banking ..part.3

8/6/2019 Banking ..Part.3

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PART.III..MATSMANAGEMENT OF BANKS

SICK UNITS.

Any unit ( business)is not functioning normally and is facing lot

problems due to internal or external factors which increases the risk

for the lender and quality of assets deteriorate can be treated as a sick

unit.

THE ACCUMALATED LOSSES EQUAL OR EXCEEDS ITS NET

WORTH. OF THE COMPANY.

These units normally gives out warning signals indicating the problems

they are facing. Banks or Institutions during their follow up should

identify and find a solution in the form of Rephasement, rehabilitationor recall.

CAUSES OF SICKNESS

1INTERNAL CAUSES.

TECHNICAL FEASIBILITY

Outdated production/technology

Location disadvantages.

ECONOMIC FEASIBILITY

High costs of inputs

Very high Break even.

Under estimation of financial requirements.

Large investment on fixed assets.

PRODUCTION MANAGEMENT

Poor quality control.

High cost of production.

Poor inventory management

Single product.


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LABOUR MANAGEMENT.

Industrial relations.

More labour power.

High wage structure.

MARKETING MANAGEMENT

Single buyer

Poor sales realization.

Pricing policy

Weak marketing strategy

Lack market info and research.

FINANCIAL MANAGEMENT

Bad costing

Financial indiscipline.

Lack of control over expenditure.

Wrong borrowings.

High cost borrowings.

MANAGEMENT

Promoters ..lack of coordination.

No second line management.

Diversion of funds.

No proper control.

No Proper decision.

EXTERNAL FACTORS..

INFRASTRUCUTRE BOTTLENECKS.

GOVERNMENT POLICIES.

NATURAL CALAMITIES.

CHANGE IN MARKET DEMAND.


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INCOME RECOGNITION

BANKS HAVE THE FOLLOWING TYPES OF INCOME ..

INTEREST ON LENDING

COMMISSION

EXCHANGE

DISCOUNT

PROFIT ON SALE OF SECURITIES

Income should be recognized based on the record of recovery.

Not recognized on accruals basis.

Booked as income only when it is actually received.

Accordingly Banks will make arrangements to ensure that any income

taken on accrual basis must be reversed or provided to give the correct

picture.

Each type of advances and loans and other exposures of the bank have

different kinds of Income to be properly recognized.

ASSET CLASSIFICATION

STANDARD ASSETS.

THE ASSET CREATED BY THE BANK WHICH DO NOT CARRY

MORE THAN NORMAL RISKSATISFACTORILY CONDUCTED

ACCOUNT INCOME GENERATED RECEIVED ACTUALLY

NON PERFORMING ASSET(S) (N P A)..is one which do not

generate any income for the Bank.

SUB STANDARD ASSETS


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Normally Loss assets are written off from the bank Books or provided

100%this ensures a proper picture of the performance of the bank..

Banks will provide for all the exposures of lending and investment .a

regular review should be done.

RBI in its policy defines the norms both on lending exposure and

investment exposures of the Bank.

WRITE OFF.

When bank cannot recover the loan outstanding from the borrower

after using all the available recourse can wrtite off the loan from the

profits for which provision was made earlier.

However Supreme Court has given a judgement .

Writing off of Non performing assets by Bank is only an internal

accounting procedure to clean up the Balance sheet and it does not

affect the right of bank to proceed against borrowers to realize the

dues.

PRUDENTIAL NORMS ON CAPITAL ADEQUACY

In 1992 ,,R B I introduced Basle committee frame work .

A risk assets ratio system from Banks.

Understand the strength of the banks from the financial statements.

Bank exposures to fund based and non fund based and other off balance

sheet items have prescribed with certain risk weights.

Bank has to maintain the Capital according to risk weighted assets.

As on date the bank has to maintain 9% CRAR.

Foreign banks have additional classification of funds to be identified for

capital.

Basle committee norms introduced as per B I S ( Bank for International

settlement). BIS is the central Bank of all Central banks of Developed

and developing countries. R B I became of member of BIS in 1988. The

objective of this is have a transparent financial statements of the Banks.

CRARCAPITAL TO RISK WEIGHTED ASSETS RATIO


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FRAME WORK OF CAPITAL FUNDS OF INDIAN BANKS.

CAPITAL FUNDS ARE OF TWO TIERS .

TIERIPERMANENT.

Paid up capital, Statutory reserves, other undisclosed reserves if any,

Sale proceeds of Assetsin Capital reserves.

LESS investment in subsidiaries ..intagible assets..

TIER.IILESS PERMANENT .

Undisclosed reserves and cumulative perpetual preference

shares.Revaluation reserves.

General provisions and Loss reservesHybrid debt capital

instruments.Subordinated debt .

RISK MANAGEMENT

Banks business is exposed to various risks .They should have a risk

management system.

MANAGING OF THE RISK INVOLVES..

RISK IDENTIFICATION .

RISK MEASUREMENT( assessing magnitude)

RISK MANAGEMENT.RISK POLICIES .

BANKS ARE EXPOSED TO FOLLOWING RISKS.


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Credit risk.

Lending activity..possibility of lossdue to credit qualitydefault

.concentration of loan portfolios.exposure to one group.

WHAT IS TO DONE.

Policy should be there to measure, monitor, and control the risk.

Delegation of powers.

Credit approving systems.

Bench mark financial ratios

Prudential exposure norms.

Risk rating system

Parameters.

Operational /Financial performance of the unit.

Bank accounts , securities available.

Business and industry outlook.

Promoters / management

Evaluation of loan port folio on an ongoing basis.

.Interest risk..

Deregulation interest ratescompetitoninterest income.

On a regular basis Bank has to consider both lending and mobilization

of funds and their cost.

Price risk.in investmentsa part of market risk..

Banks should evolve a definite time frame for moving over to VaR and

duration approach for measurement of interest rate risk. Change of

portfolio on a continuous basis.


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Liquidity risk

Mismatch of maturity in assets and liabilities.deposits have a shorter

contractual maturity than loans. Banks have a risk of raising high cost

funds to meet liquidity.more liquidity means idle funds

Limit on inter bank borrowings, call funds, purchased funds, core

deposits to core assets .contingent plans to meet the adverse liquidity

conditions.

FOREIGN EXCHANGE RISKrisk caused by exchange

fluctuations of currency.

Country risk..Overseas transactions with other countriespoliticaleconomic situationrestricitions by their Central bank for funds

transfer.

Operational risks

Changing internal processprocedures.work environment

..demotivateduntrained..incompetent

Risk management of volume of transactions. Complex technical support

and frauds etc.

ASSET-LIABILITY MANAGEMENT

A L M System was formally introduced in Banks from 1.4.1999.

AL management is defined as the process of adjusting Bank liabilities to

meet

Loan demands

Liquidity needs.

Safety requirements.


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A L ..Philosophy

Assets growth by adjusting liabilities. Long term operating viability and profitability

Earnings growthrisk to be all time low.

Appropriate strategies. To be evolved.depending upon the

resources.

A L M PROCESS.

A L COMMITTEE TO BE FORMED IN BANKS.

TOP LEVEL DECISION MAKING GROUP.

FLOW OF INFORMATION

IDENTIFY THE RISK OF THE ASSETS AND ITS SENSITIVITY.

DURATION GAP ANALYSIS, VALUE AT RISKFOR INTEREST

RISK MANAGEMENT

CAMEL.

CAPITAL ADEQUACYASSETS QUALITY

MANAGEMENT

EARNINGS

LIQUIDITY

8. SARFAESI ACT

SECURITISATION AND RECONSTRUCTION OF FINANCIAL

ASSETS AND ENFORCEMENT OF SECURITY INTEREST

ORDINANCE.2002...

SARFAESI ACT2002.


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Securitisation is a process through a which illiquid assets are

transferred into a more liquid form of assets and distributed to a broad

range of investors through Capital markets.

The lending institutions assets are removed from its balance sheet and

are instead funded by investors through a negotiable financial

instrument .

The security is backed up by expected cash flows.

Example

HDFC HAS SANCTIONED HOME LOANS AGAINST THE

SECURITY OF IMMOVABLE PROPERTIES.

LOANS ARE REAPID BY THE BORROWERS.

HDFC WOULD LIKE TO RAISE FUNDS FOR THEIR WORKING

BY SECURITISING THE RECEIVABLES OUTSTANDING IN THE

ABOVE LOANS.

PROCESS..

POOLING OF HOMOGENOUS TYPES OF CREDIT, INTEREST

RATE AND MATURITY. SPECIAL PURPOSE VEHICLE IS

CREATED BY THE INSTITUTION.

S P V ISSUES ASSET BACKED SECURITIES. H D F C CAN GET

FUNDS FOR THE ILLIQUID ASSETS FOR ITS OPERATIONS.

SERVICING OF THE DEBT INSTRUMENT IS FROM THE

COLLECTION OF RECEIVABLES.

MATURITY OF THE SYSTEM..

THIS PROCESS IS STILL TO HAVE CLEAR GUIDELINES FROM

AMNY STRATUTES LIKE, I T AC T 1961, COMPANIES ACT 1956,

TRANSFER OF PROPERTY ACT, STAMP ACT, AND SECONDARY

MARKET FOR THE SECURITIES.


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The instrument falls under the monetary transaction and capital

market suitable regulations from RBI or SEBI is a must.

RECONSTRUCTION OF FINANANCIAL ASSETS..

Registration of Securitisation or reconstruction companies.

Certification of registration is a mustRBI.

Owned funds differs from each class of companies.

Acquisition of rights/ interest in the financial assets.

This act defines the rights/obligations of such companies.

ENFORCEMENT OF SECURITY INTEREST..

This act clearly defines thatany interest created in favour of any

secured creditor may be enforced with out any intervention of court or

tribunal in accordance with the provisions of this ordinance.

Any repayment of the secured debt or installment thereof and this

account on account of non payment has been classified by the secured

creditor as Non performing assets, then the secured creditor may

require the borrower by notice in writing to discharge in full his

liabilities to the secured creditor within 60 days from the date of the

notice failing which the secured creditor shall be entitled to exercise all

or any of the rights under this act.

In case the borrower fails to discharge the liability in full.. the secured

creditor has the following option as per this ordinance.

Take possession of the secured assets and right to sell, transfer, assignfor realizing the proceeds of the secured assets.

Take over the management of secured assets in including all the rights.

Appoint any person to manage the secured assets.


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BASEL ACCORD II..

Conceived by Basel committee in June 1999.

Committee comprises of Central bank governors of G10

countries. Basel II identified three pillars to serve a s a positive strength of

risk management system in banks .

THREE PILLARS

1. MINIMUM CAPITAL REQUIREMENTS

Already introduced in Basel I norms.

Two approaches for calculation.

aSTANDARD APPROACH

Bank allocates risk weights for each of the assets as per balance sheet

and off balance sheet item.

This depends upon the ratings provided by approved external credit

assessment institution.

b..INTERNAL RATING BASED APPROACH..

The Bank rates, borrower, the results are translated into a potential

future loss amount.

Probability of default data for 5 years

Loss given data for 5 years

Exposure at default 7 years

2. SUPERVISORY REVIEW PROCESS .

a. to maintain minimum capital requirement as per first pillar

b. to use appropriate risk measurement technique in

measuring and managing risk

c. to make internal controls

d. to comply with standards as per RBI.


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3 MARKET DISCIPLINE ..

a. Market discipline disclosures quantitative, qualitative

disclosures made by banks to RA and Public risk, exposure

and risk assessment.

b. Disclosures must be in accordance with the management

decision of the methodology of the risk.

The Management of the banks should have a transparency and

disclosure.

BASEL NORMS AND INDIA..

Basle norms I CARis being maintained.

Basle II requires.skill developmentsexperience to handle new

situations, credit rating mechanism.

Most Banks are at initial stages.

Train credit officers development .strengthen the existing

CREDIT RISK Management PRACTICES.

Most of the banks are ready to migrate to BASLEII AT A

CONCEPTUAL LEVEL AND ACADEMIC LEVEL .

Necessary changes in the frame work will take a long time.

MICRO FINANCE INSTITUTIONS

A new concept of reaching remote beneficiaries in rural areas.

Concept built upon Self help groups .

Highest growth in South India .

Cluster financing .

Started by NGO`s now NBFC`s are also in the race.

Need for such type of services is for 600 million in India.

Purpose is for poverty alleviation.

Many banks have already have SHG`s in their fold with specific

funding .


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M & A ACTIVITIES IN BANKING

Consolidation to become global players .important to have scale

and size.

Many PSU banks are not doing well.

Study says Old generation pvt sector banks are loosing market

share.

Witnessing slow down.

They have problem of capital mobilization and owner ship issues.

Need to have scale to access Capital.

Basel II implementation leads to consolidation

Capital intensive business.

SOME CASESSINCE 1991..

PNB acquires New bank of India..

Times bank merges with HDFC bank.

DFI ICICImerges with ICICI BANK.

GTB MERGES WITH O.B.C.

NEDUNGADI BANK MERGES WITH P.N.B.

GANESH BANK WITH FEDERAL BANK.

IDBI BANK AMALGATES WITH PARENT IDBI .

Bank of Punjab merges with Centurion bank.

United western bank amalgates with IDBI bank.

Lord Krishna bank merger s with CBOP.

CBOP merges with HDFC bank.

Consolidation happens

To protect depositors interest

Commercial considerations.

Rescue operations.

Business considerations.


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NBFC`S..

A NON BANKING FINANCIAL COMPANY IS A COMPANY

REGISTERED UNDER THE Companies act 1956 and is engaged in the

business of loans and advances , acquisitions of shares / stocks/securities

issued by Government or local authority are other marketable securities ,

activities like leasing, hire purchase insurance business, chit business and

does not include any institution whose principal business of agricultural

activity, industrial activity etc..

NBFC cannot accept Demand deposits.

It is not a part of payment and settlement system as such cannot issue

cheques to its customers.

DICGC FACILITY IS NOT AVAIALBLE FOR NBFCCUSTOMERS.

CATEGORY..

Equipment leasing company

Hire purchase company

Loan Company

Investment company

All NBFC`s are entitled to accept Public deposits. Should be authorized

and licensed to accept deposits and should minimum Net owned funds .

Ceiling is there on accepting Public deposits.

RBI has prescribed a ceiling on the payment of interest on deposits.

Non deposit taking NBFC with Rs 100 crores or more of assets size must

maintain 12 5 CRAR

The capital adequacy will be increased to 15% from 1.4.2009

All NBFC`s must disclose from 31.3.2009 in their balance sheet matter

relating to CRAR, derivative transactions, risks exposures exposure to

real sector with maturity profile of assets and liabilities.


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BANKING

BANK EXPANSION..

BANK IS NOW TRANSFORMED TO BUYERS`MARKE T SECTOR.

250-350 MILLION PEOPLE NEED VARIOUS BANKING SERVICES.

60% OF OUR POPULATION HVE ACCESS TO BANKS

15% HAVE LOAN ACCOUNTS

70% OF FARMERS HAVE NOACCESS TO FORMAL BANK CREDIT..

BANKING HAS SCOPE TO DIVERSIFY BEYOND CITIES TO SEMI

URBANAND RURAL AREAS IN RETAIL BANKING AND MICROCREDIT.

SUB PRIME .

When Bank lends money to people they broadly classify them into Prime

and sub prime debtors.

Prime debtors are credit worthy and latter less than first.

Banks primary duty is not to lend to Non credit worthy borrowers. But they

do at a higher rate of interest

Crisis starts when Low income borrowers has to meet higher repayment and

default happens.

These asset backed securities are taken by investors and good times theymake money and bad times it fails.

Lesson from Sub prime crisis is that banks should check credentials

before lending andthe rating agencies doing the rating also should follow

correct process.


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BASEL.II

Extract From an article ..

Some of the benefits that can be expected from a well implemented basel

programme are competitive advantage through better pricing, access to

cheaper funds, through improved credit rating greater transparency and

above all a well oiled risk management system.

RBI has amended the G sec act to allow the investors to nomination,

automatic redemption and credit interest through ECS.

SEBI has come out with the regulations for issue and listing of debt

securities

CREDIT DEFAULT SWAPS

The risk of change in borrowers ability to repay a debt is Credit risk.

Banks as primary credit creators have too manage credit risk for which RBI

has introduced Provisioning norms and Capital adequacy norms.

International level banks have been allowed to manage the risk through ..risk

transfer instruments. These are called Credit derivatives. Banks retain

financial benefits of the loan and obviate the risk.

RBI has introduced ..CREDIT DEFAULT SWAPS

There are many disadvantages than advantages to the financial system.

CREDIT GUARANTEE TRUST FOR SMALL INDUSTRIES

Government of India and S I D B I formed a Trust in August 2000 as

CGFTSI.

(CREDIT GUARANTEE FUND TRUST FOR SMALL INDUSTRIES)


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Object of the Trust was to see that the Banks lend to Small scale

industries with out margin guarantee or collateral security to the extent

of certain limits.

All manufacturing , I.T. and Software industries are eligible.

Only fund based facility of Term loan and Working capital..

Upto Rs.2.lakhs ..no margin or collateral.

Rs 2 lakhs to Rs. 5 lakhs Margin may be stipulated but no

collateral or third party guarantee .

Rs. 5 lakhs to Rs. 25 lakhs margin of 10 %to 25% but no collateral or

third party guarantee . This depends upon the track record of the unit.

Interest rate will 3% above PLR .

Guarantee fee and service charges shall be recovered from the unit.

In case of default ..during the recovery process the Trust will pay the

loan amount to the maximum of 75 % of the exposure.

DICGC

CGC came into being in 1971 and later on it was known as DICGC.

Policy is to encourage flow of credit to small borrowers on a significant

scale .

Becaue of scattered nature and non availability of tangible security the

risk was high for small loans.

IT was decided to cover the risk under a common and centralized

scheme.

WEF 1989 the cover is all priority sector advances. The guarantee

covers lending of commercial banks , Co op banks, central, state,

primary ,RRB`s and SFc`s . DICGC have structured credit guarantee

schemes.


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Banks have to pay premium to cover the loans. Guarantee cover is for

75% of the amount of default.

The guarantee fee for banks have to paid annually.

This institution covers the insurance for deposits upto Rs 1,00,000/- of

the depositors in the banks. This guarantee will not cover NBFC`s

activities.

Export Credit Guarantee Corporation

Two major risks in the International trade..

1. Risk of loss or damage to goods.

2. risk of non realization of export proceeds.

To Protect the exporters from such risk Export risk insurance

corporation was set up in 1957. In 1964 ERIc was changed to ECGC.

Wholly owned by G O I and under Ministry of Commerce.

FOR EXPORTERS.

A. WHOLE TURN OVER POLICY

B. SPECIFIC POLICY

C. FACTORING

FOR BANKERS

PACKING CREDIT GUARANTEE

EXPORT PRODUCTIONFINANCE GUARANTEE

POST SHIPMENT EXPORT CREDIT

EXPORT FINANCE GUARANTEE

EXPORT PERFORMANCE GUARANTEETRANSFER GUARANTEE

For exporters the commercial risk and Political risks are covered.

FOR BANKS.


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Protection of Banks from losses on account of their lendings to

exporters. Both at preshipment and post shipment situation.

MISCELLANEOUS ..

A recent concept has come to banking system called FINANCIAL

INCLUSIONThis is to ensure banks operating in their area of

operations must ensure all those who come under the area operation

should have a bank account and enjoy the services provided by the

banks.

Banking has to reach vast segment of population in rural areas towards

achieving financial literacy , financial inclusion and social banking are

important tools.

INDIAN INSTITUTE OF BANKING AND FINANCE DEFINES

Financial inclusion is delivery of banking services at an affordable

cost to the vast section of disadvantaged and low income group.

**

SCHEDULED BANKS.are those which are included in the

Second schedule of the BR act1965,

To be included in the second schedule a Bank

Must have paid up capital of capital and reserves not less than Rs. 5

lakhsIt must also satisfy RBI that its affairs are not conducted in a manner

detrimental to the Interest of the depositors.

Scheduled banks are required to maintain a certain amount of reserves

with RBI. They in return enjoy the facility of financial accommodation

and remittance facilities at concessional rates from RBI.


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BANK RATE.

The Bank rate is the rate of interest at which Reserve Bank Of India re

discounts the first class bills of exchange from Commercial banks.

Whenever R B I wants to reduce credit the Bank rate is raised and

whenever credit has to be expanded the bank rate is reduced.

CALL RATE..

The rate of interest paid on CALL LOANS IS THE CALL RATE.

VARIES FROM DAY TO DAY.

FROM HOUR TO HOUR.

SENSITIVE TO CHANGES IN DEMAND AND SUPPLY.

PRIME LENDING RATE.

In the regulated situation each Bank/institutions have started fixing

their PL R `s.

Borrower with high credit standing and credit rating gets the loan at

PLR.

Others shall have to pay higher rates than PLR.

PLR will be fixed according to the term

STPLR.MTPLR.LTPLR.

ACCRUED INTEREST.Interest has been earned but not received.

CREDIT CRUNCH. Situation where supply of credit falls even

though there is demand.

LIEN. A lender`s claim on assets offered as security for loan.


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HYPOTHECATION.

the interest and possession of movable property remains with the

borrower. It is done in case of Working capital loan.

PLEDGE..

The lender acquires the possession of the property Interest and the

ownership remains with the borrower.

MORATGAGE Involves immovable property. In a mortagage an

immovable property like a Land/building is provided as Collateralsecurity against the loan. Charge is created by the lender.

REPHASEMENT.

A loan to be repaid over certain period has not started

repayment..reasons may be genuine

Review and fix a fresh repayment by rescheduling the principal

repayment .

This can be possible in a case to case to basis.

REHABILITATION.

A unit after identified as SICK where in the review reveals that it can be

brought back on the track a suitable package has to be worked to

bring it back to normalcy.

This will be fresh funding.rephasement.interest concession.

This process will ensure the sick unit to revive and comes back to

normal.

Again the possibility is most important.


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RECALL.

Bank gets a feeling that being a sick unit risk of exposure increase if

not get back the money lent.When either rephasement or

rehabilitation is not possible.. the route will be legal one by filing a suit

in the court of law for recovery.

Either through Civil courtor DRTSARFAESI ACT ..

SOME CASES O. T. S OR EXTENSION OF CONCESSIONARY

RATE OF INTEREST IS POSSIBLE.

K Y C .KNOW YOUR CUSTOMER

RBI has issued guidelines relating to identification of depositors,

put in place systems and procedures to help and control financial

frauds, money laundering and other suspicious activities.

Opening of accounts and monitoring the cash transactions .

Maintenance of proper records.

BANKING RATIOS

ACCOUNTING RATIOS ..NORMALLLY BANKS LOOKS INTO

FROM THE FINANCIAL STATEMENT FRESHRENEWAL

PROPOSALS.

I. EQUITY DEBT RATIO.

II. D.S.C.R. (DEBT SERVICE COVERAGE RATIO)

III. CURRENT RATIO.

IV. TOL/TNW


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V. PAT/SALES.%

VI. PBDIT/INTEREST..

VII. ROCEPBDIT/TOTAL TANGIBLE ASSETS.

VIII. FINISHED GOODS TO SALES. NO OF DAYS.

IX. R M STOCK TO ANNUAL CONSUMPTION

NO OF DAYS

X RECEIVABLES TO ANNUAL SALES. NO OF DAYS

TO MEASURE BANKS PERFORMANCE

CREDIT/DEPOSIT RATIO

AVERAGE WORKING FUNDS

INTEREST SPREAD/AWF

NET PROFIT/AWF

OPERATING EXPENSES/AWF

COST OF DEPOSITS

COST OF BORROWINGS

BUSINESS PER BRANCH

GROSS PROFIT PER BRANCH.

BUSINESS PER EMPLOYEE.

BANKING TERMINOLOGIES.

MARKET SEGMENT.

DEPOSITS.

DEMAND .TIME LIABILITY.N D T L.

INVESTMENT.

ASSETS.

LENDING

CURRENT ASSETS

FIXED ASSETS.


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FUND BASED FACILITY

NON FUND BASED FACILITY

LETTER OF CREDIT

BANK GUARANTEE

ANCILLARY SERVICES.

PROJECT APPRAISAL

CREDIT APPRAISAL

TERM LOAN

D P G

WORKING CAPITAL

CASH CREDIT

PRESHIPMENT FINANCE

E.P.C.

INVENTORY NORMS

BILLS DISCOUNTINGPOST SHIPMENT FINANCE.

REFINANCE

SANCTION

FOLLOW UP AND INSPECTION

REPAYMENT

E M I

LIMIT

DRAWING POWER

IRREGULARITY

PRIMARY SECURITY

COLLATERAL SECURITY

RENEWAL

REVIEW

ENHANCEMENT

SICK UNIT

REPHASEMENT

REHABILITATION

RECALL

MONTHLY /QUARTERLY RESTSCONSORTIUM

MULTIPLE BANKING

PROVISIONING

WRITE OFF

ACKNOWLEDGEMENT OF DEBT

REVIVAL LETTERS


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PRIORITY SECTOR

BANKING RATIOS.

N.P.A.

C R R

S L R

P L R

PLEDGE

HYPOTHECATION

LIEN

MORTAGAGE

BREAK EVEN

SENSITIVITY ANALYSIS.

D. E RATIO

D.S.C.R.

********************************

CORPORATE DEBT RESTRUCTURING.

Based on the experience in other countries like U K , and others need

was felt to put in place Institutional Mechanism for restructuring of

Corporate debt .

Introduced by RBI in 2001.

Finance Minister announced in budget speech of 2002-2003.

Two categories of debt restructuring .

Standard.. Sub standardclassified by the lender as Category I

Classified under Doubtful will be under Category..II.

OBJECTIVE..

C D R is to ensure timely and transparent mechanism for

restructuring the Corporate debts of viable entities facing problems

( Internal ..external )outside the purview of BIFR. DRT, and other legal

proceedings for the benefit of all concerned.


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STRUCTURE.

CDR standing forum.

Comprises of FI`s and CB`s representatives. Lays down policies

guidelinesmonitor the progress.

CDR empowered group.

CDR cell.

Look into the proposed rehabilitation plan submitted by Lenders andborrowers.

If found prima-facie feasible .refer to Empowered group.

The process to be completed in 180 days from approaching CDR cell.

ELIGIBILITY.

Corporates with outstandings of Rs.20 crs and above with multiple

/consortium accounts.

No cases of single bank cases, wilful default, fraud in the coprorates

cannot be considered.

CDR mechanism is a non statutory mechanism. This is based on Debtor

creditor agreement (DCA) and Inter creditor agreement ( I C A ).

The guidelines are very clear for implementation .

RISKS..

Three major risks faced by the commercial BANKS.


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1. Market risk mainly attributable mainly for change in interest

rate, foreign exchange, forward trading, change in prices of shares.

Bonds..

2. Credit riskdefault in lendingrisk due to default by the borrower

in respect of funded and non funded exposures.

3. Operational risk.human failure.intentional

unintentional.process failuresystem failure.

OMBUDSMAN.

An official appointed by the Government to investigate an individual

complaint against a public authority. It is an inexpensive institution forredressal of an individual grievances against public authorities.

This institution has come into banking sector.

In 1995 this scheme was introduced covering all the Banks in India.

The redressal is to look into the Deficiency in services in the banking

affecting the common man.

The Ombudsman office is situated in RBI offices .

****************************


30/31

BANK BALANCE SHEET

CAPITAL AND LIABILITIES

ASSETS

CAPITAL CASH AND

BALANCES

WITH R B I

RESERVES AND SURPLUS BALANCES WITH

BANKS AND CALL

AND SHORT NOTICE

DEPOSITS

INVESTMENTS

BORROWINGS ADVANCES

OTHER LIABILITIES

AND PROVISIONS FIXED ASSETS

OTHER ASSETS

*******************

STATUTES RELATED BANKING 1. RBI ACT 1934

2. THE NEGOTIABLE INSTRUMENTS ACT

3. THE COMPANIES ACT

4. THE PARTNERSHIP ACT

5. INDIAN CONTRACT ACT

6. INDIAN TRUST ACT


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7. TRANSFER OF PROPERTY ACT

8. SALE OF GOODS ACT

9. LAW OF LIMITATION

Micro ,small and medium enterprises development act 2006..

Micro enterprise.. Manufacturing .Investment in Plant and

machinery not to exceedrs 25.00 lakhs

ServiceInvestment in equipment not to exceed Rs

10.oo lakhs .

Small enterprises

Manufacturing . Investment in Plant and machinery more than

Rs 25 lkhs and not to exceed rs 5.00 crs

Services.. investment in equipment is more than rs 10.00 lakhs and

not to exceed rs 200 lakhs

Medium enterprises

Manufacturing ..Investment in Plant and machinery more than Rs rs

5 crs and not to exceed rs 10 crs.

Services.Investment in equipments more than rs 200 lakhs and not

more than Rs.500 lakhs

banking ..part.3

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