which sets minimum standards of banking practices member banks
have to follow while they deal with individual customers.
It provides protection to customers and explains how banks are expected to deal with customers in their
day-to-day operations.
BCSBI has evolved two sets of Codes – Code of Bank‟s Commitment to Customers and the Code
of Bank‟s Commitment to Micro and Small Enterprises. These Codes have been adopted by
member banks of BCSBI which include scheduled commercial banks, urban cooperative banks and
regional rural banks.
BCSBI by its design and mandate is not a grievance redressal forum. However, BCSBI looks at
complaints with a view to identifying systemic deficiencies, if any, in terms of gaps in policies,
procedures and practices at the banks and initiates action for their rectification.

Important Time Schedule under BCSBI Code for key time commitments:
Closure of account on customer‘s request 3 days
Transfer of account to other branch-opearationalise at the new branch 2 weeks
Acknowledgment of complaint 1 week
Redressal of customer complaint (maximum) 6 week
97
Closure of account by bank- Notice 30 days
Settlement of Deceased claim case 15 days
Change in fee / charges- notice period 1 month
Closure / shifting of branch – Notice
where no other bank has branch - 3 months
where other bank has a branch - 2 months
Change in credit card terms 1 month
Loan Recovery - time to visit customers in the normal course 7 am to 7 pm

Consumer Forum
The Consumer Protection Act, 1986 is one of the benevolent social legislation intended to protect the
large body of consumers from exploitation. It has become the vehicle for enabling people to secure
speedy and in-expensive Redressal of their grievances. To provide cheap, speedy and simple
redressal to consumer disputes, quasi-judicial machinery is set up at each District, State and National
levels called District Forums, State Consumer Disputes Redressal Commission and National Consumer
Disputes Redressal Commission respectively. At present, there are 610 District Forums, 35 State
Commissions with apex body as a National Consumer Disputes Redressal Commission (NCDRC)
having its office at Janpath Bhawan, A Wing, 5th Floor, Janpath, New Delhi.

To improve operational efficiency, coordination, accessibility and speed in judicial administration that
shall lead to improvement in time bound justice to the consumers, the Department of Consumer Affairs,
Government of India has launched a scheme for ―Computerization and Computer Networking of
Consumer fora in the country‖ called CONFONET through NIC (www.confonet.nic.in)

Establishment of Consumer Disputes Redressal Agencies

The Agencies are set up under the Consumer Protection Act 1986 at District, State and National level
to provide simple and inexpensive quick redressal against consumer complaints ,where a Consumer
can file complaint in the consumer court against any defective goods purchased or deficient service
rendered including restrictive/ unfair trade practice adopted by any trader/person within two years from
the date on which cause of action arose.

The Agencies are as follows:

 a Consumer Disputes Redressal Forum to be known as the "District Forum" established by
the State Government in each district. This consumer court deals with complaints where the
value of the goods or services and compensation, if any, claimed is less than twenty lakhs.

98
  a Consumer Disputes Redressal Commission to be known as the "State Commission"
established by the State Government; This consumer court deals with complaints where where
the value of the goods or services and compensation, if any, claimed exceeds rupees twenty
lakhs but does not exceed rupees one crore.
 a National Consumer Disputes Redressal Commission established by the Central
Government, which deals with complaints where the value of the goods or services and
compensation, if any, claimed exceeds rupees one crore.

Right to Information Act:

The Act came into full force on 12.10.2005 – Applicable to Public Authorities (PA) only. Each PA will
have a Principal Information Officer. For State subjects and Central subjects it is headed by State and
Central Information Commissioners respectively.

Objective of RTI: The basic object of the Right to Information Act is to empower the citizens, promote
transparency and accountability in the working of the Government, contain corruption, and make our
democracy work for the people in real sense. It goes without saying that an informed citizen is better
equipped to keep necessary vigil on the instruments of governance and make the government more
accountable to the governed. The Act is a big step towards making the citizens informed about the
activities of the Government.

Bringing Information to the Citizens

Right to Information Act 2005 mandates timely response to citizen requests for government information.
It is an initiative taken by Department of Personnel and Training, Ministry of Personnel, Public
Grievances and Pensions to provide a– RTI Portal Gateway to the citizens for quick search of
information on the details of first Appellate Authorities,PIOs etc. amongst others, besides access to RTI
related information / disclosures published on the web by various Public Authorities under the
government of India as well as the State Government.

RTI – User friendly

Half an hour‘s time for drafting the application and a court fee of Rs.10; Applicant need not deliver in
person. The application can be sent by post.

Section 6(3) of the RTI Act. makes it mandatory for the official to forward it to the right authority. If
substantial funding is done by Government, private schools, can also come under thepurview i.e. the
Act is applicable to Public Authorities, i.e. institutions funded by Government.

99
If the information requested is not provided by the officials, within the timeframe of 30 days, they shall
have to pay Rs.250 for every day of delay from their salary with the maximum Rs25000/- apart from DP
Action; Response to queries under RTI Act is therefore time bound , viz. 30 days.

RTI PORTAL
There is a portal to file RTI applications/first appeals online along with payment gateway. Payment can
be made through internet banking of SBI & its associate banks, debit/credit cards of Master/Visa and
RuPay cards. Through this portal, RTI applications/first appeals can be filed by Indian Citizens for all
Ministries/Departments and few other Public Authorities of Central Government. RTI applications/first
appeals should not be filed for other Public authorities under Central/State Govt. through this portal

100
CHAPTER 15

1. Who is an Applleate Authority in Banking Ombudsman

a. RBI Governor
b. Dy.Governor RBI
c. Finance Minsiter
d. CMD of the Bank
_________________________________________________________________________________________

2. Maximum period for filling a complaint with Banking Ombudsman is _____years from the date of occurance of
the event.
a. 0ne
b. two years
c. three years
d. 4 years
_________________________________________________________________________________________

3. Banking Ombudsman can award maximum compensation of Rs_____lacs.

a. 5 lacs
b. 10 lacs
c. 20 lacs
d. 50 lacs
_________________________________________________________________________________________

4. As per BCSBI, time schedule for closure of account on customer request is ______days
a. 3
b. 6
c. 15
d. 30
_________________________________________________________________________________________

5. As per BCSBI, time schedule for Settlement of Deceased claim case ___ days
a. 7
b. 15
c. 30
d. 180
_________________________________________________________________________________________

6. BCSBI stands for ____________

a. Banking Codes and standard Board of India
b. Banking Commitment and Standard Board of India
c. Banking Conduct and Standard Board of India
d. None of the above

101
7. Maximum amount of claim that can be settled at District Consumer Forum is _____lacs
a. 10
b. 20 lacs
c. 30 lacs
d. 40 lacs
_________________________________________________________________________________________

8. Maximum amount of claim that can be settled at Sate Commission is _____lacs

a. 50
b. 100
c. 200
d. 500
_________________________________________________________________________________________

9. Under RTI, The time frame for providing the information by PIO is ____days from the reciept of application
a. 150
b. 30
c. 60
d. 90
_________________________________________________________________________________________

10. Penalty for delay in reply in RTI is Rs____per day

a. 50
b. 250
c. 500
d. 1000
_________________________________________________________________________________________

ANSWERS

1. B 2. A 3. C
4. C 5. B 6. A
7. B 8. B 9. B
10.B

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 16.Priority Sector Lending – Targets and Classification

Priority Sector Lending is an important role given by RBI to the banks for providing a specified portion
of the bank lending to few specific sectors like agriculture and allied activities, micro and small
enterprises, poor people for housing, students for education and other low income groups and weaker
sections.. This is essentially meant for an all round development of the economy as opposed to
focusing only on the financial sector.
A large portion of the population in India doesn't have access to funds. Therefore RBI has adopted
Priority Sector Lending norms which relax the lending norms for poor and small businesses. Banks
must ensure that loans extended under priority sector are for approved purposes and the end use is
continuously monitored.
Targets /Sub-targets for Priority sector

Targets /Sub-targets for Priority sector

The targets and sub-targets set under priority sector lending for all scheduled commercial banks
operating in India are furnished below:
 Total Priority Sector - 40 percent of ANBC (Adjusted Net Bank Credit) or Credit Equivalent
Amount of Off-Balance Sheet Exposure (CEOBE), whichever is higher
Of which,

 Agriculture -18 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet

Exposure, whichever is higher.
 Within the 18 percent target for agriculture, a target of 10 percent of ANBC or Credit
Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher is prescribed for Small
and Marginal Farmers
 Micro Enterprises - 7.5 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet
Exposure, whichever is higher
 Advances to Weaker Sections - 12 percent of ANBC or Credit Equivalent Amount of Off-
Balance Sheet Exposure, whichever is higher

Adjusted Net Bank Credit (ANBC).

ANBC denotes the outstanding Bank Credit minus bills rediscounted with RBI and other approved
Financial Institutions plus permitted non SLR bonds / debentures under Held to Maturity (HTM)
category plus other investments, which are eligible to be treated as part of priority sector lending (e.g.
investments in securitized assets).The outstanding deposits under RIDF and other funds
NABARD/SIDBI/NHB, as the case may be, in lieu of non-achievement of priority sector lending
targets/sub-targets will form part of ANBC
In simple language to understand, ANBC is the total loans given by the bank
Priority Sector includes the following categories:

1. Agriculture
2. Micro, Small and Medium Enterprises
3. Export Credit
4. Education
5. Housing
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 6. Social Infrastructure
7. Renewable Energy
8. Others

1. Agriculture
The lending to agriculture sector will include Farm Credit (Agriculture and Allied Activities), lending for
Agriculture Infrastructure and Ancillary Activities.
Farm Credit - Individual farmers
Loans to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs) i.e. groups
of individual farmers, provided banks maintain disaggregated data of such loans and Proprietorship
firms of farmers, directly engaged in Agriculture and Allied Activities, viz. dairy, fishery, animal
husbandry, poultry, bee-keeping and sericulture. This will include:

i. Crop loans including loans for traditional / non-traditional plantations, horticulture and allied
activities.
ii. Medium and long-term loans for agriculture and allied activities (e.g. purchase of agricultural
implements and machinery and developmental loans for allied activities).
iii. Loans for pre and post-harvest activities viz. spraying, harvesting, grading and transporting of
their own farm produce.
iv. Loans to distressed farmers indebted to non-institutional lenders.
v. Loans under the Kisan Credit Card Scheme.
vi. Loans to small and marginal farmers for purchase of land for agricultural purposes.
vii. Loans against pledge/hypothecation of agricultural produce (including warehouse receipt) for a
period not exceeding 12 months subject to a limit up to ₹50 lakh.
viii. Loans to farmers for installation of solar power plants on barren/fallow land or in stilt fashion on
agriculture land owned by farmer.

Farm Credit - Corporate farmers, Farmer Producer Organisations (FPOs)/(FPC) Companies of

Individual Farmers, Partnership firms and Co-operatives of farmers engaged in Agriculture and
Allied Activities
(a) Loans for the following activities will be subject to an aggregate limit of ₹2 crore per borrowing
entity:
i. Crop loans to farmers which will include traditional/non-traditional plantations and
horticulture and loans for allied activities.
ii. Medium and long-term loans for agriculture and allied activities (e.g. purchase of
agricultural implements and machinery and developmental loans for allied activities).
iii. Loans for pre and post-harvest activities viz. spraying, harvesting, grading and
transporting of their own farm produce.
(b) Loans up to ₹50 lakh against pledge/hypothecation of agricultural produce (including
warehouse receipts) for a period not exceeding 12 months.
(c) Loans up to ₹5 crore per borrowing entity to FPOs/FPCs undertaking farming with assured
marketing of their produce at a pre-determined price.

104
 Agriculture Infrastructure
Loans for construction of storage facilities (warehouses, market yards, godowns and silos) including cold
storage units/ cold storage chains designed to store agriculture produce/products, irrespective of their
location. ii) Soil conservation and watershed development. iii) Plant tissue culture and agri
biotechnology, seed production, production of bio-pesticides, bio-fertilizer, and vermi composting.
Loans for agriculture infrastructure will be subject to an aggregate sanctioned limit of ₹100 crore per
borrower from the banking system.
Ancillary Services
Loans for setting up of Agri-clinics and Agri-business centres, Loans to Custom Service Units managed
by individuals, institutions or organizations who maintain a fleet of tractors, bulldozers, well-boring
equipment, threshers, combines, etc., and undertake farm work for farmers on contract basis, Loans to
Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-sized
Adivasi MultiPurpose Societies (LAMPS) for on-lending to agriculture, Loans sanctioned by banks to
MFIs for on-lending to agriculture sector, Loans sanctioned by banks to registered NBFCs (other than
MFIs)
Following loans under ancillary services will be subject to limits prescribed as under:
i. Loans up to ₹5 crore to co-operative societies of farmers for purchase of the produce of
members.
ii. Loans up to ₹50 crore to Start-ups, as per definition of Ministry of Commerce and Industry,
Govt. of India that are engaged in agriculture and allied services.
iii. Loans for Food and Agro-processing up to an aggregate sanctioned limit of ₹100 crore per
borrower from the banking system.

Outstanding deposits under RIDF and other eligible funds with NABARD on account of priority sector
shortfall.

Small and Marginal Farmers (SMFs)

For the purpose of computation of achievement of the sub-target, Small and Marginal Farmers will include.
i. Farmers with landholding of up to 1 hectare (Marginal Farmers).
ii. Farmers with a landholding of more than 1 hectare and up to 2 hectares (Small
Farmers).
iii. Landless agricultural labourers, tenant farmers, oral lessees and share- croppers whose
share of landholding is within the limits prescribed for SMFs.
iv. Loans to Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of
individual SMFs directly engaged in Agriculture and Allied Activities, provided banks
maintain disaggregated data of such loans.
v. Loans up to ₹2 lakh to individuals solely engaged in Allied activities without any
accompanying land holding criteria.

2. Micro, Small and Medium Enterprises (MSMEs)

All bank loans to MSMEs conforming to the definition of MSMEs as per Government of India guidelines
qualify for classification under priority sector lending.
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 An enterprise shall be classified as a Micro, Small or Medium enterprise on the basis of the following
criteria, namely:
 a micro enterprise, where the investment in plant and machinery or equipment does not
exceed one crore rupees and turnover does not exceed five crore rupees;
 a small enterprise, where the investment in plant and machinery or equipment does not
exceed ten crore rupees and turnover does not exceed fifty crore rupees
 a medium enterprise, where the investment in plant and machinery or equipment does not
exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees

A) Factoring Transactions (not applicable to RRBs)

i. ‘With Recourse’ Factoring transactions by banks which carry out the business of factoring
departmentally wherever the ‘assignor’ is a Micro, Small or Medium Enterprise would be
eligible for classification under MSME category on the reporting dates.

B) Khadi and Village Industries Sector (KVI)

All loans to units in the KVI sector will be eligible for classification under the sub- target of 7.5 percent
prescribed for Micro Enterprises under priority sector.
C) Other Finance to MSMEs
i. Loans up to ₹50 crore to Start-ups, as per definition of Ministry of Commerce and Industry,
Govt. of India that confirm to the definition of MSME
ii. Loans to entities involved in assisting the decentralized sector in the supply of inputs and
marketing of output of artisans, village and cottage industries. Loans to co-operatives of
producers in the decentralized sector viz. artisans, village and cottage industries
iii. Loans to registered NBFCs (other than MFIs) for on-lending to Micro & Small Enterprises
Credit outstanding under General Credit Cards (including Artisan Credit Card, LaghuUdyami
Card, Swarojgar Credit Card and Weaver’s Card etc. in existence and catering to the non-farm
entrepreneurial credit needs of individuals).
iv. Overdraft to Pradhan Mantri Jan-Dhan Yojana (PMJDY) account holders as per limits and
conditions prescribed by Department of Financial Services, Ministry of Finance from time to
time, will qualify as achievement of the target for lending to Micro Enterprises.
v. Outstanding deposits with SIDBI and MUDRA Ltd. on account of priority sector shortfall.

3. Export Credit (not applicable to RRBs and LABs)

Export credit under agriculture and MSME sectors are allowed to be classified as PSL in the respective
categories viz. agriculture and MSME. Export Credit (other than in agriculture and MSME) will be
allowed to be classified as priority sector as per the following table:

106
 Domestic banks / WoS(Wholly Owned Foreign banks with 20 Foreign banks with less
Subsidiary) of Foreign banks/ SFBs branches and above than 20 branches
Incremental export credit over Incremental export credit Export credit up to 32 per
corresponding date of the preceding over corresponding date cent of ANBC or CEOBE
year, up to 2 per cent of ANBC or of the preceding year, up whichever is higher.
CEOBE whichever is higher, subject to to 2 percent of ANBC or
a sanctioned limit of up to ₹ 40 crore CEOBE whichever is
per borrower. higher.
Export credit includes pre-shipment and post-shipment export credit (excluding off-balance sheet items)
as defined in Master Circular on Rupee / Foreign Currency Export Credit and Customer Service to
Exporters issued by Department of Regulation, RBI and updated from time to time.
4. Education
Loans to individuals for educational purposes, including vocational courses, not exceeding ₹ 20 lakh will be
considered as eligible for priority sector classification. Loans currently classified as priority sector will
continue till maturity.
5. Housing
Bank loans to Housing sector as per limits prescribed below are eligible for priority sector classification:
i. Loans to individuals up to ₹35 lakh in metropolitan centres (with population of ten lakh and
above) and up to ₹25 lakh in other centres for purchase/construction of a dwelling unit per
family provided the overall cost of the dwelling unit in the metropolitan centre and at other
centres does not exceed ₹45 lakh and ₹30 lakh respectively.
ii. Housing loans to banks’ own employees will not be eligible for classification under the priority
sector.
iii. Loans up to ₹10 lakh in metropolitan centres and up to ₹6 lakh in other centres for repairs to
damaged dwelling units conforming to the overall cost of the dwelling unit
iv. Bank loans to HFCs (approved by NHB for their refinance) for on-lending, up to ₹20 lakh for
individual borrowers, for purchase/construction/ reconstruction of individual dwelling units or for
slum clearance and rehabilitation of slum dwellers.
v. Outstanding deposits with NHB on account of priority sector shortfall.

6. Social Infrastructure
Bank loans up to a limit of ₹5 crore per borrower for setting up schools, drinking water facilities and
sanitation facilities including construction/ refurbishment of household toilets and water improvements
at household level, etc. and loans up to a limit of ₹10 crore per borrower for building health care
facilities including under ‘Ayushman Bharat’ in Tier II to Tier VI centres. Bank loans to MFIs extended
for on-lending to individuals and also to members of SHGs/JLGs for water and sanitation facilities
7. Renewable Energy
Bank loans up to a limit of ₹30 crore to borrowers for purposes like solar based power generators,
biomass-based power generators, wind mills, micro-hydel plants and for non-conventional energy
based public utilities, viz., street lighting systems and remote village electrification etc., will be eligible
for Priority Sector classification. For individual households, the loan limit will be ₹10 lakh per borrower.

107
8. Others
i. Loans not exceeding ₹1.00 lakh per borrower provided directly by banks to individuals and
individual members of SHG/JLG, provided the individual borrower’s household annual income
in rural areas does not exceed ₹1.00 lakh and for non-rural areas it does not exceed ₹1.60
lakh, and loans not exceeding ₹2.00 lakh provided directly by banks to SHG/JLG for activities
other than agriculture or MSME, viz., loans for meeting social needs, construction or repair of
house, construction of toilets or any viable common activity started by the SHGs.
ii. Loans to distressed persons [other than distressed farmers indebted to non- institutional
lenders] not exceeding ₹1.00 lakh per borrower to prepay their debt to non-institutional lenders.
iii. Loans up to ₹50 crore to Start-ups, as per definition of Ministry of Commerce and Industry,
Govt. of India that are engaged in activities other than Agriculture or MSME.

Weaker Sections
Priority sector loans to the following borrowers will be considered as lending under Weaker Sections
category:

(i) Small and Marginal Farmers, Scheduled Castes and Scheduled Tribes, Self Help
Groups
(ii) Artisans, village and cottage industries where individual credit limits do not exceed ₹1
lakh
(iii) Beneficiaries under Government Sponsored Schemes such as National Rural
Livelihood Mission (NRLM), National Urban Livelihood Mission (NULM) and Self
Employment Scheme for Rehabilitation of ManualScavengers (SRMS)
(iv) Beneficiaries of Differential Rate of Interest (DRI) scheme
(v) Distressed farmers indebted to non-institutional lenders
(vi) Distressed persons other than farmers, with loan amount not exceeding ₹1lakh per
borrower to prepay their debt to non-institutional lenders
(vii) Individual women beneficiaries up to ₹1 lakh per borrower (For UCBs, existing loans
to women will continue to be classified under weakersections till their
maturity/repayment.)
(viii) Persons with disabilities

(ix) Minority communities as may be notified by Government of India from time to time.

Overdraft availed by PMJDY account holders as per limits and conditions prescribed by Department of
Financial Services, Ministry of Finance from time to time may be classified under Weaker Sections.

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 CHECK YOUR PROGRESS

1. Which of the following categories fall under Priority sector

a. Export Credit
b. Agriculture
c. Social Infrastructure
d. All the above
_________________________________________________________________________________________

2. Bank Loans up to a limit of _________ per borrower for building social infrastructure comes under priority
sector
a. 5 crore
b. 25 crore
c. 1 crore
d. 2 crore
_________________________________________________________________________________________

3. What is the applicable limit for renewable energy loans under priority sector
a. 5 crore
b. 10 crore
c. 30 crore
d. 20 crore
_________________________________________________________________________________________

4. What is the limit for housing loans in metropolitan centers under priority sector
a. 15 lakh
b. 20 lakh
c. 28 lakh
d. 35 lakh
_________________________________________________________________________________________

5. Target to be achieved under Priority sector for Domestic Commercial Banks

a. 18% of ANBC or CEOBE, Whichever is higher
b. 40% of ANBC or CEOBE, Whichever is higher
c. 32% of ANBC or CEOBE, Whichever is higher
d. 10% of ANBC or CEOBE, Whichever is higher
_________________________________________________________________________________________

6. Target to be achieved under Agriculture for Banks

a. 18% of ANBC or CEOBE, Whichever is higher
b. 75% of ANBC or CEOBE, Whichever is higher
c. 32% of ANBC or CEOBE, Whichever is higher
d. 10% of ANBC or CEOBE, Whichever is higher

109
7. Target to be achieved under Micro enterprises for Banks
a. 12% of ANBC or CEOBE, Whichever is higher
b. 18% of ANBC or CEOBE, Whichever is higher
c. 7.5% of ANBC or CEOBE, Whichever is higher
d. 10% of ANBC or CEOBE, Whichever is higher
_________________________________________________________________________________________

8. What is the limit for education loan under priority sector

a. 10 lakh
b. 20 lakh
c. 15 lakh
d. 30 lakh
_________________________________________________________________________________________

9. Farmers with landholding of up to 1 hectare is called

a. Small Farmer
b. Tenant farmer
c. Lesse farmer
d. Marginal Farmer
_________________________________________________________________________________________

10. Which of the following is not the sub-category under Agriculture in Priority Sector Lending
a. Farm credit
b. Storehouse Infrastructure
c. Agriculture infrastructure
d. Ancillary activities

__________________________________________________________________________________

ANSWERS

1. D 2. A 3. C
4. D 5. B 6. A
7. C 8. B 9. D
10.B

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 17. Agriculture Lending
1. Kisan Credit Card (KCC) Scheme
Purpose
To meet out the short term credit requirements for cultivation of Crops, Post-harvest expenses
Consumption requirements of Farmer Household
Working Capital for maintenance of farm assets
Investment Credit requirements for agriculture and allied activities
Eligibility:
a. All Farmers – Individuals / Joint borrowers who are owner cultivators
b. Tenant Farmers, Oral Lessees & Share Croppers
c. Self Help Groups or Joint Liability Groups
d. Farmers including tenant farmers, share croppers etc
Quantum of finance
Scale of finance for the crop (as decided by District Level Technical
Committee) x Extent of area cultivated + 10% of limit towards Post-harvest / household / consumption
requirements + 20% of limit towards repairs and maintenance expenses of farm assets.
An additional 10% of the Crop Loan Component increase in Scale of
Finance for every successive year
Margin - NIL- since in-built while fixing the Scales of Finance
Security for KCC
Upto Rs.1.60 lakh - Hypothecation of Standing crops.
Upto Rs.3.00 lakh - Hypothecation of Standing crops in the case of tie up arrangement.
For Limits above Rs.1.60 lakhs Hypothecation of Standing crops +Pledge of Jewel or FDR or LIC/NSC
assignment or charge on landed property upto or more than the value of loan portion
Repayment:
Yearly renewal. Validity period of the card is 5 years
Standard Asset End Date : Standard Asset End Date (SAED) is the NPA date 1.For Short Term Crops (Less
Than 6 Months duration - 33 Months 2.For Short Term Crops more than 6 months but less than 12 months - 39
months 3. The due date for long duration crop i.e. having harvesting period above 12 months is arrived at based
on specific crop.
Other important points
.Cultivation in lease land by oral lease, maximum upto Rs.50, 000/- (Land upto 2.5 acres only will be
considered).
ii. Validity of KCC for 5 years.
iii. No processing fee up to a limit of Rs. 3.00 lakh.
iv. One time documentation at the time of first availment and thereafter simple declaration
v. Interest Subvention / Prompt Repayment Incentive (PRI) available as per the extant guidelines of Government
of India and / or State Government.
vi. Crop insurance under PMFBY / RWBCIS is voluntary for the farmers from Kharif 2020 season.
vii. The existing and prospective Kisan Credit Card holders of our Bank are covered under Personal Accident
Insurance Scheme (PAIS). The Premium is borne by our Bank. The maximum risk coverage due to accidental
death is Rs. 50,000/-.
viii. Classification of KCC A/Cs as NPA
As per RBI guidelines on IRAC,
i. a loan granted to short duration crops will be treated as NPA, if the installment of principal and/ or interest
thereon remains overdue for two crop seasons.
ii. a loan granted to long duration crops will be treated as NPA, if the installment of principal and/ or interest
thereon remains overdue for one crop season.
KCC Allied - Animal Husbandry and Fisheries Scheme
Purpose: To meet the short term credit requirement of rearing of animals, Birds, etc (Feeding, veterinary aid,
labour, water and electricity supply)
ii. To meet the short term credit requirement of rearing of Fish, Shrimp, other aquatic organisms, capture of fish.
Eligibility: Farmers - Either individual or joint borrower, Dairy farmers, Poultry farmers, Fish farmers Joint
Liability Groups, Self Help Groups, Tenant farmer having owned/rented/leased sheds
111
Quantum of finance :The quantum of credit for working capital limit is to be arrived based on scale of finance
fixed by the District Level Technical Committee (DLTC).
Margin:
For limits upto Rs.1.60 Lakhs, Margin is nil.
For limits above Rs.1.60 Lakhs , wherever limit is arrived based on the Scale of Finance – Margin is nil
For other limits above Rs. 1.60 Lakhs, Margin at 15- 25% may be insisted
Security:
As described for KCC (Crop)
Repayment:
The Loan will be in the nature of Revolving Cash Credit limit. Repayment fixed as per cash flow/ income
generation pattern of the activity undertaken by the borrower. The entire cash generated to be routed through
Cash Credit account only. Loan should be reviewed and renewed annually
Other important points
Classification of accounts as NPA
90 days delinquency norms will be followed
Interest Subvention
If Government supported Interest Subvention is provided for any component of the limit, the rate of interest is to
be fixed accordingly. (Presently interest rate for working capital sanctioned to farmers engaged in animal
husbandry and fisheries up to Rs.2.00 Lakh (Sublimit of Rs.3.00 Lakhs under KCC) is 7% as per extant interest
subvention scheme of Government of India) For loans above Rs.2.00 lakh, for Kisan Credit Card Animal
Husbandry and Fisheries, Card rate linked to MCLR rate is to be applied.
2. Agri Gold Jewel Loan (AJL)
Purpose
Jewel Loans under Agri can be sanctioned as Short Term Loans or Kisan Credit Card or Working Capital For
Allied Activities like Dairy, Poultry, Fisheries etc or Term Loans for various sectors and purposes
Agri Bumper Jewel Loan:
Per gram rate or 85% of the market value of the jewel whichever is lower.
For Agri Jewel Loan Per gram rate or 80% of the market value of the jewel whichever is lower
The eligible loan amount is subject to scale of finance for crops/ AH/Fishery activity as approved by DLTC
Margin:
15% for Agri Bumper Jewel Loan product
20% for other Agri Jewel Loan.
Repayment:
Bumper Agri JL- 6 months
Agri Jewel Loan( Short Term) – 12 months
AGRI JL – Term Loan –35 month
Other important points
Jewel Appraiser Fee:
Metro and Class-I cities: Rs. 5 per Rs.1000 subject to maximum Rs.500/-
All Other Centres: Rs. 3 per Rs.1000 subject to maximum ofRs. 300/-
3. SELF HELP GROUP (SHG) – AGRI
Purpose
SHG is an informal group and registration under any Societies Act, State cooperative Act or a partnership firm is
not required
Purpose: Mainly for production and investment purposes. Major portion of the first dose of loan is permitted to
be utilized for consumption purpose and repayment of existing external debts based on actual need. SHGs
should be strongly encouraged to use at least 75% of the loan from second dose onwards
Quantum of finance
First dose-6 times of the existing corpus or minimum of Rs.1, 00,000/- whichever is higher.
Second dose: 8 times of the corpus or minimum of Rs 2.00 lakh, whichever is higher
Third dose: Minimum of Rs. 3.00 lakh
Fourth dose onwards: Minimum of Rs. 5 lakhs,
No margin up to ₹10.00 lakhs limit to SHGs.
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No collateral up to ₹10.00 lakhs limit to SHGs
Repayment Period
Cash Credit limit (CCL)-A minimum loan of Rs 5 lakhs shall be sanctioned as CCL for a period of 5 years with
a yearly drawing power (DP) The drawing power may be enhanced annually based on the repayment
performance of the SHG
Term Loan-Minimum 12 months and maximum 72 months
Other Important points Eligibility
Group Size-10 to 20 members
SHG should be in active existence at least for the last six months. Only SHGs graded as ‘A’ (80 marks or more) –
for First Linkage SHGs graded as ‘‘B’ (70-79 marks) can be considered Second Linkage onwards
Grading: The parameter stipulated by the bank upon which the performance of SHG’s shall be assessed is
known as Grading of SHGs. The “Panchasutra” for SHGs to fulfil the Grading parameters are Regular Meetings,
Regular Inter loaning, Regular Savings, Timely Repayment Upto date book of Accounts
4. JOINT LIABILITY GROUP (JLG)
Purpose For activities related to Agriculture Allied Agri and Non Agri activity
Quantum of finance
For Agriculture, Allied Agri and Non Agri activity the maximum loan to the group will be Rs 10, 00,000/- subject to
a maximum of Rs.1, 00,000/- to an individual.
For Tenant and Oral lessees, the maximum loan amount is Rs.5,00,000/ to the group subject to a maximum of
Rs 50000/- toan individual
Margin:
For Agri and Allied -NIL
For MSME activities:
Upto Rs 50000/- per individual – NIL
Above Rs 50000 and Upto Rs 100000/- per individual - 10%
Security: No collateral is insisted. Mutual guarantees offered by the JLG members are kept on record..
Repayment:
For KCC – Coinciding with harvesting and marketing period for the crops
For Term Loans – Minimum 6 months and maximum 60 Months depending on the activity
Other Important points
Eligibility: JLGs can be formed with tenant farmers and small farmers cultivating land without possessing
proper title of their land. Members should be of similar socio economic status and background carrying out
farming/ off-farming activities and who agree to function as a joint liability group.
Size: JLG is a group of 4 – 10 members.
Types of facilities available are 1. KCC and 2. Term Loan
Model A – Financing individuals in the Group.
Model B – Financing the group
5. Poultry Advance
Purpose
Term Loan:
For setting up of Broiler/ Layer/ Breeder farm, hatchery Units.
Cash Credit:
To meet working capital requirements under KCC Animal Husbandry Model
Target Group & Eligibility Individual farmers, Self Help Groups (SHGs) and Joint Liability Groups (JLGs),
Corporate including FPOs of individual farmers, Partnership firms and Co-operatives of farmers directly engaged
in Agriculture and Allied activities
Quantum of finance
Term Loan: Based on Unit cost fixed by NABARD / Individual project cost.
Cash Credit: Limit to be arrived based on Scale of Finance fixed by DLTC.
MUDRA:Term loan or Working capital up to maximum limit of Rs.10.00 lakhs
Margin
Up to Rs.1.60 Lakhs – NIL - , Above Rs.1.60 Lakhs – 15% to 25% of project cost.
Security
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 Up to Rs.1.60 Lakhs – NIL-
for tie-up Rs.3.Lakhs - NIL-
Non Tie-up Above Rs.1.60 lakhs -Equitable Mortgage
Under MUDRA - Mandatory coverage under CGFMU.
Repayment Period:
Term Loan: Maximum 96 months including gestation period of 12months.
Cash Credit:
Limit will be in the nature of Revolving Cash Credit limit. The entire
Other Important points
Processing Charges
Term Loan:
Upto Rs. 25000/- : NIL
Above Rs. 25000: 0.50% of the limit sanctioned
Working Capital:
Upto Rs. 25000: NIL
Above Rs. 25000/- up to Rs. 50 Lakh: Rs. 250 per lakh or part thereof
Min. of Rs. 250
Above Rs. 50 Lakh: Rs. 350 per lakh or part thereof.
6. Tractor & other Farm Machinery Financing
Purpose:
Purchase of new tractor with minimum three implements including trailer and Purchase of new power tiller.
Minimum Landholding - 4 acres of irrigated land (or) 8 acres of unirrigated land (dry land).
Quantum of finance
Term Loan:
Based on Unit cost fixed by NABARD
Margin:
Upto Rs 160000/- : NIL.
If the total cost of Tractor and power tiller exceeds Rs.1.60 Lakhs - Margin 10%.
If value of the collateral security is equal to loan amount margin is 5%
Security
Upto Rs 160000- Nil
Above Rs 160000/- Hypothecation of assets, EM of land plus third party guarantee
Repayment Period:
Tractor: 9 years - 18 half yearly instalments.
Power tiller: 7years - 14 half yearly instalments
Other Important points
Tractor loan can be sanctioned under MUDRA scheme for limits upto Rs.10.00 lakh for custom hiring activities.
No minimum acreage need be insisted upon. Margin: 15% Coverage under Credit Guarantee Fund for Micro
Units (CGFMU) is compulsory. Repayment may be fixed in monthly/ quarterly instalments. Loan term is 9 years
for tractors
7. Financing to Cold Storages
Purpose:
Term Loan: Construction & maintenance of cold storage units. Cash Credit Facility/: To meet the working capital
requirements of cold storage units for onward lending to the farmers who have stored their agriculture
commodities with them (provided 100% collateral security is available) and for agriculture commodities belonging
to cold storage owner.
Quantum of finance:
Term Loan: Based on Project cost. Working Capital: Cash budget method to assess the working capital
irrespective of limits.
Margin:
Term Loan: 25% (Minimum) Working Capital (OD): 30% (Min)

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Security Norms
Hypothecation of assets created out of Bank Finance, Mortgage of land & building of the Cold Storage
Repayment Period:
Term Loan: Up to 9 Years including maximum holiday period of 2 Yrs.
Cash Credit: To be Renewed Annually / Reviewed Half yearly.
Wherever limit is arrived based on cash budget method, seasonal sub limits may be fixed based on the season
and commodity
Overdraft: To be Renewed Annually / Reviewed Half yearly
Other important points
Target Group &Eligibility Individuals, group of individuals, association of persons, Cooperatives, firms,
companies etc., having necessary skills, capacity and aptitude to undertake the activity.
Economic size of unit
5000 MT capacity unit is considered as viable (70:30 utilization of the capacity for rentals and own use).No
minimum capacity stipulations for projects of Governments/ Government owned corporations
8.Dairy Loan
Purpose:
Term Loan: For setting up of Dairy unit (Purchase of high yielding Milch Animals, Construction of Shed,
Purchase of Equipments, Cultivation of Green Fodder, Initial Concentrate feed during first
month of lactation).
Cash Credit: To meet short term working capital requirements (Feed, labour, Veterinary aid etc) under KCC
Animal Husbandry model.
Quantum of finance:
Term Loan: Based on Unit cost fixed by NABARD / individual project cost.
Cash Credit: Limit to be arrived based on Scale of Finance fixed by DLTC.
Mudra: Term Loan or Working capital up to maximum of Rs.10.00 lakhs.
Margin: For Limit up to Rs.1.60 Lakhs – NIL -
Limit above Rs.1.60 Lakhs – 15% to 25% of project cost. Under MUDRA: Shishu – Nil, Kishore – 10%, Tarun -
15%
Repayment Period: Term Loan: Maximum 72 months including gestation period of 1 month.
Cash Credit: The Loan will be in the nature of Revolving Cash Credit limit. The entire cash generated to be
routed through Cash Credit account only.
Other Important points
Processing fee Term Loan:
Upto Rs. 25000/- : NIL above Rs. 25000: 0.50% of the limit sanctioned.
Working Capital:
Upto Rs. 25000: NIL Above Rs. 25000/- up to Rs. 50 Lakh: Rs. 250 per lakh or part thereof
Min. of Rs. 250 Above Rs. 50 Lakh: Rs. 350 per lakh or part thereof.
9. Farmers Producer Companies (FPCs / FPOs)
Purpose:
Term Loan: For acquiring farm machinery, equipment’s, refrigerated vehicles, transport vehicles and any other
implements/machinery required for cultivation, production, processing and post-harvest processes etc.
Construction of storage godown or any other structure utilised for the common use of the FPC for productive
purpose. Cash Credit: To meet the crop cultivation expenses / procurement of farm produce of farmer members
and working capital needs of FPCs in the value addition process of farm produces.
Quantum of finance:
Term Loan: 85% of the project cost may be financed subject to compliance of other lending norms / guidelines.
Cash Credit: As per scale of finance for the cultivable area to meet the crop cultivation expenses of member
farmers. Turn Over method will be applicable for assessment of working capital limit as applicable to Small and
Medium Enterprises (SME) loans, if Working Capital (WC) is requested for value addition/ processing Rs 100.00
lakh. Maximum loan quantum to the FPO/FPC (excluding Term Loan for creation of immovable assets) should
not exceed 10 times of Net Owned Funds (NOF)/Tangible Net Worth (TNW) for the working capital beyond Rs
100.00 lakh.

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Margin
Term Loan : 15% of the project cost.
Working capital : 15% of the assessed amount
Repayment Period:
Term Loan: To be repaid within a maximum period of 5 years based on CASH FLOW/Income generation
Working capital: For working capital / running limit tenable for a period of 12 months, renewable every year.

Other Important points

Term Loan, Cash Credit & Composite Loan to New or existing FPC Maximum limit is Rs. 100.00 Lakhs.

10.Agri Clinic and Agri Business Centres (ACABC)

Purpose:
To create gainful self-employment opportunities to unemployed Agricultural graduates, Agricultural Diploma
holders, intermediate in Agriculture and Biological science graduates with PG in Agri-related courses
Quantum of finance:
Ceiling of project cost for subsidy is Rs.20.00 lakhs for an individual project (Rs.25.00 lakhs in case of extremely
successful individual projects) and Rs.100 lakhs for a group project.
Margin:
Upto Rs. 5.00 lakhs – No margin.
Above Rs. 5.00 lakhs - 15% of the project outlay.
Security Norms
Limits up to Rs.5 lakhs - Assets created out of Bank loan. Limits above Rs.5.00 lakhs - Assets created out of
Bank loan, Third Party Guarantee, Mortgage of properties covering at least 100% of the loan amount
Repayment Period:
Repayment period will depend on the nature of activity and will vary between 5 to 10 years including a maximum
moratorium period of 2 years
11.Star Agro Mills Scheme (Rice Mill, Dhal Mill, Oil Mill & Flour Mill)
Purpose :
For acquisition of new machinery / factory building / modernization and Working capital needs.
Quantum of finance:
Term loan: Based on Project cost
Working Capital: As per Credit Policy guidelines. Limits Upto Rs. 5.00 Crores - Turnover method Limits above
Rs. 5.00 Crores - MPBF II Method / Cash Budget Method.
Margin
Term Loan: 25% for new machinery and 30% for landed property and building
Working capital:
1. Stocks of goods
For Limits less than Rs. 1 Crore – 20%
For Limits Rs. 1 Crore & above – 25%
2. Book Debts – 25% (upto 90 days duration) Repayment
Term Loans – Upto 7 Years with maximum holiday period of 12 months.
Working capital: One year with yearly renewal.
Other Important points
Eligibility:
For New Units: Satisfactory promoters’ track record, group affiliation and viable project for new units.
For Existing Units: Consistent Net profit making units for a minimum period of two years
Implemented as Pan India Cluster scheme.
RAM rating / Scoring model is mandatory depending on the credit exposure and entry level rating as per Credit
policy as below should be complied with. In case of accounts with credit exposure below Rs. 1.00 Crore, BBB
grade as per scoring model. In case of accounts with credit exposure of Rs. 1.00 Crore and above, Combined
Rating BBB as per RAM rating model.

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12.Food and Agro Processing
Purpose:
For processing and preserving of Fruits, Vegetables, Meat, Fish, crustaceans and molluscs. Manufacturing of
vegetable, animal oils and fats. Manufacturing of dairy products. Manufacturing of grain mill products, starches
and starch products. Manufacturing of animal feeds. Manufacturing and processing of other Food and Agro
products.
Quantum of finance:
Term loan: Based on Project cost
Working Capital: As per Credit Policy guidelines.
Limits Upto Rs. 5.00 Crs - Turnover method limits above Rs. 5.00 Crs - MPBF II Method / Cash Budget Method.
Margin
Term Loan: 25% for new machinery and 30% for landed property and building.
Working capital:
1. Stocks:
For Limits less than Rs. 1 Crore – 20%
For Limits Rs. 1 Crore& above – 25%
2. Book Debts – 25% (upto 90 days duration)
Repayment for commercial activity is to be fixed based on life cycle of the project, on the cash flows, on
ballooning basis, or as bullet payment or in EMI. Term Loans – Maximum repayment period allowed is 15 years.
Working capital: One year with yearly renewal.
Other Important points
Processing fee
Term Loan:
Upto Rs. 25000/- : NIL
Above Rs. 25000: 0.50% of the limit sanctioned
Working Capital:
Upto Rs. 25000: NIL Above Rs. 25000/- up to Rs. 50 Lakh: Rs. 250 per lakh or part thereof Min. of Rs. 250
Above Rs. 50 Lakh: Rs. 350 per lakh or part thereof.
13. IB Rooftop Solar Light Scheme
Purpose
To Purchase and Installation of MNRE approved off grid Models of Solar Photovoltaic Lighting Systems upto
5,000 Wp from MNR Empanelled manufacturers, including electrification and necessary accessories. Solar
Photovoltaic Systems by domestic consumers from suppliers/ manufacturers/ installers, empanelled with State
Government, is also permitted.
Quantum of finance:
Up to 80% of the project cost (including subsidy if any). Project cost should be in accordance with the cost as
prescribed by MNRE/StateGovt. From time to time. For grid connected systems, quantum of loan shall be as
prescribed by state government
Margin:
20% of the project cost. 10% of the project cost in addition to the subsidy, if available.
Repayment Period:
Maximum of 5 years.(For loans eligible for subsidy, repayment should be minimum 3 years)
Other Important points
Loans upto 10.00 lakhs will be treated as priority sector advances.
Security:
For loans Upto Rs. 1.6 lakh: Hypothecation of equipment’s purchased out of bank loan.
For loans above Rs. 1.6 lakh and Upto Rs. 5 lakh: Hypothecation of equipment’s purchased out of bank loan and
suitable third party guarantee.
For loans above Rs. 5 lakh: Hypothecation of equipment’s purchased out of bank loan and tangible collateral
security like EM of non-Agri land/ building/ FD of our bank or similar securities

117
 CHECK YOUR PROGRESS

1. Bumper Agri Jewel Loan shall be extended as Short Term Loan Up to ------ months
a. 12 months
b. 9 months
c. 6 months
d. 3 months
_________________________________________________________________________________________

2. What is eligible amount for first dose credit assistance to SHGs

a. 6 times of the existing corpus or minimum of Rs 100000/- whichever is higher
b. 8 times of the existing corpus or minimum of Rs 200000/- whichever is higher
c. Minimum of Rs 3 lakhs
d. Minimum of Rs 5 lakhs
_________________________________________________________________________________________

3. What is the Maximum loan limit that can be extended to Farmers Producer Companies?
a. Rs.10 lakhs
b. Rs.25 lakhs
c. Rs.50 lakhs
d. Rs.100 lakhs
_________________________________________________________________________________________

4. For Agri Term loan component, What is the margin to be insisted for loan limit above Rs.1.60 lakh?
a. 5 % to 10%
b. 10 % to 15%
c. 15 % to 25%
d. Margin not required
_________________________________________________________________________________________

5. No collateral Security is required for KCC Loan upto Rs……….

a. 50000
b. 100000
c. 150000
d. 160000
_________________________________________________________________________________________

6. The maximum amount of KCC loan and the extent of land holding permitted under oral lease is-----------
a. Rs.160000 5 acres
b. Rs.100000 2.5 acres
c. Rs.75000 5 acres
d. Rs.50000 2.5 acres

118
7. What is the minimum land holding for financingTractor & other Farm Machinery
a. 4 acres of irrigated land (or) 8 acres of unirrigated land
b. 2 acres of irrigated land (or) 4 acres of unirrigated land
c. 3 acres of irrigated land (or) 6 acres of unirrigated land
d. 5 acres of irrigated land (or) 10 acres of unirrigated land
_________________________________________________________________________________________

8. JLG is a group of _________ members

a. Four to Ten
b. Six to ten
c. Ten to Twenty
d. Fifteen to Twenty
_________________________________________________________________________________________

9. This is the unique PAN India Cluster Scheme in Agriculture in our bank
a. KCC Scheme
b. IB Star Agro Mills Scheme
c. Poultry Scheme
d. SHG Lending
_________________________________________________________________________________________

10. Branch can extend loan upto Rs………. Lakhs to SHGs

a. Rs.2 lakhs
b. Rs.5 Lakhs
c. Rs.10 Lakhs
d. Rs.7.50 lakhs
_________________________________________________________________________________________

ANSWERS

1. C 2. A 3. D
4. C 5. D 6. D
7. A 8. A 9. B
10.C

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 18. RETAIL LENDING

S. NO. 1 Product : IB Clean Loan to Salaried Class Scheme (IBCLS)

Margin : NIL

Quantum of Loan Eligible

 Maximum is 20 times of gross monthly salary

Maximum Repayment period : 84 months

Other Important points

 Minimum CIBIL score should be 700. Minimum NTHP - 40 % MINIMUM AGE - 21 YEARS
 minimum service / experience of two years with Govt./Quasi – Govt./Boards / Endowments /
MNCs / reputed companies / Corporate / Industrial Establishments/ reputed Private Sector^ /
other reputed organizations etc.

S.No. 2 Product : IB Pension Loan Scheme

Margin : NIL

Quantum of Loan Eligible

 Maximum 15 times of monthly pension credit with no maximum cap

 Maximum 12 times of monthly pension credit subject to maximum Loan amount of Rs.2 lakhs.

Maximum Repayment period : Maximum repayment period up to 10 years or maximum exit

age of 78 years for Regular pensioner and maximum exit age of 73 years for family pensioner
whichever is earlier

Other Important points

 In case of Family Pensioners –

income (i.e., not less than the pensioner’s income) should be obtained along with proof of
income i.e Latest salary certificate or latest Form 16 or latest IT assessment order No cap on
minimum loan amount for both regular and family pensioners.

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S.No. 3 Product : Vehicle loan

Margin : 2 W :15%
4 W New - 15 %
4 W - used - 20 -40%

Quantum of Loan Eligible

 Salaried - 48 TIMES and Pensioner - 36 times and business and P &SE - 3 times of annual
income (AVG)
2 W: Max 5 lakhs
4 W: Max 200 lakhs

Maximum Repayment period :

 2 wheeler - 60 months
 New 4 wheeler - 84 months

Other Important points

 Minimum Rs. 25000 gross monthly income is required for four wheeler minimum service /
experience of two years for 4-wheelers

S.No. 4 Product : IB RENT ENCASH SCHEME

Margin : 10-30% for Govt, MNC BBB rating All other cases - 20-40 %

Quantum of Loan Eligible

Minimum- 1 lakhs
Maximum- 500 lakhs
No. of times of Rent: MAX: 120 Months – for Category “A” Lessees
84 Months – for Category “B” Lessees

Maximum Repayment period :

120 months - A category
84 months - B category

S.No. 5 Product : Ind Mortgage Loan Scheme

Margin : 40 % RSV in Tier I, II cities 50 % - other places

Quantum of Loan Eligible

 Minimum :5 lakhs
 Maximum:1000 lakhs
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Maximum Repayment period : 120 MONTHS

Other Important points

 1000 lakhs for business class customers and 200 lakhs for salaried class in Tier 1, 2 cities.
Exclusive property is needed, extension of existing securities is not permissible.

 Maximum: Rs.200.00 lakhs: if the property is situated in all other centres other than Tier I / II
HUF - NO LOAN. Branches upt Scale 4 - administrative clearance for CRE proposals

S.No. 6 Product : IB Home Loan

Margin : 10 % - upto 30 lakhs

20 % - 30-75 lakhs
25% - more than 75 lakh

Quantum of Loan Eligible

Salaried Class, Businessmen, Professional and Self-employed people - who have put in a
minimum period of confirmed service / experience of 3 years as per project cost as per discretionary
power

Maximum Repayment period : 30 years (max) subject to exit age.

Other Important points

Quantum of loan - customer age - less than 45 years - 72 time x gross mothly income (GMI)
for salaried class and 6 times of gross annual income (GAI)for others.
customer age more than 45 years - 60 x GMI for salaried class and 5x GAI for others. If husband and
wife are of different age - take average. Net Take Home Pay (NTHP )- 40 % must for GAI upto 15 lakhs
and GAI - >15 lakhs - 30% NTHP but take home pay is minimum 6 lakhs. HUF not permitted to avail
any loan

S.No. 7 Product : Home loan - repair and renovation

Margin : 30%

Quantum of Loan Eligible

as per project cost

as per discretionary power - 300 lakhs maximum

Maximum Repayment period : 120 Months

Other Important points

Quantum of loan - customer age - less than 45 years - 72 time x gross mothly income (GMI)
for salaried class and 6 times of gross annual income (GAI)for others.
customer age more than 45 years - 60 x GMI for salaried class and 5x GAI for others. If husband and
wife are of different age - take average. NTHP - 40 % must for GAI upto 15 lakhs and GAI - >15 lakhs -
30% NTHP but take home pay is minimum 6 lakhs. HUF not permitted to avail any loan

122
S.No. 8 Product : NRI HOME LOAN

Margin : 10 % - upto 30 lakhs

20 % - 30-75 lakhs
25% - more than 75 lakh

Quantum of Loan Eligible

as per discretionary power -

NRIs gainfully employed abroad (who have put in a minimum period of confirmed service / experience
of 2 years

Maximum Repayment period : max. 20 years

Other Important points

 Compulsory Embassy /abroad notary /competent authority attestation required for all
documents, salary slips, statements

 Quantum of loan - customer age - less than 45 years - 72 time x gross mothly income (GMI)
for salaried class and 6 times of gross annual income (GAI)for others.customer age more than
45 years - 60 x GMI for salaried class and 5x GAI for others. If husband and wife are of
different age - take average. NTHP - 40 % must for GAI upto 15 lakhs and GAI - >15 lakhs -
30% NTHP but take home pay is minimum 6 lakhs. HUF not permitted to avail any loan

S.No. 9 Product : Plot loan

Margin : 25%

Quantum of Loan Eligible

Rural area -100 L Semi Urban - 200 L Urban – 600L Metro -1200 L

Maximum Repayment period : 180 EMI, no holiday period.

Other Important points

 Quantum of loan - customer age - less than 45 years - 72 time x gross mothly income (GMI)
for salaried class and 6 times of gross annual income (GAI)for others.customer age more than
45 years - 60 x GMI for salaried class and 5x GAI for others. If husband and wife are of
different age - take average. NTHP - 40 % must for GAI upto 15 lakhs and GAI - >15 lakhs -
30% NTHP but take home pay is minimum 6 lakhs. HUF not permitted to avail any loan

123
S.No. 10 Product : Home improve

Margin : 15%

Quantum of Loan Eligible

 36 TIMES OF GROSS MONTHLY INCOME subject to a maximum of 300 lakhs

Maximum Repayment period : 120 months

Other Important points

 Quantum of loan - customer age - less than 45 years - 72 time x gross mothly income (GMI)
for salaried class and 6 times of gross annual income (GAI)for others.customer age more than
45 years - 60 x GMI for salaried class and 5x GAI for others. If husband and wife are of
different age - take average. NTHP - 40 % must for GAI upto 15 lakhs and GAI - >15 lakhs -
30% NTHP but take home pay is minimum 6 lakhs. HUF not permitted to avail any loan

S.No. 11 Product : Home advantage

Margin : 10 % - upto 30 lakhs

20 % - 30-75 lakhs
25% - more than 75 lakh

Quantum of Loan Eligible

 Up to 10% of the Home Loan Limit can be released only after one year of satisfactory conduct
of the account from the date of commencement of repayment is 20% of home loan after 2
years of repayment 30% of home loan after 3 years of repayment

Maximum Repayment period : upto home loan tenure

Other Important points

 ext. of EM is not mandatory if within overall home loan limit

 Quantum of loan - customer age - less than 45 years - 72 time x gross mothly income (GMI)
for salaried class and 6 times of gross annual income (GAI)for others.customer age more than
45 years - 60 x GMI for salaried class and 5x GAI for others. If husband and wife are of
different age - take average. NTHP - 40 % must for GAI upto 15 lakhs and GAI - >15 lakhs -
30% NTHP but take home pay is minimum 6 lakhs. HUF not permitted to avail any loan

124
S.No. 12 Product : Home ENRICH

Margin : 30%

Quantum of Loan Eligible

1 lakh
10 lakhs

Maximum Repayment period : 10 Years

Other Important points

 No EM needed

 Quantum of loan - customer age - less than 45 years - 72 time x gross mothly income (GMI)
for salaried class and 6 times of gross annual income (GAI)for others.customer age more than
45 years - 60 x GMI for salaried class and 5x GAI for others. If husband and wife are of
different age - take average. NTHP - 40 % must for GAI upto 15 lakhs and GAI - >15 lakhs -
30% NTHP but take home pay is minimum 6 lakhs. HUF not permitted to avail any loan

S.No. 13 Product : IB HOME LOAN PLUS

Margin : 10 % - upto 30 lakhs

20 % - 30-75 lakhs
25% - more than 75 lakh

Quantum of Loan Eligible

Minimum -1 LAKHS
Maximum - 60 LAKHS

Maximum Repayment period : 120 months, no holiday period

Other Important points

 Extension of EM on the house property. Registration of MOTD where applicable. Maximum 2

homeloan plus

 Quantum of loan - customer age - less than 45 years - 72 time x gross mothly income (GMI)
for salaried class and 6 times of gross annual income (GAI)for others.customer age more than
45 years - 60 x GMI for salaried class and 5x GAI for others. If husband and wife are of
different age - take average. NTHP - 40 % must for GAI upto 15 lakhs and GAI - >15 lakhs -
30% NTHP but take home pay is minimum 6 lakhs. HUF not permitted to avail any loan

125
S.No. 14 Product : IND AWAS YOJANA

Margin : 10 % - upto 30 lakhs

20 % - 30-75 lakhs
25% - more than 75 lakh

Quantum of Loan Eligible

EWS – Income upto 3 lakhs salary - 15 lakhs or 5 times of anuual income

LIG persons – (Income of > 3 Lakhs to 6 Lakhs) - 5 times of Annual income with a maximum of 30
lakhsMIG -1(Income of >6 Lakhs to 12 Lakhs) - 5 times of income max of Rs. 60 lakhs MIG 2 (Income
of >12 Lakhs to 18 Lakhs)-5 Times of income or Rs. 90 lakhs

Maximum Repayment period : 30 years for Residents and 20 years for NRIs

Other Important points

 Int. subvention applicable for EWS/LIG is upto 6 lakhs loan amt, MIG- 1 – up to 9 Lakhs and
MIG - 2 – up to 12 lakhs loan amount.

 Maximum Carpet Area permitted

EWS – 30 Sq. Mt
LIG- 60 Sq. Mt
MIG-I - 160 Sq. Mt
MIG-II Upto 200 sq.mt

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 CHECK YOUR PROGRESS

1. In the case of IB Clean loan to salary class, the maximum loan eligiblity is ______times of gross monthly
salary
a. 24
b. 30
c. 20
d. 15
_________________________________________________________________________________________

2. In the case of IB Clean loan to salary class, minimum Cibil score should be
a. 600
b. 650
c. 700
d. 750
_________________________________________________________________________________________

3. In the case of IB Pension loan scheme, maximum repayment period is

a. 5
b. 10
c. 7
d. 3
_________________________________________________________________________________________

4. In the case of IB Vehicle loan for Four wheelers, the minium gross monthly income should be
a. 15000
b. 20000
c. 25000
d. 30000
_________________________________________________________________________________________

5. In case of IB Rent encash scheme, the minimum loan amount that can be sanctioned is
a. Rs. 1 lakhs
b. Rs. 2 lakhs
c. Rs. 5 lakhs
d. Rs. 10 lakhs
_________________________________________________________________________________________

6. In the case of IB Ind Mortgage loan scheme a margin of_________% reliasable sale value (RSV) is required
in Tier I & II cities
a. 50
b. 30
c. 25
d. 40

127
7.In the case of IB Home loan for residents, maximum quantum of loan for customers age less than 45 years is
____times gross monthly income for salaried customers
a. 72
b. 60
c. 84
d. 48
_________________________________________________________________________________________

8. In the case of IB Home loan for repairs and renovation, the maximum loan sanctioned is
a. 500 lakhs
b. 400 lakhs
c. 200 lakhs
d. 300 lakhs
_________________________________________________________________________________________

9. In the case of NRI Home loan, NRIs gainfully employed abroad for a minimum period of ____years are
eligible
a. 1
b. 2
c. 3
d. 4
_________________________________________________________________________________________

10. In the case of IB home loan plus, the holiday period is permitted is
a. Nil
b. 3 months
c. 6 months
d. 12 months
_________________________________________________________________________________________

ANSWERS

1. C 2. C 3. B
4. C 5. A 6. D
7. A 8. D 9. B
10.A

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 19. Different Types of Charges in Bank

What is Creation of Charge?

Banks extend credit facilities/Loans/Advances against security, which cannot remain in the custody of
the banks unlike gold or marketable security in physical form. The security obtained by the bank may
fall in two categories, viz. Primary and Collateral. The securities obtained by the bank are of two
classes viz. Tangible and Intangible.
While the security may not always remain with the lender/bank, as per the prevalent law, bank may be
required to create appropriate charge over the underlying security and let it remain in the custody of the
borrower with certain conditions, such as submission of periodic statement of assets hypothecated, list
of machinery hypothecated/pledged etc. A mere statement by the borrower that these are available to
the bank in case of need will not suffice. The intent of the borrower should be legally backed. This
process is known as creating charge on securities. Banks must be clear of all the applicable laws and
procedures for creating a charge.

What is a Fixed Charge?

If a debt is subject to a fixed charge, the borrowing will be secured against a substantial and identifiable
physical asset such as land, property, vehicles, plant and machinery. If the business is unable to keep
to the terms of the finance agreement, the lender will take charge of the asset and look to sell it in order
to recoup the money it is owed.

Fixed Charge over Assets

When a lender has a fixed charge, it effectively has full control over the asset the charge applies to. If
the business wants to sell, transfer or dispose of the asset, it will have to get permission from the lender
first or pay off the remaining debt. It’s also important to note that a fixed charge gives the lender a
higher position in the queue than a floating charge for the repayment of the debt in the event of the
borrower’s insolvency.
A common example of a fixed charge in practice can often be seen in factoring or invoice discounting
facilities. In this type of arrangement, the finance provider buys a business’s outstanding invoices and
lends money against them. The debtor book is then subject to a fixed charge, which means the
business’s invoices effectively belong to the finance provider and not the company.
Examples of financial arrangements that are commonly subject to a fixed charge include:

 Mortgages
 Leases
 Bank loans
 Invoice factoring arrangements.

What is a Floating Charge?

A floating charge applies to assets with a quantity and value that can change periodically, such as
stock, debtors and moveable plant and machinery. It gives the business much more freedom than a
fixed charge because the business can sell, transfer or dispose of those assets without seeking
approval from the lender or having to repay the debt first.

129
From the lender’s point of view, a floating charge leaves it more exposed than a fixed charge because
the value of the assets can and will change over time. However, it’s not possible to attach a fixed
charge to every company asset, which is why floating charges are used.

Crystallization
Floating charges essentially ‘float’ above changing assets and only become fixed charges, a process
known as ‘crystallisation’, in the following circumstances:
 The company defaults on the repayment and the lender takes action to recover the debt.

 The company is about to be wound up.

 The company appoints the receiver.

 The company will cease to exist in the future.

Where do Fixed and Floating Charges Rank for Repayment in Insolvency?

Both fixed charge and floating charge holders are classed as secured lenders but they take priority over
unsecured creditors who must wait until all other costs and creditors have been paid before they
receive any of the money they are owed.

Hierarchy in priority of charges

1. The liquidator’s fees and expenses

2. Secured creditors with a fixed charge

3. Preferential creditors (typically employees with wage arrears)

4. Secured creditors with a floating charge

5. Unsecured creditors

Types of Securities and Creation of Charges thereon:

The following are the methods usually resorted to by the banker for the purpose of creation of charge.
The method to be selected amongst other is also dependent on the nature of the securities offered:
Pledge Hypothecation Lien Set off
Appropriation Assignment Mortgage

Lien
It is the right, of (say the banker) to retain all securities of the customer in respect of the general
balance due from the customer (Section 171 of Indian Contract Act, 1872). The ownership of such
securities is not transferred to the Bank. The Bank gets the right to retain the securities handed over to
it in its capacity as Lender/Banker.

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Set off
A set-off clause is a legal clause that gives a lender the authority to seize a debtor's deposits when they
default on a loan. Set-off clauses give the lender the right of setoff—the legal right to seize funds from
the debtor or a guarantor of the debt.

Appropriation
As per this, a specific directions/right is given to the creditor as to how to appropriate any payment
received by him from his debtor.

Assignment
It means transfer of a right, property or a debt - existing or future-to another person. The transferor is
called the ‘assignor’ and the transferee the ‘assignee’. In banking, the usual subject of assignment is
“actionable claims”, which means a “claim to any debt other than a debt secured by mortgage of
immovable property or by hypothecation or pledge of movable property or to any beneficial interest in
movable property not in the possession, either actual or constructive, of the claimant, which the civil
courts recognize as affording grounds for relief, whether conditional or contingent.
The borrower may assign to the Banker: (1) the book debts (2) money due from Government
department or Semi-Government Organizations and (3) Life Insurance Policies.

Pledge
Section 172 of Indian Contract Act, 1872 defines pledge as Bailment of goods as security for payment
of a debt or performance of a promise. In case of pledge, the ownership lies with the borrower, but the
possession is with the bank.
There are two important aspects of pledge.
Bailment of goods: - Bailment as delivery of goods from one person to another for some
purpose or condition that the goods will be returned back when the purpose is accomplished.
So, delivery of goods and its return are the two important requisites of bailment.
Objective:- Its objective is to hold the goods as security for payment of a debt or performance
of a promise.
A pledge may be in respect of goods, stocks, shares, documents of title to goods and any other
movable property, but safe custody is not pledge, even though there is bailment of goods.

Hypothecation
It is described as a charge against property for an amount of debt where neither ownership nor
possession is passed over to the creditor. The goods remain in possession of the borrower and are
equitably charged to the creditor under an agreement with a binding to give possession of the goods to
the Banker when called upon to do so. After the possession is handed over to the Banker, the charge is
converted from hypothecation into pledge. Hypothecation is now the most popular form of charge over
movable assets when transfer of possession is inconvenient or impractical. For the sake of
convenience of the debtor, the goods are allowed to be held by him in trust for the purpose of carrying
out his business. A floating charge is thus created over the goods.

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Mortgage
It is a charge in respect of an immovable property. Section 58 of Transfer of Property Act defines
mortgage as transfer of an interest in specific immovable property for the purpose of securing payment
of money, advanced or to be advanced by way of loan, existing or future debt or performance of an
engagement which may give rise to a pecuniary (financial) liability.
Characteristics of Mortgage:
1. It is a transfer of interest in the specific immovable property and not transfer of ownership.

2. If there is more than one co-owner, every co-owner can mortgage his share.

3. The property to be mortgaged must be specific i.e. it is described and identified by its location,
size, boundaries etc.;

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 CHECK YOUR PROGRESS

1. Which of these is a type of security to be obtained by a Bank?

a. Primary Security
b. Secondary Security
c. Assignment
d. Pledge
_________________________________________________________________________________________

2. When a lender has a fixed charge over an asset, it means it has……….over the asset.
a. Full control
b. Partial control
c. No control
d. None of these
_________________________________________________________________________________________

3. Which type of charge is created in case of mortgage?

a. Floating Charge
b. No charge
c. Partial charge
d. Fixed Charge
_________________________________________________________________________________________

4. A charge which applies to assets with a quantity and value that can change periodically is called……
a. Mortgage
b. Fixed Charge
c. No such charge
d. Floating charge
_________________________________________________________________________________________

5. Floating charges float above changing assets and become fixed charges after ………
a. Certain period
b. Never
c. Default is reported
d. Crystallisation
_________________________________________________________________________________________

6. Which of these is/are type/s of charges?

a. Pledge
b. Hypothecation
c. Mortgage
d. All of these
__________________________________________________________________________________

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7. Which type of charge is created over LIC Policies?
a. Pledge
b. Assignment
c. Mortgage
d. No charge possible
_________________________________________________________________________________________

8. In case of pledge, the ownership lies with whom?

a. the borrower
b. the lender
c. Both
d. None
_________________________________________________________________________________________

9. A charge against property for an amount of debt where neither ownership nor possession is passed over to
the creditor is called……
a. Assignment
b. Hypothecation
c. Set off
d. Lien
_________________________________________________________________________________________

10. Mortgage is defined under which act?

a. Contract Act
b. Negotiable Instrument Act
c. Transfer of Property Act
d. None of these
_________________________________________________________________________________________

ANSWERS

1. A 2. A 3. D
4. D 5. D 6. D
7. B 8. A 9. B
10.C

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 20. Credit Monitoring
Deposit makes the banking POSSIBLE, Lending makes PROFITABLE and NPA makes
PERISHABLE

WHAT IS CREDIT MONITORING?

 Credit monitoring can be defined as a supervision of a loan account on an ongoing basis
keeping a continuous watch/ vigil over the functioning of a borrower’s unit to confirm that the
account conform to the various assumptions made at the time of sanction
 In other words credit monitoring is to maintain asset quality of the Bank.

NEED FOR CREDIT MONITORING

 Prevention is better than cure;
 To avoid slippage of accounts into NPA;
 To ensure end use of funds;
 To ensure compliance of terms of sanction;
 Banking depends on projections, assumptions, estimates, hence monitoring of advance is
essential;
 A good sanction can become bad if not properly disbursed & supervised;
 Credit monitoring has become most important in view of system driven NPAs & growing NPAs;
 To guard against the human tendency to deviate from the stipulated terms in case of necessity
, which , in particular, exists in case of advances.

OBJECTIVES OF CREDIT MONITORING & FOLLOW UP

 Timely credit delivery (i.e. Disbursement of loan) after compliance of laid down procedures &
sanctioned terms & conditions with due precautions.
 To ensure that standard Accounts continue to remain Standard & do not slip to NPAs i.e.
prevention.
 Timely identification of stressed assets & taking appropriate corrective measures to arrest them
from slipping.
 To avoid unacceptable slippages by observing early warning signals meticulously and putting in
place the required corrective measures in time.

WHEN DOES THE CREDIT MONITORING START?

 Credit monitoring starts from the moment the possibility of a new advance is visualized.
 The principles of good lending, identifying genuine borrower, and availability of adequate
security, collectively known as due diligence are of paramount importance for credit monitoring.

PRE SANCTION STAGE

 Complete and proper Application Form along with supporting documents;
 Interview with the Borrower/Guarantor;
 Inspection of borrower’s residence, work place, guarantor’s place;
 Inspection of the immovable property, ( if proposed). Mortgaged property to be inspected by
two officers, Keeping in mind the advocate’s/valuer’s findings;
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  Due Diligence: PAN/ITR/CIBIL/CERSAI/ROC/RBI/ECGC Defaulter’s list;
 Due diligence exercise from outside agencies;
 Balance sheet ( if applicable-Audited);
 Full KYC documents;
 Collection and scrutiny of required data;
 Existing Bank Statement/ Status of account etc;
 Study of Pre-sanction inspection & mortgage property visit/inspection report;
 Study and approval of Search/Valuation report;
 Credit Rating Exercise( In applicable Models);
 To read the process note minutely for going through the terms and conditions stipulated
 Processing of application , preparation of proposal, keeping in mind various Govt. policies,
Directives, norms and prescribed guidelines

PRE DISBURSEMENT STAGE

 Preparation of proposal in prescribed format and sanction thereof at appropriate level;
 Issuance of sanction letter conveying all terms and conditions and acceptance of terms &
conditions of sanction by the borrower;
 Recovery of Charges;
 Obtaining/ Scrutiny of Legal Opinion Report and Valuation Report
 Proper documentation (including check list);
 Creation of Mortgage charge and its registration with the Sub Registrar; processing thereof
 Charges to be registered with ROC in respect of company account; processing thereof
 Execution of proper security document including creation of mortgage as per sanction terms;
 Vetting of security documents by panel advocate as applicable;
 Online Registration of Equitable Mortgage with CERSAI ( Central Registry of Securitisation
Asset Reconstruction & Security Interest of India) under SARFAESI act within 30 days
 Correct data entry-account opening ( Recording of documents);
 Safe keeping of documents;

DURING DISBURSEMENT STAGE

 Loan Accounts/Cash credit
 Margin-Upfront, Source of margin – Un secured Loan/capital, Status report on the
suppliers
 Direct disbursement to suppliers/ service providers. Cash disbursement to be kept
minimum, Verification of end use of funds through inspection, records, books of
accounts etc.
 Implementation certificate from approved Architect/ Valuer & Certificate from
company’s statutory Auditors about cost incurred on project
 Compliance with terms of sanction, Stock/Book debts inspection
 Completion of project & readiness to commence commercial activity
 The disbursement should commensurate with the progress of the project/ business activity ,
also taking into account the extent of margin brought in by the promoters up to a given point of
time.

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  We should understand that sanction of facilities is not a commitment in isolation to extend
funds to the borrower under all circumstances. It is only a financial contract to make fund
available for due performance of various business objects and goals set out in his proposal.
 While releasing the facility ensure that sanction has not expired. Delay may happen due to non
compliance of many terms and conditions. Revalidate the sanction if it is expired.

POST DISBURSEMENT
IMMEDIATE
 Compliance of various Post disbursement conditions, ROC, CERSAI, MOD within 30 days.
 Fresh search report to be obtained from ROC, Verification of end use of funds immediately
after disbursement by carrying out Post Sanction Inspection.
 Insurance of charged assets; If account is covered under CGTMSE the relevant information to
be completed.

REGULAR
 Post sanction Inspection – End use verification
 Periodical inspections ( verification of relevant records) and follow up for recovery of overdue ,
if any.
 Obtaining Stock and Book Debts statement and their verification (particularly of Book Debts
which is a major area of concern)
 Follow up & timely review of all accounts, Stock Audit by Chartered Accountants in applicable
cases.
 If PDCs are given ensure these are encashed in time.
 Even when one installment is delayed customer to be reminded politely.
 Obtaining periodical renewal documents, Check TOD/Insurance due etc.
 Insurance for full value & with Bank’s Hypothecation clause
 Bank’s name to be displayed at prominent place of the business.
 Watch category ( Special Mention ) accounts reporting & follow up
 Follow up for timely submission of Audited Financial Statements
 Timely reviewing of the accounts, Timely identification of delinquent accounts and restructuring,
if required
 Verification of Transactions and Turnover in the account.

EARLY WARNING SIGNALS

These are unsatisfactory features showing signs of weakness in the account:
 Poor maintenance of plant & machinery; Lack of planning /poor planning; Apathy of promoters /
owners in running the business;
 Loss of crucial customers; Adverse market reports; Non compliance of post disbursement
terms of sanction;
 Delay in implementation of project and issues relating to commercial production; Unplanned
borrowing for margin contribution.
 Unexpected delay or failure to submit periodic statements such as stock/book debt statements,
CMA, Balance sheets etc./ other papers needed for review of the account

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  Frequent requests for over limit/ additional limit or for extension of time for repayment of
interest/ installments.
 Adhoc/over limit/Bill purchased overdue, overdue export packing credit, LC devolvement and
guarantee invocation.
 Lack of transparency in borrower’s dealings with the Bank/ avoiding to meet bank officials.
 Constant failure or unwillingness to mention unpaid stock in stock statements or age of book
debts in book debt statement.
 Abnormal Variation in estimate /projection of sales during the last quarter.

STRESS INDICATORS
 Delay of 90 days or more in (a) submission of stock statement /other operating/ control
statements / financial statements or (b) non- renewal of facilities based on audited financials.
 Actual sales/operating profits falling short of projections abnormally; or a single event of non-
cooperation/ prevention from conduct of stock audits by banks; or reduction of Drawing Power
abnormally after a stock audit; or evidence of diversion of funds; or drop on internal risk rating
by 2 or more notches in a single review.
 Return of cheques/ electronic debit instructions /bills in 30 days on grounds of non-availability
of balance/ DP in the account.
 Devolvement of Deferred Payment Guarantee (DPG) installments or Letters of Credit (LCs) or
invocation of Bank Guarantee ( BGs) and its non-repayment within 30 days.
 Repeated request for extension of time either for creation or perfection of securities as against
time specified in original sanction or for compliance of any other terms and conditions of
sanction.
 Increase in frequency of overdrawn in the accounts.
 The borrower reporting stress in the business and financials.
 Promoter(s) Pledging/selling their shares in the borrowing company due to financial stress.

PROPOSED ACTION PLAN

 Prevention/Rectification, Restructuring and Recovery are the options available for improving
the overall asset quality.
 Major slippages are due to willful default and diversion / siphoning of funds by the borrowers.
 It could be avoided if there is adequate monitoring of the accounts through regular inspections
and proper scrutiny of operations in the accounts.
 Large cash withdrawal – Ask for justification
 Business related genuine transaction should be allowed. Non business related cheque may be
returned ( by keeping the borrower informed)
 Credit turnover is non commensurate with sales – if it is more than a month- May be they have
opened another account with another bank--Borrower be advised to close the account as per
RBI guidelines.
 A discussion with the borrower could lead to a definite correction path and accounts could be
restored to quality credit assets only by constant alert/attention.
 Constant dialogue with the borrower and/or guarantor to find out ways and means to rectify the
causes that hinder smooth functioning of unit.

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 Advising borrower to focus on core business and stopping his other activities which may be the
reason for poor performance of his core business.
 Exploring additional collateral/ guarantee as also sale of unproductive surplus assets.
 Exploring infusion of more capital in the business as also Exploring recovery of investment
made in sister/group concerns.
 Restructuring , Additional moratorium, additional limit to tide over temporary financial problems
in case of potential viable units.
 Impressing upon the borrowers the need for quick debtor realization by reducing the credit
period/by offering more discount on sales.
 Wherever applicable , carrying out detailed stock inspection/stock audit /receivables audit
through competent outside agency.
 Insisting upon the debtors of the borrower’s company to remit proceeds directly to the Bank
where the book debts are hypothecated to the Bank.
 Recalling the advance & initiating legal action for recovery of Bank’s dues.

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 CHECK YOUR PROGRESS

1. When the credit monitoring actually starts ?

a. When a loan proposal is visualized
b. When the proposal is sanctioned
c. When the proposal is disbursed
d. When the account become NPA
_________________________________________________________________________________________

2. What is full form of NPA?

a. Non performance assessment
b. Non permissible asset
c. Non performing asset
d. Non periodic asset
_________________________________________________________________________________________

3. What is/are impact of NPA on banks?

a. Banks have to keep aside provision to provide cover for these loans
b. BASEL norms requires stringent Capital Adequacy Ratio which increases burden on banks
c. Rising of NPAs will lead to a crisis of confidence in the market
d. All the above
_________________________________________________________________________________________

4. What are the traditional ways to tackle NPAs?

a. Thrust on recovery of loss assets by banks
b. Close watch on NPA by picking up early warning signals and ensuring corrective action
c. Directing state level bankers to be more proactive in resolving issues with state govt
d. All of the above
_________________________________________________________________________________________

5. Which of the following are the legal provisions related to recovery of NPAs?
a. SARFAESI Act
b. Debt Recovery Tribunals
c. Lok Adalat mechanism
d. All of the above
_________________________________________________________________________________________

6. Which of the following RBI has/have suggested?

a. RBI has directed banks to give loans by looking at CIBIL score and is encouraging banks to start sharing
information amongst themselves.
b. RBI has asked banks to conduct sector wise/activity wise analysis of NPA
c. RBI has allowed banks to sell stressed assets to other banks/NBFCs
d. All of the above

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7. Risk is defined as uncertainties resulting in
a. Adverse outcome, adverse in relation to planned objectives or expectations
b. Adverse variation of profitability or outright losses (financial risk)
c. Both (a) & (b)
d. Either a) or b)
_________________________________________________________________________________________

8. Potential of a bank borrower or counterparty to fail to meet its obligations according to agreed terms is called:
a. credit risk
b. default risk
c. market liquidity
d. either (a) or (b)
_________________________________________________________________________________________

9. The features of Credit Risk are:

a. It arises from lending activities of a Bank
b. When Borrower does not pay either interest or principal as and when due for payment.
c. If the loan is demand loan, the Borrower fails to make payment as and when demanded
d. All the above
_________________________________________________________________________________________

10. The features of credit Risk mitigation are:

a. It is a process through which credit Risk is reduced
b. Credit review mechanism techniques reduce credit Risk.
c. Advantage of Risk mitigation must be weighed against the Risk acquired.
d. All the above
_________________________________________________________________________________________

ANSWERS

1. B 2. C 3. D
4. D 5. D 6. D
7. A 8. D 9. D
10.D

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 21 Non Performing Assets (NPA) & Recovery Management

Prudential Norms:-
IRAC Stands for Income Recognition and Asset Classification. It is the rules that prescribe when a
loan should be declared as a non-performing Asset, different classification of assets with NPA,
Provisioning norms for NPA.
RBi guidelines on general provisioning as per IRAC norms vis –a-vis actual practice followed by our
bank on NPA is as of now are mentioned hereunder
It is the guidelines and general norms issued by the regulating bank (the central bank) of the country
for the proper and accountable functioning of bank and bank-like establishment. In other words the
norms are the practices that all banks are expected to follow.
Prudential norms application should be borrower wise not facility or account wise, hence all credit
facilities of a borrower is having uniform asset classification.
An asset may be straight away classified as default/loss asset depending upon the erosion in the
value of securities or non-availability of security. If the realizable value of the security is less than
50% of the value assess by the bank or accepted by RBI at the time of last inspection should be
classified as doubtful and if it is less than 10% of the outstanding as loss asset.
Accounts classified as fraud should be classified as loss asset and full provision made irrespective
of security and date of NPA.
Definitions of NPA
A non-performing asset (NPA) is defined as a credit facility in respect of which:
i. interest and / or installment of principal remain overdue for a period of more than 90 days in
respect of a term loan,
ii. the account remains ‘out of order’ as indicated below, in respect of an Overdraft / Cash Credit (OD/CC),
iii. the bill remains overdue for a period of more than 90 days in the case of bills purchased and
discounted,
iv. the installment of principal or interest there on remains overdue for two crop seasons for short
duration crops,
v. the installment of principal or interest there on remains overdue for one crop season for long
duration crops,
vi. The amount of liquidity facility remains outstanding for more than 90 days, in respect of a
securitisation transaction undertaken in terms of guidelines on securitisation dated February 1,
2006.
vii. in respect of derivative transactions, the overdue receivables representing positive mark-to-
market value of a derivative contract, if these remain unpaid for a period of 90 days from the
specified due date for payment.

Banks should, classify an account as NPA only if the interest due and charged during any
quarter is not serviced fully within 90 days from the end of the quarter.

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 ‘Out of Order’ status:

An account should be treated as 'out of order' if the outstanding balance

remains continuously in excess of the sanctioned limit/drawing power. In
cases where the outstanding balance in the principal operating account is less
than the sanctioned limit/drawing power, but there are no credits continuously
for 90 days as on the date of Balance Sheet or credits are not enough to cover
the interest debited during the same period, these accounts should be treated
as 'out of order'.
Overdue
Anyamount due to the bank under any credit facility is ‘overdue if it is not paid on the due
date fixed by the Bank
Hence an account becomes NPA based on Type of Account when the following situation
arises :
1. Term loan:- Interest or installment of principal remaining overdue for a period of more than 90 days
in respect of a term loan
2. Od/occ:- A/c out of order for more than 90 days
a) Outstanding balance above limit for 90 days
b) No credit for the last 90 days
c) Credits not sufficient to cover interest
d) Irregular, no stock statement for the last 180 days

3. Regular credit limits not reviewed /renewed within 180 days from the due date; adhoc not
regularized within 90days
4. Bill purchased – bills if overdue for more than 90 days even if one bill is classified as NPA, the entire
BP account and all other facilities of the borrower are to be classified as NPA
5. Defaulted guarantee or devolved LC- when it became fund based and remain overdue for 90 days
6. Agriculture loans STPL/MTL-
a) Interest and /or installment remain overdue
i) 2 crop seasons for short duration crops
ii) 1 crop season for long duration crop, on the standard Asset End date
b) Other accounts like allied activities – Amount receivable remains overdue for more than 90 days.

Standard Asset End date:

For short duration crops: Crop period + marketing period+ two crop season+ ex paddy:5+2+24
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(12+12) =31 months
For long duration crop: crop period +marketing period + one crop season= ex sugarcane :
18+2+18=38 months

Migration of Irregular Account into NPA:

Irregular account would have the following phases before classified into NPA
Special Mention Account Zero (SMA 0) :
Accounts where the irregularity remains for the period is zero to 30 days
Special Mention Account 1 (SMA 1) :
Accounts where the irregularity remains for the period is 31 to 60 days
Special Mention Account 2 (SMA 2) :
Accounts where the irregularity remains for the period is 61 to 90 days
Different Type of Asset Classifications within NPA:
Sub Standard:- A substandard asset would be one which has become NPA as per definitions
above & it will be substandard for 12 month from the date of NPA.
Doubtful Assets: An asset would be classified as doubtful if it has remained in the substandard
category for a period of 12 months.
Loss assets: A loss assets is one where loss has been identified by the bank or internal or external
auditors or the RBI inspection but the amount has not been written off wholly.
Migration/slipping of NPA account from one category to another (SS to D-1,D-1 to D-2 and D-2 to D-
3 is purely based on age of NPA.
The classification of an asset as NPA should be based on the record of recovery. Bank should not
classify an advance account as NPA merely due to the existence of some deficiencies which are
temporary in nature such as non-availability of adequate drawing power based on the latest
available stock statement, balance outstanding exceeding the limit temporarily, non-submission of
stock statements and non-renewal of the limits on the due date, etc
NPA Classification –exemptions

i) LOD/NSC/LIC/KVP
ii) SHL/SVL & other staff loans where interest is payable after principal – NPA only when
installment is default.
iii) When A/c is rephrased/restructured before it slips to NPA Category-SMA
Exemption made as per RBI guidelines –agriculture loans due to natural calamities

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 Provisioning for standard Advances
Type of Standard Account Provisions (%)
Direct advances to agriculture & SME 0.25
All other advances 0.40
Commercial real estate projects 1.00
Commercial Real Estate residential 0.75
Housing loans extended at teaser rates 2.00
Any NPA A/c upgraded to standard 2% for first year of upgradation.

Provisioning norms of NPAs

Asset category RBI stipulation Indian Bank Allahabad
Sub-standard Secured- 15% Secured- 15%
Unsecured- 25% Unsecured- 25%
Doubtful up to 1 year Secured- 25% Secured- 25%
Unsecured:- 100% Unsecured:- 100%
Doubtful 1-3 year Secured- 40% Secured- 40%
Unsecured:- 100% Unsecured:- 100%
D3 (more than 3 years) Secured- 100% Secured- 100%
Unsecured:- 100% Unsecured:- 100%
Loss 100% 100%

RBI norms permit Banks to make additional provisions for NPAs at higher than prescribed rates. The
decision of making provision over and above the general regulatory norm was taken by the Bank, over
a period of time so as to build up reserves against possible loss. Such a reserve is being built while the
market conditions are conducive and financials are strong.
Possible Reasons for Standard loan account to become NPA
Internal factors
Inadequacies in due diligence of borrower, machinery vendor, raw material supplier, debtors etc.
Non-verification of all the documents submitted by the borrower with respective authorities including
income tax return, Sales tax return, License arrangements, Bank statement etc.

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Improper analysis of track record of the firm / lack in analysis of industry trend, peer companies,
improper assessment of working capital and Term Loan, non-following up of loan policy, credit risk
policy and other bank guidelines.
Non-monitoring of account turn-over and non-inspection of unit , not discussing with borrower, non-
obtention of stock statement, MSOD, QIS and other follow-up statements and analysis of same.
Lack of credit knowledge of Bank officials.
Improper documentation.
External factors:
Diversion and syphoning of funds by borrower.
Lack of experience of borrower.
Lack of managerial and financial control of borrower/ firm.
Industry trend.
Change in Govt. policies domestic and foreign.
Natural calamities
Methods to prevent NPA.
For reducing NPA in banking sector, is to prevent NPA. Under reasons for NPA itself, methods to
prevent NPA lies.
Placement of properly trained credit officers in Branch.
Proper due diligence and properly identified and properly introduced customers.
To be checked in CIBIL report, willful defaulter list, suit filed list etc.
Pre-sanction visits, market enquiry, verifying the address of the office and unit without accompanying
borrowers, obtaining purchase details for existing machineries etc.
Proper appraisal.
Proper monitoring.
Continuous monitoring of Operation of accounts, payee name, whether credit turn- over commensurate
with sales turn-over etc., cheque returns, and excess in account.
Obtention of all returns including renewal papers as per periodicity.
Keep watching Industry trend, unit visit, discussions with borrower.
Asking the borrower for any observation on diversion and syphoning of funds.
Ensuring proper documentation, registration of EM with SRO, CERSAI and all.
Ensuring corrective measures required to be adopted if any in the account including lengthening of
repayment terms, in discussion with borrower.

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Follow-up from the stage of overdue/ SMA stage onwards so as to ensure that account does not slip to
NPA.
For big accounts, joint lending forum, consortium meetings.
We have to avoid fresh exposures in sensitive sectors which is already saddled with great proportion of
NPA like Steel, Infrastructure, Textile, Telecom, Ports, Shipping etc.
Methods to reduce NPA.
For already existing NPAs, now avenues are available for Bank to upgrade it.
Fresh sub-standard accounts: Discussion with borrower and arrange to recover overdue, so that
account can be upgraded within one year.
For big corporate accounts: Strategic debt restructuring.
For personal accounts including home loan, clean loan, education loan etc: Counselling with borrower
and advising him that in the context of adverse CIBIL reports, his credit worthiness and future would get
spoil and he could not even get credit card etc. For educational loan for abroad, noting in passport and
Visa etc. To be ensured that hteir name comes in CIBIL, Experian reports.
Going for SARFAESI. As yesterday discussed measures for eviction petition, CAVEAT petition etc., and
taking possession and sale of property as per SARFAESI under the prescribed time norms. Marketing
for selling of EM properties. Even if bidder fails to pay 75%, 25% payment Bank gains. (Happens in two
such cases, which is forfeited)
Going for suit filing: Civil court up to 10 Lacs and DRT above 10 Lacs.
Giving pressure to borrowers and guarantors by frequently visiting them at residence and work places,
preferably in group as a recovery team etc.
For genuine cases and in cases of inadequate security, going for OTS based on Bank norms.
For very small accounts, ARC accounts etc. putting waiver proposal / write-off proposal in time.
How reduction of NPA will improve Banking business
Reduction of NPA will improve the Banking business in following ways:
By recovery or upgradation, provision gets released, profitability will get improved and with reduced
provision, capital adequacy ratio will get improved.
The recovered funds under NPA, could be utilized for fresh lending and new cycle may be initiated.

Summary.
NPA has to be prevented by proper due diligence, appraisal, monitoring etc.
NPA to be reduced by SARFAESI, Legal actions ensuring expeditious sale of security. OTS to be
proceeded in genuine cases. To be ensured that willful defaulters are reported to the authorities.

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 CHECK YOUR PROGRESS

1. Application of Prudential Norms is

a. Account wise
b. Facility wise
c. Borrower wise
d. Group wise
_________________________________________________________________________________________

2. If a borrower is having multiple facilities, when one account becomes NPA

a. Only that particular account is to be classified as NPA
b. All accounts of the borrower should be classified with same Asset Classification
c. All accounts of borrower should be classified with different Asset Classification as applicable to each
account
d. Uniform Asset Classification for all the credit facilities of the borrower need not be done if accounts are
with different branches
_________________________________________________________________________________________

3. Upgradation of Fresh NPA can be done if

a. Part of overdue amount is recovered
b. 75% of overdue amount is recovered
c. More than 50% of overdue amount is recovered
d. Entire Overdue amount is recovered
_________________________________________________________________________________________

4. Provisioning is done based on

a. Classification of Asset
b. Availability of security
c. Realisable value of available security
d. 1 & 3
_________________________________________________________________________________________

5. "Non Performing Asset" in respect of Term Loan is

a. Interest remain overdue for a period of more than 90 days
b. Principle remain overdue for a period of more than 90 days
c. Either 1 or 2
d. Both 1 & 2
_________________________________________________________________________________________

6. Bills Purchased will become NPA in case of

a. Bill remains overdue for a period more than 90 days
b. NPA norms are not applicable to BP
c. BP / BD is outstanding for more than 90 days from date of purchase / discount
d. If BP / BD is outstanding after 90 days from date of Bill
__________________________________________________________________________________

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7. In case of Agricultural Loans, the Account becomes NPA if
a. Instalment of Principal or interest thereon remains overdue for two crop seasons for short duration crops
b. Instalment of Principal or interest thereon remains overdue for one crop seasons for long duration crops
c. Either 1 or 2
d. Agricultural Advances are exempted from NPA norms
_________________________________________________________________________________________

8. In case of Overdraft/Cash Credit (OD/CC), the account is treated as "out of order" if, If the outstanding
balance is continuously excess than
a. Sanctioned Limit for 90 days
b. Drawing Power for 90 days
c. Both 1 & 2
d. Either 1 or 2
_________________________________________________________________________________________

9. NPA norms for Government Guaranteed accounts :

a. State Govt Guaranteed accounts are exempted
b. Not applicable
c. Applicable
d. None of these
_________________________________________________________________________________________

10. Applicability of NPA norms for Loan against Term Deposits, NSC/KVP/IVP/Life policies
a. Not applicable
b. Applicable like any other advances
c. Only Staff loans are exempted
d. Not applicable if adequate margin is available
_________________________________________________________________________________________

11. On classification of account as NPA, income reversal should be made for

a. Uncollected interest
b. Uncollected commission
c. uncollected fee
d. All the above
_________________________________________________________________________________________

12. For computation of Gross advances

a. MOI should be taken into account
b. MOI shoud not be taken into account
c. MOX, MLE are tobe taken into account
d. Balance in NPA accounts should not be taken into account

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13. Following is not a category of NPA
a. Loss Asset
b. Doubtful Asset
c. SMA
d. Substandard
_________________________________________________________________________________________

14. No. of categories of NPA are

a. 2
b. 3
c. 4
d. 6
_________________________________________________________________________________________

15. Sub Standard asset is one which remained as NPA for a period of
a. Less than 12 months
b. More than 12 months
c. Less than or equal to 12 months
d. None of these
_________________________________________________________________________________________

16. An asset is classified as Loss Asset if

a. Account continues as doubtful for a period of 36 months
b. Account continues as doubtful for a period of 24 months
c. Account continues as doubtful for a period of 30 months
d. Loss is identified by Bank/Internal Auditors/External Auditors/RBI Inspectors
_________________________________________________________________________________________

17. Points to be considered for classification of an account as NPA

a. Available Security for the account
b. Networth of borrower
c. Networth of Guarantor
d. None of these
_________________________________________________________________________________________

18. An account becomes NPA, if the regular / adhoc credit limits have not been reviewed/renewed with
________ days from due date
a. 45 days
b. 90 days
c. 120 days
d. 180 days

_____________________________________________________________________________________

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Account is to be classified as "Doubtful" if the erosion in realisable value of security is
a. More than 25%
b. More than 50%
c. Security value need not be considered
d. Only time norms are applicable for classification of advance as "Doubtful"
_________________________________________________________________________________________

20. What is the % of provision in case of unsecured doubtful Asset

a. 50%
b. 75%
c. 100%
d. 25%

ANSWERS

1. C 2. B 3. D
4. D 5. C 6. A
7. C 8. D 9. C
10. D 11. D 12. B
13. C 14. B 15. C
16. D 17. D 18. D
19.B 20.C

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 22. Branch Security
SECURITY MEASURES FOR ATMs

 Automated Teller Machine (ATMs) / Bunch Note Acceptor (BNAs) are lucrative targets and
prone to attempts of burglary by anti-social elements. Such attempts can be thwarted to a large
extent by adhering to procedural safeguards.
 ATMs / BNAs must be provided with CCTV systems with 90 days back up recording.
 CCTV must have at least 2 High Definition Infra Red Cameras – one inside ATM cabin and
the other covering peripheral area. The number of cameras inside the cabin may be
commensurate to the number of ATMs / BNAs to provide seamless coverage
 Air-Conditioners in ATM cabin should be connected to individual stabilisers and routed
through Timer for automatic changeover and thereby prevent fire incidents.
 ATMs must be provided with rolling shutter with the provision for locking the shutter in the
‘OPEN’ position to prevent unauthorised pulling down of shutters by miscreants.

MAINTENANCE OF SECURITY SYSTEMS INSTALLED IN BRANCH / ATM

 All Branches including Currency Chests in our Bank and Bank owned ATMs are provided with
security systems such as CCTV, Fire Alarm System, Burglar Alarm System and Fire
Extinguishers. Additionally, Automatic (Modular type) Fire Extinguisher is installed in Server
room of Branches.
 The responsibility of field level functionaries to ensure that these security systems are checked
daily and maintained in good working condition at all times. Record of such checks must be
maintained in ‘Security Systems - Daily Check Register.’

 AMC for all security systems installed in Branches / ATMs should always be in force and
renewed in time – as and when applicable. Fire Extinguishers must be pressure tested / refilled
at stipulated periods. Details of AMC should be disseminated to all branches in the zone for
information and ease of contact.

 Branch Managers / designated officer should check the serviceability of systems prior to
attesting service sheets as and when preventive maintenance is carried out by service provider
and thereby authenticate completion of each quarterly service.

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