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									                                                                         Volume - XIII No.03 March 2010
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B anking                                                                              The
                                                                                   Journal of
                                                                              Institute of Banking

                                                                               Career & Studies,


                                                                             Contents of this Issue
                                                                         BANKING FEATURES : 2-11, 20
                                                                         • Central Govt. Budget 2010-11
                                                                         • Goods and Services Tax (GST)
                                                                         • Infrastructure Finance companies
                                                                         • Buy back of shares by companies
                                                                         • Base Rate System
                                                                         • Right of Appropriation
                                                                         • Asian Clearing Union
                                                                         • Lead Bank Scheme
                                                                         • Currency Futures

                                                                         Diary of events - Feb, 2010: 13
                                                                         • Policy, Economy
                                                                         • Banking Developments
                                                                         • Capital Markets & Insurance

                                                                         General Awareness : 15
 Those who win, are those, who think they can                            Multi-Option questions:16-18

  Corporate & Distribution Office                                        BANKING POLICY : 19
       1008, Sector 45-B, Chandigarh                                     • NEFT-Refinement
           Phone 0172 2665 623
                                                                         • Interest rate on PCFC
        (Contact - Sh.SP Sharma / DS Rana)
   eMail - @                             • Export / Import of Indian currency
                                                                         • Cash Processing Centres
             bankingindiaupdate. com
         www.banking     update
                                                                         Data Bank : 20

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     Editor - Ms Gurmeet Toor, Executive Editor - S. Chand Singh, Editor in Chief - Sh. N S Toor
2   ♦ Banking events updatE ♦ March 2010

                Central Govt. Budget 2010-11                                                               Exports
                                                                                      Extension of existing interest subvention of 2 %
The Budget 2010-11 was presented by the Finance Minister in the                       for one more year, for exports select exports.
Parliament on Feb 26, 2010. The major highlights are:
                                                                                                     Agriculture Growth
                               Challenges                                             Government will follow the following strategy:
•To quickly revert to the high GDP growth path of 9 % and find the
                                                                                      •Rs. 400 crore provided to extend the green
means to cross the ‘double digit growth barrier’.
                                                                                      revolution to the eastern region of the country
•To harness economic growth to consolidate the recent gains in                        comprising Bihar, Chattisgarh, Jharkhand,
making development more inclusive.                                                                ,
                                                                                      Eastern UP West Bengal and Orissa.
                    Overview of Indian economy                                        •Rs. 300 crore provided to organise 60,000 'pulses
The Advance Estimates for GDP growth for 2009-10 has been pegged                      and oil seed villages' in rain-fed areas during
at 7.2 %. A major concern during the second half of 2009-10 has                       2010-11 and provide an integrated intervention
been the emergence of double digit food inflation.                                    for water harvesting, watershed management
                      Consolidation off growth                                        and soil health, to enhance the productivity of
•With recovery taking root, there is a need to mobilise resources                     the dry land farming areas.
and gear them towards building the productivity of the economy.                              Reduction in wastage of produce
•Fiscal policy to be shaped with reference to recommendations of                      •Government to address the issue of opening
the 13thFinance Commission, which has recommended a calibrated                        up of retail trade. It will help in bringing down
exit strategy from the expansionary fiscal stance of last 2 years.                    the considerable difference between farm gate,
•It would be for the first time that the Government would target                      wholesale and retail prices.
an explicit reduction in its domestic public debt-GDP ratio.                          •Deficit in the storage capacity met through an
                              Tax reforms                                             ongoing scheme for private sector participation
•Government will be in a position to implement the Direct Tax                         – FCI to hire godowns from private parties for a
Code DTC from April 1, 2011.                                                          guaranteed period of 7 years.
•Central Govt. is actively engaged with the Empowered Committee                                   Credit support to farmers
of State Finance Ministers to finalise the structure of Goods and                     •Banks have been consistently meeting the
Services Tax (GST). Endeavour is to introduce GST by April, 2011.                     targets set for agriculture credit flow in the
                           Fertiliser subsidy                                         past few years. For the year 2010-11, the target
A Nutrient Based Subsidy policy for the fertiliser sector has been                    has been set at Rs.3,75,000 crore.
approved by the Govt. It will become effective from April 1, 2010. It                 •In view of the recent drought and the severe
will lead to an increase in agricultural productivity and reduce the                  floods, the period for repayment of the loan
volatility in demand for fertiliser subsidy and contain subsidy bill.                 amount by farmers extended by 6 months from
                Petroleum and Diesel pricing policy                                   Dec 31, 2009 to June 30, 2010 under the Debt
                                                                                      Waiver and Debt Relief Scheme for Farmers.
Expert Group to advise Govt on a viable and sustainable system of
pricing of petroleum products has submitted its recommendations.                      •Incentive of additional 1% interest subvention
                                                                                      to farmers, who repay short-term crop loans as
            Financial Stability and Development Council
                                                                                      per schedule, increased to 2% for 2010-11.
•An apex level Financial Stability and Development Council to be
                                                                                          Impetus to the food processing sector
set up with a view to strengthen and institutionalise the mechanism
for maintaining financial stability.                                                  •In addition to the ten mega food park projects
                                                                                      already being set up, the Govt has decided to
•This Council would monitor macro-prudential supervision of the
                                                                                      set up five more such parks.
economy, including the functioning of large financial conglomerates,
and address interregulatory coordination issues.                                      •External Commercial Borrowings to be available
                                                                                      for cold storage or cold room facility, including
                           Banking Licences
                                                                                      for farm level pre-cooling, for preservation or
RBI is considering giving additional banking licenses to private sector               storage of agricultural and allied produce,
players. Non Banking Financial Companies could also be considered,                    marine products and meat.
if they meet the RBI’s eligibility criteria.
                 Public Sector Bank Capitalisation
                                                                                      •Rs 1,73,552 crore provided for infrastructure
Rs.16,500 crore provided to ensure that the Public Sector Banks                       development which accounts for over 46 % of
are able to attain a minimum 8 % Tier-I capital by March 31, 2011.                    the total plan allocation.
              Recapitalisation of Regional Rural Banks                                •Allocation for road transport increased by over
Government will provide capital to strengthen the RRBs so that
                                                                                                                             Continued on page...4
they have adequate capital base to support increased rural lending.
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           www.banking     update.                Contact us at 098143 31661         ..................Dr. APJ Abdul Kalam, Former President of India

(COMPILATION- ARUNDEEP TOOR, in Sydney, Australia - on the basis of information available on RBI Website)
                                                                                               Banking events updatE ♦ March 2010 ♦          3

                      Union Budget 2010-11 : At a Glance
Rs. In Crores                             2008-09     2009-10     2009-10      2010-11
                                            Actual       Budget     Revised       Budget

1.     Revenue Receipts                    540259
                                                                                 682212     COURSE
                                                                                             PROMOTION EXAM
2.     Tax Revenue (net to Centre)         443319       474218        465103     534094
3.     Non-tax Revenue                      96940       140279        112191     148118
4.    Capital Receipts (5+6+7)$            343697       406341        444253     426537
5.    Recoveries of Loans                    6139         4225          4254       5129      Based on latest trends of IBPS Exam
6.    Other Receipts                          566         1120         25958      40000    A large no. of bankers already succeeded by
7.    Borrowings and other liabilities*    336992       400996        414041     381408    using the course material. If unable to attend
                                                                                           class room program, this is the best option.
8.    Total Receipts (1+4)$                883956      1020838       1021547    1108749
                                                                                           Course Kit : The course kit include:
9.    Non-plan Expenditure                 608721       695689        706371     735657    (a) subject-wise basic study material,
10.    On Revenue Account                  559024       618834        641944     643599    (b) assignment to improve retention
       of which,                                                                           (c) objective type practice exercise
11.    Interest Payments              192204        225511       219500   248664           (d) recalled questions
                                                                                           (e) mock test papers.
12.    On Capital Account               49697        76855        64427    92508
                                                                                           Fee : Rs.1500 (may differ. - may be checked
13.    Plan Expenditure               275235        325149       315176   373092           before remittance). Fee to be paid in advance
14.    On Revenue Account             234774        278398       264411   315125           by way of DD at Chandigarh in our favour OR
15.    On Capital Account               40461        46751        50765    57967           be deposited in CBS a/c with PNB.
16.    Total Expenditure (9+13)       883956      1020838       1021547  1108749           How to enrol : To enrol, advise (a) name, (b)
17.    Revenue Expenditure (10+14)    793798        897232       906355   958724           address for correspondence (c) Email address,
                                                                                           (d) bank name, (e) scale for which appearing,
18.    Capital Expenditure (12+15)      90158       123606       115192   150025           (f) phone / Cell number and (f) details of sub-
19.    Revenue Deficit (17-1)         253539        282735       329061   276512           jects for the exam (relevant course material, other
                                         (4.5)        (4.8)        (5.3)    (4.0)          than internal bank guidelines shall be sent).

20. Fiscal Deficit                    336992        400996       414041   381408
    {16-(1+5+6)}                         (6.0)        (6.8)        (6.7)    (5.5)
21. Primary Deficit (20-11)           144788        175485       194541   132744
                                         (2.6)        (3.0)        (3.2)    (1.9)          Course is based on exam pattern of IIB&F. A
                                                                                           large no. of candidate have succeeded in all 3
@ Actuals for 2008-09 are provisional.                                                     papers in first attempt with our study material.
$ Does not include receipts in respect of Market Stabilization Scheme.                     Course Kit : The course kit include:
* Includes draw-down of Cash Balance.                                                      (a) subject-wise basic study material,
Note : GDP for BE 2010-2011 has been projected at Rs.6934700 crore assuming 12.5%          (b) assignment to improve retention
growth over the advance estimates of 2009-2010 (Rs.6164178 crore) released by CSO.         (c) objective type practice exercise
                                                                                           (d) mock test papers.
                               Cental Plan outlay by sectors
                                                                                           Fee : Rs.850 per subject. Fee payable in advance
Rs. In crores                             2009-10        2009-10          2010-11          by DD on Chandigarh or in cash across our
                                            Budget         Revised          Budget         counter or credit to our PNB-CBS account.
                                          Estimates      Estimates        Estimates        How to enrol : To enrol, advise name, address
Agriculture and Allied Activities         10629            10123             12308         for correspondence, eMail id, mobile phone,
Rural Development*                        51769            51560             55190         bank name, subjects for enrolment.
Irrigation and Flood Control
                                                                            146579              Free Website Class for
Industry and Minerals                     35740            30694             39019            PROMOTION                INTERVIEW
Transport **                              94306            88948            101997         If you have been called for a Promotion Interview
Communications                            16731            16099             18529         in your bank and you want to prepare your self
Science Technology & Environment          11207             9908             13677         to face various questions on latest banking
General Economic Services                  6270             5446              7554         concepts, you can join our free internet class,
                                                                                           while sitting in your office or at home, on our
Social Services***                       103856          101370             127570
                                                                                           website. For details you can contact us.
General Services                           1400             1353              1535
Grand Total                              447921          425590             524484                        NS TOOR's
*     Includes provision for rural housing but excludes provision for rural roads.
** Includes provision for rural roads.      *** Excludes provision for Rural Housing.        Institute of Banking
                            People’s ownership of PSUs
 Ownership has been broad based in Oil India Limited, NHPC, NTPC and
                                                                                              Career & Studies
                                                                                                  Office:SCO No.34, Sector 33-D,
 Rural Electrification Corporation. The process of disinvestment is on for                               Chandigarh 160 047
 National Mineral Development Corporation and Satluj Jal Vidyut Nigam.                            Phone: 0172-2665623, 093178-12720
                                                                                                email -
 This will raise about Rs 25,000 crore during the current year. The higher
 amount is proposed to be raised during the year 2010-11.                                                        update.
                                                                                                     bankingindiaupdate. com
                                                                                                 www.banking     update
4   ♦ Banking events updatE ♦ March 2010                                                               BANKING FEATURES
         Budget 2010-11                (Contd.. from page 2)   March 31, 2011 by providing Rs.700 cr for 2010-11.
13 % from Rs. 17,520 crore to Rs 19,894 crore.                            Micro, Small & Medium Enterprises
•Rs 16,752 crore provided for Railways, which is about         •High Level Council on Micro and Small Enterprises to
Rs.950 crore more than last year.                              monitor the implementation of the recommendations of
  India Infrastructure Finance Company Limited (IIFCL)         High-Level Task Force constituted by Prime Minister.
•IIFCL’s disbursements are expected to touch Rs 9,000          •Allocation for this sector to be increased from Rs.1,794
crore by end March 2010 and reach around Rs 20,000             crore to Rs.2,400 crore for the year 2010-11.
crore by March 2011.                                           •The corpus for Micro-Finance Development and Equity
•IIFCL has refinanced bank lending to infrastructure           Fund doubled to Rs.400 crore in 2010-11.
projects of Rs. 3,000 crore during the current year and is                          Unorganised Sector
expected to more than double that amount in 2010-11.           •National Social Security Fund for unorganised sector
                           Energy                              workers to be set up with an initial allocation of Rs.1000
•Plan allocation for power sector excluding RGGVY doubled      crore. This fund will support schemes for weavers, toddy
from Rs.2230 cr in 2009-10 to Rs.5,130 crore in 2010-11.       tappers, rickshaw pullers, bidi workers etc.
•A 'Coal Regulatory Authority' to create a level playing       •Rashtriya Swasthya Bima Yojana benefits extended to all
field in the coal sector is proposed to be set up.             such Mahatma Gandhi NREGA beneficiaries who worked
                                                               for more than 15 days during the preceding financial year.
•National Clean Energy Fund for funding research and
innovative projects in clean energy technologies to be         •A new initiative, 'Swavalamban' will be available for persons
established.                                                   who join New Pension Scheme (NPS), with a minimum
                                                               contribution of Rs.1,000 and a maximum of Rs.12,000
                  Inclusive Development
                                                               p.a.during 2010-11, wherein Govt will contribute Rs.1,000
The spending on social sector has been gradually increased     per year to each NPS account opened in the year 2010-
to Rs.1,37,674 crore in 2010-11, which is 37% of the total     11. Allocation of Rs.100 crore made for this initiative.
plan outlay in 2010-11.
                                                                                     Skill development
                                                               •National Skill Development Corporation has approved
Plan allocation for school education increased by 16% from     three projects worth about Rs 45 crore to create 10 lakh
Rs.26,800 crore in 2009-10 to Rs.31,036 crore in 2010-11.      skilled manpower at the rate of one lakh per annum.
•In addition, States will have access to Rs.3,675 crore for     Strengthening Transparency and public accountability
elementary education under the 13th Finance Commission
                                                               •Financial Sector Legislative Reforms Commission to be
grants for 2010-11.
                                                               set up to rewrite and clean up the financial sector laws
                           Health                              to bring them in line with the requirements of the sector.
Plan allocation to Ministry of Health & Family Welfare         •Rs 1,900 crore allocated to the Unique Identification
increased from Rs 19,534 cr to Rs 22,300 cr for 2010-11.       Authority of India (UIDAI) for 2010-11.
                     Financial Inclusion                       •A Technology Advisory Group for Unique Projects (TAGUP)
•Appropriate Banking facilities to be provided to              to be set up to look into technological and systemic issues
habitations having population above 2000 by Mar, 2012.         for effective tax administration and financial governance.
•Insurance/other services to be provided using Business        •Independent Evaluation Office (IEO) chaired by the
Correspondent model, to cover 60,000 habitations.              Deputy Chairman, Planning Commission to be set up to
•Augmentation of Rs.100 crore each for the Financial           evaluate the impact of flagship programmes.
Inclusion Fund and Financial Inclusion Technology Fund,                             Security and Justice
to be contributed by Govt of India, RBI and NABARD.            • Allocation for Defence increased to Rs. 1,47,344 crore
                    Rural Development                          including Rs 60,000 crore for capital expenditure.
•Rs. 66,100 crore provided for Rural Development.              •Government has approved the setting up of the National
•Allocation for Mahatma Gandhi National Rural Employment       Mission for Delivery of Justice and Legal Reforms to help
Guarantee Scheme stepped up to Rs.40,100 cr in 2010-11.        reduce legal backlog in courts from an average of 15 years
•An amount of Rs.48,000 crore allocated for rural              at present to 3 years by 2012.
infrastructure programmes under Bharat Nirman.                                        TAX PROPOSALS
•Unit cost under Indira Awas Yojana increased to Rs.45,000     •2 more Centres shall be set up on the pattern of
in the plain areas and to Rs.48,500 in the hilly areas.        Centralized Processing Centre at Bengaluru, which is fully
Allocation for this scheme increased to Rs.10,000 crore.       functional and is processing around 20,000 returns daily.
             Urban Development and Housing                     •The Income Tax department has introduced “Sevottam”,
•Allocation for urban development increased by more than       a pilot project at Pune, Kochi and Chandigarh through
75 % from Rs.3,060 crore to Rs.5,400 crore in 2010-11.         Aayakar Seva Kendras, to provide a single window system
•Scheme of 1% interest subvention on housing loan upto         for registration of all applications including those for
Rs.10 lakh, where the cost of the house does not exceed        redressal of grievances as well as paper returns. The
Rs.20 lakh, announced in the last Budget, extended up to       scheme will be extended to 4 more cities in the year.

Compilation : Arundeep Toor (Sydney - Australia).
BANKING FEATURES                                                                      Banking events updatE ♦ March 2010 ♦       5

•The income tax department to notify SARAL-II form for individual salaried
taxpayers for the coming assessment year.
                                   Direct Taxes
Income tax slabs for individual taxpayers to be as follows
•Income upto Rs 1.6 lakh - Nil                                                           Study Material
•Income above Rs 1.6 lakh and upto Rs. 5 lakh - 10 %
•Income above Rs.5 lakh and upto Rs. 8 lakh - 20 %                                                    Promotion Test
•Income above Rs. 8 lakh - 30 %
•Deduction of an additional amount of Rs. 20,000 allowed, over and above the                          JAIIB Exam
                                                                                     online MOCK TEST - CD
existing limit of Rs.1 lakh on tax savings, for investment in long-term              Rs.300 each
infrastructure bonds as notified by the Central Government
•Besides contributions to health insurance schemes which is currently allowed
as a deduction under the Income-tax Act, contributions to the Central Govt           • Improve understanding of what you prepare.
Health Scheme also allowed as a deduction under the same provision.                  • Remove confusions occured while studying.
                                                                                     • Improve time management in real exam.
•Current surcharge of 10 % on domestic companies reduced to 7.5 %.
                                                                                     • Test your preparation before Exam.
•Rate of Minimum Alternate Tax increased from 15 % to 18 % of book profits.          • Practice on-line without use of internet.
•Allow pending projects to be completed within a period of five years instead        Special features : Explanation given for each
of four years for claiming a deduction of their profits, as a one time interim       questions for better understanding of the
relief to the housing and real estate sector.                                        mistakes made. This helps in better retention
                                                                                     for a longer period.
•Limits for turnover, over which accounts need to be audited, enhanced to            • The questions are shuffled when used again.
Rs. 60 lakh for businesses and to Rs. 15 lakh for professions.                       • Set your own time to improve efficiency.
•Limit of turnover for the purpose of presumptive taxation of small businesses
enhanced to Rs. 60 lakh.                                                                Exam focussed study material
•To facilitate the conversion of small companies into Limited Liability
Partnerships, transfer of assets as a result of such conversion not to be subject
to capital gains tax.
                                                                                                 Quick Preparation
•The advancement of any other object of general public utility to be considered
as charitable purpose even if it involves carrying on of an activity in the nature
                                                                                                   Success- CD
of trade, commerce or business provided that the receipts from such activities
do not exceed Rs.10 lakh in the year .
These proposals on direct taxes, estimated to result in a revenue loss of Rs.
                                                                                       CAIIB - Case Studies CD
26,000 crore for the year.                                                                            Risk Management
                                  Indirect Taxes
                                                                                        Rs.150 each   Financial Management
Rate reduction in Central Excise duties to be partially rolled back and the
standard rate on all non-petroleum products enhanced from 8 % to 10 % ad
                                Precious Metals
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Rates on precious metals indexed as follows:                                         on our website. Just log in
•On gold and platinum from Rs.200 per 10 grams to Rs.300 per 10 grams                                    update.
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•On silver from Rs.1,000 per kg to Rs.1,500 per kg.
Proposals relating to customs and central excise are estimated to result in a
net revenue gain of Rs. 43,500 crore for the year.                                    New Recruitment in Banks
                                    Service Tax
•Rate of tax on services retained at 10 % to pave the way forward for GST.             Coaching Classes
Certain services, hitherto untaxed, to be brought within the purview of the              Contact 09814 331 661
service tax levy. These shall be notified separately.
Proposals relating to service tax are estimated to result in a net revenue gain
of Rs 3,000 crore for the year.
                                                                                           NS TOOR's
                          Net impact of tax proposals                                   Institute of Banking
                                                                                         Career & Studies
Proposals on direct taxes estimated to result in a revenue loss of Rs. 26,000
crore for the year. Proposals relating to Indirect Taxes estimated to result in
a net revenue gain of Rs.46,500 crore for the year. Taking into account the              Office:SCO No.34, Sector 33-D,
concessions being given in the tax proposals and measures taken to mobilise                     Chandigarh 160 047
                                                                                         Phone: 0172-2665623, 093178-12720
additional resources, the net revenue gain is estimated to be Rs. 20,500 crore         email -
for the year.
                                                                               •                        update.
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6     ♦ Banking events updatE ♦ March 2010                                                                                       BANKING FEATURES
           Goods and Services Tax (GST)                                                      also be subsumed in GST and CST will be phased out.
                                                                                             Other things remaining the same, the burden of tax on
GST is a tax on goods and services with comprehensive
                                                                                             goods would, in general, fall under GST and that would
and continuous chain of set-off benefits from the
                                                                                             benefit the consumers.
producer’s point and service provider’s point upto the
retailer’s level. It is essentially a tax only on value addition                             Salient features of GST model:
at each stage. A supplier at each stage is permitted to                                      (i) Consistent with the federal structure of India, the GST
set-off, through a tax credit mechanism, the GST paid on                                     will have 2 components, one levied by the Centre (Central
the purchase of goods and services as available for set-off                                  GST), and the other levied by the States (State GST). This
on the GST to be paid on the supply of goods and services.                                   dual GST model would be implemented through multiple
The final consumer will thus bear only the GST charged                                       statutes (one for CGST and SGST statute for every State).
by the last dealer in the supply chain, with set-off benefits                                (ii) The Central GST and the State GST would be applicable
at all the previous stages.                                                                  to all transactions of goods and services except the
How GST will work: We take a manufacturer, one                                               exempted goods and services.
wholeseller and one retailer. The GST rate is assumed as                                     (iii) The Central GST and State GST are to be paid to the
10%. Let us assume that the manufacturer makes value                                         accounts of the Centre and the States separately.
addition of Rs.30 on his purchases worth Rs.100 of input
                                                                                             (iv) Since the Central GST and State GST are to be treated
of goods and services used in the manufacturing process.
                                                                                             separately, in general, taxes paid against the Central GST
He will pay net GST of Rs. 3 after setting-off Rs.10 as GST
                                                                                             shall be allowed to be taken as input tax credit (ITC) for
paid on his inputs (i.e. Input Tax Credit) from gross GST of
                                                                                             the Central GST and could be utilized only against the
Rs. 13. The manufacturer sells the goods to the wholeseller.
                                                                                             payment of Central GST. The same principle will be
When the wholeseller sells the same goods after making
                                                                                             applicable for the State GST.
value addition of (say), Rs. 20, he pays net GST of only Rs.
2, after setting-off of Input Tax Credit of Rs. 13 from the                                  (v) Cross utilisation of ITC between the Central GST and
gross GST of Rs. 15 to the manufacturer. Similarly, when a                                   the State GST would, in general, not be allowed.
retailer sells the same goods after a value addition of (say)                                (vi) To the extent feasible, uniform procedure for
Rs. 10, he pays net GST of only Re.1, after setting-off                                      collection of both Central GST and State GST would be
Rs.15 from his gross GST of Rs. 16 paid to wholeseller.                                      prescribed in the respective legislation for Central GST
Thus, the manufacturer, wholeseller and retailer have to                                     and State GST.
pay only Rs.6 (= Rs. 3+Rs. 2+Re. 1) as GST on the value
                                                                                             (vii) The administration of the Central GST would be with
addition along the entire value chain from the producer
                                                                                             the Centre and for State GST with the States.
to the retailer, after setting-off GST paid at earlier stages.
                                                                                             (viii) The taxpayer would need to submit periodical returns
How do the burden of tax, in general, fall under GST :
                                                                                             to both the Central GST authority and to the concerned
The present forms of CENVAT and State VAT have remained
                                                                                             State GST authorities.
incomplete in removing fully the cascading burden of taxes
already paid at earlier stages. Besides, there are several                                   (ix) Each taxpayer would be allotted a PAN linked taxpayer
other taxes, which both the Central Govt and the State                                       identification number with a total of 13/15 digits. This
Government levy on production, manufacture and                                               would bring the GST PAN-linked system in line with the
distributive trade, where no set-off is available in the form                                prevailing PAN-based system for Income tax facilitating data
of input tax credit. These taxes add to the cost of goods                                    exchange and taxpayer compliance.
and services through 'tax on tax' which the final consumer                                   Dual GST : A dual GST will, therefore, be in keeping with
has to bear. Since, with the introduction of GST, all the                                    the Constitutional requirement of fiscal federalism. Both
cascading effects of CENVAT and service tax would be                                         the levels of Govt Central and State, have distinct
removed with a continuous chain of set-off from the                                          responsibilities to perform according to the division of
producer’s point to the retailer’s point, other major                                        powers prescribed in the Constitution for which they
Central and State taxes would be subsumed in GST and                                         need to raise resources.
CST will also be phased out, the final net burden of tax                                     Central and State taxes to be subsumed under GST :
on goods, under GST would, in general, fall. Since there
                                                                                             (i) Central Excise Duty (ii) Additional Excise Duties (iii) The
would be a transparent and complete chain of set-offs,
                                                                                             Excise Duty under the Medicinal and Toiletries Preparation
this will help widening the coverage of tax base and improve
                                                                                             Act (iv) Service Tax (v) Additional Customs Duty
tax compliance. This may lead to higher generation of
                                                                                             i.e.Countervailing Duty (CVD) (vi) Special Additional Duty
revenues which may in turn lead to the possibility of
                                                                                             of Customs – 4% (SAD) (vii) Surcharges, and (viii) Cesses.
lowering of average tax burden.
                                                                                             Rate structure under GST : The Empowered Committee
Benefit to the consumers: With the introduction of GST,
                                                                                             has decided to adopt a two-rate structure –a lower rate
all the cascading effects of CENVAT and service tax will be
                                                                                             for necessary items and items of basic importance and a
more comprehensively removed with a continuous chain
                                                                                             standard rate for goods in general. There will also be a
of set-off from the producer’s point to the retailer’s point
                                                                                             special rate for precious metals and a list of exempted
than what was possible under the prevailing CENVAT and
VAT regime. Certain major Central and State taxes will
Source : Source: First Discussion Paper On Goods and Services Tax In India, Issued By: The Empowered Committee of State Finance Ministers, New Delhi, Dated: November 10, 2009
BANKING FEATURES                                                                           Banking events updatE ♦ March 2010 ♦         7

     Infrastructure Finance Companies                                    Buy back of Shares by Companies
Currently, RBI has classified NBFCs under three categories,       A company can buy back its shares in the following manners :
viz., Asset Finance Companies, Loan companies and                 i. From the existing shareholders on a proportionate basis through
Investment Companies. During Feb 2010, RBI has decided            the tender offer;
to introduce a fourth category of NBFCs as "Infrastructure        ii. From open market through (a) Book building process (b) Stock
Finance Companies" (IFCs).                                        exchange,
 An Infrastructure Finance Company is defined as a non            iii. From odd lot holders.
deposit taking NBFC, that fulfills the criteria mentioned
                                                                    Buyback without passing shareholders’ resolution: A
                                                                  company may buyback its shares without shareholders’ resolution,
i) a minimum of 75 per cent of its total assets should be         to the extent of 10% of its paid up equity capital and reserves.
deployed in infrastructure loans as defined in Para 2(viii)       However, if a company intends to buyback its shares to the extent
of the Non Banking Financial (Non Deposit Accepting or            of 25% of its paid up capital and reserves/ then the same has to be
Holding) Companies Prudential Norms (Reserve Bank)                approved by Shareholders Resolution as specified in Section 77 A
Directions, 2007;                                                 of Companies Act, 1956.
ii) Net owned funds of Rs. 300 crore or above;                    Disclosure about buyback their shares:
iii) minimum credit rating 'A' or equivalent of CRISIL,           1.Listed companies are required to intimate the stock exchange of
FITCH, CARE, ICRA or equivalent rating by any other               general meetings and resolutions passed thereof. Information
accrediting rating agencies,                                      regarding buyback can be obtained from the stock exchanges.
iv) CRAR of 15 percent (with a minimum Tier I capital of 10       2. When buyback offer document or public announcement is filed
percent).                                                         with SEBI, SEBI issues a press release and the offer document is
Infrastructure Finance Company may exceed the                     put on the SEBI website.
concentration of credit norms as under :                          Tendering of Shares for buyback: The company sends a
(i) in lending to                                                 tender/offer form.
(a) any single borrower by ten per cent of its owned              Participation in the buyback in absence of tender/offer :
fund; and                                                         A person can make an application on plain paper giving basic
                                                                  information and send original share certificate.
(b) any single group of borrowers by fifteen per cent of
its owned fund;                                                   Unregistered shareholdes: Such shareholder submits the duly
                                                                  executed transfer deed for transfer of shares in his name, along
(ii) in lending and investing (loans/investments taken
                                                                  with the offer form and other relevant documents as required for
together) by:                                                     transfer. It should be sent to the registrar to the buyback offer.
(a) 5% of its owned fund to a single party; and                   Manner of acceptances by company:
(b) 10% of its owned fund to a single group of parties.           In case the shares of the company are tradable compulsorily in
The companies satisfying these conditions can approach            demat segment, the acceptances from any investor shall be on a
RBI for classification as Infrastructure Finance Companies.       proportionate basis irrespective of the number of shares tendered
Bank exposure to Infrastructure Finance Company: RBI              in the buyback, and irrespective of whether shares are in physical
has decided that banks’ exposures to NBFC-IFCs will               or demat form.
henceforth be risk weighted as per the ratings assigned           If the shares are not in compulsory demat segment, first the entire
to these NBFCs by the rating agencies registered with             shares tendered being less than the minimum market lot is accepted
the SEBI and accredited by RBI. Accordingly, the banks            in full. Thereafter, the acceptances will be on proportionate basis in
are to assign appropriate risk weights, i.e. similar to           a manner to ensure that the acceptances are in market lot. In such
corporates/corporate bonds, while computing capital for           a case, a draw of lots is done, as in the case of public issues.
credit risk and specific risk under market risk.                  Intimation to shareholder about acceptance of shares:
RBI has further advised that the exposure of a bank to            The company is required to send intimation to the tenderers within
the IFCs should not exceed 15 per cent of its capital             15 days from the closure of the offer.
funds as per its last audited balance sheet, with a provision     Time limit for receipt of consideration/the share
to increase it to 20 per cent if the same is on account of        certificate: The company is required to send the above, within 21
                                                                  days from the closure of the buyback offer.
funds on-lent by the IFCs to the infrastructure sector.
                          Most-used book      Banking Problems       Practice   Sets         For Banking infor-      For all types of
                          by bankers 30th     & Rationales 5th       Mock Tests 10th         mation in Hindi         bank interviews
                          (2010) Edn Rs.300   (2010) Edn Rs.250      Edn Rs.165              7th Edn Rs.300          5th Edn Rs.250
8   ♦ Banking events updatE ♦ March 2010                                                                    BANKING FEATURES
            Base Rate for Bank Loans                            also be conveyed to the general public from time to time
The Reserve Bank of India had constituted a Working Group       through appropriate channels. Banks are required to
on Benchmark Prime Lending Rate (Chairman: Shri Deepak          provide information on the actual minimum and maximum
Mohanty) to review the present benchmark prime lending          lending rates charged to major categories of borrowers
rate system and suggest changes to make credit pricing          to the Reserve Bank on a quarterly basis. Apart from
more transparent. The Group submitted its report in Oct         transparency, banks should ensure that interest rates
20, 2009. It was placed on RBI website for public comments.     charged to customers in the above arrangement are non-
After considering the recommendations of the Group and          discriminatory in nature.
the suggestions from various stakeholders, the Reserve          10. The Base Rate system would be applicable for all new
Bank has decided as follows:                                    loans and for those old loans that come up for renewal.
Criteria for determination of base rate: While each bank        However, if the existing borrowers want to switch to the
may decide its own Base Rate, some of the criteria that         new system before the expiry of the existing contracts,
could go into the determination of the Base Rate are:           in such cases the new/revised rate structure should be
(i) cost of deposits;                                           mutually agreed upon by the bank and the borrower.
(ii) adjustment for the negative carry in respect of CRR        In line with the above Guidelines, banks may announce
and SLR;                                                        their Base Rates after seeking approval from their
                                                                respective Boards.
(iii) unallocatable overhead cost for banks such as aggregate
employee compensation relating to administrative functions         Methodology for the Computation of the Base Rate
in corporate office, directors’ and auditors’ fees, legal       Base Rate = a + b + c + d
and premises expenses, depreciation, cost of printing and       Where
stationery, expenses incurred on communication and
advertising, IT spending, and cost incurred towards deposit     (a) = cost of deposit (Dcost )
insurance;and (iv) profit margin. An illustration for           (b) Negative carry on CRR and SLR
computing the Base Rate is set out below.                       [{ D cost – (SLR x Tr ) } / {I – (CRR + SLR) x 100}] - D cost
1. The Base Rate system will replace the BPLR system            (c) Unallocatable overhead cost = Uc / Dply x 100
with effect from April 1, 2010.
                                                                (d) Average return on net worth = [(NP / NW) x (NW / TL)] x 100
2. Banks may determine their actual lending rates on loans
and advances with reference to the Base Rate.                   Where:
3. Base Rate shall include all those elements of the lending    Dcost = Cost of deposits
rates that are common across all categories of borrowers.       D = Total deposits i.e. term deposits+ saving deposits + current
4. The actual lending rates charged to borrowers would          deposits
be the Base Rate plus borrower-specific charges, which          Dply = Deployable deposits = Total deposits less share of deposits
will include product-specific operating costs, credit risk      locked as CRR and SLR balance i.e. = D x {1-(CRR + SLR) }
premium and tenor premium.
                                                                Tr = Treasury bills
5. All categories of loans should henceforth be priced
only with reference to the Base Rate. The Base Rate could       Uc = Unallocatable overhead cost
also serve as the reference benchmark rate for floating         NP = Net proft
rate loan products, apart from the other external market        NW = Net worth
benchmark rates. The floating interest rate based on            TL = Total liabilities
external benchmarks should, however, be equal to or above
the Base Rate at the time of sanction or renewal.
6. Since the Base Rate will be the minimum rate for all         1. Negative carry on CRR and SLR balances arises because the
commercial loans, banks are not permitted to resort to          return on CRR balances is nil, while the return on SLR balances
any lending below the Base Rate. Accordingly, the current       (proxied using the 364-day Treasury Bill rate) is lower than the cost
                                                                of deposits. Negative carry on CRR and SLR is arrived at in three
stipulation of BPLR as the ceiling rate for loans up to Rs.
                                                                steps. In the first step, return on SLR investment was calculated
2 lakh stands withdrawn. It is expected that deregulation
                                                                using 364-day Treasury Bills. In the second step, effective cost
of lending rates will increase the credit flow to small         was calculated by taking the ratio (expressed as a percentage) of
borrowers at reasonable rate. Thus, direct bank finance         cost of deposits (adjusted for return on SLR investment) and
will provide effective competition to other forms of high       deployable deposits (total deposits less the deposits locked as CRR
cost credit.                                                    and SLR balances). In the third step, negative carry cost on SLR
7. Interest rates on loans under the DRI scheme will            and CRR was arrived at by taking the difference between the
continue to be fixed without reference to the Base Rate.        effective cost and the cost of deposits.
8. The Reserve Bank will separately announce the                2. Unallocatable Overhead Cost is calculated by taking the ratio
stipulation for export credit.                                  (expressed as a percentage) of unallocated overhead cost and
9. Since transparency in the pricing of lending products        deployable deposit.
has been a key objective, banks are required to exhibit         3. Average Return on Net Worth is computed as the product of net
the information on their Base Rate at all branches and          profit to net worth ratio and net worth to total liabilities ratio
also on their websites. Changes in the Base Rate should         expressed as a percentage.
BANKING FEATURES                                                                        Banking events updatE ♦ March 2010 ♦ 9
                                                                 a notice to the customer. When appropriation comes to
                 Right of Appropriation
                                                                 the notice of the customer, it becomes irrevocable.
Where a debtor has several debts with a creditor, Sections       Circumstantial evidence suggesting the choice of the
59, 60 and 61 of the Indian Contract Act, 1872 deal with         borrower for appropriation of payment is enough. Banker
the appropriation of payments made by the debtor to              must appropriate the funds accordingly.
the creditor.                                                    Frequent transactions - Where the customer has one single
Express mention by debtor – As per Section 59, where the         account and he makes frequent transactions by way of
debtor (borrower), owes more than one debts to one               deposits and withdrawals, each credit entry is deemed
person (bank), and he makes payment, either with express         to be appropriated against debit entries in chronological
intimation or under circumstanc¬es, implying that the            order (Devayney Vs. Noble 1816 I.Mir 529, 572 popularly
payment is to be applied to the discharge of some                known as Clayton’s Rule).
particular debt, the payment, if accepted, must be applied       FDR which is yet to mature
accordingly by the creditor (banker).                            When an FDR is appropriated before maturity, it is under
Omission by debtor to intimate – As per Section 60, where        Right of appropriation and when it is appropriated after
the debtor has not indicated about the account, and              maturity, the right of set off is exercised.
circumstances also do not indicate to which debt, the                             RULE IN CLAYTON’S CASE
payment is to be ap¬plied, the creditor at his discretion,
                                                                 The Rule was laid down in Devayaney Vs Nobel. It is
can apply the payment to any lawful debt, actually due
                                                                 applicable in case of loans such as cash credit and
and payable to him from the debtor, whether its recovery
                                                                 overdraft where the customer deposits and withdraws
is or is not barred by the law of limitation of suits.
                                                                 money from the account frequently. As per this rule, the
Non-appropriation – As per Section 61, where neither the         order in which the credit entry will set off the debit
debtor indicates nor the creditor party appropriates, the        entry is the chronological order. This means that the first
payment shall be applied in discharge of debts, in order         item on the debit side will be the item to be discharged
of time, whether they are or are not barred by the law of        or reduced by a subsequent item on the credit side.
limitation. If the debts are of equal standing, the payment
                                                                 The rule operates in case of:
shall be applied in discharge of each proportionately.
                                                                 • death or insolvency or insanity of a borrower (s),
                                                                 • a death, insolvency, insanity, retirement of partner,
The above principle of appropriation also applies to the
loans obtained from bank, when there are two or more             • insolvency of guarantor or revocation of guarantee by
debts due to a single customer.                                  the guarantor in a loan account,
Priority – The general principle is that in case of a debt       The existing debt due from the borrower is adjusted if
due with interest, any payment made by the debtor should         subsequent credit are allowed. If fresh debits are allowed,
be first applied by the bank to the interest and thereafter      these are considered a fresh loan and the bank cannot
to the prin¬cipal amount, unless there is agreement to           recover such debt from the assets of the deceased,
the contrary.                                                    retired or insolvent partner and may ul¬timately suffer
                                                                 the loss if the debt cannot be recovered from the
Conditional payments - Bank is not bound to accept the
                                                                 remaining partners.
payment from the borrower on the condition pro¬posed
by him. But where the condition is accepted, it has to           Example : A firm’s loan account is showing a debit balance
be fulfilled. For example where the customer deposits            of Rs.3 lac when notice of death of one partner is
money to meet the payment of a particular bill payable           received. Bank however, continues operations. A sum of
by him, bank can not utilise this money against any other        Rs.1 lac is debited to the account and Rs.0.50 is credited.
loan / advance account.                                          The balance now is Rs.3.50 lac. The legal heirs are liable
                                                                 for Rs.2.50 lac (3 lac minus 0.50 lac).
Time of appropriation and combining of accounts Right
can be exercised only at the time of a payment. Bank             How to stop operation of the rule-To avoid the operation
cannot unilaterally combine all the accounts of custo¬mer.       of the rule, the bank should stop the operations in the
                                                                 account. Thus the liability of the deceased or insolvent
Notice before appropriation – Where the bank decides to
                                                                 partner at the time of his death, retirement or insolvency
appropriate the payment under Section 60 it has to send
                                                                 is determined and he his estate may be liable.
              Risk Management   Financial Mgmt   General Mgmt      Accounting &          Legal Aspects of     Legal Aspects of
              4th Edn Rs.150    4th Edn Rs.125   4th Edn Rs150     Finance 4th Edn                            Banking 4th Edn

                                                                                         Banking 4th Edn
10   ♦ Banking events updatE ♦ March 2010                                                                          BANKING FEATURES

     Asian Clearing Union (ACU) Payment Mechanism                              (d) not declared ineligible under paragraph 8 of this
                                                                               Memorandum; and
Asian Clearing Union is a union of 9 countries i.e. India, Sri Lanka, Pak,     (e) for export/import transactions between ACU member
Bangla Desh Nepal, Bhutan, Iran, Mynamar, Maldives which has its head          countries on deferred payment terms.
quarters in Tehran. Beginning 01.01.96, the settlement relating to trade       Note:- Trade transactions with Myanmar may be settled
transactions in these countries takes place through the Asian Monetary         in any freely convertible currency, in addition to the ACU
Unit. Wef 1.1.2009, the settlement can be through in ACU $ or ACU Euro.        mechanism.
From February 2010, modification has been brought in the settlement
mechanism, the summary of which is as under:                                   Ineligible Payments : The following payments are not
The revised procedure is to be followed by the all Cat-I AD banks in India     eligible to be settled through ACU –
for handling transactions to be cleared through Asian Clearing Union (ACU).    (a) payments between Nepal and India and Bhutan and
Eligible Instruments of Payment : The Asian Monetary Units (AMUs)              India, exception being made in the case of goods imported
is the common unit of account of ACU. It is denominated as ‘ACU Dollar’        from India by an importer resident in Nepal who has been
and ‘ACU Euro’, which is equivalent in value to one US Dollar and one Euro,    permitted by the Nepal Rastra Bank to make payments in
respectively. All instruments of payment are denominated in AMUs.              foreign exchange. Such payments may be settled through
Settlement of such instruments may be made by AD Category-I banks              the ACU mechanism;
through operation on ACU Dollar and ACU Euro Accounts.                         (b) payments which are not on account of current
                                                                               international transactions as defined by the International
ACU Dollar Accounts and ACU Euro Accounts:
                                                                               Monetary Fund, except to the extent mutually agreed
(i) The transactions should be settled directly through accounts maintained
                                                                               upon between Reserve Bank and the other participants;
by AD banks with banks in other participating countries and vice versa.
(ii) AD banks can settle commercial and other eligible transactions in the
                                                                               (c) such other payments as may be declared by the ACU
same manner as other normal foreign exchange transactions. The
                                                                               to be ineligible for being channelled through the clearing
procedures for opening LC, negotiation of documents, etc., in respect of
trades in convertible currencies are applicable for trades routed through
                                                                               Rate of Exchange for U.S. Dollar and Euro : Under
the ACU mechanism.
                                                                               the revised procedure, the Reserve Bank will receive and
(iii) AD banks may freely open with their branches/correspondents ‘ACU
                                                                               pay U.S. Dollar and Euro from/to the AD Category- banks
Dollar’ and 'ACU Euro’ accounts to be kept distinct from US Dollar and Euro
                                                                               in respect of transactions described above and there will
accounts respectively, maintained for settlement of transactions taking
                                                                               be no corresponding payment/receipt of Indian rupees.
place outside the Clearing Union. The terms ACU Dollar and ACU Euro are
                                                                               In other words, no exchange rates will be announced for
specifically used in order to identify the use of US Dollar and Euro in
                                                                               the purpose of putting through the transactions relating
relation to ACU transactions. There is no distinction, value-wise, between
                                                                               to the ACU (same since 1st January 1996).
ACU Dollar and the US Dollar and between ACU Euro and Euro.
           Mechanism for settlement through the Union                          Hours of business : The hours for receiving applications
(i) RBI receives and pays from/to AD banks for funding or for repatriating     for funding of ACU Dollar and ACU Euro accounts in
the excess liquidity in the ACU Dollar and ACU Euro accounts respectively,     overseas participant countries or surrendering of surplus
maintained by the AD banks with their correspondents in other participating    liquidity in the ACU Dollar and ACU Euro accounts of their
countries. Similarly, RBI is receiving and delivering US Dollar and Euro       overseas correspondents maintained in India will be the
amounts for absorbing liquidity or for funding the ACU Dollar (vostro) and     regular business hours of the Reserve Bank. No
ACU Euro (vostro) accounts respectively, maintained by the AD banks on         application will be received on Saturdays.
behalf of their overseas correspondents.                                       Minimum and Multiple amounts for transactions
(ii) Funding of ACU Dollar and ACU Euro account maintained with a              with Reserve Bank : The minimum amounts and the
correspondent bank in another ACU participant country is effected by the       multiples in which Reserve Bank will receive and pay U.S.
RBI only after receiving an intimation that equivalent amount of US Dollar     Dollar/ Euro will continue to be U.S. $ 25,000/ • 25,000
and Euro is being credited to its account with Federal Reserve Bank of         and U.S. $ 1,000/ • 1, 000, respectively.
New York, and its account with the Deutsche Bundesbank, Frankfurt              Procedure for business with Reserve Bank
respectively, by the AD bank on the value date. Similarly, RBI arranges for    (i) RBI’s Deptt of External Investments & Operations
payment of US Dollar and Euro from its accounts with the Federal Reserve       (DEIO) at Mumbai undertakes ACU transactions.
Bank of New York and the Deutsche Bundesbank, Frankfurt respectively,          (ii) Requests from AD banks for funding of their ACU
to the account of the correspondent of the AD bank, in case it has received    Dollar and ACU Euro accounts with commercial banks in
intimation of surrender of surplus funds to the other participant Central      participating countries should be made in duplicate in form
Bank on behalf of the AD bank in India.                                        ACU-1 to DEIO, Mumbai. Such offers should be
Applicability of Foreign Exchange Regulations : Operations                     accompanied by confirmation that equivalent amount of
conducted in and through the ACU Dollar and ACU Euro accounts will be          US Dollar and Euro is being credited to RBI’s account with
subject to compliance with all the FEMA regulations and the specific           Federal Reserve Bank of New York and Deutsche
provisions of this Memorandum.                                                 Bundesbank, Frankfurt, respectively, on the value date.
Eligible Payments : Transactions that are eligible to be made through          RBI will advise the Central Bank in the concerned
ACU are payments –                                                             participating country to deliver the contracted amount
(a) from a resident in the territory of one participant to a resident in the   on the value date to the correspondent bank indicated
territory of another participant;                                              by the AD bank. To obviate the possibility of delay in
(b) for current international transactions as defined by the Articles of       putting through the transaction, AD banks may inform
Agreement of the International Monetary Fund;                                  their correspondents of the particulars of the transactions
(c) permitted by the country in which the payer resides;                       such as expected amount, value date, etc.               •
Source: Website of NABARD
                                                                                                         Banking events updatE ♦ March 2010 ♦ 11

      Lead Bank Scheme - Report of High Level Committee
                                                                                                       USEFUL BOOKS
The Scheme was introduced by RBI in 1969 when designated banks were made key instruments                FOR BANKERS
for local development. The LBS underwent significant transformation in 1989 when the Service
                                                                                                     Handbook on Banking : 300.00
Area Approach was dovetailed into the scheme. Subsequently, the restrictive provisions were          Information (30th Edn
removed in 2004, except for the Govt Sponsored programs. As at March 2009, there were 26             Jan 2010) by N S Toor
banks, which have been assigned lead responsibility in 622 districts of the country.
The High Level Committee (Chairperson: Smt. Usha Thorat) was set up by RBI to improve the            Bank Lending (Edn : 2003) : 500.00
effectiveness of the Scheme with a focus on financial inclusion and recent developments in the       by Arun Chatterjee
banking sector. The Committee submitted its final report on August 20, 2009, to RBI.                 Model Test Papers for : 165.00
                        Major recommendations of the Committee                                       Bank Promotions Edn
Roadmap for Financial Inclusion: A Sub-Committee of the District Consultative Committee              August 2009 by N S Toor
(DCC) may draw up a road map to provide services through a banking outlet (in any form, such         Credit     Management : 400.00
as, brick and mortar branch, mobile banking, extension counters, satellite offices or Business       (2004) Arun Chatterjee
Correspondents) at every village with a population of over 2000 at least once a week on a
                                                                                                     Banking       Problems/ : 250.00
regular basis. By March 2010, the Sub-Committee should come out with a time frame within             Rationales     including
which this can be achieved and the time frame to cover all villages having population of more        Situational Analysis(2008)
than 2000 with a banking outlet should not be later than March 2011. In States where the             by Arundeep/ N S Toor
banking penetration is better, the date may be suitably advanced.
Role of State Governments: State Governments should ensure road and digital connectivity             Handbook for                Bank : 275.00
                                                                                                     Managers (2008)            by LN
to all centres where penetration by the formal banking system is required, expedite use of IT
solutions for disbursal of National Rural Employment Guarantee Act (NREGA) and social security
payments and extend support to banks in the recovery of their dues.                                  Analysis of Balance
Preparation of State /District Level Plan: A one-time comprehensive State /District Level            Sheet (6th Edition 2008) : 150.00
Development Plan should be formulated for all the districts that should identify the enablers and    by N S Toor
impeders for banking development and indicate the specific actions to be taken by banks, State       Credit Risk Management
Governments and other stakeholders to ensure banking development for inclusive growth.               by Arundeep/ N S Toor              : 225.00
Strengthening SLBC and DCC Machinery: The Chief Secretary of the State concerned
                                                                                                     Mannual of Foreign
may co-chair the meetings of the SLBC, along with the CMD of the convenor bank. The Chief
                                                                                                     Exchange               : 250.00
Minister/ Finance Minister may be invited to attend and chair the meetings periodically, say at
                                                                                                     R S Arora (Edn - 2005)
least once a year, when there are major policy issues on the agenda. The Deputy Governor/
Executive Director of the Reserve Bank may participate in the SLBC meetings on a selective           Book-Keeping & Eco-
basis. In view of the large membership of the SLBC, it is desirable for the SLBC to constitute sub   nomics for Bankers (Edn : 150.00
committees for specific tasks. At the District Consultative Committee (DCC) level, sub committees    2005) by N S Toor
as appropriate may be set up to work intensively on specific issues and submit reports to the        How to face Bank Inter-
DCC for its consideration.                                                                           views?    (Edition 2010) : 250.00
Role and Set-up of LDM’s Office: The Committee recommended strengthening of the office               by N S Toor
of LDMs, posting persons of appropriate level and attitude as also providing appropriate
infrastructural support, it being the focal point for implementation of Scheme.                      Hkkjrh; cSafdax &fof/k] ijEijk
Financial Literacy and Credit Counselling: Each Lead Bank should open a Financial Literacy           ,oa Uk, vk;keu-l- rwj              : 300.00
and Credit Counselling centre in each district by following the recent guidelines issued by RBI.     (7th Edition Aug 2009)
Quarterly Public Meeting at District Level for Awareness and Feedback: The Lead
                                                                                                     JAIIB/CAIIB BOOKS : NEW SYLLABUS
District Manager may convene a quarterly public meeting at various locations in the district
where the Reserve Bank, banks having presence in the area and other stakeholders are                 (Objective Type - 2009 Edition)
present to generate awareness of the various banking policies and regulations relating to the        Principles of Banking              : 150.00
common person, obtain feedback from the public and provide grievance redressal to the extent         Accouning & Finance               : 125.00
possible at such meeting or facilitate approaching the appropriate machinery for such redressal.     Legal Aspects of Banking          : 125.00
Initiative for Urban Areas: Banks having the largest presence in each city with more than            General Bank Management            : 150.00
one million population (to start with) may take the leadership in convening a meeting of bankers
                                                                                                     Financial Management              : 125.00
and allocating responsibility for various wards to different banks, to ensure that all urban
households have easier access to banking services.                                                   Risk Management                     150.00
                                                                                                     All these books are by:
Greater Role for Private Sector Banks: Private sector banks should involve themselves
                                                                                                     Arundeep Toor & N S Toor
more actively by bringing in their expertise in strategic planning and leveraging on information     (For detailed studies enrol to
technology. The Lead Banks, on their part, should also ensure that private sector banks are          our correspondence course)

more closely involved in the Lead Bank Scheme, both while drawing up and in implementing the
Annual Credit Plans.
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Revised PSMIS reporting system: The Committee suggested implementation of revised
Priority Sector Monitoring and Information System (PSMIS) on a pilot basis in one/two States                               OR
initially and thereafter extending to the rest of the country with effect from April 1, 2010. The
Committee has also suggested constitution of a small Working Group by the Reserve Bank of
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                                                                                                       1/5, Bhagat Singh Lane, Gole Market,
India to formulate the modalities and work on implementation of the revised framework.
                                                                                               •      New Delhi-110 001 (Ph- 011 2336 1966)
12   ♦ Banking events updatE ♦ March 2010

Problem-1 : A & B, a partnership firm, has opened a Current                                      ROBLEMS ON
Account on Dec 27, 2009 and given Power of Attorney to C, to
operate the account and sign cheques on behalf of the firm. On
                                                                                                RACTICAL BANKING
19.12.2009 the bank received a cheque of heavy amount, issued                loan are required to be taken which include,
to a builder and signed by C. It is observed that the date of                obtaining relevant documents, inspection of the
cheque is prior to the date of opening of the account. What will             property, examination of the repayment capacity
the bank do in this case?                                                    of the borrower with reference to his current/
Solution: The cheque has to be returned as unpaid. When an                   future income level and verification of
ante-dated cheque is issued by the drawer, it is a valid cheque              encumbrance etc. on the flat.
and it shall be paid during its validity period, irrespective of the         Problem - 4: A locker was rented out to A & B on
fact that the cheque is dated prior to date of opening the account.          Either or Survivor basis. A has died. You have
But the agent can exercise his authority to sign a cheque from               been approached by B for operating the locker.
the date, he is given authority and not earlier. Section 118 of NI           In the meanwhile, C (legal heir) has approached
Act assumes that a cheque is deemed to be written on the date,               your branch informing that he has already applied
written on the cheque.                                                       for the succession certificate and B should not
In this case, the cheque signed by C, the agent is dated prior to            be allowed to operate the locker. Immediately
the date, when he was given authority to sign the cheque. He has             thereafter, you are approached by D (nominee)
used the authority given to him unauthorisedly . Hence, the cheque           who claims his right to operate the locker. What
cannot be paid. Had this cheque been signed by the drawer                    would you do?
himself, it would have been paid.                                            Solution: B will be allowed to have access to the
Problem-2: A sub-inspector of Police Station Vile Parle, Mumbai              locker and take the articles from the locker. In
has approached your branch for examining some ledger entries of              case of either or survivor joint locker holders, on
Mr A, who has been charged for embezzlement of funds etc. The                death of one of the locker holder, the locker can
sub-inspector carries a letter from the Station House Officer of             be accessed by the surviving locker holder only.
the Police Station.                                                          The nominee has a role only in case of jointly
Solution: The sub-inspector can be permitted to look into the                operated joint locker accounts, where the
ledger entries relating to Mr. A.                                            surviving locker holder and the nominee are to
                                                                             be allowed to access to the locker. The legal heirs
As per provisions of Section 91 (I) of Criminal Procedure Code, a            do not have any role in such case. However, if
court OR any officer-in-charge of a police station may issue a               there is a court order, the bank will comply with
written order for production of documents in connection with                 the court orders. In case of lockers, the
trial or investigation and in compliance thereof, the bank may               succession certificate is not applicable, as it is
part with true copy any document, book or information.                       not a debt. In such cases, the letter of
If the bank allows the sub-inspector to look into the ledger account         administration is the relevant document.
of Mr. A, it shall be disclosing the information relating to a customer,     Problem-5: A partnership firm, a small scale
under provisions of Law and shall not be held responsible for loss           enterprise, has been sanctioned CC working
if any. Bank however, must ensure the identity of the sub-inspector          capital limit of Rs.150 lacs. The account is running
from Police Station before permitting him to examine the ledger              regular in all respects and is profitable for the
account containing such transactions.                                        branch. The firm has requested you that in view
Problem-3: Mr A executed a power of Attorney in Dubai in favour              of the growing business demand, the CC limit be
of Mr. B. Mr B has entered into an agreement of selling the flat             increased to Rs.200 lacs. Their estimated sales
situated at Mumbai to Mr. C. Mr. C has approached your branch                for March 2010 are Rs.10 crores. What option does
for sanction of housing loan for purchasing the said property.               the bank have?
You are required to comment on the following:                                Solution: The limit can be considered for
i) Validity/Invalidity of the power of attorney in India. If valid,          enhancement from Rs.150 lac to Rs.200 lac.
steps to be followed in India.                                               As per provisions of RBI guidelines on the basis of
ii) In case you agree to sanction the Housing Loan, steps to be              Nayak Committee Recommendations, under the
taken in the matter.                                                         turnover method, the working capital of such firms
Solution: (i) The power of attorney signed outside India is a valid          is to be assessed at minimum 25% of the projected
document, assuming that it has been got stamped in India as per              sales. This will be financed as 5% margin from
provisions of Indian Stamp Act 1899. A document inlcuding a power            borrower and minimum 20% bank limit. Bank will
of attorney, signed outside India and to be used in India, is                has to satisfy itself about the reasonableness of
considered a valid document, but proper stamp duty should be                 the projected sales for which it will have to make
paid within 3 months of the entry of the document in India. In this          proper assessment of the current market
case, if the party has still not paid the stamp duty, it needs to be         conditions relating to the product in which the
advised to complete this process, within the given time schedule.            firm has been dealing. The proposed limit will also
                                                                             be required to be secured collaterally.
(ii) As regards the housing loan, normal steps for providing the

*Based on Punjab & Sind Bank promotion exam for scale II to III - Dec 2009
                                                                                                           Banking events updatE ♦ March 2010 ♦13
  the Insurers to publish the balance Sheet, Profit and Loss Account and Key
                                                                                            Diary of
  Analytical ratios on a Half-yearly basis . The Disclosure norms would be effective         Events
  from the period ended March 31,2010.
                                                                                          • SEBI FREZES REGISTARATION OF MULTI-
• MOODY’S DOWNGRADES INDIAN BANKS’ HYBRID SECURITIES:                                       CLASS INVESTORS: SEBI has shut its doors on
  International Rating Agency, Moody’s downgraded the ratings of some Indian                several foreign funds amid concerns that they
  Banks’ hybrid securities in line with its revised guidelines for Rating Bank Hybrids      turn out to be vehicles for round tripping of money
  and Subordinated debt. The rating outlook for all Indian Banks affected is Stable.        by local residents. SEBI is taking a closure look at
• ECB, BOE HOLD KEY RATES AT RECORD LOWS: The European Central Bank                         the structure of new investors as well as those
  and Bank of England kept interest rates at record lows as financial markets looked        seeking renewals following misreporting of
  for guidance on growing euro zone debt problems. The ECB maintained its main              transactions by Blue Chip Foreign Institutional
  lending rate at 1.0% while the BOE rate stayed at 0.50 %.                                 Investors (FIIs).
• FED HIKES DISCOUNT RATE: The US Federal reserve made its first interest                 • FITCH REAFFIRMS INDIA RATINGS: Fitch
  rate move since December 2008, hiking an emergency lending rate it charges                Ratings has affirmed India’s Sovereign Ratings at
  banks, but insisted borrowing costs would not rise for consumers. The Fed cast its        “BBB”. The outlook on the Long Term Foreign
  decision to raise the discount rate to 0.75% from 0.5% as a response to improved          Currency IDR is Stable. The Short-term Foreign
  financial market conditions.                                                              Currency IDR is affirmed at “F3” and the Country
• PLAN PANEL OPPOSES CSR CONCEPT: The Planning Commission has rejected                      ceiling at “BBB”.
  the concept of Corporate Social Responsibility (CSR) credits proposed by the            • CO’S OVERSEAS BORROWINGS: Indian
  Corporate Affairs Ministry saying that if the focus is on the money spent on CSR          Corporates collectively raised almost as much
  activities, it will lead to scams. Instead, it has mooted a National Business             money via External Commercial Borrowings (ECBs)
  Responsibility Framework to assess how companies run their business and fix               in the first nine months of the current financial
  responsibility to investors, shareholders, environment and the local community.           year($13.83billion) as in the corresponding period
• CBDT FOR FOOLPROOF IT REFUND SYSTEM: The Central Board of Direct                          last year. However in the month of December2009,
  Taxes (CBDT) has said that all High-value Refunds issued during the current fiscal        Indian Companies raised $1.56 billion via ECBs
  will be cross-verified . Also, the system of handling high-value refunds will be          against $1.66 billion in the year ago period.
  replaced with a more robust and foolproof system.                                       • FOREIGN TRADE DATA - Apr-Dec 2009:
• DRUK-PNB –SUBSIDIARY IN BHUTAN: Druk-PNB, Overseas Subsidiary is                          Exports 147569 Million (117587 in the previous
  slated in Bhutan for Jan.27. PNB would hold a 51% stake while Bhutanese                   year) US$, Imports 253809 Million USD (193829)
  Promoters with 19% stake with balance 30% to be offloaded to the Public.                  and Trade deficit 106240 million USD (76242).
• SAT RULING ON VETO RIGHTS: In a Landmark Judgment, the Securities                       • FARM TARGETS TO BE DELINKED FROM
  Appellate Tribunal (SAT) shot down the stand of the Market Regulator SEBI that            INFRA LOANS: During 2008-09, 13 out of 27
  Veto Rights constituted “Control” of the company. The Tribunal has ruled that             Public Sector Banks had failed to meet their
  Veto Rights of Shareholders do not mean control over the company.                         agriculture lending obligation, although all but one
• CBDT EXTENDS TIME LIMIT FOR ITR-V FORM: The Central Board of Direct                       (Central Bank of India) met the overall 40%
  Taxes (CBDT) has extended the time limit for filing of ITR-V, which is the Form           Priority Sector Lending target. Among Private
  relating to Income Tax Returns filed electronically (Without digital signature) . For     Sector Banks,15 of the 22 Lenders did not meet
  Returns to be filed on or after April1,2009, the CBDT has extended the time limit         their farm loan obligation. Hence banks want that
  to March 31,2010,or within 120 days from the date of uploading of the electronic          Farm targets to be delinked from Infra loans.
  data whichever is later.                                                                • POWER SECTOR LENDING TO BE RAISED
• NOD FOR CHANGES IN NORMS FOR SME CLUSTER: The Cabinet Committee                           THRESHOLD: The Govt has urged the RBI to
  on Economic Affairs approved modifications in the guidelines for Micro and Small          pave the way for Banks to step up their power
  Enterprises-cluster development programme. Enhancement of the Project cost                sector lending threshold so that greater liquidity
  for Infrastructure development has been doubled to Rs.10 Crore with the                   is injected into the System and facilitate more
  Government contribution of 60% . Similarly, the maximum project cost for Soft
  Intervention has been enhanced to Rs.25 Lakh from Rs.10 Lakh earlier with the
  Govt. contribution of 75%.
                                                                                                CLASS ROOM COACHING
• NABARD SANCTIONS UNDER RIDF: NABARD has sanctioned Rs.197.51 Crore                              BANK PROMOTION EXAM
  under RIDF, including Rs.187.32 Crore under RIDF XV and about Rs.10 Crore for                            by
  cost escalations in respect of earlier trenches to the West Bengal Government.
• SPECIAL SCHEME OF LAPSED LIC POLICIES: LIC has unveiled a special scheme
  to revive lapsed policies in a bid to boost business. Scheme is a good initiative
                                                                                                 N S TOOR & AK GUPTA*
  since it will allow all customers whose policies have lapsed due to unforeseen                   *Director, Bankers' Training
  reasons to revive their policies on easy terms.                                                       Institute, New Delhi
• US ECONOMY SURGES-FASTEST IN SIX YEARS: The Economy in the US                            We conduct class room coaching programs for
  expanded in the fourth quarter at the fastest pace in six years as factories             various scales (Clerical to Asstt. General Managers) in
  cranked up assembly lines to prevent inventories from plunging. The 5.7% increase        banks such as SBI associate Bank, PNB, BoB, BoI,
  in GDP marked the best performance since the third quarter of 2003.                      Canara Bank, CBI, Union Bank, OBC, Vijaya Bank,
• ROADMAP FOR FISCAL CONSOLIDATION: RBI has said that in the interest of                   Corpn Bank etc. The programs are conducted in
                                                                                           Chandigarh, Delhi, Lucknow, Jaipur, Mumbai, Patna,
  transparency and predictability, the Government should ideally do two things –
                                                                                           Indore, Hyderabad and other centres.
  First, indicate a Roadmap for fiscal consolidation and Second, spell out the broad
                                                                                           Our results : Because of focussed attention and the
  contours of tax policies and expenditure compression that will define this roadmap.
                                                                                           hardwork many of our candidates have topped the
                                                                                           selection lists and bagged most of the top positions.
14    ♦ Banking events updatE ♦ March 2010                                                                                    DIARY OF EVENTS
    Greenfield power ventures. At present, nearly all banks have                  entrepreneurs under a new scheme 'SBI SMILE' which is specially
    saturated their permissible exposure limit with regard to power               targeted to encourage small and medium enterprises in the
    sector.                                                                       country. The scheme will be in place initially for one year after
•   NCDEX NOT UNDER RTI ACT: The Central Information                              which the Bank could extend it if the situation warrants.
    Commission has held that National Commodity & Derivative                  •   SUPREME COURT RULING ON DIRECTORS LIABILITY: The
    Exchange (NCDEX), which trades in agricultural commodity                      Supreme Court has ruled that not all directors are liable for
    futures, does not come under the ambit of RTI Act and is not                  dishonour of cheque u/s 141 of the Negotiable Instruments Act.
    liable to provide information under it.                                       Only those persons who were in charge of and responsible for
•   CHINA - WORLD’S NO. ONE EXPORTER: Germany’s multi-year                        the conduct of the business of the company at the time of
    reign as the world’s No. 1 exporter is officially over, with the              commission of an offence, will be liable for criminal action.
    crown formally passing to rising Asian power China after new              •   SUPREME COURT RULING ON MISCONDUCT PUNISHMENT:
    figures showed that German exports slid by nearly a fifth in                  The Supreme Court has ruled that denial of the inquiry Report to
    2009, the biggest decline in 60 years.                                        a Bank Employee who faces punishment for misconduct, by itself
•   FDI REGIME EASED: The Government has permitted the Foreign                    would not render the punishment illegal. The delinquent employee
    Investment Promotion Board (FIPB) to clear proposals with a                   has to show, in addition that the denial had caused prejudice to
    total foreign equity investment of up to Rs.1200 Crore to                     him and led to miscarriage of justice.
    encourage faster processing of foreign investment proposals.              •   RBI TURNS RULINGS ON CUSTOMER COMPLAINTS: RBI
    Until now, the FIPB could only approve proposals with a total                 has advised the Public sector banks to recalculate the interest
    project cost of Rs.600 Crore. The Cabinet Committee on Economic               rate on all housing loans as per the agreements with the customers
    Affairs clears proposals above this threshold.                                even though the borrower had not applied for relief. Bank has to
•   INDUSTRIAL SECTOR REGISTERED RECORD GROWTH:                                   reverse the amount debited from the customer’s savings account
    Official Index of Industrial Production (IIP) shows a Record growth           as insurance premium for group insurance scheme without the
    of 16.8% in Dec, beating all expectations and throwing up the                 customer’s consent.
    possibility of the country’s GDP growth for 2009-10 turning out           •   POOR CUSTOMER SERVICE TO COST BANK DEAR: According
    higher than the 7.2% projected earlier this week. The 16.8%                   to the RBI Report, Banks with poor customer service standards
    year-on-year increase in Dec has been partly on account of a                  have to set aside more capital. The Regulator has also asked
    low base: the same month of 2008 actually saw a negative growth               banks not to discriminate to lending rates between old and new
    of 0.25%.                                                                     customers if they fall in the same risk category.
•   CHINA RAISES BANK RESERVE REQUIREMENT: China                              •   E-PAYMENT FLOOR FOR EXCISE DUTY: The Central Board of
    ordered Banks to set aside more deposits as Reserves, second                  Excise and Customs (CBEC) have stipulated that Internet Banking
    time in a month, to cool the fastest growing economy, after loan              should be the payment mode for all Central Excise Assesses that
    growth accelerated and property prices surged. The Reserve                    fork out Rs.10 Lakh or more (Including the Cenvat Credit
    requirement will increase 50 basis points effective Feb 25. The               utilization) in a preceding financial year. Hitherto, E-payment of
    current level is 16% for big banks and 14% for smaller ones.                  excise duty was mandatory only for those central excise assesses
•   BORROWERS TO GET DETAILED LOAN STATEMENTS:                                    that paid excise duty of Rs.50 Lakh and above (Other than
    Currently, savings bank and current account customers and those               cenvet credit utilization) in a financial year.
    enjoying cash credit/overdraft limits can know transaction details        •   NABARD CUTS INTEREST RATES: NABARD cuts interest rates
    in their accounts by periodically updating their passbook or by               on refinance for investment credit by 75 basis points by
    getting a statement. IBA has advised all banks that once a year               commercial banks and 50 basis points for Cooperative Banks and
    term loan borrowers should get a statement .                                  RRBs. The revised interest rates will be 7.255 for commercial
•   SEBI DIRECTIONS ON LIQUID PLUS SCHEMES: SEBI has                              banks and 7% for co-op. and RRBs up to 28th February.
    directed Mutual Funds to value money market and debt securities           •   NSE TIGHTENS NOOSE ON MONEY LAUNDERING: NSE has
    with maturity over 91 days – the instruments that constitute this             tightened its penalty structure for erring market participants to
    scheme- on mark-to-market basis. The step would result in higher              curb money laundering in stock markets. It would impose a fine
    volatility in returns from such schemes and could dramatically                of Rs.1 lakh on stock brokers for non compliance of the Prevention
    reduce their attraction among bank treasurers and CFOs who                    of Money Laundering Act (PMLA).
    are always fishing for higher returns.                                    •   BANKS TO BE FINED FOR LOAN PREPAYMENT: Anti-Money
•   REPAYMENT PENALTY : The Competition Commission of India                       watchdog CCI has said that it is likely to fine banks or ask them to
    (CCI) had sent notices to at least 15 banks, NBFCs and IBA                    stop the practice of imposing penalty on borrowers for prepaying
    seeking explanation on why they penalise borrowers who choose                 loans if the lenders are found guilty.
    to foreclose loans, to sustain and promote competition. Banks             •   SBI REVIVES VILLAGE ADOPTION SCHEME: Village adoption
    have shown concern over CCI’s intervention on home loan pre-                  scheme was introduced by the banks in 1960 in India with a view
    payment penalty, as they fear this would put pressure on costs,               to enhancing their visibility besides encouraging agri-lending in a
    increase risk and even lead to higher lending rates.                          cost-effective manner. With the passage of time the scheme
•   GOVT. TOUGH ON FINANCIAL INCLUSION: According to the                          faded away. Now SBI has taken a new initiative under its
    Govt, private sector banks failing to carry out the financial inclusion       corporate social responsibility programme to revive the scheme
    mandate, including extending banking services to rural areas,                 rechristing it as “SBI Ka Apna Gaon”.
    could be “de-penalized” from Govt. businesses and projects.               •   RBI ALLOWS BANKS TO TAKE OVER WEAK URBAN CO-
•   FCCB CONVERSION PRICE: The Govt has allowed the companies                     OPS: RBI has issued guidelines for amalgamation of weak Urban
    that issued foreign currency convertible bonds (FCCBs) before                 Co-operative Banks with Commercial Banks. As per guidelines,
    November 27, 2008, to reset the FCCB conversion price to a                    where proposals for amalgamation within the UCB Sector are not
    level that is as close as possible to the market price.                       forthcoming, RBI may consider transfer of assets and liabilities
•   SBI TURNS VENTURE CAPITALIST TO LEND: SBI will provide                        (Including Branchless) of UCBs having negative net worth as on
    interest-free Seed Capital of up to Rs.10 Lakh to aspiring                    March 31 2007 to Commercial Banks with DICGC support.
     Compilation : SP Sharma & Sapandeep Toor       Source : Financial Newspapers, Financial News-Magazines & Financial and Institutional Web-sites
                                                                                                                                   Banking events updatE ♦ March 2010 ♦15
                                                                    revolutionized the world, has been                       Organisation, in most parts of the World,
   GENERAL AWARENESS                                                nominated for the “2010 Noble Peace                      including India, Women are way behind
• Vijay Mallya-led United Spirits, the No.1 Spirits                 Prize”.                                                  Men in ownership of Farm Land.
  Company in India , has emerged as the World’s                 •   According to the Chief Statistician, the             •   According to the World Gold Council, while
  2nd Largest Spirits Firm in terms of volume .                     Fiscal deficit will come down to 6.41%                   higher prices have been keeping demand
• Gujarat High Court indicated that Hindi is not                    against the estimated 6.8%, as GDP would                 for domestic gold low, the India turned Net
  the National Language. The Constitution only                      be larger in the new series for calculating              Exporter of Gold in the first quarter of 2009.
  describes it as the “Official Language”.                          national income                                      •   US Regulators have seized Four more US
• Padma Shree Awards - Former ICAI                              •   Mr. Partha S. Bhattacharya, Chairman                     Banks bringing the total for the year to 20.
  President, Mr. T.N.Manoharan and Chairman of                      of Coal India Ltd. Was conferred with “CEO           •   Four listed Public Sector Giants
  TVS Motor Company, Mr. Venu Srinivasan.                           with HR Orientation” Award by the Council                (ONGC,IOC,SAIL & NTPC) have qualified
• Padma Vibhushan Awards - Former RBI                               of World HRD Congress during the Global                  for the status of Maharatnas, to be conferred
  Governor, Dr. Yaga Venugopal Reddy, Founder                       HR Excellence Awards Ceremony2010 in                     for the First time by the Government.
  of Apollo Hospitals, Dr. Pratap Chandra Reddy.                    Mumbai.                                              •   MTNL has been designated as the Telecom
• Padma Bhushan Awards - Actor Amir Khan,                       •   Nepal’s Head of State dispensed with a                   Service Provider for the Commonwealth
  Promoter of Leela Group of Hotels, Captain                        centuries-old tradition having five virgin               games.
  C.P.Krishnan Nair.                                                girls bid him goodbye as he left on a foreign        •   Delhi Airport has been ranked the Fourth
• The President had approved 130 Awards. In                         visit.                                                   Best in the World by the Airport Council
  all, 6 Padma Vibhushan, 43 Padma Bhushan and                  •   Swiss Ski Jumper Simon Ammann                            International.
  81 Padma Shri Awards have been given.                             won the First Gold Medal of the 2010                 •   SEBI has constituted a six member
• The Indian School of Business (ISB) has                           Winter Olympic Games.                                    committee under the chairmanship of Dr.
  been ranked 12th in the Global B-School                       •   The Asian Development Bank (ADB)                         Bimal Jalan, former Deputy Governor of RBI
  Rankings.                                                         has a new Country Director for India in                  for a review of Stock exchanges ownership
• Pop Star Justin Timberlake of UK has been                         Mr. Hum Kim, a South Korean National .                   and governance structure.
  given the Rare Honour of Hasty Pudding man                    •   For the US, China remains the Top Trading            •   The Indian Statistical Institute ,New Delhi
  of the Year at Harvard University.                                partner for the IPR (Intellectual                        has been ranked the Top Economics
• As per Haryana Govt. Notification, Punjabi                        Property Rights) violations followed by                  Department in the country.
  is Second Official Language in Haryana.                           Hong Kong in the second Place and India              •   India Inc’s mergers and acquisitions saw
                                                                    Third during 2009.                                       a significant upturn in January with the deal
• India ranks 123rd in 2010 Environmental
  Performance Index (EPI), while Iceland leads                  •   In a bid to help fill scientific knowledge               ally touching $2.5 billion , jumping 42% over
  the World in addressing pollution control and                     gap at the sub-regional level, India for the             the same period of last year.
  natural resource management challenges .                          First time has agreed to provide key                 •   The Unique Identification Authority of
                                                                    institutional inputs to the UN Inter-                    India (UIAI)has selected Ernst & Young as
• Postage stamps depicting Hindu Gods and
                                                                    governmental Panel on Climate Change .                   Consultants to develop the technological
  Goddesses have been launched for the First
  Time in the US taking the benefit of a six year               •   Mr. Deepak Parekh, Chairman of                           roadmap for its UID Project.
  old law of the US Postal Service that permits                     HDFC, has been awarded the Outstanding               •     The Great Gane Giant George (All 43
  issuing of customized postages.                                   Achievement Award by the Institute of                    inches-(1.09 meters) tall and 111 KG –has
                                                                    Chartered accountants in England and                     been named the World’s Tallest Living Dog
• UK Scientists have claimed that they have
                                                                    Wales for 2010, in recognition to the finance            ever by Guinness World Records.
  created the World’s Most Precise Clock based
                                                                    and accountancy profession.
  on the oscillation of a trapped aluminium-27                                                                           •   Business Standard Journalists Satyawanti
  atom.                                                         •   Dr. V.K.Saraswat, distinguished missile                  Kaur and Byravee Iyer have won the “Dr.
                                                                    scientist and scientific advisor to the                  Ram Tarneja Award” conferred by AIMA for
• Indian American Pulitzer Prize-winning
                                                                    Defence Minister, has been selected for the              the Best Article of 2009.
  author Jhumpa Lahiri has been appointed as
                                                                    Dr. Y. Nayudmma Memorial Award for 2009.
  a member of US President Barack Obama’s                                                                                •   The number of telephone subscribers in
  Committee on the Arts and Humanities.                         •   Sector-17 Police Station in                              India has increased to 581.81 million at the
                                                                    Chandigarh has received the distinction                  end of January from 562.21 million in
• India bagged three Gold and two Bronze
                                                                    of being the Second Best Police Station in               December, registering a growth of 3.49%.
  Medals in Wushu (Bangladesh) in South Asian
  Games.                                                                                                                 •   The Multi Commodity Exchange (MCX)
                                                                •   According to the Dubai Tea Trading                       claims that it has become the Sixth Largest
• India successfully test-fired its indigenous Agni-
                                                                    Centre (DTTC), Dubai remains the                         and amongst the fastest growing Commodity
  III Ballistic Missile with a range of 3500 KM
                                                                    Second Largest Destination for both the                  Futures in the world in terms of the number
  from the Wheeler Island Off the coast of Orisa,
                                                                    Indian and Sri Lanka tea.                                of contracts traded in 2009.
  making the nuclear –capable platform ready
  for induction into the Armed forces.                          •   Out of 36 Public Sector Enterprises                  •   The Government has said that NHAI has
                                                                    that were identified as sick in 2004, around             decided to put up Display Boards on all
• The Asian Development Bank has issued $2.5
                                                                    19 have started posting profits.                         ongoing/ completed projects at every 25 KMs
  billion bonds in the US market to boost its capital
  resources.                                                    •   According to the P.M’s Office clarifications,            on both sides, with a view to display project
                                                                    there is no Performance Monitoring                       related information.
• Fitch Ratings’ outlook for the Indian Power
                                                                    System (PMS) for the Ministers but they              •   Sachin Tandulkar celebrates his 200 runs
  Sector for 2010 remains stable to negative. On
                                                                    have to prepare a Results-framework                      against South Africa exactly after 22 years
  the positive side, the demand-supply balance
                                                                    Document (RFD)                                           and he is the Highest Run-Getter in ODIs
  will continue to remain tight in 2010.
                                                                •   According to the Food and Agriculture                    with 17,598 runs.
• Officially, “The Internet”, which has virtually
 Disclaimer : We have taken every care to provide information, we believe to be accurate                                         We strongly believe that the subscribers
 and reliable and do not assume responsibility of any kind nor shall be liable for losses &                                      are the best consultants, we have. Based
 consequence arising from use thereof. Since this information is based on the published                                          on their feed back, we keep on redesigning
 reports mostly, correctness or otherwise thereof may be verified by the user with the                                           and restructring this publication. Kindly
 original sources, in advance. .......................................................................Editor                     send your suggestions and views.

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16 ♦ Banking events updatE ♦ March 2010
                                                     compensation relating to administrative           completion of a batch has been
                     MOCK-TEST                                                                         introduced wef 1.3.2010.
                                                     functions in corporate office, directors’
                       PAPER                         and auditors’ fees, legal and premises         a T+1
   Question based on latest policy                   expenses, depreciation, cost of printing       b last batch of the same day
01 How many categories are there of non-             and stationery, expenses incurred on           c two hours (B+2)
   bank finance companies as per RBI                 communication and advertising, IT              d first batch of the next date
   guidelines?                                       spending, and cost incurred towards
                                                                                                    16 What are the operating hours of NEFT
                                                     deposit insurance;and (iv) profit
a two                                                                                                  wef 1.3.2010:
b three                                                                                             a normal day 9 am to 5 pm and Saturday
                                                a    a, b and c only
c four                                                                                                 9 am to 1 pm
                                                b    a, c and d only
d five                                                                                              b normal day 9 am to 7 pm and Saturday
                                                c    b, c and d only                                   9 am to 1 pm
02 Which of the following has been
                                                d    a to d all                                     c normal day 9 am to 5 pm and Saturday
   recognised as the new type of NBFCs, by
   RBI during 2010:                             09   The minimum rate for all commercial               9 am to 12 noon
                                                     loans wef 1.4..2010, that banks can            d normal day 9 am to 7 pm and Saturday
a asset finance companies
                                                     charge is:                                        9 am to 12 noon
b infrastructure finance companies
                                                a    cost of funds + 2%                             17 What is the no. of batches that take
c loan companies
                                                b    bank rate + 4%                                    place at NEFT wef 1.3.2010 : (a) 11
d investment companies
                                                c    base rate                                         hourly settlements (9am to 7 pm) on
03 An infrastructure finance company is
                                                d    benchmark prime lending rate                      normal day (b) 5 hourly settlements (9
   required to deploy __% of its total assets
   in infrastructure loans:                     10   For loans up to Rs.2 lac, the banks can           am to 1 pm) on Saturday (c) 9 hourly
                                                     charge maximum interest rate of:                  settlements (9am to 5 pm) on normal
a 50%
                                                a    equal to BPLR                                     day (b) 4 hourly settlements (9 am to
b 51%                                                                                                  12 noon) on Saturday:
                                                b    base rate
c 74%                                                                                               a a and d
                                                c    Bank rate
d 75%                                                                                               b a and b
                                                d    discretion of banks
04 Which of the following condition should                                                          c b and c
   be satisfied by a company to be classified   11   Which of the following is the key
                                                     objective of migrating to base rate            d none of these
   as infrastructure finance company (a) net
   owned funds of Rs.300 cr or above (b)             system in fixing rate of interest for loans:   18 Regional Rural banks can establish a
   minimum credit rating A or equivalent (c)    a    transparency in the pricing of lending            regional office if the no. of their
   CRAR of 15% (d) Tier I capital of 10%:            products                                          branches ___ or more:
a a, b and c only                               b    appropriate compensation to banks              a 25
b a, c and d only                               c    availability of credit to borrowers            b 35
c b, c and d only                               d    all the above                                  c 50
d a to d all                                    12   Banks can announce their Base Rates            d 75
05 The present system of benchmark prime             after seeking approval from:                   19 What is the amount of Govt. of India
   lending rate (BPLR) has been reviewed        a    asset liability management committee              and RBI notes that can be imported from
   by a committee headed by during 2009:             (ALCO) of the bank                                outside India:
a CS Murthy                                     b    Board of directors of the bank                 a Rs.2000
b Deepak Mohanty                                c    Reserve Bank of India                          b Rs.3000
c N Kamath                                      d    India Banks’ Association                       c Rs.5000
d Usha Thorat                                   13   National Electronic Funds transfer uses        d Rs.7500
06 The base rate system is to replace the            which of the following, to assure end to       20 What is the amount of Govt. of India
   BPLR system with effect from:                     end security                                      and RBI notes that can be exported
                                                a    Public Key Infrastructure (PKI)                   outside India:
a Jan 01, 2010
                                                     technology                                     a Rs.5000
b Mar 31, 2010
                                                b    Indian financial network (INFINET)             b Rs.7500
c Apr 01, 2010
                                                c    SWIFT                                          c Rs.10000
d As per discretion of banks
                                                d    all the above                                  d Rs.20000
07 With effect from Apr 01, 2010, the banks
   can determine their actual lending rates     14   National Electronic Funds transfer uses        21 Which of the following States is included
   on loans and advances with reference              which of the following, to connect bank           in the list of under-banked States by
   to:                                               branches for electronic transfer of               RBI:
                                                     funds:                                         a Punjab
a prime lending rate
                                                a    Public Key Infrastructure (PKI)                b Haryana
b base rate
                                                     technology                                     c J&K
c benchmark prime lending rate
                                                b    Indian financial network (INFINET)             d Karnatka
d any of these
                                                c    SWIFT                                            Questions on base on External
08 Which of the following criteria can be
                                                d    all the above                                          Commercial Borrowing
   taken into account while fixing base rate:
   (i) cost of deposits; (ii) adjustment for    15   Under NEFT, in order to streamline the         22 Under External Commercial Borrowing,
   the negative carry in respect of CRR and          system and complete the processing                which of the following types of
   SLR; (iii) unallocatable overhead cost for        cycle on a near-real-time basis, the              commercial loans are covered if these
   banks such as aggregate employee                  concept of return within ____ of                  are raised from non-resident lenders:
                                                                                                                    Banking events updatE ♦ March 2010 ♦17
     (a) bank loans (b) buyer’s credit (c)                 export credit agencies, suppliers of                is:
     supplier’s credit, (d) securitized                    equipment, foreign collaborators and           a    100 basis points bovver 6 month LIBOR
     instruments:                                          foreign equity holders                         b    200 basis points bovver 6 month LIBOR
a    a, b and c only                                  27   Which of the following does not match          c    300 basis points bovver 6 month LIBOR
b    a, c and d only                                       with reference to the amount of ECB            d    500 basis points bovver 6 month LIBOR
c    b, c and d only                                       that can be raised by the eligible
                                                                                                          33   ECB funds can be used by the borrower
d    a to d all                                            borrowers under automatic route:
                                                                                                               for (a) import of capital goods (b) new
23   ECB can be accessed under:                       a    corporates other than in hotel, hospital            projects (c) modernization / expansion
                                                           and software sector – USD 500 million               of existing units (d) overseas direct
a    one route i.e. approval route
                                                           during a financial year                             investment in joint ventures / wholly
b    two routes i.e. automatic route and
                                                      b    corporates in hotel, hospital and                   owned subsidiaries
     approval route
                                                           software sector – USD 100 million during       a    a, c and d only
c    three routes i.e. automatic route,                    a financial year
     approval route, automatic-cum-approval                                                               b    a, b and d only
                                                      c    NGOs engaged in micro finance activities
     route                                                                                                c    b, c and d only
                                                           – USD 5 million in a financial year
d    4 routes automatic route, approval                                                                   d    a to d all
                                                      d    none of the above
     route, automatic-cum-approval route,                                                                 34   For which of the following the end use
     discretion route                                 28   What is the period of average maturity
                                                                                                               of ECB is not allowed:
                                                           for ECB up to USD 20 million or its
24   Which of the following can raise ECB                                                                 a    For on-lending or investment in capital
                                                           equivalent in a financial year:
     under automatic route:                                                                                    market or acquiring a company (or a part
                                                      a    2 years
a    corporates including in hotel, hospital,                                                                  thereof) in India by a corporate
     software sectors                                 b    3 years
                                                                                                          b    In real estate sector
b    individuals engaged in services                  c    5 years
                                                                                                          c    For working capital, general corporate
c    trusts and non-profit making                     d    borrower’s discretion                               purpose and repayment of existing
     organisations                                    29   What is the period of average maturity              Rupee loans
d    all the above                                         for ECB of above USD 20 million up to          d    all the above
                                                           USD 500 or its equivalent in a financial
25   Non Govt. organizations engaged in                                                                   35   To secure repayment of ECB, the banks
     micro finance activities are eligible to avail                                                            can issue which of the following on
     ECB, if they have a satisfactory                 a    2 years                                             behalf of the borrowers:
     relationship with the AD bank for:               b    3 years                                        a    bank guarantee
a    at least 2 years                                 c    5 years                                        b    standby letter of credit
b    at least 3 years                                 d    borrower’s discretion                          c    letter of undertaking or letter of comfort
c    at least 4 year                                  30   Which of the following ECB can have a          d    none of the above
d    maximum 2 years                                       call / put option provided the minimum
                                                                                                          36   Pending utilisation of funds for
                                                           average maturity condition is complied
26   Under automatic route for ECB, which                                                                      permissible end use, the borrowers can
                                                           with before exercising call / put option
     of the following can be a recognised                                                                      keep the ECB funds:
     lender:                                          a    ECB up to USD 5 million
                                                                                                          a    investment outside India in CDs of rated
a    international banks, international capital       b    ECB up to USD 20 million                            banks only
     markets, multilateral financial institutions     c    ECB up to USD 500 million                      b    remit the funds to India only
     only                                             d    all the above                                  c    investment outside India in treasury bills,
b    international banks, international capital       31   The ceiling on all in cost for ECB with             deposits of branches of Indian banks
     markets, multilateral financial institutions,         average maturity period of 3-5 years is:            abroad only
     export credit agencies only                      a    100 basis points bovver 6 month LIBOR          d    any of the above
c    international banks, international capital       b    200 basis points bovver 6 month LIBOR          37   Prepayment of ECB can be permitted by
     markets, multilateral financial institutions,    c    300 basis points bovver 6 month LIBOR               AD-I banks if the ECB is up to:
     export credit agencies, suppliers of             d    500 basis points bovver 6 month LIBOR          a    USD 20 million
     equipment only                                   32   The ceiling on all in cost for ECB with        b    USD 250 million
d    international banks, international capital            average maturity period of over 5 years        c    USD 500 million
     markets, multilateral financial institutions,

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 18 ♦ Banking events updatE ♦ March 2010
 d USD 1000 million                                                      b    USD 500 million                                               institution for maturity of less than three
 38 Which of the these statements is correct                             c    USD 500 million + USD 250 million                             years, to importers in India are called:
    ? (a) An existing ECB can be refinanced                              d    USD 500 million + USD 500 million                       a     Trade Credits
    by raising fresh (b) such fresh ECB is                               42   Under approval route, the corporates                    b     External Commercial Borrowing
    raised at lower all in costs (c) outstanding                              can avail ECB with a maturity period up                 c     Deferred borrowing
    maturity of the original ECB is maintained.                               to:                                                     d     any of the above
 a a and b             b           b and c                               a    3 years                                 47 Credit for imports into India extended
 c a and c             d           a to c all                            b    5 years                                    by the overseas supplier to Indian
 39 Under ECB, the borrowers can enter into                              c    7 years                                    importers for maturity of less than three
    loan agreement with lenders for raising                              d    10 years                                   years, are called:
    ECB under automatic route without prior
    RBI approval. But the before drawing                                 43 For which of the following purpose, the a buyer’s credit
    down the ECB, they are required to:                                     ECB under approval route is not allowed: b supplier’s credit
 a permission from SEBI                                                  a for on-lending or investment in capital c external commercial borrowing
                                                                            market or acquiring a company in India d deferred borrowing
 b obtain a loan registration number from
                                                                            by a corporate except banks / FIs         48 Loans for payment of imports in to India
                                                                         b real estate                                   arranged by the importer from a bank or
 c approval from Registrar of Companies
                                                                         c working capital, general corporate            financial institution outside India for
 d all the above
                                                                            purpose and repayment of existing rupee      maturity of less than three years.
 40 Which of the following is not covered                                   loans
    under the approval route for raising ECB:                                                                         a buyer’s credit
                                                                         d all the above                              b supplier’s credit
 a Financial institutions dealing exclusively
                                                                         44 Under approval route of ECB, the banks c external commercial borrowing
    with infrastructure or export finance
                                                                            can issue bank guarantee or standby LC d deferred borrowing
    such as IDFC, IL&FS, Power Finance
                                                                            or letter of comfort for which of the
    Corporation, Power Trading Corporation,                                                                           49 Which of the following is correct
    IRCON and EXIM Bank are considered,                                                                                  regarding approval of trade credits for
    on a case by case basis.                                             a special economic zone units
                                                                                                                         imports in India:
 b Banks and financial institutions which                                b small and micro enterprise
                                                                                                                      a AD banks can approve trade credit up
    had participated in the textile or steel                             c export oriented units                         to US 20 million per import transaction
    sector restructuring package as                                      d all the above                                 for permissible imports with a maturity
    approved by the Government are also                                  45 Conversion of an ECB into equity is          up to one year
    permitted to the extent of their                                        permitted in which of the following b AD banks can approve trade credit up
    investment in the package and                                           cases?                                       to US 20 million per import transaction
    assessment by Reserve Bank based on                                  a The activity of the company is covered        for import of capital goods with a
    prudential norms. Any ECB availed for                                   under the Automatic Route for Foreign        maturity above one year and less than
    this purpose so far will be deducted from                               Direct Investment or Government              3 years
    their entitlement.                                                      approval for foreign equity participation c AD banks cannot approve trade credit
 c ECB with minimum average maturity of                                     has been obtained by the company,            above US 20 million for import transaction
    5 years by Non-Banking Financial                                        wherever applicable,                      d all the above are correct
    Companies (NBFCs) from multilateral                                  b The foreign equity holding after such 50 What is the ceiling on all in cost for trade
    financial institutions, reputable regional                              conversion of debt into equity is within
    financial institutions, official export                                                                              credits for imports into India:
                                                                            the sectoral cap, if any,
    credit agencies and international banks                                                                           a 100 basis points above 6 months LIBOR
                                                                         c Pricing of shares is as per the SEBI and
    to finance import of infrastructure                                                                               b 200 basis points above 6 months LIBOR
                                                                            erstwhile CCI guidelines/regulations in
    equipment for leasing to infrastructure
                                                                            the case of listed/unlisted companies as c 300 basis points above 6 months LIBOR
    projects.                                                                                                         d 500 basis points above 6 months LIBOR
                                                                            the case may be
 d none of the above
                                                                         d    all the above
 41 Under approval route, the corporates                                                                                                                     ANSWERS
    can avail ECB up to:                                                 46 Credit extended for imports directly by                    01   c     02   b      03 d  04        d       05     b
                                                                            the overseas supplier, bank and financial                  06   c     07   b      08 d  09        c       10     d
 a USD 200 million                                                                                                                     11   a     12   b      13 a  14        b       15     c
                                                                                                                                       16   b     17   b      18 c  19        d       20     b
                                                                                                                                       21   c     22   d      23 b  24        a       25     b
                    Name:____________________________________________________                                                          26   d     27   d      28 b  29        c       30

                                                                                                                                       31   c     32   d      33 d  34        d       35     d
                    Address:__________________________________________________                                                         36   d     37   c      38 d  39        b       40
                                                                                                                                       41   c     42   d      43 d  44        b       45     d
                    _________________________________________________________                                                          46   a     47   b      48 a  49        d       50     b

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                                                                                                      Banking events updatE ♦ March 2010 ♦ 19

B      ANKING            NEFT-Refinement of Process Flow/Features                         c. A stand alone CPC that provides only fitness sorting
                                                                                          and authentication services (i.e. they shall collect
       POLICY           With a view to further strengthen the NEFT system, the
                                                                                          mixed notes from the bank branches in the morning
following refinements to process-flow and enhancements to operational features            and would return the same, after processing/
have been introduced wef Mar 01, 2010 (RBI Cir Feb 05, 2010) :                            authentication checking/sorting, in the evening as
(i) Tightening of Return Window –The concept of return within 2 hours of                  unfit notes, fit/issueable notes (ATM Fit/Counter Fit
completion of a batch has been introduced. This B+2 return discipline (instead of         and suspect notes).
earlier T+1 basis) requires bank to afford credit to beneficiary accounts                 To make CPCs viable and to take benefit of capacity
immediately upon completion of a batch or else return the transactions within 2           built up, the CPCs may also serve the branches of
hours of completion of the batch settlement, if credits are unable to be afforded.        other banks which may require its services and charge
(ii) Increase in Operating Hours – NEFT operating hours have been extended                from them a reasonable fee for the services rendered
from 9 am to 7 pm on week days and from 9 am to 1 pm on Saturdays.                        at mutually agreed rates. The stand alone CPCs could
(iii) Move to Hourly Settlements – There would be 11 hourly settlements                   also render services to others such as merchant
starting from 9 am to 7 pm on all week days and 5 hourly settlements from 9 am            establishments, petrol pumps, etc. handling large
to 1 pm on Saturdays.                                                                     volumes of cash against payment of fees.
(iv) Implementation of Positive Confirmation: A new message format                        Machines to be installed at CPC shall conform to Note
has been introduced to relay to the originating bank an acknowledgement                   Authentication and Fitness Sorting Standards
containing the date and time of credit, immediately after the credit is afforded to       prescribed by RBI (DCM). CPC shall be subject to
beneficiary accounts. This message flows from the destination bank / branch to            inspection by RBI at any time.
the originating bank / branch. The originating banks after receiving the positive             External Commercial Borrowings (ECB)
confirmation from the destination banks is to initiate a mobile SMS or generate an                       Policy - Liberalisation
e-mail to the originator to convey the fate of the transaction.                           a) Changes / modifications in the drawdown
          Interest Rates on Export Credit in Foreign Currency                             / repayment schedule : Designated AD Category
In consultation with Govt. of India, RBI has decided (Feb 19, 2010), to reduce            – I banks may approve changes / modifications in
the ceiling rate on export credit in foreign currency by banks to LIBOR / EURO            the drawdown / repayment schedule of the ECBs
LIBOR/EURIBOR plus 200 basis points from the present ceiling rate of plus 350             already availed, both under the approval and the
basis points with effect from Feb 19, 2010, on fresh advances. The banks will             automatic routes, subject to the condition that the
not levy any other charges viz. service charge, management charge etc. except             average maturity period, as declared while obtaining
for recovery towards out of pocket expenses incurred.                                     the Loan Registration Number, is maintained. The
Further, the ceiling interest rate on the lines of credit with overseas banks has         changes in the drawdown / repayment schedule
also been reduced from 6 months LIBOR/EURO LIBOR/EURIBOR plus 150 basis                   should be promptly reported to the DSIM, Reserve
points plus 100 basis points with immediate effect.                                       Bank in Form 83. However, any elongation / rollover
                        Export and Import of Currency                                     in the repayment on expiry of the original maturity of
                                                                                          the ECB would require the prior approval of the
As part of providing greater flexibility to the resident individuals travelling abroad,
                                                                                          Reserve Bank.
the existing limits of Rs.5000, have been enhanced to Rs. 7,500 per person (Feb
01, 2010). Accordingly, any person resident in India, may take outside India or           b) Changes in the currency of borrowing:
bring into India at the time of his return to India (other than to/from Nepal and         Designated AD Category I banks may allow changes
Bhutan), currency notes of Govt. of India and RBI notes, up to an amount not              in the currency of borrowing, if so desired, by the
exceeding Rs.7,500 (Rupees seven thousand five hundred only) per person.                  borrower company, in respect of ECBs availed of
                                                                                          both under the automatic and the approval routes.
 Interest Payment on Savings Bank Account on Daily Product Basis
                                                                                          Designated AD banks should, however, ensure that
RBI has advised banks (Feb 19, 2010) that payment of interest on savings bank             the proposed currency of borrowing is freely
accounts may be made on a daily product basis with effect from April 1, 2010.             convertible.
              Policy for opening of Regional Offices by RRBs                              c) Change of the AD bank: Designated AD
RBI reviewed the position on Feb 05, 2010 and decided as under:                           Category - I banks may allow change of the existing
(i) All RRBs (both amalgamated and stand alone) will be allowed to open one RO            designated AD bank by the borrower company for
for every 50 branches. RRBs having up to 50 branches will be under the direct             effecting its transactions pertaining to the ECBs
control of Head Office, without any intermediate tier.                                    subject to No-Objection Certificate (NOC) from the
(ii) The cases of RRBs, which require relaxation in the above norms in regard to          existing designated AD bank and after due diligence.
the number of branches to be covered by one RO due to geographical/ other                 d) Changes in the name of the Borrower
conditions, will be examined by State Level Empowered Committee of RBI.                   Company: Designated AD Category - I banks may
                   Setting up of Cash Processing Centres                                  allow changes in the name of the borrower company
Pursuant to the recommendations of the High Level Group (HLG) constituted                 subject to production of supporting documents
under DG (UT), RBI had enjoined upon the banks in Nov 2009 to necessarily                 evidencing the change in the name from the Registrar
check/process the notes in the denomination of Rs. 100 and above through                  of Companies.
Machines for fitness and authenticity, conforming to Standards prescribed by              These modifications to the ECB guidelines have come
RBI, before their issue through ATM/over counters.                                        into force with effect from Feb 09, 2010.
The HLG has also recommended setting up of Cash Processing Centres (CPCs)                                                                    •
at various key locations with enhanced processing and storage capacities. Since           VIRTUAL CLASS
banks may find it difficult to install/maintain machines at all their branches dealing    Log on our website
with notes of high denomination, RBI has decided (Feb 19, 2010) that banks                and view free lectures
may consider any of the following three types of CPCs:                                    on interesting aspects
a. A CPC established at an existing currency chest branch in the same location.           of current Indian
b. A CPC attached to an existing/new currency chest branch in different location.         Banking.
                                                                     Registration RNI No. 67802/98                        Postal Regn No.CHD / (0001) 2009-11
20 ♦ Banking events updatE ♦ March 2010                            Licensed to Post Without Prepayment at PO Sector 47, Chandigarh No.PP/PB-3/0005/2009-11

                          Trading of Currency Futures                                                                        DATA COLUMN
The currency futures market in India functions subject to the directions                                                     Business of Banks
issued by RBI and SEBI. As a part of further developing the derivatives                                       ( Cr)                  Mar31'09          Feb12'10
                                                                                                              Aggregate deposits            4086865           4299843
market in India and adding to the existing menu of foreign exchange hedging                                   Cash in hand/RBI               201249            272297
tools available to the residents, RBI had introduced currency futures in                                      Investments                   1247820           1394192
recognized stock exchanges or new exchanges recognized by the Securities                                      Bank Credit:                  2771441           3051676
and Exchange Board of India (SEBI) in the country.                                                             -Food                          46750             44527
                                                                                                               -Non-Food                    2724691           3007149
For this purpose, the Currency Futures (Reserve Bank) Directions, 2008                                        Cash-Deposit Ratio               5.16              6.33
issued by RBI u/s 45W of RBI Act, came into force with effect from August                                     Investment-Deposit              31.99             32.42
6, 2008 and amended on Jan 19, 2010.                                                                          Credit-Deposit                  71.04             70.97
                                                                                                                                   Money Stock
Currency futures: It is a standardised foreign exchange derivative contract                                   ( Cr)               Mar31'09               Feb12'10
traded on a recognized stock exchange to buy or sell one currency against                                     M3 (Out of which)           4764019             5358818
another, on a specified future date, at a price specified on the date of                                      (a) Currency with public     666364              757242
                                                                                                              (b) Demand deposits-Banks 581247                 606595
contract, but does not include a forward contract.                                                            (c) Time Deposits - Banks   3510835             3991414
Currency Futures market is a market in which currency futures are traded.                                     (d) Other deposits with RBI    5573                3567
                         Features of currency futures                                                                       Sources of Money Supply
                                                                                                              (a) Net Bank credit to Govt 1277199             1570234
Standardized currency futures have the following features:                                                    (b) Bank credit to Comrcl sector 3013637        3302035
a. Only Euro-INR, Pound Sterling (GBP)-INR and Japanese Yen (JPY)-INR                                         (c) Net Forex assets of Banks 1352184           1316870
contracts are allowed to be traded.                                                                                   Important Banking Indicators
                                                                                                              Bank rate                    06.00% (29.04.2003)
b. The size of each contract should be for USD 1000 for USD-INR contracts,                                    Statutory Liqdity Ratio      25.00%   (07.11.2009)
Euro 1000 for Euro-INR contracts, GBP 1000 for GBP-INR contracts and JPY                                      Cash Reserve Ratio           05.75%   (27.02.2010)
100,000 for JPY-INR contracts.                                                                                Prime Lending Rate      11.0-11.75% (Leading banks)
                                                                                                              Reverse Repo Rate            03.25% (22.04.2009)
c. The contracts shall be quoted and settled in Indian Rupees.                                                Repo Rate                    04.75% (22.04.2009)
d. The maturity of the contracts shall not exceed 12 months.                                                  Federal Reserve(US) rate:     1.00%
                                                                                                              Bank of England Rate     :    0.50%
e. The settlement price for USD-INR and Euro-INR contracts shall be the                                       European Comm. Bank           1.00%
RBI’s Reference Rates and for GBP-INR and JPY-INR contracts shall be the                                          Capital & Money Market Indicators
exchange rates published by RBI in its press release on the last trading day.                                 Parameter               end-Jan 10           A year back
                                                                                                              Call rates (percent)           3.25                5.50
                                                                                                              Dollar-spot TT (Rs.)          46.31               48.92
Only person resident in India as defined in section 2(v) of the FEMA 1999,                                    Euro-spot TT (Rs.)            66.14               69.34
can participate in the currency futures market. No scheduled bank or                                          BSE - Sensex (points)         16430                9002
                                                                                                              NSE - Nifty(S&P CNX)           4922                2771
such other agency falling under the regulatory purview of RBI, shall                                          Foreign reserves(Million $) 278672               252178
participate in the currency futures market, without the permission from
the respective regulatory Deptt of RBI. For participation by other regulated
entities, concurrence from their respective regulators should be obtained.
                                                                                                                INDIAN ECONOMY-IMPORTANT PARAMETERS
                                                                                                              RBI's growth estimate for 2009-10             : 7.5%
                                 Membership                                                                   GDP growth-2008-09 (revised estimate) : 6.7%
i. The membership of the currency futures market of a recognised stock                                        Share of service sector in GDP (Mar08) : 64.5%
exchange is separate from the membership of the equity derivative segment                                     Share of manufacturing sector in GDP          : 18.2%
                                                                                                              Share of agriculture sector in GDP            : 17.3%
or the cash segment. Membership for both trading and clearing, in the                                         GDP growth-2007-08 (revised estimate) : 9.01%
currency futures market is subject to the guidelines issued by the SEBI.                                      Current Inflation Rate (Wholesale) - Dec09: 7.03%
ii. AD Category-1 banks authorized by the RBI can become trading and                                          Money Supply (M3) expansion Nov"09            : 17.1%
                                                                                                              Exports during 2008-09                        : 168.0 bn
clearing members of the currency futures market of the recognized stock                                       Trade deficit (2007-08)                       : 80.6 Bn
exchanges, on their own account and on behalf of their clients, subject                                       Current Account position (Apr-Mar 08)         : 17.4 Bn
to fulfilling the following minimum prudential requirements:                                                  Export target for 2009-10 (in $)              : 200 bn
a) Minimum net worth of Rs. 500 crores.                                                                       GDP at factor cost (adv est 2007-08 Cr) : 4303654
                                                                                                              India's share in world merchandise export : 1.45%
b) Minimum CRAR of 10 %.                                                                                      Food grain production (2007-08) -Estimate : 227.3
c) Net NPA should not exceed 3 %.                                                                             Poverty line ratio (2004-05)                  : 22%
                                                                                                              India's currency rating (S&P)                 : BB Postv
d) Made net profit for last 3 years.                                                                          India's external debt (Sept 2009) US $        : 242.8 Bn
                                Position limits                                                               Fiscal Deficit Target (2009-10) 6.8% of GDP : 400996 cr
i. The position limits for various classes of participants in the currency                                    Revenue Deficit Target (2008-09) 4.8 % of GDP : 282735 cr
                                                                                                              Tax-GDP ratio (2008-09)                       : 11.2%
futures market shall be subject to the guidelines issued by the SEBI.                                         Apr- Dec 2009:Export 147.57 bn Imports : 253.9 bn
ii. The AD Category - I banks, shall operate within prudential limits, such as                                Per capita Income 2008-09 (Rs.)               : 37490
Net Open Position (NOP) and Aggregate Gap (AG) limits. The exposure of                                        Indian economy's ranking in world in PPP : 3rd
                                                                                                              Indian economy's ranking in world in value: 10th
the banks, on their own account, in the currency futures market shall
form part of their NOP and AG limits.                                                                           OUR PUBLICATIONS : REFER PAGE 11
                   Sh. N S Toor can be reached by readers at                                   DATE OF DESPATCH - Mar 7 / 10, 2010

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

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