capsule on banking

CAPSULE

ON

BANKING TOPICSKnowledge is not simply another

commodity. On the contrary, knowledge is never used up. It

increases by diffusion and grows by dispersion.

B S BishtZonal Inspection CentreLucknow

Courtesy:-B S BishtZonal Inspection CentreLucknow

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BANK OF BARODA

MAXIMISING GROWTH AND PROFIT THROUGH ENHANCED CUSTOMER ORIENTATION

Foreword

Ever since the banking sector reforms have picked up pace in late nineties and early twenties, there have been deluge of regulatory measures. At the same time, the banking industry has been witnessing unprecedented competition opening up wide and divergent choices to consumers. Banks have been facing stiff challenges to innovate and integrate their strategies to cope up with the semantic changes. Product innovation, smart negotiating skills to remain competitive in the market, care and concern for improved quality of customer service to achieve optimum customer satisfaction, application of IT skills, utilization of new IT infrastructure building up in the banks are some of the challenges confronting the banks.

Following such reform measures and initiatives in the financial sector, banks are witnessing inflow of large volumes of instructions/information. The media is publishing on an online basis a cross section of analysis of developments, central bank policy initiatives/announcements, interpretation of strategies of market players, shift of market shares of different players, perception of customers, opinion of analysts and so on. The combined impact adds further dimensions to the mass of information. There is thus a systemic force on the bankers to remain active and conversant with the spate of changes to maintain their operational efficiency. In the process, for aspiring bankers, knowledge management has assumed critical significance in the career progression and smart customer management.

In this background, it is felt essential to briefly bring out a synopsis of notes on banking development to enable the bankers to get first hand information on the various topics. I have taken up this rigorous job of compiling/rewriting some notes to make them compatible to the readers. Practicing fellow bankers can get apprised of various developments, which have already taken place. It also gives information on impending changes. I have sourced most of the information from RBI sites, bank sites and rewritten many of them to incorporate in the notes.

I am grateful to Dr K Srinivas Rao, Secretary to Board, who has inspired me in compiling these notes. I also take this opportunity to thank Ms Kiran, Corporate Accounts Department who has helped me in designing these notes. Any suggestions for improvement of the contents are welcome.

B.S. BISHT ZIC, Lucknow July 10, 2010


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MEMORY PAD FOR INTERVIEW

You may like to have a quick glance at the following

Sr. No.

Name of Topic / Issue

Reference Source

1 About you - Academic Background- Specialized subjects (if any)- Hobbies / Aptitude- Sports Background (if any)- Academic distinctions- Year of CAIIB- Your SWOT analysis- 5 plus, 5 minus points- Physical habits, walking

exercise etc.

Your marks sheets, own assessment, Certificates

2 About your career - List of last 5 postings- Which one did you like most,

why?- Your unique achievements,

awards (if any)- Your contribution to the bank- Which one was worst posting

& why - How did you view it.- Job satisfaction, Current

posting.- Why you deserve for

Overseas Posting/Promotion- Which territory/Area of

operation you would like to be posted and why.

Refer own track record in the bank and make a list.

3 About Bank of Baroda

- Size of Balance Sheet- Deposit-mix ratio, Deposits,

Advances, growth rate of 3 years

- Market Share among Public Sector Banks

- profitability trends- ROA/EPS/NPAs/ Provisions- What are our strengths?- What are our immediate

challenges?- How Competitive are we ?- Our bank’s status in the

industry

Annual Reports, Business Policy guidelines,


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- Business Policy Guidelines 2010-11

- International Operations growth of overseas operations

4 About the banking industry

- Reforms - Growth rates in the last 3

years - Bank rate, Deposit rates- challenges before PSBs- How new private bank’s have

affected PSBs. - Deposits, Advances, ROA- NPAs, Provisions- Prudential Standards- Transparency & Disclosure

Standards- Technology levels- Customer expectations

Newspaper clippings, annual report of RBI and Magazines

5 About the economy (India)

- GDP - last 3 years- Gross Domestic Savings- Industrial Growth Rate- Agricultural Growth Rate- Service Sector Growth Rate- Forex reserves- Exchange rate stability- Fiscal Deficit- Government borrowings- Country rating by Moody’s

and Standard and Poor

Newspaper clippings, Bank’s publications, RBI reports, Magazines

6 Basics of Foreign Exchange, which a prudent Banker is supposed to know.

-What is Foreign Exchange?-Exchange Rate-Letter of Credit-Stand By Letter of Credit-Packing Credit/Post Shipment -Credit-FEMA-E.C.B. -GDR-Derivative (Basic definition)-Swaps (Basic definition)-Options ((Basic definition)-Off shore Banking-Hedging (What does it mean)-LIBOR -Factoring-Forfeiting

Please go through notes in this book


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7 Other latest topics - Risk Management - Banking Sector Reforms- Full Convertibility- Sub Prime Crisis- Insurance Sector

liberalization- Entry of banks into Insurance- How much is our Foreign

Exchange Reserves- Present interest rate scenario

Paper clippings, copies of reports Bank’s Economic Digest.


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Make Written Test a Successful Event

1. On eve of examination you must have a good and normal sleep and a relaxed mind since a relaxed mind can think better and recall the facts quicker

2. On day before examination you should not study for longer period except for important revision aspect.

3. Avoid consumption of spicy/oily/heavy foods on the night previous to the examination.

4. Read each question carefully, before answering, as few questions are likely to be not so direct.

5. Objective type questions make the task of candidate easy only when he has total clarity about the fundamental aspects. Otherwise, these questions are risky to attempt since you do not get opportunity to express what you have in mind.

6. Plan your time answering the questions. Provide 5 to 10 minutes at the end for revising your answer.

7. While attempting your paper, the better understood questions should be solved first. Please do not get stuck to a particular question. If you find that you cannot recollect the answer immediately, skip it for the time being. You can come back to such questions later.

8. In case of descriptive answers, divide your answer into small point and give point wise answer for earning better score. Underline key words in answer.

9. Make your answer clear, specific and brief and do not go long or complex sentences.

10. Answer should not exceed the allowed space.11. Presentation of your answer plays a crucial role. Use appropriate terms wherever

necessary. Quote Sections/Acts/Committee names where you can. This will provide added credibility to your answers

12. Neatness and good handwriting creates a good impression in the mind of examiner13. Before handing over your answer book, make sure that you have written your Roll

No. and other particulars correctly and your answer sheet is properly stiched.14. It is not your luck but planning, preparation, continued effort and your belief that

you can succeed, produce positive result.

15. Wish you the best in all your endeavors.


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OUR LOGO

New Logo comprises the rising sun, radiating its rays across the letter form double B. What does this symbolize.

The rising sun is a symbol of change - the change from night to day. The Bank itself is changing and changing radically.

The sun is a universal symbol of energy. It gives, protects and sustains life. The Bank is a source of support for its customers.

The sun is universally recognized - across cultures and countries. Baroda is an international bank and the sun means the same thing across its global footprints.

There are 5 rays of the sun falling on the letterform double B. The 5 rays of the sun signify that the Baroda Sun's rays fall on and provide energy to its customers across the 5 continents.

The logo itself is at an angle. It is not straight, not at a perpendicular to the base. This means that the Bank is in a dynamic state - always pro-active, changing and responding to the change in the environment. It is not static but always on the move.

The second B in the double B letter form appears like a bird flying across the morning sky. It is like Baroda flying in with 20 th century values and into a new world of 21st

century efficiencies. It is this blend of hi-tech and hi-touch that should differentiate Baroda from private and foreign sector competition.

Baroda's new corporate colors are Vermillion, a shade of orange. The international Pantone code for Vermilion is 1655C. The RGB mix is 255:92:52 respectively. Vermilion is the sindoor - a powder worn by married women in many parts of the country. It symbolizes their loyalty to their husbands. The Vermilion for Baroda is a symbol of its loyalty to its customers. This color is reportedly not used by at least the top 500 banks of the world. This makes it unique and helps to differentiate Baroda from competition.

We call it the Baroda Sun.


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RBI Annual Policy Statement 2010-11 and its Impact

SL.No. Policy Measures Impact1 Cash Reserve Ratio raised by 25basis

points to 6%

Repo Rate Raised by 25 basis points to 5.25%(Now it is 5.50%)

Reverse Repo Rate hiked by 25 basis points to 3.75%(Now it is 4%)

Bank Rate retained at 6%

RBI has reaffirmed its commitment to price, output and financial stability by choosing gradualism over a big-bang approach. By raising repo, reverse repo and CRR by a modest 25 basis points each, it has signaled an interest rate regime that would help anchor inflation expectations without hurting the growth momentum(Mr. M D Malya, CMD, Bank of Baroda)

Inflation will be contained and inflationary expectations will be anchored. The recovery process will be sustained. Government borrowing requirements and the private credit demand will be met (RBI Monetary Policy Statement 2010-11)

CRR hike will suck out Rs.12,000 crore of liquidity.

The gradual withdrawal of easy monetary conditions is positive for growth.. An attempt to tame rising inflation

Lending rates may not be changed in the near future. Banks’ margins may come under pressure.

The RBI is presently facing the challenges of managing high inflation and need for supporting the growth levers. It has taken the economy well through the ‘managing crisis’ to ‘managing recovery’. Now the focus has shifted to ‘managing inflation’. The policy stance of RBI truly reflects these emerging concerns. This is balanced approach to support large government borrowing as well


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as private consumption demand. 2. RBI has allowed banks to park bonds

issued by companies engaged in infrastructure activities, and with a residual maturity of seven years, in the Held to Maturity bucket(HTM)

Banks will not have to show losses on securities parked in the HTM basket if market prices of these securities fall below the acquisition prices.

With no fear or erosion in the market value of HTM bonds, banks will be encouraged to invest in these papers.

RBI has facilitated the flow of banks’ funds to infrastructure sector without having to make a separate dispensation for such flows. This obviates the need for companies to provide huge margins to avail of loans

3. The RBI has allowed banks to show loans to road sector as ‘secured loans’ provided banks have the right to receive annuities, tolls collection and it is legally enforceable and irrevocable.

So far all loans to road sector were classified as ‘unsecured loans’ since the land on which the road is developed belongs to the government and thus cannot be taken as security by lenders.

The move will improve flow of credit to road sector.

The road sector is expected to receive boost with RBI announcing new measure to improve the flow of credit to the sector.

4. RBI has lowered the provisioning requirement on sub-standard loans on infrastructure loan accounts The provisioning of sub-standard loans have been lowered from 20% to 15%

Will help flow of banks funds to infrastructure sector.

Measures at Sl. No. 2 to 4 will support infrastructure requirement of around USD 1 trillion over next five to seven years.

5. RBI has permitted recognized stock exchanges to introduce plain vanilla currency options on the spot US Dollars/rupee exchange rate for residents.

At present, Indian Residents are permitted to trade in future contracts in four currency pairs on the two exchanges.

There are many advantages of options trading in the currency market. Options give buyers a right, but not the obligation, to exercise it. Options are also cheaper hedging tool


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compared to futures. In the future market, the investor has to pay the mark-to-market differences. In option, the risk is confined t the premium that has already been paid. The introduction of option trading is a welcome move. This will lead further deepening of the market Importers and exporters as well as commodity traders will find it convenient to hedge their positions in currency markets by buying or selling call or put options, depending jupon their requirements. While call options are bought when prices are expected to rise, pout options are bought when prices are expected to come down.

6. The RBI has allowed trading in interest rate futures (IRFs) on securities with short term maturities such as two-year and five-year securities and 91 days treasury bills.

At present only 10 year Government of India securities are available for trading under exchange-traded IFRs.

The introduction of these securities will surely fill the gap in the interest rate futures market.

More product will certainly deepen the interest rate derivative market and increase liquidity. At present the daily volume in IRFs is negligible.

7 RBI has extended the time for realizing the assets acquired by Assets Reconstruction Companies(ARCs) from five years to eight years. In addition, ARCs are allowed to acquire assets in their own books or directly in the books of the trust set up by them.

More time has been given ARCs to realize their assets.

8 RBI has proposed to mandate banks not to insist on collateral security in case of loans up to Rs.10 lacs as against the present limit of Rs. 5 lacs extended to all units of micro and small enterprises(MSEs) sector.

RBI’s decision will be positive for MSE sector, benefiting large number of such enterprises.

9 RBI has permitted banks to treat their exposure to unlisted non-statutory liquidity ratio debt securities as an

This is an effort to promote the corporate bond market.


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investments in listed securities at the time of making investments. This benefit will be available provided the paper is proposed to be listed in exchanges.

Also this step is part of the efforts to gradually push companies from depending mainly on direct bank credit to raising funds from the market.

10 RBI has proposed to permit banks to engage any individual, including those operating Common Service Centres(CSCs), as Business Correspondent(BC) subject to banks’ comfort level and their carrying out suitable due diligence.RBI will issue operational guidelines separately.

Under the extant guidelines on BC model, only certain select categories such as NGOs, micro finance agencies and other self help groups are permitted to be engaged as BCs.

This will provide more flexibility to banks.


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Where Do We Stand ???As on 31 Mar 2010*

Rank Name of the Bank

Global Business [Rs.]

CASA Deposit%age

Net Profit[Rs.]

NPA [Net]%age

CAR [Basel-II ]

1st PNB 4,36,000 crores

40.85% Rs.3905 crores

0.53% 14.16%

2nd BOB 4,16,000 crores

35.63% Rs.3058 Crores

0.34% 14.36%

3rd Canara Bank

4,04,000 crores

29.85% Rs.3021 crores

1.06% 13.43%

4th BOI 4,01,000 crores

31.75% Rs.1741 crores

1.31% 12.94%

5th ICICI Bank

3,83,000 Crores

41.07% Rs.4670 crores

1.87% 19.40%

6th Union Bank

2,91,000 29.36% Rs.2075crores

0.81% 12.51%

7th HDFC Bank

2,22,000Crores

50.00% Rs.2949crores

0.31% 17.40%

*[Source : Audited financial results available on Website of individual Bank & Financial Newpapers etc]


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Major Ratios of our Bank as on 31.03.2010Ratio How to Calculate Ratio as on

31.03.10(Figure in bracket is of previous year)

Net Interest Margin Total interest earned minus total interest paid divided by average interest earning assets

2.74% (2.91%)

Cost Income Ratio Operating Expenses Divided by (Non interest income plus interest spread)

43.57% (45.38%)

Return on Average Assets Net Profit divided by AWF

1.21% (1.09%)

Return on Assets Net Profit divided by total assets

1.10% ( 0.98%)

Cost of Deposit Interest Paid on Deposits divided by Average Deposits

4.90% (5.71%)

Capital Adequacy Ratio(Basel II)

Total Capital including Tier I plus Tier II multiplied by 100 and then this figure is divided by total Risk Weighted Assets of the Bank

14.36% (14.05%)

Interest Spread/Average Working Funds(AWF)

(Total interest income minus total interest expenses) divided by AWF

2.44% (2.64%)

Operation Expenses/AWF Operating expenses divided by AWF

1.56% (1.84%)

Return on Net Worth Net Profit Divided by NW 22.19% (19.56%)Dividend Payout Ratio Dividend including

corporate dividend tax divided by Net Profit

20.90% (17.22%)

Credit Deposit Ratio Total Advances divided by Customer Deposit(Total deposits minus inter bank deposits)

84.55% (82.36%)

Net Profit/AWF Net Profit divided by AWF

1.26% (1.15%)

Interest Income/AWF Total Interest income divided by AWF

6.86% (7.78%)

Interest Expenses/AWF Total interest expenses divided by AWF

4.42% (5.14%)

Business per employee Total Deposits plus total advances divided by No. of employees

Rs. 10.68 Crore (Rs.9.13 crore)


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Average Business per employee

Average Deposits plus average advances divided by No. of employees

Rs. 8.94 Crore (Rs.7.57 crore)

Net Profit per employee Net Profit divided by No. of employees

R. 7.85 lacs (Rs.6.05 lacs)

Net Profit per Branch Net Profit divided by No. of branches

Rs. 0.97 crore (Rs 0.75 crore)

Earning per share Net Profit divided by equity multiplied by Ten

Rs. 83.96 (Rs 61.14)

Book Value per share Net Worth (excluding Revaluation Reserve) divided by equity multiplied by Ten

Rs. 378.44 (Rs.312.61)

Average Working funds(AWF) - Fortnightly Average of Total Assets Average Deposits – Fortnightly Average of Total Deposits Average Advances – Fortnightly Average of Total Advances Average Business – Total of Average Deposits plus total of Average

Advances


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Business Policy Guidelines 2010-11

Performance of Bank during 2009-10(Global)

Global Business Rs.4,16,080 crore (Global deposits Rs.2,41,044 crore, Global Advances Rs.1,75,035 crore)

Net Profit Rs.3058.33 crore (Up by 37.32%) Net Interest income up by 15.90% Return on Average Assets 1.21% Return on Equity 22.19% CD Ratio 84.55% Capital Adequacy Ratio Basel II 14.36%, Basel I 12.84 Net NPA 0.34% EPS 83.96 Income from Treasury operations 1047 crore Business per employee 10.68 crore Net Worth Rs.13,785 crore Share holding by Government of India 53.81%

Motto for the year 2010-11:

‘LEVEERAGING TECHNOLOGY FOR AUGMENTING BUSINESS GROWTH AND PROFITABILITY’

Business Model focusing on Sustained Growth:

(Remember 4 Cs)

CASA – Building a healthy CASA portfolio CREDIT – Well diversified advances portfolio with enhanced emphasis on

MSME, Retail and agriculture Sector. CLEANING OF BALANCE SHEET – Better NPA management through

arresting slippages and recovering the NPA/Written off accounts CORE FEE BASED INCOME – Supplementing Net Interest income with a

handsome core fee based income

Strategies and Action Points:

Resource Mobilization:

‘KYC’ is our Survival Kit Know Customer as potential for canvassing business or potential risks for

safeguarding our exposure ‘KYCR’ – Know your customer’s risks Aim for at least 38% CASA share on an average basis Share of Current Account Deposit must be 8% to 10% within CASA.


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Emphasis on canvassing term deposits of higher maturity. Recurring Deposit must be provided necessary boost. NRI deposit – low cost deposit – be provided necessary boost especially. Deposit mobilization to be broad based Need to diagnose the reasons for negative branches and branches with negligible

growth 70% of the branches contribute to the business growth and remaining branches are

showing less than 10% growth. Percentage of performing branches to be increased at least to 85% during this

year. Customer base of 36 million – cross selling other products Various characteristics of the customers are properly captured in the system.

Credit Deployment:

Fast processing of loan proposals Profiling and capturing the credit risk of the borrower 26% to 27% growth for retail sector as a whole. Evolve new retail products. Need to market products with non-funded exposure. Wholesale Banking – Infrastructure lending is most important area where we will

hav e to adopt an aggressive approach. 9% of GDP would be spent on infrastructure products by 2014.. Auto sector, pharma, capital goods industries would be best bet in the near future. Strengthening existing relationships.

MSME Banking – Second largest source of employment. Account 40% of industrial production, 95% of industrial units and 34% of exports. Low credit availability. Comprises 95% of total industrial units, employing more than 65 million people. Yet only 8% of total bank credit finds its way into this sector. Ensure credit availability to this sector.

Rural and Agri. Banking – Bank is lagging behind on meeting the mandatory target of Direct Agriculture lending. Need to bridge this gap during this year. Branch expansion and use f Business facilitators. Agriculture credit without compromising on quality.

Retail Credit – Area still remains untapped. Housing loan constitute 44% of total retail loan. Estimated shortfall of 19.4 million housing units in India Ban should be able to tap and build the opportunities.

Non Interest Income:

NIM under pressure. .Necessity to augment non interest income. Not getting adequate attention.

Zone/Region to accept challenging targets for increasing fee based income Fee based income should be good enough to cover non interest expenses..

Government Business:- Good revenue generation opportunity. To create awareness amongst staff with regard to the profitability of the

Government Business.


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Popularize e-payment facility for payment of Direct and Indirect Taxes by non customers and/or Baroda Connect users.

Wealth Management:- ‘India will have one trillion dollar worth ingestible funds by 2012’ Target size of 42 million hose holds as against 13 million in 2007 ‘India First Life Insurance’ – a joint venture Large number of branches – should come forward for enrolling customers for life

products Tie up in the area of general insurance, asset management, equity trading, etc –

generate fee based income. .E-Business:-

The multiple delivery channels Baroda Connect, RTGS, NEFT Popularize e business facility amongst the clients. Net Based transactions through debit cards.

Asset Quality and NPA Management:-

Adopt risk mitigation techniques so that slippages can be avoided in the first place.

Not hesitate to employ all the tools of recovery that are at our disposal Need to guard against ‘take over’ of weak accounts. Improve Asset quality further. Capturing early warning signals in time and continuous dialogue with the

borrower can go a long way in arresting slippages which sometimes come as a last minute shock.

Developing alerts to catch warning signals. Target for cash recovery Rs.425 crore. Recovery Target in PWO/Write off

Rs.550 crore, Target for up gradation Rs.250 crore.

Customer Service:-

Staff to have complete and up dated knowledge about products. Prompt and hassle free service Educate customers about our products Prompt redressal of complaint under advice to customer. Seek guidance from higher authority without loss of time. Use of bank’s various IT initiatives Customers’ waiting time to be reduced. Make Bank of Baroda, the ‘Most Admired & Profitable Bank’


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Domestic Business Plan 2010-11

Parameters (Remember Five Rs) Growth in % p.a.Resource Mobilization Total Deposits: 23% to 25%

CASA Deposit: 24% to 26%Average CASA: 24% to 26%

Resource Deployment Gross Advances: 25% to 27%Average Advances: 25% to 27%Retail Advances: 26% to 27%MSME Advances 24%Priority Sector: 24%Agriculture: 20%

Recovery in NPA 20% to 22%Revenue Core non interest income 25% to 30%Return Return on Average Assets 1.10% to 1.20%


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TECHNOLOGY INITIATIVES DURING 2009-10

The Bank has achieved 100% CBS for all its domestic branches during September,2009.

The Bank’s Internet Banking, viz. Baroda Connect, is an important delivery channel, both for its retail and corporate customers, providing facility to transfer funds, query account status, pay both Direct and Indirect Taxes online, certain State Taxes, make payment of utility bill and book rail tickets, online inter bank payment using NEFT/RTGS. Online bill presentation and payment and shopping for selected portal and donation to selected temples SMS Alert facility are provided to eBanking customers To protect our customers from phishing attempts, beneficiary registration for third party fund transfer activities has been introduced. The Bank has also launched School Fee Collection Module.

The Bank has implemented the ATM Switch application to meet the Bank’s objective of integrating with a wide variety of front end delivery channels including ATM, POS, Payment, Gateway, Debit Card Management System and providing online authorization services by connecting to Bank’s Core Banking Solution, BASE 24 is fully operational for all domestic ATMs and for ATMs in 7 overseas territories. The Bank has launched School Fee Collection Module in August 2009 which enables payment of School/Institution fees through Bank’s ATM. The Bank has also implemented multiple accounts being linked to a single Debit Card. Debit Card is also enabled for online shopping to the merchant website.

The Bank has launched Phone Banking facility to customers, which enables them to get the Bank’s products information, enquire balances in their account, status of cheques, order statement of account through fax or email.

All CBS branches of the Bank are enabled for inter bank remittances through RTGS and NEFT.

The Bank has completed a 3D Secure Implementation under the Internet Payment Gateway Project (IPG). The IPG facilitates direct customer merchant transactions and settlement through the Bank’s central ATM Switch.

The Bank has launched Corporate Cash Management services, which enables its corporate customers to manage their funds efficiently through bulk payment services, local / outstation fund collection ( paper based or electronic) and liquidity through fund pooling facility.

The Bank has also launched Institutional Trading under the Online Trading Project on 17th October,2009.

The bank has implemented Global Treasury Solution in UK, UAE, Bahamas, Bahrain, Hong kong. The Global Treasury for India too went live on 14th December 2009.

The Bank’s Back office functions have been centralized at the branch level to relieve the operational staff from the loan of cumbersome back office functions and enable them to focus more on sales and service.

The Bank has set op three Regional Back Offices, at Baroda, Jaipur and Coimbatore, for the process of centralized account opening and issuance


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of personalized cheque book,. The Centralized Pension Payment Cell was also rolled out in Baroda on 7th October,2009.

The Bank has implemented Payment Messaging Solution (PMS) in 126 of its domestic branches ( B category branches ) and 13 overseas territories. The PMS facilitates Straight through Processing (STP) of SWIFT messages generated from the CBS, and also goes through the ALM (anti-money laundering) check.

The bank has fully implemented Enterprise wide General Ledger in India and in 19 overseas territories.

The Bank is also in the process of implementation of Data Warehouse Project (DWH). The DWH systems will enable the bank to use their data in making strategic decision and forecasting future business trends.

The Bank has already implemented Anti Money Laundering system (AML) in 14 overseas territories viz. Oman, UAE, Fiji, Mauritius, Seychelles, Tanzania, Bahamas, Kenya, Uganda, Guyana, Hongkong, Botswana,U.K., S. Africa. The AML has also been implemented in India and 14 overseas territories through a Batch Process mode.

The Bank has successfully implemented the Human Resource Networking for Employees Service with the main objective of creating a centralized database of its employees for facilitating decision making, promotion and selection exercise as also for automating other HR processes. In Payroll, Salary module, e-TDS modules have been implemented for all domestic offices in India. The “Leave Module” has also been launched and the employees are provided with the functionality of self service.

To ensure Business Continuity at all times, the Bank has implemented a state –of-the-art Data Centre and also a Disaster Recovery (DR) Site. The drills are being conducted at regular intervals and the operations are transferred to the DR site seamlessly to ensure continuity of operations at all times.


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How to emerge as winner in Competitive Environment:-

a. Reorienting our systems and procedures towards customer convenience & enhanced customer satisfaction.

b. Formulating and adhering to best corporate governance practices with an aim to set high standard of ethical values, transparency and disciplined approach to achieve excellence.

c. Focussing upon a consistent and broad-based resource mobilisation plan.

d. Enlarging the base of retail customers by leveraging technology besides implementing many technology based initiatives.

e. Diversifying the Loan Book and managing the credit risk.f. Penetrating deeper into hitherto unbanked centres/ customer

segments.g. Aggressively canvassing non-fund based business so as to improve

the share of fee based income.h. Maintaining a fine balance between the Size (Top line) and the

Strength (Bottom line) of the Balance Sheet by managing Net Interest Margin (NIM), Risk Profile of the Bank and improving the Cost-Income Ratio.

i. Enhancing the image of the Bank as a Customer Centric Organization.

Key Challenges Bank is facing to - day:

Maintaining and enhancing our market share in domestic and international arena. Protecting our NIM Increasing the proportion of low cost deposits in our deposit base to control the

cost of funds. Increasing our Non fund based income or Fee-based income. Asset Quality Management in the wake of sustained credit demand. Product and service innovation. Hiring and retaining best talents and skills.


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NAVNIRMAANBARODA NEXT

As a learning organization and an organization which is continuously evolving, we an not remain static. Market place dynamics have triggered transformation in progressive organizations in order to grow. We have launched a comprehensive transformation programme called “NAVNIRMANNA”. It will be centered around our customers and our employees, and will have two core elements – business process reengineering (BPR) and organization restructuring. Primarily, the main objectives of this program revolves around the following :

Ensure best in class customer service. Streamline processes to make life simpler for employees and customers. Equip you with the best tools and techniques to discharge your roles

effectively. Align the Bank’s organization structure and systems to help build “Baroda

Next” and drive the new strategy. This initiative will focus on solving the challenges that we face in our respective roles and will work with our ideas in making change happens at all levels in the organization. The Bank’s success will be defined by our success. We have partnered with McKinsey & Company in this exciting journey and have also put in place a dedicated team from our side for anchoring this effort and taking this initiative forward to each and every nook and corner of the organization. It is programme which is enormous not only in its scope and magnitude but also in the value and benefits that it brings to the Bank and to each one of us, individually.


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HR Initiatives:

‘SAMPARK’ – SOS Helpline for employees. Under this Help line, employees who are in distress can directly approach CMD for immediate relief. Matters requiring urgent attention like life and death issues, medical emergency, overwhelming circumstances in the personal life of employees, hardships due to natural calamities etc. are dealt on priority and relief is provided, where required.

‘PARAMARSH’ - Personal Counseling services for employees. The centre is set up to provide psychological assistance and guidance to employees to enable them to overcome any stress, complexities, conflicts in their personal and professional lives through experienced clinical counselors. It works on the principle of neutrality and confidentiality.

‘KHOJ’- A talent Identification & Development Programme to nurture talented human resources.

PASAS- Performance Appraisal System for Award Staff. With a view to bring an organization wide performance culture, hitherto uncovered category of employees i.e. clerical and sub staff has been brought under a new performance appraisal system called PASAS

Project Leap – Leadership development initiative for grooming and developing 300 leaders with the help of Grow Talent Co Ltd. The process involves (a) Identifying a competency framework for future leaders in Bank. (b) Administration of psychometric instruments and 360 degree feedback for each identified executive for building on their strength and working in the areas where development is needed.(c) Classroom orientation and Action Learning Projects (d) Succession Planning

HR Blueprint for business driven HR Reforms - Board approved strategy paper outlining various organization wide HR Reforms/Interventions

Ideaonline@ .com.- To harness the power of small ideas. The programme is designed to identify, select, groom and deploy the talented staff in key functions/roles. Special fast track career growth opportunities are lined up for the right candidates.

Introduction of Performance-linked Incentive Scheme.


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mailto:[email protected]

BANK’S CORE STRENGTH

A large public sector bank with modern and contemporary personality. As per Bankers’ Magazine, London its world Rank is 283 among Prime Banks

Uninterrupted Record of profit making. Strong domestic presence throughout the country Bank’s operation extended in 26 countries Global business Rs.4,16,080.00 crore as on 31.03.2010 Has been able to withstand to the turbulence more effectively during 2009-10

mainly due to its strong fundamentals Providing financial services to over 36 million customers across globe Baroda SUN- is a well accepted and recognized brand of Indian

Banking Industry Bank the common values of Honesty, Simplicity, Dedication and commitment Bank’s rapid and significant Technology progression Bank has been enjoying ‘trust and confidence’ of its stakeholders over a period of

time. Bank met its stakeholders’ expectations in terms of performance, transparency,

corporate governance and integrity in guidance during the last couple of years. Bank’s presence in all leading financial centers of the world like London,

Brussels, New York, Bhamas, Dubai, Hong Kong and Singapore. Bank’s international operations account for 24% of Bank’s global business and

around 29% of its net profits.

BANK’S MAJOR WEAKNESSES

Very little sales focus. 80% of work force at branch level is doing something

except selling.

Inflexible and sub-optimimum staffing at Branch level

Low utilization of alternate delivery channels. ATM utilization is 1%. Figures

for internet, phone banking channels are in fact negligible.

3% to 4% of branch staff is spent in selling. Best practice is 50% to 60% on

selling activities.

Staffing is not matched with customer arrival time.

Product per customer ratio is 1.2. Best practice is around 3.


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Multi-Specialist Banking-Redefinition of Critical Business Segments

In Bank’s Business Policy Guidelines 2007-08, corporate moto was chosen as ‘Moving towards Multi-specialist Banking’. This most has been chosen, as ‘one- size-fits-for all’ approach has become redundant and irrelevant in the face of fierce competition and specialized banking.

Business segmentation if the practice of dividing the customer base into homogenous groups whose requirements, needs and behavior are similar in specific ways such as age, gender, interests, spending habits, type of business, activity and so on. Business segmentation allows organizations to target groups effectively and allocate resources to best effect.

Business segmentation allows managers to:- Divide market into meaningful and measurable segments. Determine the profit potential of each segment by analyzing the revenue and cost

impacts of serving each segments. Target segments according to their profit potential and the organization’s ability to

serve them in an efficient way. Invest resources to tailor product, service and marketing and distribution programs

to match the needs of each target segment. Measure performance of each segment and adjust the segmentation approach over

time as market conditions change. Advantages of Business Segmentation:

To prioritize new product development efforts To develop customized marketing programs To design and develop specific distribution strategy. To fine tune processes required to serve each customer segment. To determine appropriate product pricing. To plan for skill set requirement in people. To determine strategy to increase the ‘Share of Wallet’.

As the Bank embarks on its journey to transform into a ‘Multi-Specialist Bank’, the Bank would need to segment its business and its customers into strategic business segments/units(SBUs). For this purpose, it would be imperative to measure and monitor Bank’s performance by the strategically defined business segments as opposed to current monitoring mechanism, which focuses primarily on performance by geographically(by Zones/Regions) and by outstanding balances in deposits and advances.

To focus more clearly on the current and emerging business opportunities.In order to move towards ‘Multi-specialist Banking, the Bank has redefined its line of business into 4 critical business segments i.e. Retail, SME, Wholesale and Rural/Agri Business. Each segment is being headed by a General Manager at Baroda Corporate Centre.


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Retail Banking Labiality Side – All individual, HUF, sole proprietorship firms and institutions

permitted by RBI to open Savings Bank Account(except Clubs & Trusts) Assets Side – Consumption/Personal loans to all individuals, including, including

NRIs, irrespective of credit limits. Small Business Loans to individuals and Sole proprietorship firms engaged in

small business, retail trade, self-employed, professionals – rendering services(other than agriculture & manufacturing) –with credit limit upto Rs.1 crore

SME Banking Small Scale Industries(SSI) – as per regulatory definition. Micro, Small and Medium Enterprises – as per regulatory definition. All other entities with their annual sales turnover of Rs. 1 crore to Rs.150 crore. Individuals and sole proprietorship firms engaged in small business with credit

limit of over Rs.1 crore. Clubs, Trusts etc.

Wholesale Banking(Mid corporate and Large Corporate) Entities (including private sector, PSU and Foreign) with their annual

sales/income turnover of over Rs.150 crore. Customers irrespective of their annual turnover – (i) Financial Institutions,

including banks, and all types of NBFCs(excluding RRBs sponsored by our bank) (ii) Central and State Governments (iii) Associate/sister concerns of Wholesale Banking Customers.

Large Corporates – Customers with their annual sales turnover of over Rs.500 crore.

Mid Corporates – Customers with their annual sales turnover of Rs.100 crore to Rs.500 crore.

Rural/Agri. Banking Two dimension – (i) Based on agri. Business Banking (ii) Based on geographical

location of branches. Direct Agriculture and Indirect Agriculture. Micro Finance. Value Chain enhancement of agri-business by alliances with agri-corporates. RRBs sponsored by our Bank All other banking business (Assets & Liabilities) i.e. SME and Retail segment

business at semi urban and rural branches. Rural and Agri. Business Segment will exclude all Wholesale Banking segment

customers.

ROLE OF BRANCH MANAGERS IN THE NEW CONTEXT


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With the implementation of CBS in large number of branches across the country, Branch Managers will have the added responsibility to fully leverage technology for business development, customer acquisition and improving service delivery quality. From transaction processing, they have to elevate their role to driving the marketing and selling efforts at the branches. Besides marketing of Bank’s products, they have also to drive marketing of third party products at the branch counters. Branch Manager’s role will also include transforming their branches into ‘Sale and Service Centres’ and ensuring highest level of customer satisfaction and zero customer complaints.

Electronic Products & Services

Transaction-enabled internet banking for Anywhere Banking. Mobile Banking/Phone Banking – for information services. ATM cum Debit Cards in association with VISA Electron for 24 Hour Banking. Baroda easy Pay – an electronic Bill Presentment & Payment Facility. Rapid Funds2India – an on line money transfer service to India from UAE, Oman,

UK and Mauritus BOB Cash Reach-A cash management product for corporates. RTGS – An interbank electronic fund transfer facility for customers. NEFT – An interbank electronic fund transfer facility. Central Funds Management System(CFMS) – An on line Negotiated Dealing

System for Government Securities. Electronic Data Interchange(EDI) – for payment of custom duty and duty

drawback. Web Based Lending Automation Process System(LAPS) – for corporate and retail

lending. Corporate internet & e mail – A Web based electronic communication information

Sharing and Knowledge Management System

SME Products

Baroda Laghu Udhyami Credit Card Baroda Artisans Credit Card Loan under Technology Upgradation Fund Scheme for Textile units Loans under Credit Linked Capital Subsidy Scheme. Composite Loans to SSI Units. Collateral Free Loans under Credit Guarantee Fund Trust Scheme Loans under National Equity Fund Schemed SME Short Term Loan SME Medium Term Loan Baroda SME Gold Card Loans under KVIC Margin Money Scheme Scheme for Financing Energy Efficiency Projects Baroda Overdraft against Land & Building Baroda Vidyasthali Loan Baroda SME Pack


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Rural Products

Loans to Agriculture and Allied Activities Micro credit through Self Help Groups (SHGs) Baroda Kisan Credit Card Baroda General Credit Card Baroda Rural Internet Kiosk Finance Scheme

Retail Products

Baroda Home Loan Baroda Education Loan Baroda Auto Loan Baroda Mortgage Loan Baroda Personal Loan Baroda Ashrey (Reverse Mortgage Loan) Baroda Loan to Doctors Baroda Traders Loan Baroda Loan against Securities Loan against Future Rent Receivables


29

Subsidiaries, Associates and Joint Ventures(As on 30.06.2010)

Sl. No.

Name Extent of Ownership

Subsidiary (Domestic)1 Nainital Bank Ltd 98.39%2 BOBCARDS Ltd 100%3 BOB Capital Market Ltd 100%

Subsidiary(Foreign)1 Bank of Baroda (UK) Ltd 100%2 Bank of Baroda(Uganda) Ltd 80%3 Bank of Baroda (Kenya) Ltd. 86.70%4 Bank of Baroda (Guyana) Ltd 100%5 Bank of Baroda (Botswana) Ltd 100%6 Bank of Baroda (Tanzania) Ltd 100%7 Bank of Baroda (Trininad & Tobago)

Ltd.100%

8 Bank of Baroda (Ghana) Ltd. 100%9 Baroda(New Zealand) Ltd 100%

Associates (Domestic)1 Baroda Pioneer Asset Management

Company Ltd49%

2 Jhabua Dhar K G Bank 35%3 Nainital Almora K G Bank 35%4 Baroda Gujarat K G Bank 35%5 Baroda Rajasthan Gramin Bank 35%6 Baroda U P Gramin Bank 35%

Associate (Foreign)1 Indo Zambia Bank Ltd 20%

Joint Venture (Domestic)1 India First Life Insurance Co Ltd. 44%

Representative Offices1 Thailand2 Malaysia3 Australia

Off – shore Banking 5- OBU Nassau, OBU Mauritus, OBU Mumbai, OBU Singapure, OBU Baharain

Total 81 Overseas Offices in 26 countries (as on 30.06.2010) .


30

Initiatives taken by RBI towards Current account Convertibility

Permitting Indian companies as well as registered partnership firms to invest in overseas Joint Venture (JV)/Wholly owned subsidiaries(WOS) upto 400% of their Net Worth under automatic route.

Increasing the existing limit of 35% of the net worth for portfolio investments by listed companies to 50% of Net Worth and dispensing with the requirement of 10% reciprocal shareholding in the listed Indian companies by the overseas companies.

Increasing the aggregate ceiling for overseas investment by mutual funds registered with SEBI from USD5 billion to USD7 billion while continuing with the existing facility of investing up to USD1 billion in overseas exchange traded funds that may be permitted by SEBI

Enhancing existing limit under Liberalised Remittance Scheme(LRS) for resident individuals from USD100000 to USD200000 per financial year.

Permitting to allow refund of export proceeds for goods re-imported into India on account of poor quality subject to an undertaking by the exporter that the goods would be re imported within three months from the date of remittance.

Permitted to remit business processing outsourcing(BPO) companies in India towards the cost of equipment to be imported and installed at their overseas sites.

Airlines companies were allowed to make advance remittance without bank guarantee up to USD50 million.

To allow reimbursement of pre incorporation expenses incurred in India up to five percent of the investment brought in or USD100,000 whichever is higher.

Indian corporates with a proven track record were allowed to make remittances out of their foreign exchange earnings for setting up chairs outside India.

Banks were delegated powers to allow donations by Indian Corporates for specified purposes, subject to a limit of one per cent of the foreign exchange earnings during the previous three financial years or USD 5 million whichever is less

The limit for consultancy services procured from outside India by Indian companies executing infrastructure projects has been enhanced from USD 1 million to USD 10 million per project.

Interest Rate ceiling on FCNR(B) was increased to LIBOR/Swap rate plus 25bps of respective maturity of the currency. Interest rate on NRE Deposit increased to USD LIBOT/Swap Rate plus 100bps for the respective maturity.


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Indian entities were allowed to invest in overseas unincorporated entities in oil sector upto 400% of their Net Worth as on date of last audited Balance Sheet.

ECB upto USD500 Mio per borrower per financial year permitted for lrupee expenditure and/or foreign currency expenditure.

ECB Borrowers permitted either to keep proceeds offshore or to remit to India for credit to their rupee account with banks in India pending utilization of permissible end – use

AD Category I Banks permitted to convey ‘No objection’ under FEMA for creation of charge over immovable assets and financial securities and issue of corporate or personal guarantees on behalf of borrowers in favour of overseas lenders to secure ECB under automatic/approval Route.

The limit of USD100000.00 enhanced to USD300000.00 for making remittances for imports where the import documents are directly received by importer from overseas supplier.

The limit for advance remittance for import of .services without bank guarantee enhanced rom USD10000.00 to USD500000.00

Banks are allowed to borrow funds from their overseas branches and correspondents upto a limit of 50% of their unimpaired Tier I capital as at the close of previous quarter or upto 10 Million whichever is higher.

Exchange Traded currency future started on 29.08.08


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NRI

Person who is not resident Indian

Person resident outside India who is citizen of India or person of Indian origin

To obtain declaration Under FEMA 1999- that transaction is not designed to contravene or evade the provisions of the act or any directions under the actIn case of reason to believe - report to RBI

Who is NRI?

Abroad - employment or carrying out business or vocation or any other purpose indicating indefinite period stay outside India

Indians working abroad on assignments - Fgn Govt, UNO, IMF Officers of Govt PSU deputed abroad on assignment with Fgn Govt

Organization posted to their own offices

Persons of India Origin Persons of Indian Origin citizen of any other country other than Bangladesh

and Pakistan if he:- Holds Indian Passport He/his parents/grand parents were citizen of India by virtue of Constitution of

India of the Citizenship Act 1955

Students studying abroad are NRI provided Intention to stay for uncertain period

Schemes- NRE/NRO/FCNR Accounts

NRE Account

Prescribed application form Undertaking to inform his date of arrival in India Documentary evidence to confirm his NRI status In case of temporary visit satisfy that he is not ceased to be Non-resident Joint Account - with Non Resident only

Credits: - Remittance to India Cheque on Foreign Currency account T/Cs issued outside India Currency - CDF if US$5000/- T/C -CDF if US $10000/- T/C Currency to be tendered by himself Transfer from NRE/FCNR account Interest


33

Interest on Govt. securities provided---- Maturity proceeds of Govt. securities provided--- Refund of share/debenture subscription provided--- Refund of earnest money deposited with House building agencies provided Transfer from EEFC/RFC/ Current income - rent, dividend, pension, interest provided AD is satisfied and

income tax is deducted. Any other credit permitted by RBI

Debits:- Local disbursements Remittance outside India Transfer to NRE/FCNR account of Account holder Investments provided it is covered by regulations made Any other permitted by RBI

Interest: - Savings Bank- Rate of interest applicable to Domestic Savings Bank account FD - should not exceed LIBOR/Swap rate for US$ of corresponding maturity

plus 175 basis points . The period of deposit is 1 to 3 years. Bank may exceed the period but interest

will be applicable for max period of 3 years only.

NRE Savings Deposits

The interest rate on NRE savings deposit accounts would be at the rate applicable to domestic savings deposits .

TOD- Rs.50000 max upto 2 weeks To be cleared by Inward Remittance

Overdue Deposit - Max period 14 days for overdue interestRate applicable (i) date of maturity (ii) date of renewal whichever is less

Premature withdrawal:- Bank will allow Depositors be made aware of penal interest No penalty for RFC deposit NRE- to FCNR (B) penalty provision is applicable.

FCNR (B)

Period 1 to5 years

Interest should not exceed LIBOR/Swaps plus 100 bps for corresponding maturity

Interest payment- 360 days a year. One year deposit, no compounding effectChange of status - continue till maturity


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Nomination

Taxation

POA- Not allowed

Premature withdrawal - Penalty provision to be clearly brought to the knowledge of a/c holder. Otherwise has to be borne by bank

Overdue interest - same

Forward cover - allowed

NRO Accounts

Eligible- A person/entity resident outside IndiaFor putting through bonafide transactionBangladesh/Pakistani nationality require prior approval of RBI

Types -

Joint A/c - with resident allowed

Credits- same as NRI Sale proceeds of assets including immovable property acquired out of

rupee/foreign currency or by way of inheritance.Debits-

Local payment subject to compliance Current income remitted outside India In case of NRI/PIO remittance upto US$ one Million per financial year for

bonafide purpose to the satisfaction of AD

Sale proceed of immovable property:- Remittance allowed upto One Mio US Dollars per financial year without any lock in periodCitizen of foreign state - not of Pakistan, Bangladesh, Nepal, Bhutan

Has retired Has inherited assets from person resident in India Is widow of resident outside India and has inherited assets May remit unto US $ 1 million per calendar year on production of

documentary evidence

Foreign national of Indian origin on visit to India


35

NRO Account can be opened At the time of departure balance can be repatriated provided account is

maintained for a period not exceeding six months and account has not been credited with any local funds.

Loan against FCNR/NRE FDR – Maximum ceiling Rs.100 lacs

Features of Various Deposits Schemes available to NRIs

Particulars FCNR(B) Account

NRE Account NRO Account

Type of Account

Term Deposit only

Savings, Current, Recurring, Fixed Deposit

Savings, Current, Recurring, Fixed Deposit.

Eligibility NRIs(Individuals/entities of Bangladesh/Pakistan nationality/ownership require prior approval of RBI

NRIs(Individuals/entities of Bangladesh/Pakistan nationality/ownership require prior approval of RBI

Any person resident outside India(other than a person resident in Nepal and Bhutan)Individuals/entities of Bangladesh/Pakistan nationality ownership require prior approval of RBI.

Currency Pound Sterling, US Dollars, Japanese Yen, Euro, Australian Dollar and Canadian Dollars

Indian Rupees Indian Rupees

Interest Subject of cap LIBOR/SWAP plus 100bps of respective currency/maturities

Fixed Deposit:-Subject to cap should not exceed LIBOR/Swap rates for US Dollars of corresponding maturity plus 175 basis points

Savings Bank:-Rate applicable to Domestic Savings Bank Account

Fixed Deposit:-Banks are free to determine interest rates

Savings Bank:-Rate applicable to Domestic Savings Bank Account


36

Repatriability Repatriable Repatriable Not repatriable except for the following in the accounts:-(1) Current income.

(2) Up to US$ 1 million per financial year /sales proceeds of assets/immovable Property..

Loan against FCNR/NRE Deposits

Max Rs100 lacs Max Rs100 lacs

When a person resident in India leaves India for Nepal and Bhutan for taking up employment or for carrying on business or vocation or for any other purposes indicating his intention to stay in Nepal and Bhutan for an uncertain period, his existing account will continue as a resident account. Such account should not be designated as on Resident (Ordinary) Rupee Account (NRO)

Authorised Dealers may open and maintain NRE/FCNR(B) accounts of persons resident in Nepal and Bhutan who are citizens of India or of Indian Origin, provided the funds for opening these accounts are remitted in freely convertible foreign exchange. Interest earned in NRE/FCNR(B) accounts can be remitted only in Indian Rupees to NRIs and Person of Indian Origin resident in Nepal and Bhutan

Authorised dealers may open and maintain Rupee accounts for a person resident in Nepal/Bhutan.


37

Objective Type QuestionsMaximum limit for second hand tractor loan Rs.2 lacsIn education loan, tangible collateral security is not required upto

Rs.7.5 lacs

RBI permits______% higher prudential exposure limit to infrastructure sector.

5%.

Guarantee issued for receiving advance by contractor is called___________

Financial Guarantee

Limitation period for guarantee favoring government is ______Yrs.

30 years

Derivative involving only interest component of loan is ________.

Interest Rates Swap

CDR can be triggered by Bank / FI with 20 % share in working capital / term finance.

any or more or the secured creditors who have minimum 20% share in either working capital or term finance

Time norm for disposal of priority sector loan Rs.25,000/- is ____ days

Within a period of two weeks

As per Nayak Committee recommendation, working capital requirement is ______% of the turn over.

20%

Number of representative offices abroad _________ 3CIBIL maintains centralized database on willful defaulters. FalseContribution to RIDF is Priority Sector TrueLetter of negative lien gives automatic right to possession. TrueThe date of bill of lading of a ‘Shipped on Board’ bill of lading is the date of shipment.

True

The borrowing power of the limited company are defined in its’ article of association.

False

OMNIBOB is a transaction based Internet Banking. FalseA substandard account referred to CDR becomes standard account.

False

Base Rateis based on cost of funds. TrueUnutilized portion of ceiling prescribed in investment in shares of previous financial year can be carried over.

False

Banks can sell goods under pledge without issuing notice to borrower / guarantor.

False

Fresh BP for adjustment of overdue BP is ever greening. TrueConfirming bank assumes the status of LC opening Bank. TrueFinancing of supply bill is through Receipted ChallanOperative limit in working capital is determined on the basis of

QIS

Adhoc becomes NPA when not Renewed within 180 days


38

Advance guaranteed by Central Govt. is NPA when Invoked and repudiatedRepo rate is 5.50..%Financial data in tabular form is Spread sheetProvisioning requirement for standard assets in Commercial Real Estate SectorDirect Advance to Agriculture and SME

All other loans

1%

0.25%

0.40%

Risk weight for secured loan to staff membersCredit Card/Personal LoansRetail Loans(other than mortgage loans)

20%125%75%

Resident individuals permitted to remit per financial year USD 2 lakhInterest on CRR balance with RBI 0%Hypothecation has been defined under which act SARFAESI Act 2002Limitation period for demand loan 3 yearsSpecial mention accounts Which are overdue beyond

30daysCeiling on Investment in plant and machinery for Small Enterprises

Rs. 5 crore

ESOPs Employee stock option planMaximum amount for compensation that Ombudsman can award

Rs. 10 lakh


39

Bank cannot grant loans against NRE/FCNR deposit or renew existing loan against NRE/FCNR deposit in excess of

Rs.100 lacs

Maximum Loan against security of shares held in Demant

Rs.20 lacs

In EEFC Credit can be given upto____of inward remittance

100%

Prepayment of ECB upto____is allowed USD 500 Mio Commission on handling PPF and Senior Citizen Savings Scheme

(a)In case of Receipt –Rs.45 per transaction(b) In case of payment- 9 paisa per Rs.100/-

Ad hoc Export Credit proposals to be sanctioned when

7 days

Maximum exposure ceiling to infrastructure project

20% capital fund employed

Cut off amount for reference under CDR Rs.10 croreCDR is not applicable in Finance given by single bankInvestment ceiling in equipments in Small (Service) Enterprises

Rs200 lacs

Current Ratio means Ratio of Current Assets to Current Liabilities. It measures liquidity of an entity.

Baroda Advance against property is repayable in 10 yearsThe number of SME loan factories 34 as on 31.03.2009BSVS stands for Baroda Swarojagar Vikas SansthanNotice period required for possession of Assets under SARFAESI Act

30 days

Service Charges in incoming RTGS NilMinimum Balance in Super Savings Account in Metro

Rs.25,000.00

Pensioner are required to give life Certificate Once in a yearUnder ‘Baroda Connect’ daily limit for third party transfer is

Rs.50,000.00

Documents of title in a documentary bill are Railway Receipt, Bill of Lading, Airway Bill, Courier Receipt, Motor Transport Receipt

SLR for Banks 24% of demand and time liabilitiesNo. of overseas offices 81(as on 30.06.2010)Pledge of stocks means automatic right to sale in the event of default

False. Proper notice should be given before going for sale

Three types of Risks as per Basel II Credit, Market, OperationPASAS stands for Performance Appraisal system for

Award StaffTarget for agriculture advance for Public Sector Bank

18% of Adjusted Net Bank Credit or credit equivalent of Off Balance Sheet Exposure whichever is


40

higher Maximum member under Self Help Group 20(It can be upto 25 if the group is

a Registered )Income criteria for DRI loan in rural area Rs.18,000.00Assets not covered under SARFAESI Act Pledge of Moveables

Lien on goodsAircraftVesselHire Purchase/LeaseAny Security interest not exceeding Rs.1 lacsAgriculture landWhere 80% of total dues have been paid

Minimum amount for RTGS is Rs. One lac.In Savings Bank interest is payable in May and NovBank’s utility bill payment product is Baroda Easy PayTDS to be deposited with Government within 7 daysR Return is submitted to RBI FortnightlyInjuction of Liquidity by RBI RepoInter SOL Transaction means Transactions between two branches

on CBS platformCompany’s powers to borrow is restricted by Section 293(1)(d) of Companies

ActALMAN is used for evaluating Liquidity RiskStaff can avail Baroda Home Improvement Loan FalseEducational Loan Product of our Bank Baroda Education LoanLimits for withdrawing Cash at ATM Rs.15000.00 per withdrawal.

Maximum 4 transactions per day.Limit for using Debit Card for using at POS Rs.25,000.00 per transactions.

Maximum 4 transactions per day SOL Transaction means SOL Transaction mean transaction

pertaining to a Service outlet i.e. branch which is on CBS

CIBIL stands for Credit Information Bureau of India Ltd.

The product of Reverse Mortgage in our bank is known as

Baroda Ashray

The Maximum period of extraordinary leave on loss of pay can be sanctioned during the entire service under Bipartite Settlement

12 months

Two types of Guarantees (a) Financial Guarantee and (b) Bid Bonds

Two sources available to Indian Corporate to raise resources from overseas markets

ECB, FCCB, Trade Credit, ADRs, GDRs

Software used for processing text document MS Word or Lotus Word ProGold coin sold by bank have purity level of 24 karat 999.9 purePunishment prescribed under Section 138 of (a) Twice the amount of cheque (b) Courtesy:-B S BishtZonal Inspection CentreLucknow

41

Negotiable Instrument Act Imprisonment upto 2 years and/or both

Interest payable on CRR maintained by the Bank is

Zero

Bank Rate 6% ( 30.06.2010)CRR 6% (30.06.2010)Reverse Repo 4%(30.06.2010)TDS on interest payable on NRO deposit 30% plus education cess 0.90%

However, countries where we have agreement on Avoidance of Double Taxation(ADT), TDS ranges from 10% to 20%.

Margin on Property mortgaged in Baroda Traders Loan A/c

40% on the value of immovable property

Quarterly Average Balance required to be maintained in Savings Bank A/c

Rs. 500.00 in rural and semi urban areas and Rs.1000.00 in Urban and Metro areas

Quarterly Average Balance in Current A/c (General)

Rs.1000.00 in rural and semi urban areas and Rs.10,000.00 in Urban and Metro areas.


42

To Ensure Customer Service – seek answers to questions like:-

Who are our customers in terms of income levels, balance maintained etc.?

Who are our profitable customers? Who are our aggrieved customers? How quickly do we redress the complaints? Which products our customers want more than the others? Which services are delivered efficiently & which are not? Can we serve the customers in a more cost-effective manner? Are all our customers aware about alternate delivery channels? Do our customers have problems in accessing our delivery

channels? Do we offer good ambience to our customers? Do we have effective channels to communicate important

changes, new products, pricing etc. to our customers? Do we seek new contacts through our existing customers? Do we cross sell loan / third party products to existing

customers? Do we know our potential customers? Do we have action plan and timelines for adding new customers?

Strategies for Resource Mobilization:

Focus area should be CASA deposits. Consistent growth in CASA will continue should be the hallmark of our deposit growth strategy.

Branch specific strategies to be chalked out to ensure growth in CASA. Rural and Semi-urban branches should provide special focus for Savings Bank Deposits. Metro and Urban branches to concentrate on Current and Savings Bank Deposits.

Branches in Residential areas should take challenging targets for canvassing Savings Bank deposits due to their locational advantage. Similarly market area branches to be guided to canvass higher current account deposits.

As a principal strategy Corporates to be approached for Salary accounts with a bouquet of services such as home loans, e-banking, anywhere banking etc.

Branches have been provided with the list of current account holders having balances of Rs 2.50 lacs and above. These customers should be contacted at regular intervals not only to ensure increase in such deposits but to mobilize additional business through upselling and cross selling and also generating non-fund based business.

Accounts having balances of Rs 5 lacs and above in Savings Bank should be personally monitored by the Branch Managers.


43

Branches, supplemented by marketing teams, to adopt sales and marketing as a regular activity for client acquisition.

New client focus in marketing to be on HNIs, holding potential of large balances.

Alternate delivery channels like ATMs, Debit Cards, Mobile Banking, SMS Banking etc. should be popularized. Debit Cards, ATM cards and facility of Baroda Connect should invariably be provided to all active Savings Bank customers.

Specialised NRI branches and branches having NRE Cells should be given higher targets to canvass NRI deposits in keeping with our strong foothold abroad.

Campaigns for Savings Bank Accounts and Current Accounts should be organized on regular basis.

Holding regular customer-meets will help branches in redressing the grievances of the customers as well as help in making close contacts with the existing and potential customers.

Branches to seek referrals for new clients from existing good customers. Visits to be constantly followed up by phone/letter/e-mail/further visits.

Customer satisfaction survey to be carried out. Regular customer meets every month in which different

customers be called each time.

Strategies for SME Banking:

At present Bank is having 35 SME Loan factories, which should be re-invigorated to increase SME advances. The sanctions accorded by the SMELF should be disbursed at the earliest.

Separate targets should be allocated to SMELF for fund based and non-fund based advances.

Cluster approach for financing under specific scheme should be given boost in Gujarat, Rajasthan, Greater Mumbai and Southern Zone.

Bank has signed -5- MOUs with various reputed organizations and companies to increase SME advances. Opportunities arising from such alliances should be explored fully.

Bank has already announced relief measures to be considered on a case to case basis such as reduction in margin money, allowing drawing against domestic receivables, extending moratorium and sanctioning additional limit for WCDL etc. This will provide necessary boost to the SME segment.

Good cooperation and collaboration between SMELFs and concerned branches to ensure best delivery to customers.

Strategies for Rural & Agri Banking:


44

Launching campaigns for production and investment credit. Formulating Area Specific Schemes. During the year 2008-09, Bank

introduced scheme for financing farmers of sugar cane for Uttar Pradesh, Northern Zone and Maharastra and Goa Zone. More such schemes to be launched during the year.

Exploring the possibilities of tie-ups with Agro Processing Units for financing farmers.

Organising Conclaves/ Workshops of field functionaries to sensitize them for achieving better growth in agriculture advances.

Organising Mega Credit Camps/ Credit Camps to give desired boost to the growth of advances.

Conducting special training programmes to upgrade the credit skills of the officers.

Exploring the possibility of opening special agriculture-thrust branches.

Taking benefit of Agriculture Rural Debt Relief scheme. It has to be exploited properly to increase our agriculture lending.

Strategies for Retail Credit

Line functionaries should familiarize themselves with the new product basket and aggressively canvass retail business.

Bank has entered into a tie up with Maruti Suzuki India Ltd., Mahindra & Mahindra, Tata Motors and Hyundai Motors India Ltd. at corporate level for boosting the sale of Car Loan portfolio. Opportunities arising from such tie up should be explored fully.

There is a huge un-satiated demand for home loans. The easy liquidity and supportive policy prescriptions have created a conducive environment for increasing the home loan portfolio. What is required is a planned strategy to tap the business potential. HNIs, higher income earning employees of PSUs & Corporate Firms should be targeted.

Retail Loan festival campaigns should be launched to increase the Retail Loan portfolio.

Retail Loan factories to form dedicated teams specialising in home loans.

Strategies for increasing Non Interest Income

CFS and Mid-Corporate branches need to focus on LC/BG commission,

Market area branches should focus on income from remittances. Officers to be deputed to large corporates / PSEs with a solitary aim

of canvassing LC / BG business and giving them specific targets. CFS and other large branches must aim to get at least our

proportionate share of non-fund based business (in the consortium/ multiple banking) – vis-à-vis sanctioned limits and utilization.

Concessions in charges to be regulated / conservatively given. Courtesy:-B S BishtZonal Inspection CentreLucknow

45

Existing charges to be reviewed as these NFB facilities also attract Capital adequacy norms.

Ensure maximum recovery in PWO Accounts We should have a focused approach for increasing Turnover in Govt.

Business. Timely remittance of funds collected under Govt. Business in order to avoid penalty. Popularize e-payment facility. It provides excellent opportunities for canvassing high net worth tax assesses. Tapping pension accounts.

Need to concentrate on Profits fro Forex Transaction Income from sale of third party products and Gold coins is another

important area where innovative strategies need to be tried out. We cannot afford to lose income through revenue leakages. Ensure

that human negligence does not get the better of Bank’s legitimate revenue.

Strategies for Wealth Management Business:

Sales team of IRDA/AMFI certified staff to be deployed in a strategic manner at some target branches.

To collaborate with Asset Management Companies for mutual fund products to enhance product offerings.

Bank to launch its own e-trading platform for offering 3-in-1 (Savings/demat/trading) account during the year (through BOB capital).

To endeavour to become clearing and settlement banker for NSE and MCX.

Strategies for NPA Management:-

Identified Recovery Champions should be given challenging targets for recovery. They should make continuous follow up with the borrowers to canvass compromise proposals.

Special drive should be launched for Recovery of NPAs. Recovery camps should be organized to give boost to the recovery drive.

Lok Adalats should be periodically convened to quickly settle the cases and recover the due amount.

Wherever notice has been issued under SARFAESI Act, all-out efforts should be made to take possession of the assets.

Branches having NPAs of below Rs 5 lacs, should be converted into ‘Zero NPA’ branches.

Sale of assets on individual and portfolio basis should be taken up on priority basis.

Canvass maximum compromise proposals under Bank’s OTS scheme.

Targets of recovery in Prudential Write off (PWO) should be allotted to identified Recovery champions at branch level to recover as much as possible in view of huge sum of money lying outstanding in these accounts.


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Restructuring of accounts in eligible cases to be undertaken on case to case basis.

Customer Service Orientation:-

Be easily accessible to customers at all levels. Manager and other key functionaries to regularly interact with

customers. In all medium & bigger branches a floor manager to regularly

monitor and help smooth flow of transactions and guide the customers.

Zero tolerance for ill behaviour with customers. Front-end staff to be pleasant, smiling and proactive.

Steps initiated by Bank towards Harnessing Human Capital:-

Bank has taken a series of HR initiatives like a record number of promotions, extending pecuniary benefits, proper placements and postings, employee empowerment through internal and external trainings, strong succession planning, lateral recruitment of talent from market and improved communication across the organization. In addition to the above, Bank has taken forward the technology-based Business Transformation Process by operationalising many more projects which will bring convenience not only to the customers but also improve productivity of employees of the Bank. The Management has been constantly working towards creating a congenial working environment in the Bank to enhance operational efficiency and employee productivity.

How to increase Savings Bank Portfolio:

Quality Savings Bank Accounts Tell the customer about our more than 1950 CBS Branches

Customer should be made aware of our various other delivery channels such as e banking, On line payment of indirect taxes and e- payment services, RTGS, NEFT, Debit Cards, SMS Alerts and large number of ATMs create competive advantage and increase our customer base

Mobilize quality SB Accounts

Corporate Salary Accounts

Popularize ‘Baroda Bachat Mitra’ which enables OD against Time Deposit in Savings Bank A/c

Targets – Big and Mid companies, Corporate Salary Accounts, Teacher, Doctors, Business persons, Big farmers


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Incentives – Free Accident insurance cover up to Rs. 1 lac for one year, Free Debit Card, Free E banking

Demonstrate our dedication and devotion to organization.

Take this challenge and make camapaign splendid success

Each and every operating unity is to be involved.

How to increase Current Deposits:

15% of current accounts constitute 90% current deposit of the bank Customer eligible for Baroda Premium Current Account Privilege and Baroda

Premium Current Account be encouraged for opting for these premium products

Relationship manager to be single point contact

Welcome letter to be sent

Brochures of our various products to be given to them

Total business relationship i.e. accounts of all associates, family and group

Must be registered under ‘Baroda Connect’

High value customers – most friendly and personalized services – feel at home

Values and benefits of having Banking relationship with Bank of Baroda:

Roll out of CBS covering all the branches.

A good ATM network

‘Baroda Connect’ – Transaction enabled internet banking facility

Baroda Connect e –tax Service – online payment of indirect taxes(excise duty and service tax)

‘Baroda easy Pay’ – e-payment service

RTGS, NEFT for transfer off funds

A large number of ‘Retail Asset and Liability Products’ to cater various lifestyle needs of individuals

Free debit card facility


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Liberalized Remittance SchemeThe Reserve Bank of India had announced a Liberalized Remittance Scheme (the Scheme) in February 2004 as a step towards further simplification and liberalization of the foreign exchange facilities available to resident individuals. As per the Scheme, resident individuals may remit up to USD 200,000 per financial year for any permitted capital and current account transactions. The facility under the Scheme is in addition to those already available for private travel, business travel, studies, medical treatment, etc as described in Schedule III of Foreign Exchange Management (Current Account Transactions) Rules, 2000. The Scheme can be also be used for these purposes. However, gift and donation remittances cannot be made separately and have to be made under the Scheme only. Accordingly, resident individuals can remit gifts and donations up to USD 200,000 per financial year under the Scheme.

A resident individual can invest in units of Mutual Funds, Venture Funds, unrated debt securities, promissory notes, etc under this Scheme. Further, the resident can invest in such securities out of the bank account opened abroad under the Scheme.

Qualities of a Branch Manager:-

Dare to Dream Never lose your zest and curiosity Always strive for excellence Build self confidence Learn to work in teams Learn to Plan Learn to Share Take care of yourself Never accommodate indiscipline Perseverance Never let success go to your head

Reverse Mortgage It is a loan that allows you to convert your existing home ownership into cash flows, which you can use for meeting your living expenses. Unlike a mortgage, which is generally used to secure finances for the purchase of a property belonging to somebody else, the ‘reverse mortgage’ converts a self-owned property into finance.A large number of elderly people in developed countries like USA use this product to fund their post- retirement living expenses. In a mortgage, you pay monthly installment in order to attain ownership of a house. The reverse mortgage is exactly the opposite, wherein you sell the ownership of your home (to say a bank) and in exchange get a monthly income. Normally, the loan is paid off when the homeowner dies ( or sells the property).

Baroda Ashray-A new Reverse Mortgage Product for Senior CitizenTo tide over the problem of regular cash flow stream for supplementing pension/other income for addressing financial needs of the Senior Citizens, who need financial support in their old age to lead remaining life respectfully, the bank has decided to launch ‘Baroda Ashray’. Special features of the product are:-


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Besides monthly annuity payments, provision is also being made for lump sum payments to meet medical and other exigencies. 20% of eligible amount is earmarked for this purpose.

Advance against self acquired residential property. Property is being used as permanent residence. Borrower will not be required to service the loan during their lifetime Loan will become due for payment (i) At the death of last surviving spouse(ii)

Borrower leaves the housing property permanently. Loan to be repaid through the sale of mortgaged property. The legal heir of the borrower will be given first option to settle the loan account. Surplus amount, after adjusting dues, will be passed on to the legal heir. Fixed or Floating rate option. With the change in rate of interest/change in value of the property, the annuity

payable will be recomputed. Loan tenure 20 years but initially it would be granted for 15 years. Maximum Amount Rs.1 crore Age of building not to exceed 40 years. The property to be valued by approved valuer.

‘HRnes’Implementation of HRnes is an important milestone in the realm of Human Resource Management in the Bank. It would provide a lot of ease and immense benefits to employees as well as to decision-making authorities in various HR processes

HRnes covers the entire gamut of human resources management function in the bank currently being performed and also includes many new sub functions. The system comprises four broad modules encompassing different functions.:

Oracle Core HR module, covering all current HR processes in the bank Fluous Payroll module – covering payroll, payments of various benefits, perks,

welfare schemes, terminal benefits, etc Oracle Learning Management Module which includes training administration & e

learning Employee self-service module

Benefits to employee are – viewing personal details, salary, leave, LFC Block, etc, Modifying personal details, seeking permission required for various purposes like obtaining NOC, intimating bank on various issues, submitting application on line, view/print pay slip, viewing monthly pay details, submission of investment details, on line request for leave, loan, claims

Benefits to bank are- Standardization of information parameters, single data base for integrated decision making, Global and integrated view of HR, Uniform application of rules across the organization, easy generation of MIS, cost effective HR services increasing efficiency, On line monitoring HR related activities, Harnessing the power of workflow to speed up processes, providing platform for initiating employee-centric


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initiatives, leveraging skills of the work force, transparency in HR practiced, tracking establishment expenses OPEC (Organization of the Petroleum Exporting Countries)

It is an association of Oil Exporting Countries formed at Baghdad on 10.09.1960. The members are Iran, Kuwait, Iraq, Saudi Arabia, Venezuela, Qatar, Indonesia, Libya, UAE, Algeria, Nigeria, Ecuador, Gabon and Angola(joined in 2007). OPEC objective is to coordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations and a fair return on capital to those investing in the industry.

Special Economic Zone (SEZ)- In order to enable hassle free manufacturing and trading activities for export purpose, Special Economic Zones have been set up. The main advantages which accrue to the Units in this Zone are that they are not subjected to any predetermined value additions, Export Obligations, input-output/wastage norms. The Government of India has declared the SEZs as foreign territory for the purpose of duties and taxes. Goods supplied to the SEZs from the domestic tariff area (DTA) will be treated as deemed export and goods bought from SEZ to DTA will be treated as import goods. Certain tax incentives are also given to the units in SEZ area

BRIC Countries

The term refers to Brazil, Russia, India and China which economists feel will be world economy’s building blocks. The economies of BRIC countries are fast developing and according to the thesis, these countries are likely to overtake the current rich countries by 2050. These countries account for 15% of the USD60.7 trillion global economy. The leaders of BRICK countries are seeking to use their economic clout to get a bigger say in how the world’s financial system is run.

The Greek Tragedy

The Greek tragedy has opened our eyes to many things. Not only was the fiscal deficit of Greece high but that there were attempts to manipulate the numbers to hide the reality. It took a long time before this could be uncovered. It is now estimated that the budget deficit of Greece is in the range of 13.5% of GDP. The stock of debt is equivalent to 115% of GDP. Greece has reached a critical point where it cannot meet its repayment obligations without outside help. The eurozone and IMF have put together an ambitious package to help Greece. It is not known at this stage how this will be implemented. The package of support will also require Greece to put through a series of austerity measures. Unfortunately, there is a strong resistance to such measures.


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The one lesson from Greek episode for all countries is the need to maintain fiscal prudence.

RBI’s Clean Note Policy

To discontinue stapling of currency notes so that the currency notes are not damaged.

Not to write anything on currency notes To remit all soiled/non- issuable notes to RBI for taking out of the same from

circulation To hold currency packets by paper/polymer bands To issue only issuable notes/fit for circulation to customers Ashoka pillar series notes are not be issued but remitted to RBI in soiled not

remittance

HR Audit

Personal Audit Mechanism to ensure that policy rules, regulations are properly complied with and consequently to enable the authorities to improve effectiveness of administration of HR Function.

Zonal Inspection Centres will carry out Audit of HR Function in branches in semi urban/Rural Centres along with regular inspection as per Audit Schedule

HRM Department of Regional Office will audit HR Function in Metro/Urban centres once in six months.

360 degree appraisal360 degree feedback is an employee performance management process that provides an employee with feedback with his or her workplace performance, as seen from the diverse perspectives of co-workers and customers. While traditional performance appraisal is typically a top-down process only (supervisors evaluating subordinates), 360 degree appraisal may also include upward feedback(subordinate evaluating supervisors), peer evaluations, and feedback from additional supervisors, internal customers, or external clients.

Baroda Advantage Current AccountA customer having Current Account in CBS Branch will enjoy many advantages by way of technological platform. Basic Current Account in CBS Branches has been renamed as Baroda Advantage Current Account. Quarterly average balance required is Rs.5000/-. Once Free Monthly statement Balance Certificate free once a year First time free cheque book of 50 leaves Folio charges – Nil for account with average credit balance of Rs.50000.00 Signature Verification free once in three months Rebate 10% in locker Rent if paid in advance for three years


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Multicity cheque facility Roaming facility – deposit withdrawal, DD, Transfer from any Branch Internet Banking Facility On line payment of indirect taxes 50% in processing charges in retail loans 50% concession on remittance through RTGS for 6 months. Waiver of Demat maintenance charges for 12 months.

Baroda Advantage Savings Bank Account – CBS enabled Savings Bank Account Multicity cheque book facility Roaming facility – deposit, cash withdrawal, transfer of funds, DD, BC. Account

enquiries. Internet Banking – 24x7 on line banking anywhere, summarized view of all

accounts, on line transfer of funds, inquiries on line, cheque status on line, nomination on line, cheque book request, payment of utility bills, communication with relationship manager, internet alert message like password expiry, pending payments, unread mail.

Selling Points – Save time and energy- Get Account details – Free accident insurance upto Rs. 1 lacs for one year to first named person.

50% rebate on Demat Charges –Immediate credit of outstation cheque up to Rs.15000.00

Super Savings Bank Account Min Balance: Metro Rs 25000.00, Urban Rs.15000.00 Customer enjoys various benefits. Free auto sweep exceeding double the minimum balance in multiple of

Rs.10000.00. Reverse sweep multiple of Rs.1000.00 Free DD/MT/TT/Collection of cheque Complementary Paras BOBCARD Personal Accident Insurance Rs.250000.00 Immediate Credit of cheque up to Rs.25000.00 Quarterly interest in Savings Bank Account Priority in allotment of Locker Free ATM Card 25% discount on depository services Interest on delayed collection (beyond 14 days at FD Rate). For abnormal delay

2% above applicable FD rate, Free standing instructions. Unlimited cheque book facility. Welcome Kit Nomination facility If no minimum balance, service charge Rs.150 pm to be levied.

Strategies to increase CASA:-


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Branches should focus on mobilization of CASA deposits. Marketing efforts must be stepped up. Service Quality must improve at the operational level Internet Banking and e-channels must be fully leveraged to increase CASA It should be at the top of the agenda of Branch Manager. Staff should be sensitized and given individual targets. Sales service culture be built up in the branch. Award/incentive for staff/customers Campaign/road show on an on going basis. Showcasing our tailor made products specially designed and customized such as

Subh, Super Savings, Premium/Privilege current account and aggressively market these products.

Preparing comparative chart with other peer banks’ products highlighting our USPs

Baroda Premium Current Account(BPCA) and Baroda Premium Current Account Privilege(BPCAP)BPCA- Quarterly Minimum Average Balance Rs.75000.00BPCAP- Quarterly Minimum Average Balance Rs.250000.00Benefits BPCA BPCAPMonthly statements Two times in a month Two times in a monthAny Branch Banking Yes YesComplementary credit card

Two Two

Free cheque Book Yes YesFree Balance Certificate Free any time during year Free anytime during yearSignature verification Free any time during year Free anytime during year Rebate on Locker Rent 20% if paid in advance for

3 years20% if paid in advance for 3 years

Commission on DD/MT/BC

50% rebate Free

Outstation cheque collection

50% charges Free

Folio Charges Free FreeImmediate Credit of outstation cheque

Rs 50000.00 Rs.150000.00

Discount on D Mat Charges

25% 25%

Processing Charges for car loan

Free Free

Auto sweep facility Rs.25000.00 & multiple thereof (deposit 15 to 45 days)

Rs.25000.00 & multiple thereof(deposit 15 to 45 days)

Inter Sol Charges Free Free


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Baroda Salary Advantage Savings Bank AccountSpecial salary account with added benefits. It is a Savings Bank account with an in built feature of OD facility to salaried persons. Product is available in CBS Branches and BIBAS Branches in different Metros and Urban Cities.

Overdraft upto Rs. 100000/- Interest on Credit Balance Free cheque Book on Routine requirement No Minimum Balance required. No ceiling on deposit amount. No ceiling of Balance amount Minimum take home salary of Rs.5000/- is required. Max OD upto 90% of average salary of last three months. Third Party guarantee is to be obtained.

Alternate Delivery channels

Banking business is no longer confined to limitations of space and time. Business factors like globalization and regulations along with technological development like emergence of internet and e commerce have changed conventional style.

Present day customer prefers to carry banking transactions any time, anywhere and through any device, not necessarily by visiting branch.

This has led to emergence of alternate channels for delivery of banking services like ATMs, internet banking, phone banking, mobile banking, call centre.

In addition to providing convenience of Anywhere Any Time banking to customers, they also offer cost reduction in terms of cost of transactions, to the banks in long run.

The channels are:- ATMs, Internet Banking, Mobile Banking, Debit Cards, Point of Sales, Tele Banking, Omnibob

Baroda e-tradingOur Bank during in the month of January 2007, launched ‘Baroda e-trading which is facility to trade in shares for our customers as a part of Bank’s Wealth Management initiatives.Under this product, Bank has tied with M/s India Infoline Limited – a brokerage house of repute, to offer Trading/Broking facility for our customers.The pre-requisites for offering this facility to customers are:-A deposit account i.e. Savings/Current A/c which can be linked for flow/transfer of fundsA demat accountA Broking account – which is opened with M/s India Infoline Ltd. Who depute their relationship managers for completing account opening/KYC compliance.

Allowing TOD in CA Account Only in rare occasions to meet temporary and unforeseen contingencies. Only in Current account No TOD in first year of operation Look at the conduct of account No TOD at Rural Area


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Maximum TOD upto 25% of average credit balance during last 6 months. TOD once in a month. TOD 5 times in a year No TOD in anticipation of regular limit Avoid TOD simultaneously in group accounts.

Strategies to improve quality of Retail Loan Portfolio:-

To canvass new business through reference from existing customers. To carry our pre–sanction and post–sanction inspection scrupulously Advocate’s and valuer’s report to be cross verified /vetted/scrutinized from other

independent sources. High value/Big ticket customers to be targeted. Canvass group borrowers of reputed Corporates/Institutions Staff to be involved in Business Development To conduct due diligence of borrower and property in a proper manner. All accounts to be regularly followed up for recovery. Date to be fed in ASCROM correctly. IT Returns of businessmen/self-employed persons to be got verified through

empanelled Chartered Accountants. Identity of guarantors to be verified by visiting their Residence/Offices CIBIL to be accessed to verify indebtedness of borrower and guarantor.

Right to information Act 2005Enacted by Govt. of India came into effect from Oct 13, 2005. This act gives the citizens access to information under control of public authorities to promote transparency and accountability in these organizations. The act also provides for appointment of a Chief Public Information Officer to deal with requests for information.

Any citizen, along with payment of prescribed fee, can request for information to the public body by making an application in writing, including by electronic means. The public authority is bound to dispose off the request within 30 days.

The Act, under Sections 8 and 9, provides for certain categories of information to be exempt from disclosure.

Door Step Banking Rendering Banking Services at the door step of the customer. Select Banking services can be made available Customer can have cash, get demand draft and instrument picked up from

office/home Banks can either deploy their employees or hire agents to extend the service

Cash Flow and Funds Flow Statements


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Cash Flow Funds FlowImplies inward and outward movement of cash

Implies movement of Liquid Assets or Working Capital

Cash Flow Statement is akin to Cash Receipt and Payment Summary and, therefore, begins with opening cash in hand and ends with closing cash in hand.

Funds Flow Statement is a statement of change in working capital. It shows sources and uses of funds during the year.

Cash flow statement tells about the ability of the borrower to generate cash and cash equivalent and the timing and certainty of its generation

Funds flow statement tells about funding capacity of the borrower and diagnoses diversion of short term sources to long term uses

Farmers’ ClubFarmers’ Club is a grassroots level informal forum. Such clubs are organized by rural and semi urban branches of banks with the support and financial assistance of NABARD for the mutual benefit of farmers and banks

The branches to actively participate in the formation of Farmers’ Club in their area of operation with the assistance of NABARD. These farmers’ clubs will play a catalystic role in business development and help the branches.

To coordinate with banks to ensure credit support among its members and forge better bank borrower relationship.

Arrange interface with subject matter specialists in the various fields of agriculture and allied activities

Liaison with corporate input suppliers to purchase bulk inputs on behalf of members

Organize/facilitate joint activities like value addition, processing, collective farm produce marketing, etc for benefits of members

Undertake socio-economic developmental activities like community works, education, health environment and natural health resources management.

To spread the message of ‘development through credit’ among villagers To create awareness among rural people about Bank’s products. To assist bank in mobilization of rural savings and in recovery of loans through

propagation of repayment ethics. To provide link between the rural people on one hand and Bank/other

development agencies on the other in overall development of the villages 1788 Farmers’ Clubs have been formed and nurtured by our branches

LAPSIt is centralized web-enabled solution to automate the lending process for both corporate and retail lending with a end to end solution. It enables standard financial analysis, customer rating/credit scoring and electronic communication of loan processing. It facilitates overall efficiency of lending process – speed, accuracy, appraisal, assessment and credit rating. Standard terms and conditions and security documents are generated. It also facilitates NPA management and helps in viewing RBI/ECGC default check lists.


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ASCROMIt is a software used by bank for Assets Classification and Monitoring of Credit Portfolio. The software can generate data required for monitoring of accounts, assets classification, assessing capital requirement under Basel II. It is a backbone of MIS to manage the credit portfolio. It reflects critical amount due to avoid slippage of loan assets, helps in timely intervention, control of credit portfolio and generates data useful for the audit and inspection.

ALMAN A software for compilation of data for Assets and Liabilities Management. The data comprise of classification of assets and liabilities into ten prescribed time buckets based on residual maturity to arrive at the inflows, outflows and gaps in fund flow pattern in different time buckets. It shows maturity pattern and determines the gap in each time bucket to plan for liquidity management. The data provides a tool for Asset Liability Management in Bank enabling determination of interest rates, capital planning and is an enabler to align the bank’s policies with markets.

RecAid PackagePackage developed by IT department to optimize the reconciliation process and reduce the time taken for reconciliation. Rec Aid Package displays various errors in the data and allows correction and generates output in the format required by Regional Offices or IBO. The package handles reconciliation of IBTA, HODD, HOTTR, FEXTA.

CLORETSThe package is used by the branches/administrative offices for compilation of closing return Nos 1 to 13 and 21. It provides facility to compile date for the branch/region/Zone and bank as a whole individually as well in consolidated form.

Holder in due Course Section 9 of Negotiable Instrument Act 1881 talks about the important features of

Holder in due course He must be a holder(i.e. in possession of the instrument and be the payee or

endorsee). Possession of the instrument before due date Possession for consideration The possession should have been obtained in the ordinary course and under

suspicion less circumstances.

Holder for Value Not defined in law A person who is the bearer, payee or endorsee of the instrument. The person has obtained a negotiable instrument for consideration

Repo and Reverse Repo


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Repo means Repurchase Agreement or Ready forward transaction. A holder of security sells them to an investor with an agreement to repurchase at a predetermined rate and time. It is an instrument used by RBI for injection of liquidity in the financial system.

Reverse Repo is a mirror image of Repo. Here securities are acquired with a simultaneous commitment to resell. It is an instrument used by RBI for absorption of liquididty from the financial system.

Heads Repo Reverse RepoFunds RBI to Banks Banks to RBI

Securities Banks to RBI. Transfer of securities through SGL Account of respective banks with an undertaking to buy back after 1 to 14 days

RBI to Bank through SGL accounts of respective banks

Interest 5.50.% Banks to RBI 4% RBI to BanksPurpose To provide liquidity to

BanksTo absorb liquidity from market. To control inflation

Period 1-14 days No specific periodAvailability Banks can freely borrow

subject to availability to excess securities over SLR limit

Subject to ceiling on Bid Basis

Working Capital and Net Working Capital

Funds requirement for day-to-day operations other than investment in ‘Fixed Assets’ and ‘Non-Current Assets’ is treated as ‘Working Capital’. Excess of current assets over current liabilities including bank finance is treated as ‘Net Working Capital’, which is also treated as borrower’s contribution (i.e. margin) for working capital.

Current Liabilities and Contingent Liability

Current Liabilities – Liabilities to be settled in less than a year. These include trade creditors and Debts due within a year. eg. Sundry Creditors, Working Capital loan.

Contingent Liability - A liability which is contingent upon the happening or not happening of a specified event, i.e. a deferred payment guarantee issued by bank gives rise to a contingent liability. If the customer on whose behalf the guarantee was issued, fails to make payment of instalment amount on due dates, the bank will be called upon to pay the amount under its guarantee obligations.

RAM and ROM


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RAM (Random Access Memory)– RAM is temporary memory and is erased when we turn off our computer. The more RAM we have, the less frequently the computer has to access instructions and data from the more slowly accessed hard disk form of storage. Memory should be distinguished from storage, or the physical medium that holds the much larger amounts of data that won’t fit into RAM and may not be immediately needed there.

ROM - It is an Acronym for Read only memory. It contains the bare minimum of instructions needed to start computer. These are used to keep special programs and data, such as the BIOS, that need to be in our computer all the time. ROM is built in computer memory containing data that normally can only be read, not written to. ROM contains the programming that allows our computer to be ‘booted up’ or regenerated each time we turn it on.

Unlike a computer’s RAM, the data in ROM is not lost when the computer is turn off.

Virus: A computer virus is nothing more than a computer program which is able to replicate and attach itself to programs or files infecting the host without is knowledge. Moreover, a computer virus can spread from one host to another like human viruses. The spreading is a result of sharing infected files or downloading files from un-trusted sources. Most of the viruses attach to executable files and their malicious operation begins when you run or open the executable file. In other words, a virus does not infect your computer unless you execute the infected program. Viruses may cause damage to the system by infecting the files, deleting the files, formatting the hard disk, corrupting software programs or even hardware failure etc.

Worm: Computer worm is a self-replicating computer program. It uses a network to send copies of itself other nodes (computers on the network) and it may do so without any user intervention. Unlike a virus, it does not need to attach itself to an existing program. Worms almost always cause at least some harm to the network, if only by consuming bandwidth, whereas viruses almost always corrupt or devour files on a targeted computer. Trojan Horse: The Trojan horse, also known a Trojan, in the context of computing and software, describes a class of computer threats (malware) that appears to perform a desirable function but in fact performs undisclosed malicious functions that allow unauthorized access to the ghost machine, giving them the ability to save their files on the user’s computer or even watch screen and control the computer. Spyware


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Spyware is a computer software that is installed surreptitiously on a personal computer for collecting information about a user, their computer or browsing habits without the user’s informed consent, spying on the user’s documents stored in hard disk, stealing the user’s passwords and other sensitive information etc.Spy were gets installed into the system without the user’s knowledge from downloaded software, CDs etc. Spyware is not a virus. A virus damages the computer’s functioning and proliferates, while spyware gathers information. Phishing:. Phishing is the criminally fraudulent process of attempting to acquire sensitive personal and financial information such as user names, passwords and credit card details by masquerading as a trustworthy entity in an electronic communication. Communications purporting to be from trustworthy organizations like banks, credit card companies are commonly used to lure the unsuspecting, customers. Phishing is typically carried out by e-mail or instant messaging, and it often directs users to enter details at a fake website whose whose look and feel are almost identical to the legitimate site. Typically, the phisher sends an e-mail that appears to come from a legitimate business- a bank or credit card company-requesting “verification” of information and warning of some dire consequence if it is not provided. The e- mail usually contains a link to a fraudulent web page whose look and feel is almost identical to the legitimate site with company logos and content and has a form requesting sensitive information. It would ask the user to provide certain confident information like internet banking login ID, login passward, transaction passward, credit card number credit card number etc, failing which his account would be doomed. There would be a sense of urgency and panic in the mail. Phishing involves 4 major activities by phisher- hosting of phishing websites, sending phishing mails to customers, collecting sensitive information like user names, passwords etc. of the customers who have fallen prey to the phising mails, and carrying out fraudulent transactions in the accounts of affected customers using the credentials obtained phising site.

RBI exposure norms for individual and group *

Type of exposureMaximum single borrower exposure ceilings

Maximum group borrower exposure ceiling for infrastructure

Other than infrastructure projects 15% of capital fund 40% of capital fund


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Infrastructure projects 20% of capital fund 50% of capital fund

*With approval of Board bank may consider enhancement of exposure to a borrower up to a further 5% of capital fund.

Substantial Exposure CapIt is sum total of exposures assumed in respect of those single borrowers enjoying credit facilities in excess of threshold limit. The aggregate SEL( substantial exposure limit) shall be 500% of capital fund as per previous year Balance Sheet. For the purpose of aggregating single borrower exposure for SEL, the thresholds will 5% of Capital Fund. Bank may exceed 5% upto 15% but shall not exceed the overall SEL of 500% so as to meet SEL.

Slippage Prevention Task ForceFor prevention of slippage of quality in advance accounts, banks has constituted a

Slippage Prevention Task Force(SPTF). The SPTF team members are expected to

perform the following major tasks as per existing guidelines:

Maintain database of potential sick accounts of Rs. 1 crore ands above.

Addressing disturbing features in each of these accounts and work out strategy to

overcome problems in coordination with the Branch heads.

Visit of critical branches once in 3 months for spot study of key features like

submission of Stock/ Book Debt statements, adequate DP, valuation of fixed

assets, review of accounts, creation of charges, document verification, adverse

comments of Inspecting Officer/ Auditors etc. and suggest corrective action/

measures.

Continuous review of progress etc.

Credit Default Swaps(CDS)

A credit default swap(CDS) is essentially a financial instrument that allows a bank or financial institution to insure a loan or a debt investment it has made by paying periodic fees to another institution called protection seller which is willing to take the risk. In case the borrower to whom the bank has given out the loan default, then the protection seller pays the bank. Through this process the risk on the books of the bank or the financial institution is transferred to the books of the protection seller willing to take the risk

The CDS is the cornerstone of the credit derivatives market. The vast majority of credit derivatives take the form of CDS, which is a contractual agreement to transfer the default risk of one or more reference entities from one party to the other. One party, the protection buyer, pays a periodic fee to the other party, the protection seller, during the Courtesy:-B S BishtZonal Inspection CentreLucknow

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term of CDS. If the reference entity defaults, declares bankruptcy, or other specified credit event occurs, the protection seller is obliged to compensate the protection buyer for the loss by means of specified settlement procedure. The reference entity is not a party to contract, and it is not necessary for the buyer or seller to obtain the reference entity’s consent to enter into CDS.

Sub- prime Mortgage Crisis

Sub- prime mortgages are residential loans that do not conform to the criteria for ‘prime’ mortgages, and so have a lower expected probability of full repayment. Apart from the borrower’s credit record, the assessment regarding sub prime lending also takes into account debt service-to-income(DTI) ratio (more than 55%) of the borrower and the mortgage loan-to-value(LTV) ratio (more than 85%). The recent problem of sub-prime lending in the US is mainly associated with housing market. The first sign of trouble was high volume of ‘early payment default’(EPDs) in which the borrower misses one or two of the first three monthly payments, which has been followed by rising delinquency rates.

Because of higher risk default, sub-prime borrowers are charged higher interest rates than prime borrowers. As regards the lenders, they suffered huge losses and were left with no option to make up their losses. Most lenders bundled and securitized the sub-prime mortgages and sold them in the credit market world wide. A number of banks were attracted by high rate of interest and purchased these securities and the derivative instruments without really assessing the actual risks that were involved.

No frill account:-

It is an account with basic features and is devoid of additional benefits or frills and is intended for a commoner or low income group customer who does not need accounts with loaded features. No Frill Accounts are designed to propagate Financial Inclusion.

Accounts with either nil or very low balance. Nil/Low charges that would make such accounts accessible to vast section of

population. Nature and number of transactions are restricted. Publicity of such accounts in web site of bank. Ban to obtain only photograph of account holder and self certification address. Outstanding balance limited to Rs,50000/-

Total turnover in a year not to exceed Rs.1/- lacs. In case balance/turnover exceeds the stipulated limit banks would be required to

convert them into normal accounts and follow normal KYC procedure.

Happy Hour Banking:

To encourage customers to avail certain services during lean business hours of the Branch

Provides customers incentives, gifts as well as concessions in service charges, etc.


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Time – 5PM to 8PM (at 24 hour branch) and 6 PM to 8 PM (at 8AM to 8 PM) Branches

NEFT

National Electronic Fund Transfer(NEFT) is an Inter-Bank Electronic Funds Transfer Product. This a secure and trusted electronic funds transfer product and the credit has to be passed on to the beneficiary on the same day on the receipt of the message. NEFT is a multi-lateral net settlement system. All the transactions of the bank are pooled at one location and are forwarded to RBI NEFT cell at Mumbai during the various settlement cycles(presently 6). These payments are sorted out Bank-wise and netted and single debit/credit entry is passed on to the participating bank. Along with the debit/credit advices, individual credit particulars are sent to the beneficiary bank and it is the responsibility of the each bank to route the transactions to their respective branches.

Rapid Funds2India

It is easy and hassle free instant remittance of funds from branches in UAE, Oman and UK to CBS Branches in India and to RTGS enabled branches of other banks. The customer will deposit local currency with these overseas branches and remittance will be effected in rupees to CBS Branches of our Bank/RTGS enabled branches of other Banks under this scheme.

Scheme of Establishing Agri clinics and Agri Business Centres(ACABCs) by Agriculture Graduates

Agri clinics are envisaged to provide expert services and advise to farmers on cropping practices, technology dissemination, crop protection from pests, diseases, market trends, clinical service for animal health, etc which would enhance productivity of crop/animal.

Agri business Centres which provide input supply, farm equipment on hire and other services to farmers.

It has been decided by Government of India to launch a subsidy based Credit linked Scheme for establishment of ACABCs. The scheme is open to agriculture graduates in the subject allied to agriculture like horticulture, animal husbandry, forestry, dairy, veterinary, poultry farming and pisciculture. The subsidy would be admissible only in respect of agriculture graduates trained under the ACABC scheme on or after 1.04.2004.

Subsidy- Each unit will be provided with two types of subsidies under the scheme.

i) Capital Subsidy

a) Credit linked capital subsidy @ 25% of the capital cost of the project funded through bank loan would be eligible. This subsidy would be 33.33% in respect of


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candidates belong to SC, ST, Women and other disadvantaged sections and those from North-Eastern and Hill Stages.

b) The ceiling of project cost for individual projects will be Rs.10.00 lakh. The ceiling of project cost for group projects would be Rs.10.00 lakh per trained graduates, subject to an overall ceiling of Rs.50.00 lakh. In case of groups having five persons, of which one is non-agriculture graduate, the ceiling of such group projects would also be Rs.50.00 lakh.

c) In case of loans up to Rs.5.00 lakh, no margin money is required as per present norms. The margin money to be contributed by the general category entrepreneur will be as per prevailing norms.

d) However, concessions would be made in respect of SCs/STs, women and beneficiaries of North-Eastern States, Hill areas. In such cases, a maximum of 50% of the margin money prescribed by banks could be given by NABARD to meet the shortfall in borrower’s contribution, if the bank is satisfied that the borrower is unable to meet the margin money requirements. Such assistance to banks by NABARD will be without any interest. The banks may, however, levy a service charge up to 2% per annum from the borrowers.

e) The term loan would be composite in nature and bank would extend loan as per the project cost, which would be inclusive of subsidy amount eligible, as capital subsidy is back-ended but exclusive of margin money as stipulated.

ii) Interest Subsidy

Interest Subsidy on the Bank loan portion will be provided to banks on annual basis for crediting to the account of the Agripreneurs. For this purpose, financial year (April-March) will be reckoned for calculation of interest. Interest subsidy will be released to the banks on the balance outstanding in account against principal amount of loan, net of capital subsidy released. The same will be claimed after completion of one year, for the first year and after completion of two years, for the second year.

Reschedulement:

Retaining existing repayment period Not to exceed exposure No change in nature and quantum of existing credit facilities No fresh credit facility is sanctioned Standard, Sub standard and doubtful accounts can be rescheduled No rescheduling of willful defaulter account One time reschedulement not exceeding 6 six months is not considered

restructuring.

Rephasement:

Rescheduling with enhancing repayment period. Retail loan rephasement by Regional Authority provided period should not exceed

60 years of age of borrower in salary class and 65 years in other cases. Maximum 6 months without sacrifice and additional funding


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Rephasement means reschedulement with extended period of repayment

Restructuring:

Changing repayment period, Changing outstanding exposure, Changing nature, quantum of facilities, Sanctioning additional facility

Additional requirement after critically analyzing funds flow position ‘Special investigative audit’ to ensure that there is no diversion of funds. It may also involve refund of penal interest, reduction in rate of interest, funding

of unpaid interest, reschedulement of instalments, fresh additional working capital/term loan

No restructuring of willful defaulter

Ever-greeningIt refers to a strategy or accounting devices to prevent or postponement of classification of standard account to be likely to be slipped into NPA without proper viability study/future cash flow. It is adopted with an intention to avoid slippage

Ever-Greening Restructuring/ReschedulingIt is done repeatedly to avoid slippage of standard account into NPA category

It is done once in potentially viable standard account with an intention to rehabilitate.

No viability study and future cash flow is ascertained before considering for restructuring/rescheduling/rephrasing

Proper viability study and future cash flow is ascertained before considering for rehabilitation

This is not permissible by RBI and benefits drawn under prudential norms for assets classification, income recognition and provisioning are unauthorized

It is permissible as per RBI guidelines for one time and benefits under prudential norms for assets classification, income recognition and provisioning are available

Privileges to Senior Citizens: LABOD 1.25% above deposit rate as against 1.50% for others ATM Card free of charge Free remittance facility by debiting account Free collection outstation cheque upto Rs. 5000/- At par collection of pension bills/cheques No queue facility Additional interest @0.50% on Term deposit

Debit Card and Credit Card:-

Debit Card Credit CardPayment is made against available balance in the account and therefore having an account is must

Payment is made against credit limit i.e. it is a sort of credit extended. Therefore, it is not necessary to have an account.


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All account holders under Savings Bank and Current Account are eligible

Eligibility is based on Income profile/credit worthiness of the individual

Usually is valid for 5 years Usually valid for 3 yearsFree of charges where the bank desires sto popularize alternative channels

Annual Subscription is applicable

Assignment and Set off:-

Assignment Set OffAssignment is transfer of ‘right to recover the debts’ of another. This is usually done by way of written agreement signed between the Assignor(the owner of debt) and the Assignee(to whom the debt is transferred)

The debtor is notified about the transfer of debt by way of assignment and thereafter payment is made by debtor to the assignee in discharge of the debt.

The most common example of Assignment in banking is the assignment of Life Insurance Policy in favor of Bank

Set off is a legal right which entitles a debtor to take into account the sum immediately owning to him by a creditor when determining the net sum due to the creditor. Bank has right to set off credit balance in an account against debit balance in another account(which is kept in the same name or right)

Baroda Connect

It is a brand name of Bank’s internet Banking (e- banking) services launched in September 2006. This facility is available to customers of all CBS Branches in India and is new alternate delivery channel offered by the Bank. The customer may avail the benefits of anytime, anywhere banking from CBS Branches across the country.

Services available to Retail Customers:- Balance enquiry in Operative account, Deposit accounts and Loan accounts. Stop payments of cheques Tax Deduction Enquiry Booking Train Ticket Account summary – summary of all operative, deposit and loan accounts Fund transfer to Self/linked account and Third party fund transfer. Request for cheque book, fixed deposit renewal, Switch Mailing address, account

opening for CBS and e banking. RTGS/NEFT facility Profile – customer can change his profile and change his password. Activity history – Customer can get details of all the activities carried out by bank.


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Modeling – Customer can model deposit/loan schemes of the bank and know about likely maturity value, if he invests or likely EMI if he takes loan, etc.

Services available for Corporate Customers- All facilities mentioned under Retail Customers Approvals – For corporate customers, there can be involvement of multiple users

for transfer of funds/payment of bills, etc and Baroda connect allows multiple users to log in and initiate/approve the transactions, as per powers delegated by the corporate to their users.

Trade Finance queries relating to – Import/Export, Inland Trade, Bank Guarantees, Forward Contract.

Benefits to Customers – Anytime funds Transfer to any CBS Branch including to Third Party. Account Details – past transactions – summary of his accounts. Single Window – can operate all accounts using Single User Id On line enquiry- any query of customer will be answered. History Access – Click on Activity History Option and get details of past

activities My Request – Can request services through Internet Banking Security – Secured by 128 bit SSL to protect transactions/communication with

Bank Convenient Banking – Bill Payment

Benefits to Bank- Cost effective – cost mere Re 1 as against Rs. 30 in Branch operations and Rs 16

in ATM Saves Time – This Time can be utilized in other profitable activities. At par Technology – Will be able to provide various services in line with our

competitors Customer Satisfaction – The hassle-free services supported by technology

Strategy for promoting Internet Banking – Team Approach – educate entire staff Targeting Customers – Service Delivery – availability of forms, proper instructions Promoting internet banking – simulate the customer who is computer savvy Explain the customer two things – Why and How

CTR(Cash Transaction Report)An important part of Anti-money Laundering Guidelines issued by RBI. RBI has prescribed reporting formats and periodicity for Cash Transaction Reports. CTR is to be filed in respect of the following:-

Cash transaction of value of more than Rs. 10 lacs or series of integrally connected transactions aggregate of which in a month exceeds Rs.10 lacs are reported in CTR

Individual Cash Transaction below Rs.50000.00 have been excluded from the purview of reporting.


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Report all cash transaction where (i) forged or counterfit currency note or bank note were used as genuine and (ii) where forgery of valuable security had taken place.

In terms of the act Financial Intelligence Unit India (FIU-IND) was set up in the Ministry of Finance to collect, compile, collate and analyse the cash and suspicious transaction reported by Banks and FIs

Cash Transaction Report(CTR) for each month should be submitted to FIU-IND by 15th of succeeding month.

STR(Suspicious Transaction Report).

Suspicious Transactions means Transaction which:- Give rise to a reasonable ground of suspicion that it may involve the proceeds of

crime, or Appears to be made in circumstances of unusual or unjustified complexity, or Appears to have no economic rationale or bona fide purpose, or Give rise to a reasonable ground of suspicion that it may involve financing of the

activities relating to terrorism Suspicious Transaction Report(STR) should be submitted to FIU-IND within 7

days of arriving a conclusion that any transaction or series of transactions, whether cash or non cash, is of suspicious nature.

Banks not to put any restrictions on operation in the account where STR has been made

Universal TellerUnder this scheme the cheques upto Rs 40000.00 can be directly handled by the cashier for payment. The customer can directly go to him for payment. Besides the Teller can issue drafts upto a certain amount under single signature. The job of balance enquiry and updatation of passbook is also handled by the Teller.


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Lok Adalat:

It is a loan recovery redressal mechanism where the banks organize a camp for recovery in one place under the aegis of DRT. A spot settlement of recovery is made after hearing the case of bank and borrower and the underlying securities. It is not mandatory for either parties to accept the verdict but many recovery cases are settled to the satisfaction of both the parties. It is the version of a small court set up to settle the recovery disputes of borrowers. It is a cheap method of enforcing recovery.

Liquidity Risk:Risk of loss due to potential inability of a bank to meet its repayment obligation in a timely and cost effective manner. This may arise out of s mismatch in tenor of its deposits(liabilities) and loans(assets) leading to a situation that it does not have enough of ready cash to honor its commitments towards its depositors. Liquidity Risk may also deprive a bank from taking benefit of some available opportunity of investment and thereby make money, leading to a lost opportunity.

The price of converting an illiquid asset into a liquid asset in the given market environment is the quantum of liquidity risk (VAR). When an asset cannot be converted into cash when needed runs the bank into a liquidity risk. Scarcity of funds in the market is also one of the factors of liquidity risk.

Interest Rate RiskRisk of loss arising out of change in market interest rate, which may adversely affect valuations of bank’s portfolio of assets or its earnings. Change in bench mark interest rate impacts bank’s own interest rate which affects future earnings, besides change in valuations of existing assets

Credit Linked capital subsidy under technology up gradation fund scheme for textile units (CLCS-TUFS)

Launched by textile commissioner Ministry of textile for SSI and Jute Industry. Option to SSI textile industry either to avail one time 12% capital siubsidy or 5%

interest reimbursement under TUFS. Segment covered :; Cotton ginning and pressing, textile industry covering – silk

reeling and twisting, Wool Scouring and combing, Synthetic filament yarn text rising, crimping, twisting, Spinning, Viscose filament yarn and viscose staple fibre, Weaving knitting, Garments / made up manufacturing, Processing of fibres, yarns, fabrics garments and made ups.

Type of units. New and existing units with and without expansion. Existing units can modernize and expand with state of the art technology. New unit must set up entire facility with appropriate technology. A unit can undertake more than one activity in an integral manner. Second hand imported continuous spinning yarn machine of five year vintage for

production of viscose filament is eligible. Margin : 20%.


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Financial Inclusion(FI)

Financial Inclusion (FI) is delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups. As banking services are in the nature of public service, provision of banking and payment services to the entire population without discrimination should be prime objection of the public policy.

The financially excluded sections largely comprise marginal farmers, landless labourers, oral lessees, self employed and unorganized sector enterprises, urban slum dwellers, migrants, ethnic minorities and socially excluded groups, senior citizens and women.

Scope for FI- (i) Through driven intervention by way of statutory enactments (ii) Through voluntary efforts by the banking community for evolving various strategies to bring within the ambit of the banking sector the large strata of society who do not enjoy the benefits of banking facilities.

Need for FI- (i) To promote thrift among the disadvantaged and low income group(ii)To relieve them from clutches of money lenders (iii) To help the people in remote dwellings to take advantage of retail banking (iv) To improve their standard of living(v) To improve earning capacity of banks (vi) To expand area of operation of banks.(vii)To enhance bank’s business by providing other retail banking facilities.

RBI has advised banks to take following steps towards financial inclusion:-

a. To make available basic banking ‘no-frills’ account with low or nil minimum balances as well as charges to expand the outreach of such accounts to vast sections of the population

b. To make available all printed material used by retail customers in the concerned regional language.

c. KYC procedure for opening accounts have been simplified for those persons with balances not exceeding Rs.50000.00 and credits in the accounts not exceeding Rs.100000.00 in a year. This simplified procedure allows introduction by a customer on whom full KYC drill has been followed.

Introduction of General purpose Credit Card (GCC) facility up to Rs.25000.00 at rural and semi urban branches. The limits are sanctioned without insistence on security or purpose.d. A simplified mechanism for one time settlement of overdue loans up to

Rs.25000.00 has been suggested for adoption to banks who have been specifically advised that borrowers with loans settled under the one time settlement scheme will be eligible to re access the formal financial system for fresh credit.

Benefits of FI to Society Provides roadmap for sustainable development for the financially excluded

persons of the society, improvement in human development indicators and enable people to live a life of dignity.

Inculcates the habit of savings in the community Overall economic growth of the district/village


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Trade and commerce will flourish GDP of country will rise Standard of living will rise

Benefits of FI to Banks Wider customer base More scope of Business growth Low cost deposit will increase More number of people may come forward for loans

KHOJ: Talent identification program initiated in July 2005 to identify competent, willing and enterprising staff to take up challenging assignments in the specialized fields of IT, Marketing, Branch operations, forex, Treasury and so on. They will work as change champions driving bank’s business transformation efforts. They are selected through a rigorous process of written test provided they meet basic minimum requirements of the bank. It is intended to harness the internal potentiality of employees in meeting the challenging goals of the bank.

CRAR(Capital to Risk Weighted Assets Ratio)It is the ratio of capital to risk weighted assets expressed in percentage terms. It is the ratio of capital to total risk weighted assets. It can be expressed as equal to CAR=(Capital funds/Risk weighted assets ) x 100. It reflects the strength of the capital visa vis the risk weighted assets. It shows the risk absorbing capacity of the bank. The minimum CAR is fixed by RBI at 9 per cent though basel norms have suggested 8 per cent.

NIM and NIINet interest margin is the spread between the cost of resources and yield on resources expressed in percentage. The bank aims for maintaining a NIM in the range of not less than 3 per cent. The higher the NIM, the better is the policy of managing the interest rates in the bank. NIM experiences pressure in times of volatility in interest rates. Net interest income is the quantum of interest available after paying all interest commitments. It is usually expressed in absolute amount.

RTGS (Real time gross settlement)

The acronym “RTGS” stands for Real Time Gross Settlement. RTGS system is a funds transfer mechanism where transfer of money takes place from one bank to another on a “real time” and on “gross” basis. This is the fastest possible money transfer system through the banking channel. Settlement in “real time” means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. “Gross settlement” means the transaction is settled on one to one basis without bunching with any other transaction. Considering that money transfer takes place in the books of the Reserve Bank of India, the payment is taken as final and irrevocable. Minimum amount for RTGS is Rs.100000.00


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NEFTNational Electronic Funds Transfer (NEFT) NEFT system is a nationwide funds transfer system to facilitate transfer of funds from any Bank branch to any other Bank branch. The remitter fills in the NEFT application form giving the particulars of beneficiary. The remitting branch prepares structured financial messaging solution (SFMS) message and sends it to its service centre for NEFT. The service centre forwards the same to the local RBI (National Clearing Cell, Mumbai) to be included for the next available settlement. Presently NEFT is settled in 11 hourly settlement starting from 9 am to 7 pm on all week days and 5 hourly settlement from 9 am to 1 pm on Saturdays. The receiving bank processes the remittance messages received from RBI and effect the credit to the beneficiaries accoun’s.

Difference between RTGS and NEFT

SL. No. RTGS NEFT1 Min amount to be remitted is Rs.

1 lac. No. Max AmountThere is no minimum and maximum amount

2 Only Bank’s customers can remit the money

Even walk in customers can remit upto Rs. 50,000.00 by cash

3 Payment instructions are processed on continuous or real time basis

Payment instructions are processed on batch settlement basis. There are 11 hourly settlements starting from 9 am to 7 pm on all week days and 5 hourly settlements from 9 am to 1 pm on Saturdays

4 Transfer of funds is instant Funds can be credited by next day

5 Charges – Rs. 1/- lacs to Rs.5/- lacs Rs. 25/-Above Rs. 25/- lacs Rs.50/-

Upto Rs. 1/- lacs Rs.5/-Above Rs. 1/- lacs Rs.25/-

Benefits of RTGS/NEFT to Bank:- Reduces Workload of DD/MT/TT Risk of frauds prevalent in case of DDs is reduced. Reconciliation is easier. Funds can be transferred to other banks easily

Benefits of RTGS/NEFT to Customers:- Secured transfer of funds across the banks No courier or postal charges Charges lesser than DDs The funds are credited to the beneficiary account on the same day or latest by next

working day.

Baroda Gramin Paramarsh Kendra(BGPK)


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A centre of Knowledge Sharing, Problem solving and Credit Counselling for the Rural Community

Initiative Taken during Centry Year Celebration To fill knowledge gap in financial literacy, better farming practices, technology

adoption, diversification of opportunities, market linked prices, value addition services offered by various institutions, women empowerment, employment opportunities for youth.

With a view to assist the rural community, bank has conceptualized BGPK. Dedicated team which would build the confidence of the rural people Areas covered – Financial education and financial inclusion, information sharing

and problem solving on technical issues, credit counseling, synergy and liaison with other organization and development agencies

52 BGPK as on 31.03.2010

EASIEST(Electronic Accounting System in Excise and Service Tax)

It is an online Module. There are 5 menu items:- (1) Data Entry (2) Security Module (3) Focal Point (4) Reports and (5) Log Out

Indirect tax collections are entered on line by branches for remittances to concerned authorities. Bank branches can collect indirect taxes and can remit funds to the Central Board for Excise Commission. The information is submitted electronically to National Securities and Depository Limited (NSDL) where the data is pooled on indirect tax collections.

“No-frills” Bank Accounts

The Reserve Bank has advised all banks to introduce a basic banking ‘no-frills’ account which could be accessible to vast sections of the population. The “no-frills’ accounts could either be with ‘nil’ or very low minimum balances/charges. The nature and number of transactions in such accounts could be restricted, but should be made known to the customer in advance in a transparent manner. Banks have been advised to give wide publicity to the facility of such a ‘no-frills’ account, including through their web sites, indicating the facilities and charges in a transparent manner.

Banks have been further advised to report to the Reserve Bank on a quarterly basis, the number of such deposit accounts opened by them. Wealth Management Services:-

Wealth Management is an advanced investment advisory discipline that incorporates financial planning and specialist financial services. The key objectives are to provide high net worth individuals and families with tailored retail banking services, estate planning, legal resources, taxation advice and investment management, with the goal of sustaining and growing long term wealth.

With the increasing house hold income, wealth management is emerging as a high potential business opportunity. Wealth management is a new line of business which has


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been given importance in our ‘Project Parivartan’ and it is estimated that during 2008-09 income of Rs.100 crore will be raised through this business.

Steps taken by bank to improve earnings from Wealth Management:- Tie up with India Infoline Ltd. for offering on line trading platform ‘Baroda e

Trading’ for equity and derivative trading Launching Wealth Management Services through a special and dedicated ‘Gold

Lounge’ Tie up with third party organizations. Insurance – India First Life Insurance, National Insurance Company Ltd. Mutual Fund – UTI Mutual Fund, Birla Sunlife Mutual Fund, Reliance Mutual

Fund, Sundaram BNP Paribas AMC Ltd, Franklin Templeton Investments. e-Broking – India Infoline Lunching we4alth management services in UAE with Reliance Mutual Fund

City Back Office (CBO)

After implementation of CBS, Service branches are designated as City Back Office

The primary function of CBOs are centdralized operations of Inward and Outward Clearing, p;ayment of DDs, Bankers Cheques, etdc. The CBOs are required to handle ECS also.

For smooth functioning of CBOs, following should be ensured by the branches:-

Signatures of all accounts are scanned.Account operating instructions and change therein are entered in the system.Cheque books issued are entered in the systemSanctioned limits in accounts are timely renewed.ECS Mandates given by customers are updated with new account numbers in CBS.

Wilful defaulters:- A willful default would be deemed to have occurred if any of the following events are noted.

(i) The unit has defaulted in meeting its payment/repayment obligation to the lender even when it has the capacity to honour the said obligation.

(ii) The unit has defaulted in meeting its payment/repayment obligations to the lender and has not utilized the finance from the lender for specific purpose for which the finance was availed of but has diverted the funds for other purposes.

(iii) The unit has defaulted in meeting its payment/repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilized for the specific purpose for which the finance was availed of nor are the funds available with the unit in the form of other assets.

(iv) The unit has defaulted in meeting its payment/repayment obligation to the lender and has also disposed of or removed the moveable fixed assets or immovable property given by it for the purpose of securing a term loan without the knowledge of the bank/lender.


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No additional facility should be granted to listed willful defaulters. Furtheer, entrepreneurs/promoters of companies who have been identified for siphoning/diversion of funds, misrepresentation, falsification of accounts and fraudulent transactions should be debarred from institutional finance for floating new ventures for a period of five years from the date the name of the willful defaulter is published in the RBI’s willful defaulters’ list.

Inter sol transaction: Under CBS environment, when branch A is doing transaction in respect of customer of branch B, the transaction is done through intersol ID. The intersol ID is identity of the branch. Every branch at the time of going for CBS is allotted a SOL ID which captures all the transactions of that particular branch. Every CBS branch can access any SOL ID in the network and can undertake banking transactions as if done in that branch.

CRMCountry risk management (CRM) is meant to ensure that we do not take undue exposure on any country and run the risk of their inability to meet the international payment obligations. Based on the politico-economic features, each country is rated by an international rating agency taking into various other factors of convertibility of currency, economic growth, forex reserves and so on. The Central bank of every country fixes the prudential exposure limit on different countries. Banks will fix their own internal exposure limit within their own central bank limits and fixes the limits of exposure. There is possibility that a country will default on its obligations to foreigners and/or on foreign liabilities of its banking system for lack of foreign exchange reserves.Under CRM we fix:-

(i) Counter party limit for any type of inter bank exposure(ii) Exposure on other counter parties (borrowers) which will be reckoned for

country exposure.(iii) Country exposure

Before taking any exposure under CRM we get the limits earmarked with SITB.

Firm debts and private debts: Debts raised usually by the firms to meet their business needs are known as firm debts whereas the debts raised to meet the personal needs of the proprietors, directors owners, partners are usually known as private debts. In order to keep the identity of balance sheet of firms its essential to distinguish between these two types of debts.

Rule in Claytons case; The rule was laid down in Devayaney Vs Nobel. It is applicable in case of accounts such as cash credit and overdraft where customer deposits and withdraws money frequently. As per this rule, the order in which the credit entry will set off the debit entry in the chronological order. This means that the first item in debit side will be the item to be discharged or reduced by a subsequent item on the credit side. It is commonly used in the case of loan accounts with multiple credit and debit entries to decide as to which will off set which entry. The first come debit will be adjusted with the first credit.


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Bancassurance: Bancassurance is nothing but an alliance between a bank and an insurance provider. It is a kind of service that fulfils the need of banking as well as insurance. It stands for distribution of life/non life insurance products through the bank’s various outlets as agents of the insurance companies for earning non-interest income. It is meant to use the synergy of our wider presence for selling the insurance products to our own customers who are also the consumers of the insurance companies. As a further step bank has got into JV/strategic alliances with the insurance companies to increase the sale of insurance products.

Advantages of Bancassurance are:- (i) utilization of existing banking network(ii) saving of various costs of insurance company. (iii)instant reach to rural area(iv) availability of large readily available customer base.(v) product development due to better customer relations(vi)banks increase their revenue (vii) banks expand their portfolio(viii) an answer to changing needs of consumers.

Cost income ratio and overhead efficiency ratio; The cost income ratio reflects the actual index of how much is spent out of earnings. The leaner the percentage, the better is the efficiency of the bank. We have to aim at less cost and more income so that the profitability goes up. In an environment when spreads are thinning, new income resources have to be tapped to get favourable ratio. A good control on expenses, making better earnings will be the most ideal. Overhead efficiency ratio indicates the proportion of overheads to income. This important ratio speaks of pace of overheads in the form of salary, rent, electricity, and all items of expenditure other than interest expenditure.

YTMThe yield to maturity (YTM) and the interest rates are inversely related. The higher the interest rates the lower the YTM. The YTM indicates the present maturity value of an instrument at today’s interest rate. The YTM equates the present value of future interest payments and principal redemption when negotiated at to-day’s price of bond.

Factoring: The factoring is a process of discounting trade bills with recourse. It is a service beyond giving simple finance against the bills. It entails a host of services. It is a financial arrangement in which the receivables are created out of sale of goods or services are sold to an agency (Know as factor) is called factoring. The factor performs the functions such as purchase of receivables, maintaining the sales of receivable ledgers, submitting sale accounts to the creditors, collection of debts on the due date and providing consultancy services to the customer in respect of marketing, finance and production.

Channel financing: With the onset of popularity of brand names of extending chain show rooms of say Bata, Raymonds, Bajaj, Arrow, Phillips, Sony and so on there is a potential scope to extend finance to all these retail outlets with an arrangement with their corporate office for certain terms of finance. We may approach the head office of such a large chain of retail


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show rooms and negotiate for finer terms of finance and can advise all branches to approach them for providing our services. In this way one set of negotiation can work for business at many centers. While banks get economies of scale in business, the outlets will get easy finance without each agency working differently. This is commonly referred as channel financing.

Assets Reconstruction CompanyIn India the enactment of SARFAESI Act 2002 enabled lending agencies to foreclose and sell underplaying assets without court intervention.

The SARFAESI Act permits an ARC to commence operations with a minimum net owned funds of Rs. Two crores. ARC is required capital adequacy ration of 15%.

ARC can acquire financial assets by way of simple agreement from the banks/FIs subject to some terms and conditions or by issuance of bonds and debentures to the originating Banks/FIs. All rights of lender vest in ARC after acquiring the assets and become party to all the contracts/deeds/agreement, etc. An ARC can undertake (i) enforcement of security interest (ii) takeover or change of management of the borrower (iii) undertake sale or lease of the borrowers' business and (iv) enter into settlements and reschedule the debt

Three ARCs viz Assets Reconstruction Co (India) Ltd, Assets Care Enterprise Ltd and ASERC (India) have been registered. ACE Ltd and ASERC Ltd are yet to start their operations. ARCIL has bought assets worth Rs.9631 crore from the Banks and FIs at price of Rs.2089 crores.

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002

The act empowers secured creditors to enforce any security interest created in its favour without any intervention of court or tribunal

Section 13 provides that a bank/FI can enforce its security without the intervention of the court or tribunal. It also provides issuance of notices to the borrower under Sec 13(2) for making demand of contractual dues in NPA account payable within 60 days from the date of notice. Such notice must be served on the borrower and also by pasting on the secured assets in a conspicuous place. The word borrower includes guarantor.

In response to the notice the notice the borrower may send his representation or objections which are to be replied within a week from the date of its receipt.

In case the borrower fails to make the payment of dues demanded in the noticed, the secured creditor shall be entitled to exercise all or any of the following rights under Section 13(4). The rights are:-


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Take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale in realizing the secured assets.

To take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale in realizing the secured assets.

Require at any time by way of notice in writing to any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower to pay, the secured creditor so much of the money as is sufficient to pay the secured debt.

On the expiry of 60 days the secured creditor shall exercise any one or all of the above rights. The secured creditor on the day fix take the possession of the secured assets. After taking possession a public notice of such possession is given in 2 newspapers i.e. one being English and the other vernacular. In case the borrower causes hurdle while taking possession, the secured creditor may take police protection or alternatively apply to the Chief Metropolitan Magistrate for taking possession under Sec 14 of the Act.

After taking possession, the secured creditor shall take steps for sale of the Secured Assets. The secured creditor shall sell the property by following the Security Interest(Enforcement) rule 2002 by holding public auction or by inviting tenders or by obtaining quotations from persons dealing with similar Secured Assets or otherwise interested in buying such assets. In the notice for sale the secured creditor must give details like Reserve price, description of property, time and place of auction and specific earnest money deposited and other conditions of sale. There should be gap of 30 clear days between the date of notice of sale and the actual sale.

A borrower may appeal against the action of secured creditor under Sec 17 of the act to DRT.The following are not covered by the Act.

Pledge of moveable and lien on any goods and security. Aircraft. Vessels Hire purchase/lease, etc. Any Security interest not exceeding Rs. 1 lacs. Agriculture land

This act has helped banks/FIs in effecting substantial recoveries by way of sale of secured assets or the borrowers have offered compromises for settlement of dues of the secured creditors.

Credit Information Bureau (India) Limited – (CIBIL)

Credit Information Bureau (I) Ltd was set-up in January 2001 as a joint venture between SBI, HDFC, Transunion International Inc and Dun & Bradstreet Information Services India P. Ltd. CIBIL is established with a primary purpose of information sharing between Banks and Financial Institutions for curbing the undesired growth of NPA.


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Banks are required to provide periodical information to CIBIL in the prescribed format. The operating units shall take necessary steps to quickly and regularly furnish The information in the prescribed format for use and benefit of all the concerned.

CIBIL helps in compilation of credit information, accessible to member banks which acts to improve quality of credit proposals, better credit management and Credit dissemination

Banks, FIs, SFCs, NBFCs, Housing Finance Companies and Credit Card Companies are members of CIBIL

Valuation of investments

In order to make the valuation of the bank's investment portfolio reflective of the purpose, commercial banks are required to classify the entire investment portfolio w.e.f. September,2000 under three categories viz. Held to Maturity (HTM), Available for Sale (AFS) and Held for Trading (HFT). Investments under AFS are to be marked to market at the year end or at more frequent intervals. Investments under HFT category are to be marked to market monthly or at more frequent intervals

Securitization :It is the process by which assets are sold to a bankruptcy remote special purpose vehicle (SPV) in return for an immediate cash payment. The cash flows from underlying pool of assets is used to service the securities issued by SPV.

Two stages process :

1) There is a sale of single asset or pooling and sale of pool of assets to a bankruptcy remote SPV.

2) Repackaging and selling the security interest representing claims on incoming cash flows from the assets to the third party investors by issuance of tradable debt securities.

Banks can sell assets to SPV only on cash basis and the sale consideration should be received not later than the transfer of assets to SPV. Any loss arising on account of sale should be accounted for the period during which the sale is effected. Any profit / premium arising on account of sale should be amortized over the life of the securities issued or to be issued by the SPV.

Please remember 6Ps – Pooling –selection of pool of loan assets, Purchasing – by SPV, Packaging- into tradable securities, Pricing- of securities, Placement – Securities offered by SPV. Issued to investors, Post servicing-and administrating of pooled cash flows.


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Basel II Capital Accord

Limitations of Basel I Accord

Same risk weighing for commercial and consumer loansIgnores differential Asset qualityDoes not recognize any risk other than credit riskIgnores benefits of portfolio diversificationIgnores portfolio theory. An asset’s risk depends not only on its own variability but also its covariance with other assets in portfolio

Accord I Accord IIFocuses on single risk measure More emphasis on bank’s own internal

methodologies –Supervisory review and market discipline

One size fits all Flexibility –Incentive for better risk management

Broad brush structure More risk sensitivity

While Basel I framework confined to the prescription of only minimum capital requirements for banks, the Basel II framework expands this approach not only to capture certain additional risks in the minimum capital ratio but also includes two additional areas, namely, the Supervisory Review Process and Market Discipline through increased disclosure requirements for banks. Thus Basel II framework rests on the following three mutually reinforcing pillars:-

Pillar I – Minimum Capital requirement

The first pillar proposes to replace the existing ‘one size fits all’ framework for assessment of capital with variety of options. It will motivate banks to improve continuously their risk management capabilities so as to make use of more risk sensitive options and thus produce more capital requirement.

Pillar II – Supervisory review Process

It contains evaluation procedure through which supervisors ensure that each bank has sound internal processes in place to access to its adequacy of capital and set targets for capital that in commensurate with the bank’s specific risk profile and control environment.

Third Pillar – Market Discipline

The has dev eloped a set of disclosure requirement which will allow market participants to access key pieces of information on the scope of applications, capital, risk exposure, risk assessment process and level of capital adequacy of the institution.


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Quantitative disclosure that provide general summary of Bank’s risk management objective and policies may be published on annual basis. Tier I total capital adequacy ratio and their components must be disclosed on quarterly basis.,

Pillar II lays down the following four key principles :-

Principle I Banks should have process of assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels.

Principle II Supervisor should review and evaluate the banks’ internal capital adequacy assessments and strategies, as well as their ability to monitor and ensure their compliance with the regulatory capita ratios. Supervisors should take appropriate supervisory action if they are not satisfied with the result of this process.

Principle III Supervisors should expect banks to operate above minimum regulatory capital ratios and should have the ability to require banks to hold capital excess of minimum – buffer for uncertainties.

Principle IV Supervisors should seek to intervene at an early stage to prevent capital from falling the minimum level required to support the risk characteristic of a particular bank

Pillar II requires banks to implement an internal process, called the Internal Capital Adequacy Assessment Process (ICAAP) for assessing their capital adequacy in relation to their risk profiles as well as a strategy for maintaining their capital levels

Action points initiated by our Bank to ensure compliance of Pillar II The Bank has finalized Policy on Internal Capital Adequacy Assessment

Process(ICAAP) With a view to strengthen its Capital Adequacy Assessment Processes, a modified

version of ASCROM has been implemented to populate additional Basel II related data

We are getting our Corporate Advance accounts of Rs. 10 crore and above rated by one of four Approved Credit Rating Agencies e.g. ICRA, CRISIL, CARE, FITCH.

Unavailed sanctioned limits of loans are factored for computation of capital requirements.

Introduction of Tracking of Operational Risk Loss Data The scope of MIS date has been broadened to cover BASED II reqauirements

w.e.f. 30.06.08 Adoption of Risk Based Internal Audit Setting up Risk Management Architecture Strengthening of Management Information System(MIS) and Information

Technology Addressing HRD issues Setting up of Compliance Unit


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CAPITAL ADEQUACY NORMS

Introduction

Narasimham Committee: In December, 1991, the ‘Committee on Financial System also known as “Narasimham Committee”, following the international practice, recommended introduction of “Capital Adequacy” norms in Indian banks.

Accordingly the RBI issued guidelines on Capital Adequacy for banks in India and made it applicable from the year ending 31.3.1993.

It is an international practice that the banks must maintain adequate capital commensurate to their risk weighted assets. (Reason : Adequate capital helps banks to absorb losses and thus prevents bank failures.)

As per BIS Standard (i.e. Standard prescribed by the Bank for International Settlement), internationally all banks are required to maintain capital to the extent of 8% or more of their Total Risk Weighted Assets.

Meaning of Capital Adequacy

Capital Adequacy means a bank must have a minimum level of capital proportionate to its total risk adjusted value of its assets as prescribed by the central bank of the country. Capital Adequacy is also known as CAPITAL to RISK WEIGHTED ASSET RATIO or in short CRAR. Therefore, it is the ratio (in percentage terms) of Capital to Total Value of Risk Adjusted Assets as given below.

CapitalCRAR = Capital Adequacy = --------------------------------------- X 100 Total value of Risk Adjusted Asset

Prescribed level of Capital Adequacy : (9%)

For the year ending 31.3.2000 and onwards, banks in India are required by RBI to maintain minimum capital adequacy/CRAR at 9%. This guideline is applicable to all scheduled commercial banks except Regional Rural Banks.

Computation of CRAR


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For computing CRAR one has to find out the (a) Total Value of Risk Adjusted Asset and (b) the total capital by strictly following the guidelines prescribed by RBI.

For calculating the total of Risk Adjusted Assets, RBI has given the following guidelines.

Calculation of Risk Adjusted Value of Assets

Risk adjusted value of asset is calculated by multiplying the value of asset (as appears in balance sheet) with the risk-weight assigned to it. For example, if the bank has an investment of Rs. 100 crores in Government bonds and risk weight for such asset is 2.5%, the risk adjusted value will be Rs. 2.5 crores .

Notional conversion of off-balance sheet items to fund based facility and calculation of their risk adjusted value.

All off-balance sheet items like letter of credit, letter of guarantee, etc. are to be first converted notionally into fund-based facility by multiplying them with the prescribed Credit Conversion Factor. The Credit conversion factor may be 20%, 50% or 100% depending upon the type of off-balance sheet item.

Definition of Capital Fund (Both for Basle I & Basle II)

1. Capital Fund

Capital Fund for the purpose of capital adequacy as per Basic Accord consists of three types of capitals namely Tier I, Tier II and Tier III. The tier III capital is not applicable to India as the RBI has yet not permitted banks for such capital.

1. Tier I Capital

The Tier I capital is also called the Core Capital. It includes Paid up equity Capital, Reserves [excluding Revaluation Reserve], Innovative Perpetual Debt Instruments and Perpetual Non cumulative Preference Shares. [Note : The amount of intangible assets like carried forward accumulated losses and also the current year loss, deficit in NPA provision, etc. will be set off to reach at the Tier I capital.].

2. Tier II Capital


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The total Tier II capital of a bank will be restricted to 100% of the Tier I capital net of intangible assets like goodwill accumulated losses.

Tier II capital is also called the supplementary capital.

It consist of (i) Revaluation Reserve, (ii) General Provision, General Loan – loss reserves, (iii) Hybrid Capital Instruments and (iv) Subordinated Debts.

i. Hybrid Capital Instruments :

These are instruments which have the characteristics of debt and equity. Examples are Innovative Perpetual Debt Instruments [IPDI], Perpetual Non cumulative Preference Shares [PNPS], etc. They are included upto 15% of the issue in Tier I capital and the balance is allowed to be included in Tier II capital.

From January 2006 banks have also been permitted by RBI to issue other hybrid instruments namely Redeemable Cumulative Preference Share Capital instruments and also the Redeemable debt capital instruments which will be reckoned to be included in tier II capital.

ii. Subordinated Debts

Total subordinated debt which can be included in the Tier II capital is restricted to 50% of the tier I capital after deductions of intangible assets.

These are unsecured debts with a fixed maturity subordinate to the claim on the bank by all other creditors and are not redeemable before maturity at the initiative of the holder without the prior permission of the RBI.

The subordinate debt instruments with an initial maturity of less than 5 years cannot be included in Tier II capital. Similarly such debt instruments with unexpired maturity of less than 1 year cannot be included in Tier II capital.

3. Restriction on raising tier II capital :

a) The total amount of Tier II capital cannot be more than the total amount of the Tier I capital.

b) For the purpose of including in Tier II capital the amount of Subordinated debt should not exceed 50% of the Tier I capital.


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c) Bonds issued with an initial maturity period of less than five years cannot be classified under tier II capital.

d) A bank can invest maximum up to 10% of its capital in the Tier II capital of other banks.

4. Tier III capital :

As per the Basle Accord, the Central Bank of the respective country, may prescribe tier II capital for the sold purpose of meeting a proportion of the capital requirements for market risks. This Capital will consist of short-term subordinated debt. In India, the Reserve Bank has not yet prescribed maintenance of any Tier III capital and therefore it is not applicable to India.

External Credit Rating under Basel-II Capital Adequacy guidelines

Under Standardized Approach of Credit Risk computation underBasel-II guidelines, the exposure to Corporates, Public Sector Entities (PSEs) and Primary Dealers attracts risk weights as per their status of external credit rating. CRISIL,ICRA, CARE and FITCH (India) are the only RBI approved External Credit Assessment Institutions (ECAI), whose rating can be considered for deciding risk weights against the Exposure as under

RATING

AAA

AA

A BBB

BELOW BBB

UNRATED

RISK WEIGHT

20%

30%

50%

100%

150%

100%

The entire Credit portfolio (both fund based & Non-fund based) will be segmented into the following 11 categories for the purpose of assigning the risk weightage.

S.N Category Types of credit included Risk Wgt%1 Sovereign (domestic) Exposure to Central Govt/

state Govt and also exposure to RBI,DICGCI,CGTSI

0%

Sovereign (Foreign) Exposure to foreign Govts 0% to 150%2 Public Sector Entities Rating will be same as

corporate20% to 150%

3 MDBs,BIS,IMF Exposure to multilateral 20%


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development banks, BIS,IMF

4 Banks (Scheduled) All claims on Scheduled banks complying with minimum CRAR

20%

All claims on Scheduled banks not complying with minimum CRAR

50% to 625%

Banks ( Non-Scheduled)

All claims on Non- Scheduled banks complying with minimum CRAR

100%

All claims on Non- Scheduled banks not complying with minimum CRAR

150% to 625%

Foreign Banks As per rating of those Banks

20% to 150%

5 Corporate borrower Rating will vary depending on the rating assigned by the approved rating

20% to 150%

Unrated Corporate 100%6 Regulatory retail

Portfolio Loans upto 5 Crore and turnover not exceeding Rs.50 crore which satisfy laid down criteria specified by RBI excluding loans under categories given below in 7,8,9,10.

75%

7 Residential Property With LTV of not more than 75%

In case of loans upto Rs 30 lac

50%

In case of loans Above Rs 30 lac

75%

Residential Property With LTV more than 75%

100%

8 Commercial Real Estate

Commercial Premises 100%

9 Specified categories Venture Capital 150%Consumer credit 125%Capital market Exposure 125%

Staff loans 20%10 Non-Performing loans Unsecured portion of NPA 50% to 150%11 Other Assets All other assets not coming

under any of the above 100%


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category


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Three approaches for Credit and Operational Risk under Basel II

Credit Risk1. Standardized Approach(SA)2. Foundation Internal Rating Based Approach(FIRB)3. Advanced Internal Rating Based Approach(AIRB)

Operational Risk1. Basic Indicator Approach(BIA)2. Standardized Approach(SA)3. Advanced Measurement Approach(AMA)

Basic Indicator Approach for Operational Risk

Capital required for Operational Risk =Average of (Gross income x Alpha) for last three years, excluding years of negative or zero gross income. (Alpha =15%) Gross income =Net Profit(+) Provisions and write off made during the year.(+) Operating expenses(+) Loss on sale of HTM investments.(-) Reversals made during the year in respect of provisions and write offs made during the previous year(-) Income recognized from disposal of items of movable and immovable property.(-) Profit on sale of HTM investments(-) Income from Legal settlements in favour of the bank.(-) Extraordinary/irregular item of income.(-) Income from insurance activities.


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Something to know on Basel II Terms

Available for Sale The securities available for sale are those securities where the intention of the bank is neither to trade nor to hold till maturity. These securities are valued at the fair value which determined by reference to the best available source of current market quotations or other data relative to current value.

Balance Sheet A balance sheet is a financial statement of the assets and liabilities of a trading concern, recorded at a particular point in time.

Basel Capital Accord The Basel Capital Accord is an Agreement concluded among country representative in 1988 to develop standardized risk-based capital requirements for banks across countries. The Accord was replaced with a new capital adequacy framework ( Basel-II ) published in June 2004.Basel – II is based on three mutually reinforcing pillars that allow banks and supervisors to evaluate property the various risks that banks face. These three pillars are:

Minimum capital requirements, which seek to refine the present measurement framework.

Supervisory review of an institution’s capital adequacy and internal assessment process:

Market discipline through effective disclosure to encourage safe and sound banking practices.

Basel Committee on Banking Supervision

The Basel Committee is a committee of bank supervisors consisting of members from each of the G10 countries. The Committee is a forum for discussion on the handling of specific supervisory problems. It coordinates the sharing of supervisory responsibilities among national authorities in respect of bank’s foreign establishments with the aim of ensuring effective supervision of banks’ activities worldwide.

Basic Indicator Approach

An operational risk measurement technique permitted under Basel-II. The approach sets a charge for operational risk as a fixed percentage (“alpha factor”) of a single indicator. The indicator serves as a proxy for the bank’s risk exposure.

Basis Risk The risk that the interest rate of different assets, liabilities and off-balance sheet items may change in different magnitude is termed as basis risk.


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Capital Capital refers to the funds ( e.g., money, loans, equity, etc.) which are available to carry on a business, make an investment, and generate future revenue. Capital also refers to physical assets which can be used to generate future returns.

Capital adequacy A measure of the adequacy of an entity’s capital resources in relation to its current liabilities and also in relation to the risks associated with its assets. An appropriate level of capital adequacy ensures that the entity has sufficient capital to support its activities and that its net worth is sufficient to absorb adverse changes in the value of its assets without becoming insolvent. For example, under BIS (Bank for International Settlements) rules, banks are required to maintain a certain level of capital against their risk-adjusted assets.

Capital reserves That portion of a company’s profits not paid out as dividends to shareholders. They are also known as undistributable reserves.

Convertible Bond A bond giving the investor the option to convert the bond into equity at a fixed conversion price or as per a pre-determined pricing formula.

Core Capital Tier I capital is generally referred to as Core Capital. Credit risk Risk that a party to a contractual agreement or

transaction will be unable to meet their obligation or will default on commitments. Credit risk can be associated with almost any transaction or instrument such as swaps, repos, CDs, foreign exchange transactions, etc.Specific types of credit risk include sovereign risk, country risk, legal or force majeure risk, marginal risk and settlement risk..

Debentures Bonds issued by a company bearing a fixed rate of interest usually payable half yearly on specific dates and principal amount repayable on a particular date on redemption of the debentures.

Derivative A derivative instrument derives much of its value from an underlying product. Examples of derivatives include futures, options, forwards and swaps. For example, a forward contract can be derived from the spot currency market and the spot markets for borrowing and lending. In the past, derivative instruments tended to be restricted only to those products which could be derived from spot markets. However, today the term seems to be used for any product that can be derived from any other.

Forward Contract A forward contract is an agreement between two parties to buy or sell an agreed amount of a


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commodity or financial instrument at an agreed price, for delivery on an agreed future date. In contrast to a futures contract, a forward contract is not transferable or exchange tradable, its terms are not standardized and no margin is exchanged. The buyer of the forward contract is said to be long the contract and the seller is said to be short the contract.

Hedging Taking action to eliminate or reduce exposure to risk.Held for Trading Securities where the intention is to trade by taking

advantage of short-term price / interest rate movements.

Hybrid debt capital instruments

In this category, fall a number of capital instruments, which combine certain characteristics of equity and certain characteristics of debt. Each has a particular feature, which can be considered to affect its quality as capital. Where these instruments have close similarities to equity, in particular when they are able to support losses on an ongoing basis without triggering liquidation, they may be included in Tier II capital

Interest rate risk Risk that the financial value of assets or liabilities (or inflows/outflows) will be altered because of fluctuations in interest rates. For example, the risk that future investment may have to be made at lower rates and future borrowings at higher rates.

Long Position A long position refer to a position where gains rise from a rise in the value of the underlying

Market risk Risk of loss arising from movements in market prices or rates away from the rates or prices set out in a transaction or agreement.

Net Interest Margin Net interest margin is the net interest income divided by average interest earning assets.

Net NPA Net NPA = Gross NPA- )balance in interest Suspense account + DICGC/ECGC claims received and held pending adjustment + Part payment received and kept in suspense account + Total provisions held)’

Nostro accounts Foreign currency settlement accounts that a bank maintains with its overseas correspondent banks. These accounts are assets of the domestic bank.

Off-Balance Sheet exposures

Off-Balance sheet exposures refer to the business activities of a bank that generally do not involve booking assets (loans) and taking deposits. Off-balance sheet activities normally generate fees, but produce liabilities or assets that are deferred or


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contingent and thus, do not appear on the institution’s balance sheet until or unless they become actual asset5s or liabilities.

Open position It is net difference between the amounts payable and amounts receivable in a particular instrument or commodity. It results from the existence of a net long or net short position in the particular instrument or commodity.

Option An option is a contract which grants the buyer the right, but not the obligation, to buy (call option) or sell (put option) an asset, commodity, currency or financial instrument at an agreed rate (exercise price) on or before an agree date (expiry or settlement date). The buyer pays the seller an amount called the premium in exchange for this right. This premium is the price of the option.

Risk The possibility of an outcome not occurring as expected. It can be measured and is not the same as uncertainty, which is not measurable. In financial loss. It can be classified as credit risk, market risk and operational risk.

Risk Weights Basel II sets out a risk-weighting schedule for measuring the credit risk of obligors. The risk weights are linked to ratings given to sovereigns, financial institutions and corporations by external credit rating agencies.

Securitisation The process whereby similar debt instruments/ assets are pooled together and repackaged into marketable into marketable securities which can be sold to investor. The process of loan securitization is used by banks to move their assets off the balance sheet in order to improve their capital asset ratios.

Short position A short position refers to a position where gains arise from a decline in the value of the underlying. It also refers to the sale of a security in which the seller does not have a long position.

Specific risk Within the framework of the BIS proposals on market risk, specific risk refers to the risk associated with a specific security, issuer or company, as apposed to the risk associated with a market or market sector (general risk).

Subordinated debt Refers to the status of the debt. In the event of the bankruptcy or liquidation of the debtor, subordinated debt only has a secondary claim on repayments, after other debt has been repaid.

Tier one (or Tier I) A term used to refer to one the components of


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capital regulatory capital. It consists mainly of share capital and disclosed reserves (minus goodwill, if any), Tier I items are deemed to be of the highest quality because they are fully available to cover losses. The other categories of capital defined in Basel II are Tier II (or supplementary) capital and Tier II (or additional supplementary) capital.

Tier two (or Tier II Capital

Refers to one of components of regulatory capital. Also known as supplementary capital, it consists of certain reserves and certain types of subordinated debt. Tier II items qualify as regulatory capital to the extent that they can be used to absorb losses arising from a bank’s activities. Tier II capital loss absorption capacity is lower than that of Tier I capital.

Value at risk (VAR) It is a method for calculating and controlling exposure to market risk. VAR is a single number (currency amount) which estimates the maximum expected loss of a portfolio over a given time horizon (the holding period) and at a given confidence level.

Venture capital Fund A fund with the purpose of investing in start-up businesses that is perceived to have excellent growth prospects but does not have access to capital markets.


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KYC

As per guidelines on 'Know your Customer (KYC) banks are required to carry out due diligence of customers before opening any deposit account. This is a measure taken to combat money laundering and financing of terrorism in the country. Banks are required to follow customer identification procedure for opening of accounts and monitoring transactions of suspicious nature for the purpose of reporting to appropriate authority. KYC procedure enables banks to know/understand their customers and their financial dealings better which in turn help them manage their risk prudently

Banks have been directed to limit the application of KYC procedure to existing accounts where:-

o Credit or debit summations for the financial year ended March 31,2003 is more than Rs.10 lacs

o Unusual transactions are suspectedo All existing accounts of trusts, companies, firms, religious, charitable

organizations and other institutions Where accounts are opened through mandate or Power of Attorney.

Banks are required to issue TCs/DDs/MTs/TTs for Rs50000.00 and above only by debit to the customer’s account or against cheques and not against cash. Further the applicants are required to furnish PAN on application for Rs.50000.00 and above.

Banks are required to frame their KYC policies incorporating the following four key elements:-

Customer Acceptance PolicyCustomer Identification ProcedureMonitoring of TransactionsRisk Management.

Customer Identification Procedure Features to be verified and documents that may be obtained from customers

Features Documents

Accounts of individuals- Legal name and any other

names used (i) Passport (ii) PAN card (iii) Voter’s Identity Card (iv) Driving license (v) Identity card (subject to the bank’s satisfaction) (vi) Letter from a recognized public authority or public servant verifying the identity and residence of the customer to the satisfaction of bank(i) Telephone bill (ii) Bank account


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- Correct permanent address statement (iii) Letter from any recognized public authority (iv) Electricity bill (v) Ration card (vi) Letter from employer (subject to satisfaction of the bank)( any one document which provides customer information to the satisfaction of the bank will suffice )

Accounts of companies- Name of the company- Principal place of business - Mailing address of the

company- Telephone/Fax Number

(i) Certificate of incorporation and Memorandum & Articles of Association (ii) Resolution of the Board of Directors to open an account and identification of those who have authority to operate the account (iii) Power of Attorney granted to its managers, officers or employees to transact business on its behalf (iv) Copy of PAN allotment letter (v) Copy of the telephone bill

Accounts of partnership firms- Legal name- Address- Names of all partners and

their addresses- Telephone numbers of the

firm and partners

(i) Registration certificate, if registered (ii) Partnership deed (iii) Power of Attorney granted to a partner or an employee of the firm to transact business on its behalf (iv) Any officially valid document identifying the partners and the persons holding the Power of Attorney and their addresses (v) Telephone bill in the name of firm/partners

Accounts of trusts & foundations- Names of trustees, settlers,

beneficiaries and signatories

- Names and addresses of the founder, the managers/directors and the beneficiaries

- Telephone/fax numbers

(i) Certificate of registration, if registered (ii) Power of Attorney granted to transact business on its behalf (iii) Any officially valid document to identify the trustees, settlors, beneficiaries and those holding Power of Attorney, founders/managers/ directors and their addresses (iv) Resolution of the managing body of the foundation/association (v) Telephone bill


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CORPORATE GOVERNANCE

A corporation is a congregation of various stakeholders, namely, customers, employees, vendor partners, government and society. A corporation should be fair and transparent to its stakeholders and society. This has become imperative in today’s globalized business world where corporations need to access global pools of capital, need to attract and retain the best human capital from the various parts of the world, need to partner with vendors on mega collaborations and need to live in harmony with the community. Unless a corporation embraces and demonstrates ethical conduct, it will not be able to succeed.

‘Corporate Governance’ encompasses commitment to values and to ethical business conduct to maximize shareholder values on a sustainable basis, while ensuring fairness to all stakeholders including customers, employees, and investors, vendors, Government and society at large. Corporate Governance is the system by which companies are directed and managed. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed and how performance is optimized. Sound Corporate Governance is, therefore, critical to enhance and retain investors’ trust.

It is a code of corporate conduct which ensures that corporate body is managed in the best interest of all stakeholdersIt is concerned with Right action in business

Fairness Responsibility Accountability Transparency - disclosure (Full of RAT- please remember )

In the financial system corporate governance assumes importance in order to determine the health of the system and its ability to survive economic shocks

Under corporate governance banks articulate corporate values, code of conduct and standards of appropriate behavior, etc and have systems and controls to ensure compliance with them. The board and top management meet at specified intervals for timely exchange of information on the bank's financial condition and management practices

Corporate Governance(CG) is about ensuring that business performs well through the adoption of fair and ethical principle and that investors receive a reasonable returns

CG is not just profit making but behaving responsibly, promoting healthy competition and preventing Net Worth erosion. Its main aim is to establish balance between economic and social goals and between individual and commercial goals

Good Corporate Governance

Well defined vision/mission statement- Vision means objective Mission means required performance to attain goalsShareholder values


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Relevant committees of board with their role clearly definedStandard for good banking practice – Transparency and fair relation with customer, Comprehensive Risk Management, compliance with relevant statues and lawsEffective system of internal control monitoring

We should not strive for CG but CG should be part of our stride.

Basel Committee on CG

Responsibility and accountability should be clearly defined Competent and independent directors on Board Board should be capable of exercising independent judgment – free from fear and

favor Appropriate supervision by Senior Management Role of Internal and External auditors vital The incentive/remuneration should be within the scope of general business policy The shareholders/stakeholders should receive sufficient information to judge the

performance of Bank Other agencies like Government regulatory authorities and auditors to promote

CG Role of supervisor is very important in CG

A safer and sound banking system through better risk management is the principal objective of New Basel Capital Accord

CG provides the structure through which the objectives of company are set and means of attaining these objectives and monitoring performance are determined

Internal checks and balances are the key to effective CG

Micro Credit

Micro Credit has been defined as the provision of thrift, credit and other financial services and products of very small amount to the poor in rural, semi urban and urban areas for enabling them to raise their living standards.

Banks may formulate their own model/s for extending micro credit. They may choose suitable branches/areas where micro credit programmes can be implemented.

Banks to deal with micro credit organizations having proper credentials, track record, system of monitoring accounts and records with regular audit in place and manpower for close supervision and follow up.

Banks may prescribe their own lending norms in view of ground realities. They may stipulate their own terms and conditions. The intention is to provide maximum flexibility in regard to micro lending keeping in view relevant local conditions and the need for provision of finance to the poor. Such credit not only cover consumption and production loans but will also cover other needs such as housing and shelter improvement.


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Micro credit should also form an integral part of the bank’s composite credit plan and should be reviewed at the highest level on quarterly basis.

A simple system requiring minimum procedure and documentation is pre condition for augumenting flow micro credit. Banks should strive to remove all operational irritants.

The loan applications, forms, procedure and documents should be made simple which would help in providing prompt and hassle free micro credit

SHG(Self Help Group)

Self Help Groups are the small groups of people of low economic and social status, helping each other to solve their problems, promote small savings among members and provide loans to members from the common pooled fund.

Group should be in existence for at least six months.The group should have actively promoted the savings habit. The group should be formal(registered) or informal (unregistered). If size of Group exceeds 20, it should be registered. Membership of the group could be between 10 to 25

The Group should have regular meetings weekly/fortnightly/monthly. Savings of the group can be lent to members after 2-3 months of the formation of

the group. Terms and condition of the loan will be decided by the members. SHG can be sanctioned loan by Bank upto 10 times of the corpus fund of SHG

with a maximum of Rs.3 lacs The advance given by Banks to the groups are treated as advance to ‘weaker

sections’ under the priority sector.

Steps involved for formation SHG are – Forming – Stroming – Norming – Performing.

CDR

ObjectiveCorporate Debt Restructuring (CDR) mechanism is aimed as an early-remedy for potential sick accounts to prevent slippage of asset quality. The framework enables corporate, who are affected by certain internal or external factors, to minimize the losses to the creditors and other stakeholders through an orderly and coordinated restructuring programme

The objective of CDR is to ensure timely and transparent mechanism for restructuring the corporate debts of viable entities facing problems, outside purview of BIFR/DRT/other legal proceedings, for the benefit of all concerned.

Three tier structure:-CDR is a non-statutory mechanism consisting three tier viz:-

CDR Standing forum and its core group CDR Empowered Group CDR Cell


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CDR Core Group is carved out of the CDR Standing Forum to assist the Standing Forum in convening the meetings and taking decisions relating to policy, on behalf of Standing Forum.

CDR Standing Forum and the CDR Empowered Group are assisted by a CDR Cell in all their functions. The CDR Cell makes the initial scrutiny of the proposals received from borrowers/lenders, by calling for proposed rehabilitation plan and other information and puts up the matter before the CDR Empowered Group, etc. within the ambit of guidelines. Eligibility:-

Multiple banking/syndication/consortium O/s exposure Rs. 10 crore and above with Banks/FIs Should not be willful defaulter No fraud Standard and Sub-Standard Accounts – If the accounts is classified as ‘Standard or

Sub-Standard by 90% of the lenders in their books, the same could be treated as Standard or Sub-Standard to become eligible for CDR

Doubtful Accounts – Consent by minimum of 75% of the creditors (by value) and 60% creditors (by number) for such restructuring is required.

Suit filed cases – Consent by minimum of 75% of the creditors (by value) and 60% creditors (by number) for such restructuring is required.

BIFR cases can also be considered on case – to – case basis after obtaining approval of BFIR before implementation of CDR package

Reference to CDR could bed triggered by (i) any or more or the secured creditors who have minimum 20% share in either working capital or term finance or (ii) by the concerned corporate, if supported by a bank or financial institution having stake as in (i) above.

Legal Basis of CDR

CDR is a not statutory mechanism. it is a voluntary system based on Debtor Creditor Agreement (DCA) and Inter Creditor Agreement (ICA)

DCA & ICA shall provide legal basis to CDR mechanism

The debtors shall have to accede to DCA, either at the time of original loan documentation or at the time of reference to CDR Cell.

ICA would be legally binding agreement amongst the Creditors whereby creditors would commit themselves to abide by the various elements of CDR system

If 75% of creditors by value and 60% by number agree to a restructuring package of an existing debt the same would be binding on remaining creditors.


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Revised Guidelines on Corporate Debt Restructuring

Based on the recommendations made by the Special Group constituted in September 2004 to review the corporate debt restructuring (CDR) scheme and also the feedback received on the revised draft guidelines circulated amongst banks for comments, the scheme has been modified as below:

(a) The coverage of the scheme has been extended to include entities with outstanding exposure of Rs.10 crore or more.

(b) With a view to making, decision making more equitable, the support of 60 per cent of creditors by number in addition to the support of 75 per cent of creditors by value, is required.

(c) The core group to be given the discretion in dealing with willful defaulters in cases, other than those involving frauds or diversion of funds with malafide intentions.

(d) Restoration of asset classification prevailing on the date of reference to the CDR Cell to be linked to implementation of the CDR package within four months from the date of approval of the package.

(e) Regulatory concession in asset classification and provisioning to be restricted to the first restructuring where the package also has to meet norms relating to turn-around period and minimum sacrifice and funds infusion by promoters.

(f) Convergence in the methodology for computation of economic sacrifice among banks and financial institutions (FIs).

(g) Reserve Bank’s role limited to providing broad guidelines for CDR mechanism.

(h) Disclosures in the balance sheet to be enhanced for providing greater transparency.

(i) Additional finance requirement by both term lenders and working capital lenders, to be shared on pro-rata basis.

(j) One time settlement to be allowed as a part of the CDR mechanism to make the exit option more flexible.

(k) Non-SLR instruments acquired while funding interest or in lieu of outstanding principal to be subjected to regulatory treatment and valuation.

Stand Still Clause

Under this clause both Debtors and Creditor shall agree to a legally binding ‘stand still’ whereby both the parties commit themselves not to taking recourse to any other legal action during the stand still period. However, stand still clause will not cover criminal action. During the ‘stand still’ clause outstanding Forward Contracts, derivative products, etc can be crystallized provided borrower is agreeable.

The borrower will also agree that during the ‘Stand still’ period the documents will stand extended for the purpose of limitation.

The Debtor will not approach any other authority for relief

Director of borrowing company will not resign from Board of Directors.


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During pendency usual assets classification norms would continue to apply. The process of reclassification of asset should not stop merely because the case is referred to CDR Cell. If restructuring under CDR system takes place, the asset classification status should be restored to the position which existed when reference to cell was made.

Consumer Protection Act 1986

Amended in 2002 as under:-

Jurisdiction of District Consumer Forum to entertain complaints where value of goods and services claimed is upto Rs.20 lacs

Limit of State Consumer Dispute Commission’s pecuniary limit upto Rs.100 lacs

National Consumer Dispute Commission- if value is over Rs.100 lacs

Prescribed fee will be payable on every complaint. Earlier there was no fee

Complaints should preferably be decided within 3 months by District Forum District/State/National Forum can pass interim order/exparte orders

Appeal against District Forum can be entertained only if 50% amount awarded or Rs.25000.00 which ever is less is deposited.

In caase of Appeal against State Commission minimum amount to be deposited is - Rs.35000.00In case of Appeal against National Commission minimum amount to be deposited is – Rs.50000.00

Legal heirs can continue as complainant in the event of death of the complainantLegal heirs cannot file complaint

‘Complaint’ also includes complaint of unfair trade practice or restrictive trade practice against service provider and charging price for the goods in excess of price fixed/displayed on the goods/produces

Failure to disclose final results of some schemes of gifts and prizes to allure consumers will now amount to unfair trade practice.

U/s 2(1)(d)(ii) a person availing services for commercial purposes will not be consumer.

The Banking Ombudsman Scheme, 2006

The Banking Ombudsman Scheme, 2006 enables resolution of complaints of bank customers relating to certain services rendered by banks.


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The Scheme has come into force from January1, 2006.

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

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

As on date, 15 Banking Ombudsmen have been appointed with their offices located mostly in the state capitals. The addresses of the Banking Ombudsmen offices have been provided in the RBI website.

All scheduled commercial banks, regional rural banks and scheduled primary co-operative banks are covered under the scheme.

The extent and scope of the new scheme is wider than the scheme of 2002. The new scheme also provides for online submission of complaints. The new scheme provides for the institution of an ‘appellate authority’ for providing scope for appeal against an award passed by the Ombudsman both by the bank as well as the complainant.

The Banking Ombudsman can receive and consider any complaint relating to the following deficiency in banking services :

Non-payment or inordinate delay in the payment or collection of cheques, drafts, bills, etc; non-acceptance, without sufficient cause, of small denomination notes tendered for any purpose, and for charging of commission for this service;

Non –acceptance , without sufficient cause, of coins tendered and for charging of commission for this service;

Non-payment or delay in payment of inward remittances; failure to issue or delay in issue of drafts, pay orders or bankers’ cheques; non-adherence to prescribed working hours; failure to honour guarantee or letter of credit commitments;

Failure to provide or delay in providing a banking facility (other than loans and advances) promised in writing by a bank or its direct selling agents;

Delays, non-credit of proceeds to parties’ accounts, non payment of deposit or non-observance of the Reserve Bank directives, if any, applicable to rate of interest on deposits in any savings, current or other account maintained with a bank;

Delay in receipt of export proceeds, handling of export bills, collection of bills etc. for exporters provided the said complaints pertain to the bank’s operations in India;

Refusal to open deposit accounts without any valid reason for refusal;


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Levying of charges without adequate prior notice to the customer;

Non-adherence by the bank or its subsidiaries to the instructions of Reserve Bank on ATM / debit card operations or credit card operations;

Non-disbursement or delay in disbursement of pension to the extent the grievance can be attributed to the action on the part of the bank concerned;

Refusal of accept or delay in accepting payment towards, taxes, as required by Reserve Bank / Government; Forced closure of deposit accounts without due notice or without sufficient reason; Refusal to close or delay in closing the accounts;

Non-adherence to the fair practice code as adopted by the bank; and any other matter relating to the violation of the directives issued by the RBI in relation to banking or other services.

Conditions:-

Bank has rejected the complaint. No reply within 2 months. A period of 1 year has not elapsed after bank had rejected the representation. It is not subject matter already settled by Ombudsman. It is not pending with any court. If complaint is not settled by agreement within a period of one month from the date of

receipt of the complaint, Banking Ombudsman may pass Award after affording the parties reasonable opportunity to present their case

May award compensation not exceeding 10 lacs.

Bank may file review application before Reviewing Authority within one month from the date of receiving of award.

BANKING CODE & STANDARD BOARD OF INDIA(BCSBI)

It is an independent and autonomous watch dog to monitor and to ensure that the Banking Codes and Standards adopted by the Banks are adhered to in true spirit while delivering their services. Our Bank is member of BCSBI. Its objectives are :-

To develop voluntary comprehensive codes and standards for banks To function as an independent and autonomous watch dog and ensure that banking

codes adopted by banks are adhered to. The code applies to Savings deposits and current accounts, card products and

services, loans and overdrafts and payment services including foreign exchange. BCSBI provisions ensure that common man and consumer of financial services

from banking industry is in no way at a disadvantages position and really gets what he has been promised

The code sets minimum standards of banking practices for banks to follow when they deal with individual customers


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The code contains details of the information a bank would give before a person becomes its customer and also details of information aperson would get after he becomes a customer.

It also sets standards as to what should be published in the web site of banks as a disclosure and what should be the information to be shared

To review reports received from member banks from time to time and issues with concerned banks for rectifications.

Negotiable instrument Act- Recent Amendments5 new sections (Section 142 to 147) have been added in 2002

Section 138 applies to cheque and other instruments like DD/PO/BC which can be treated as cheque by holder in due course.

Definition of cheque widened to include electronic image of a truncated cheque and cheque in electronic form.

Right of Banker who received payment on electronic image of a truncated cheque to retain the truncated cheques.

Certification of text of print out of electronic image of truncated cheque by paying banker as a proof of payment

Doubling the imprisonment term from one year to two years

Doubling penalty for the offence up to twice the amount of instrument

Doubling the period of time to issue demand notice from 15 to 30 days.

Cognizance can now be taken even if the complaint is made after expiry of the stipulated period of one month provided the complainant satisfies the court that he had the sufficient cause for not making the complaint within such period.

Immunity from prosecution for nominee directors who are nominated by virtue of holding any office or employment in Central Government or State Government

Compounding of offence under N I Act.

Empowering the Magistrate to condone delay in filing complaint

Bank’s memo denoting that the cheque has been dishonored shall be presumed to be the fact of dishonor. Requirement of Branch witness as drawee bank can be dispensed with.

The summons can be served by speed post or by authorized courier service and if not accepted will be treated as duly served.

Offences shall be tried by Ist class Judicial Magistrate or Metropolitan Magistrate.


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Trial to be concluded as expeditiously as possible and effort to be made to conclude within 6 months.

Offences under act made compoundable.

In case of conviction in a summary trial, the magistrate has been empowered to pass a sentence not exceeding one year imprisonment and fine not exceeding Rs.5000.00

ALM

ALM is a dynamic and comprehensive framework for measuring, maintaining and managing market risk of a bank. It is management of structure of Balance Sheet in such a way that earnings from interest is maximized within the overall risk preference(present and future) of the institution. The risk managed are:-

Liquidity Risk, Treasury Risk, Funding and Capital Planning, Profit planning, Growth projection.

It is a tool that enables Bank Management to take business decisions in a more informed framework with an eye one the risk that bank is expected to.

It is an integrated approach to financial management, requiring simultaneous decisions, about the type of amount of financial assets and liabilities – both mix and volume – with the expectations of the financial market in which they operate.

ALCO

CMD heads ALCO. The member includes ED, GMs Treasury, Credit, Credit Approval, Risk Management, Insp. and Audit, P S, Retail Banking, Project, CTO, Head of Treasury Branch, Chief Economist and Economist (Risk Management)

ALCO is responsible for ensuring adherence to the limit set by the Board as well as for deciding the business strategy of the Ban

The role of ALCO is :-

Product pricing for deposits and advances Deciding on desired maturity profile Deciding mix of incremental Assets and Liabilities Articulating interest rate view of Bank and deciding on further business strategy Reviewing and articulating funding policy Deciding on the transfer pricing policy of the Bank

ALM TOOLS

Liquidity Gap Report


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It is prepared on the residual maturity of all Assets and Liabilities. If inflow is less than outflow, then there will be liquidity problem. Such mismatch should be within tolerance limit. Liquidity Risk is managed by matching assets and liabilities by their residual maturity.

Two types of gap reports are:-

(a) Structured Liquidity Gap Report

Are gaps based on existing assets and liabilities and gaps in the time bucket are arrived based on maturity of the assets and liabilities.

(b) Dynamic Liquidity Gap

Banking business is dynamic (on going) and liabilities and assets positions keep on changing. When new assets and liabilities derived from commercial projection cumulate with existing assets and liabilities, the gap profile changes completely. This new gap statement is dynamic liquidity gap statement.

(c) Rate sensitivity gap report

It is prepared based on repricing i.e. when the interest rate on Assets and liabilities get reset (revision in fixiation of interest) A positive gap means more assets gets repriced than liabilities and is good under increasing rate scenario. The reverse is desirable under declining rate scenario

The interest rate risk is managed by :-Changing rate by different basis pointsChanging rate at different reference rateChanging composition of Assets and Liabilities

(d) Duration gap analysisIt is weighted average maturity of fixed income security. Maturity weighted with net present value at market rate of discount. Different Assets and liabilities are having varying duration and, therefore, this can give better estimate of risk.Modified duration is tool used to assess the changes in interest on income

Simulation model are used to guage the effect of market interest rate variations on reported earnings/economic value over different time zones. It is series of ‘what if’ analysis of the impact of rate changes, taking into account different Balance Sheet structures.


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PRESENT BANKING SCENARIO

Indian Banking – towards Global Best Practices

Indian Financial Sector has witnessed unprecedented growth in the last decade and we believe the next 10 years will be as exciting. The industry has seen numerous innovations and several Indian Banks have successfully leveraged technology at globally efficient levels. However, the market is going to see increasing competition from global financial players and non-banking attackers. The market will see increasing segmentation and rising focus on customer service.

Delivering superior customer experienceThe low level of customer loyalty in India across banking products like credit cards and housing loans is becoming a big cause of concern for leading players. Further, intensifying levels of competition is resulting in significant customer churn and rising costs which continue to rapidly erode overall profitability. To effectively address these challenges, it becomes critical to first understand basic customer behavior, needs and preferences. How do players in the Indian banking sector compare globally on customer experience? What can the banking industry do better to give customers a superior experience.

Driving operational and IT effectiveness.In to-day’s challenging economic environment with burgeoning cost pressures, players are increasingly recognizing the importance of achieving operational excellence and cost efficiency. Undoubtedly, in order to accomplish this effectively, it is critical to build strong capabilities in IT and operations processes. How effectively and efficiently are we utilizing our IT resources? What major IT management levers should banks focus on? How should banks prioritize their portfolio of IT initiatives?

Building a high performing organizationCEOs and their top management teams are increasingly finding that many of the big strategic and operational questions on their plate involve leadership, talent and the broader organization. In today’s unprecedented talent crunch, the financial services industry is grappling with developing the leadership and talent. What should players do to ensure that it has the organizational alignment against key priorities? How do organizations build execution capability? How can organization create capacity that is critical to sustained success?

Managing capital and riskCapital efficiency is a core imperative for the banking sector and will increasingly come into focus given numerous growth opportunities which will drive need for capital. Most banks are in need of capital for growth. Banks which are unable to raise capital due to either performance issues or regulatory issues, will not be able to participate in the growth opportunities. Further with volatile markets and high employee turnover, it gets critical to effectively contain credit risk, market risk and operational risks. In addition, cost of compliance oversight in today’s environment are very high. Banks need to tap the high


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growth opportunities while ensuring capital efficiency, ensuring compliance and managing risk. Basel II will help the high performing banks on this front to manage capital better, while the weaker banks will face increased pressure. Is Indian banking sector is ready for this? What steps do individual banks need to take on capital management, compliance and risk? Prevention of Money Laundering Act 2002

Money laundering defined as cleansing of dirty money obtained from legitimate or illegitimate activities with the objective of hiding its source and rendering it in legally usable form. The process of money laundering is also an illegal activity involving financial jugglery and the Prevention of Money Laundering Act 2002 seeks to combat money laundering in India

The objectives of the act are:-

To prevent, combat and control money launderingTo confiscate and seize the property obtained from the laundered moneyTo deal with any other issue concerned with money laundering in India

PreventCombatControlConfiscateConnected

Legal aspects of Bank Frauds headed by Dr N L Mitra

Banks to prepare Best Practice Code for its officers and staff to provide rule based procedure system in customer related matters and application of discretionary power.

Adequate in house training system for internalizing the Best Practice Code and all the directives of the instructions and the regulations.

Issue suitable instructions to all branches/controlling officer reiterating the need for strict adherence to the laid down system and procedures.

Legal compliance Certification process to be enforced for all transactions exceeding a value limit for each desk especially from each management category staff for making them accountable.

Legal compliance and due diligence audit every year In case exercise of discretionary power an explanation is required to be given

indicating the circumstances warranting the exercise of discretionary power and whether all due diligence has been taken or not.

Build data of management and staff exercising discretionary power recording all the reasons for such exercise and consequences. A close monitoring of such exercise discretionary power is required.

Incentive and promotion system to have co-relation with data on exercise of discretionary power and the rationality and appropriateness of such decisions.


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Concurrent/Internal/Statutory Auditors to report simultaneously to Chairman and Managing Director of the Bank and RBI about any thing susceptible to be fraud or fraudulent activity or any foul play in any of the transactions.

In fraud cases department action to be initiated simultaneously with criminal action without waiting for outcome of the latter.

‘Fair Practice Code on Lenders Liability’On the basis of the recommendations of Working group on Lender Liability Laws constituted by Govt. of India to study legislative proposals suitable for Indian conditions, the guidelines have been prepared in consultation with select banks and FIs for framing ‘Fair Practice Code’ with the approval of Bank Boards.

The fair practices code applies to the following :- Application for loans and their processing. Loan appraisal and terms/conditions. Disbursement of loans including changes in terms and conditions Post disbursement supervision. Other general provisions.

The guidelines, interalia, provide the following:- Loan application form should be comprehensive to include information about rate of

interest and manner of charging process fees, other charges, penal interest rates, prepayment option and any other matter which affects the interest of the borrower so that a meaningful comparison with that of other Banks can be made informed and decision can be taken by the borrower

Devise a system of giving acknowledgement for receipt of loan application.

If all requirements are complied with by the borrowers, Bank should give acknowledgement of the application and state specific time period from the date of acknowledgement within which a decision on the loan request will be conveyed to the borrower.

Acknowledgement should sate the amount of the process fee paid or to be paid and extent to which such fee ;shall be refunded in the event of rejection of any application for loan.

Lender should ensure that there is a proper assessment of the credit requirement of the borrower. The credit limit which may be sanctioned should be mutually settled.

Terms and conditions and other caveats should be reduced in writing duly witnessed and certified by the authorized sanctioning authority.

Lender should ensure timely disbursement of loan sanctioned.


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Secured / Unsecured Advances

As per RBI guidelines ‘Unsecured Advances’ are defined as an exposure where the realisable value of the security, as assessed by the Bank / Approved Valuers / RBI’s Inspecting officers, is not more than 10 percent, ab-initio, of the outstanding funded & non funded exposures (including underwriting and similar commitments) ‘Security’ will mean tangible security properly charged to the bank and will not include intangible securities like guarantees, comfort letters etc. RBI has since withdrawn ceiling on maximum exposure by way of unsecured guarantees and advances. However, as a prudent policy bank has decided to restrict as under: -

“ The domestic outstanding unsecured guarantee plus the total of domestic outstanding unsecured advances in terms of definition of unsecured exposure of RBI as stated above should not exceed 30 percent total domestic outstanding advances. “

Activity Clearance List

Diamond industry exposure Leasing/hire purchase/non banking financial companies exposure Real estate exposure Capital market exposure Financing of film making Bridge loans to corporates.

Major products under Farm Sector

Baroda Kisan Credit Card Financing farmers for purchase of agricultural land Financing for setting up of agri clinics and agri business centers by agricultural

graduates. Capital investment subsidy scheme for constructions/expansion/modernization of cold

storages and onion godowns Form water management scheme for increasing crop production in eastern states Financing farmers in agri export zones under contract farming Advances against pledge of gold ornaments/jewellery Providing production credit to tenant farmers and share croppers Financing to high-tech agri products; under co-financing arrangement with NABARD Akshay Mzahila Arthik Sahay Yojana

7-S Mecensy model to make management's search for excellence in the bank

Structure- responsibilities are assigned at each level

Systems- checks and counter checks on different serv ice delivery mechanisms. Administering accountability in the organization.


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Style- should create an amiable climate in the branch where staff feels encouraged and invited to share their perceptions on vigilance

Staff- posting right people at right places having regard to their antecedents and their personal profile

Skills- should arrange for imparting right kind of training

Strategy- strategic plan with due deliberations with staff

Shared value- cultivate appreciation towards proactive vigilance and make it a shared value/belief of the Branch

BKCCObjectives

Providing adequate and timely credit. Comprehensive credit requirement. Single window. Flexible and simplified procedure. Short term credit needs. Consumption needs of farmers. Meeting expenses for farm maintenance/non farm activity/long term investment credit

needs.

Eligibility.

Agriculturist with good track record of repayment who are eligible for sanction of credit limit of Rs.1000 and above.

Period of dealing with Branch immaterial. Fresh applicants with good reputation. Registered share croppers and tenant farmers who are cultivating crops for a period

not less than 5 years. Individual tenant farmers/share croppers cultivating land on oral lease basis who are

resident of the village at least for a period of three years continuously and cultivating land for a period not less than 3 years can be given BKCC limit upto Rs.10,000.00 in general and in exceptional cases not exceeding Rs.25,000.00

Production Line of credit

Extending production loans for raising various crops based on scale of finance Other short term requirements like maintenance of tractor/farm implements, allied

activities like dairy, poultry, annual repairs, fuel, cost of feed. etc to the extent of 15% of the crop production expenses.

Working capital for allied activities and non farm sector activities. Finance against storage receipt/produce marketing loans(against his own farm

produce only) subject to a maximum of Rs.10 lacs per farmer..


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Investment Line of Credit

Extending credit facility for horticulture crop. Development of land/irrigation. Purchase of tractor. Farm maintenance and equipment. Farm structure buildings. Draught animals/carts. Miltch cattles. Transport vehicles. Pre/post harvesting processing equipment. Practicing modern hi tech agriculture need-based project Plantation activities. Extending facilities for setting up units of allied activities like dairy, poultry, fisheries,

piggery, sericulture, etc to supplement farm income/activities and also to ensure optimum utilization of available resources.

Extending loans for off-farm activities/need of the farmers like personal loan including purchase of consumer durables, housing subject to a maximum of Rs. 1 lacs

Loans for redemption of loan availed by farmers from non-institutional lenders.

Consumption needs:-BKCC also includes the limit for family maintenance. Those borrowers who are new or enjoying facility with us since last 3 years are eligible for 15% of scale of finance. Those who are enjoying the limit more than 3/5 years are eligible for 25%/35% of scale of finance subject to maximum Rs.50000 provided our experience is satisfactory.

Branches may consider total finance up to Rs.10 lacs under the revised scheme. However, total line of credit beyond Rsl 10 lacs may be considered in deserving cases with the prior approval of Regional Office.

Bank is offering 0.25%/0.50% rebate on Rate of Interest for satisfactory relationship of more than 3/5 years

Card is valid for 5 years. In our bank we have three types of cards i.e. Green, Silver and Gold

What is core Banking?

From business perspective Core Banking relates to the basic business of a Bank or financial institution. That, in a nutshell, is taking deposits (liabilities) from customers and lending (assets) to customers. While doing so, ensure that profits are generated for the bank/financial institution.

From technology perspective, Core Banking is the short name for a Core Banking System that a bank has to deploy in order to perform its Core Banking Business. In short, implementing a system that will help the bank take deposits and lend to customers in a profitable manner.


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Why it is called Core Banking?

The reason for calling it Core Banking is the fact that a Core Banking system, after deployment, is the heart or the core of the bank/financial institution. All entities that form part of the eco-system of the bank/financial institution interact with it. These entities are:-

Bank employees – head office, regional offices, branches, etc. Bank Management – executives/managers at respective locations, head office,

regional offices, branches, etc. Bank customers –personal banking, corporate banking, international banking, etc. Bank auditors – internal and external auditors who need to verify systems and

procedures. Bank regulators – mandatory reporting to central bank and other financial bodies Bank shareholders – providing the desired return to shareholders from banking

operations.

For a bank/financial institution, the Core Banking system must address the core business of deposits and loans, and at the same time, address the work place needs of all the above entities at their respective locations.

Ingredients that constitute Core Banking

General Ledger-

The absolute Core of the Core Banking system is the General Ledger system. Every single financial activity that happens at any location within the entire bank/financial institution has to be reflected in the GL System. Those who have implemented Core Banking system, the concerned entities in the bank know the financial condition of the Bank at the beginning of each business day. If one is looking at the financial statements of the whole bank, the GL system must provide the financial statements for the region.. Each morning, all these entities, at the their respective workplaces, see these financial statements reflecting the condition as of close of business yesterday. All bank staff, who are authorized to view statements at their respective rollup level can see this information from the GL system at their own workplace terminal in the branch, the Region, the Zone and the Head Office.

Customer information System:-

Throughout the world, the customer is identified as the customer of the Bank. Accordingly, in the Customer Information system, a customer is identified uniquely by his/her CIS number and all information related to that customer is stored along with this unique number. All this is stored in a centralized CIS system, allowing the customer to visit any branch to do business with the bank. Any authorized branch staff in any branch in the country can view the customer’s total accounts with the bank. Bank can also know how valuable a particular is.


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Deposit system

Around the world, banks do not open a new deposit account for a customer directly in the deposit system. When the customer wants to open a new deposit account, the branch staff first go to the CIS screen, verify the customer details and then from CIS jump to the deposit system and open the account. This way, the existing CIS date of the customer remains intact and the CIS information shows that this customer has now increased his relationship with the bank.

All financial transactions done in the deposit system are automatically sent to the bank institution’s general ledger system and they update the appropriate debits and credits in the subsidiary ledgers in the GL. These can be within branch, inter branch or branch to other offices.

Loan System

Depending on predefined parameters setup in the loan system by the bank management, all loan payments are tracked daily and potential NPAs are reported. This gives bank staff adequate advance information to take corrective action before the missed payments actually turn into a classified NPA

With authorized access, any staff working in any branch around the country should be able to retrieve the customer loan information on his terminal and help the customer do a financial transaction. These financial transactions are automatically sent to the bank’s General Ledger and they update the appropriate credits and debits in the subsidiary ledgers in the GL

Management Information System

This enables everybody in the bank to obtain the relevant information from the system in order to carry out their business effectively.MIS, in simple terms, takes information from the GL, CIS, Deposit, Loan Systems and presents them to the bank employees in a way that helps them understand what is going on in the bank. MIS typically provides for bank staff to see the information on the user’s terminal or have the same information printed on paper.

What is the impact of Core Banking on Bank?

The core banking system has to satisfy the requirements of all the entities that form part of the eco-system of the Bank. The following is the impact on each of these entities.

Bank employees:-

Using core Banking systems with appropriate access authority, bank staff, managers, executives can help customers do their financial transactions on their deposit or loan accounts and also retrieve information related to customers, so as to better serve the needs of the customers.


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Bank management:-

Executives, managers and branch staff can obtain the financial position from Core Banking System related to their respective sphere of banking operations and thus help pinpoint potential problems so as to avoid crisesAppropriate managers in the bank can determine branch, product, customer profitability and ensure that operational steps are taken to maximize profit in each area.

Bank Customer:-

Customers can operate any of their accounts from any branch or preferred delivery channel and have access to his funds any time 24 hours a day.Satisfied customers will not only increase their relationship with the bank, but also bring in more customers.

Bank auditors:-Core banking systems need to be audited at one central location for proper posting of transactions, interest calculation and generation of accurate reports for all bank users who use them. Once audited, they operate the same year on year thus enabling auditors to focus more on systems and procedures at delivery channels like branches, call centers, etc.

Bank regulators:-Core Banking system produce the required reports for regulatory bodies like Central Bank. Financial statements, assets and liability reports, NPA reports, large currency transaction reports, etc are all produced by either the deposit, or the loan or combination of deposit, loan and GL systems. Most of these core banking systems come with flexible report options to enable bank staff to generate reports as per regulatory guidelines. They also have the ability to change reporting formats when new guidelines are issued and new set of reports are required by regulators.

Bank shareholders:-The key to any core banking system is its ability to provide appropriate managers in the bank about the performance of the entire bank. Most core banking systems provide the management with financial statements that show the return on assets and return on equity figures as frequently as desired by the financial institution. Trends over time on such date, inform shareholders about how the bank is doing and help take timely action to accelerate or improve performance.

What it means to the bank?

Core banking will provide everything you need for doing business, if you know what you want from it and have the ability to use it and increase business.


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It allows you segment your business based on customer needs. It integrates all delivery channels and allows you to view customer behavior.

It is like e-mail. There has to be e mail culture within the bank they need to be responded immediately or else no one will use it or develop faith in it and slowly it will loose its relevance.

It is like buying a Ferrari, many in India have all the money to buy it. But we also need a driving license, roads, support to run it etc.

It is also like buying an aircraft. To keep it flying, you need a well oiled infrastructure to be in place. We need a business strategy to make out of it. That is why we preceded IT strategy with Business Strategy.

Sick UnitRemains Sub-standard for more than six months i.e. principal or interest in respect of any of its borrowal account remains overdue for a period exceeding one year

Or

There is erosion in NW due to accumulated cash losses to the extent of 50% of its net worth during the previous accounting year.

And

The unit has been in commercial production of at least two years.

Under SICA(Sick Industrial Companies (Special Provisions) Act 1985)

An industrial co which is Registered under companies act for not less than 5 years and which has accumulated losses at the end of any financial year equal to or exceeding its NW is a sick company.

Potentially sick Indl. Co.

Whose accumulated losses as at the end of any financial year have resulted in erosion of 50% or more of its peak NW during the immediately preceding 4 financial years

Potentially viable sick Industrial Unit

If it would be in a position after implementation a relief package spread over a period not exceeding seven years from the commencement of package to continue to service its repayment obligations as agreed upon without obligations as agreed upon without the help of concessions after the aforesaid period

Right to recompense:


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It is the right of the bank to recover the sacrificed amount in case the company is turned around and in a position to repay the debts which were sacrificed by the Banks at the time of rehabilitation. Any request for waiver by borrower should be referred to corporate center.

Holding out operation:

Allowing withdrawal of funds from cash credit account at least to the extent of their deposit of sale proceeds during specified period

OSMOS( Off site monitoring and surveillance system by RBI)

To provide information about healthy of Bank on regular basis to the supervisory authority

To build data base for analysis and monitoring of institutions On site entails substantial cost. Off site useful cost saving and optimum allocation of supervisory resources Framework for early warning system (EWS) DSB return – source for OSMOS

Money market instruments:

Call moneyCDs, CPsTreasury BillsRepoBankers’ acceptances /commercial billsCPsInter corporate fundsCollateralised borrowing and lending obligations (CBLO) – It is a money market instrument. It is a variant of LAF, permitted by RBI. It is a mechanism to borrow and lend funds against securities for maturities 1 day to 1 year. It is tripartite repo transaction involving CCIL and 3 party. Borrower will be able to repay back even before maturity. CBLO is issued at discount to face value. Under CBLO securities of borrower will be held in the constituents’ SGL account opened with CCIL and will not be transferred to lender.

Methods for containing NPAs Regular follow up with borrower. Rephasing, Rescheduling and Restructuring the account Invoking SARFEASI Act 2002 Filing immediate Suit/RC before the value of securities erodes. Negotiating and entering into compromise, where other recovery measure may

prove to be futile or entail more expenditure. Using recovery agents Pursuing legal advocate Lok adalat for faster settlement.


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NPA Provisioning

Loss Assets – 100% - Realizable value of security is less than 10% of dues and which has been identified by Bank/external auditor/RBI as loss assets

If the realizable value of the security, as assessed by the bank/approved valuers is less than 10% of the outstanding in the borrowal accounts, the existence of the security should be ignored and the asset should be straightaway classified as loss asset. It may be either written off or fully provided for

Doubtful - (i) for a period of one year - 100% unsecured portion and 20% of secured portion(ii) above one year and upto 3 years - 100% of secured portion and 30% of unsecured portion(iii) above 3 years- 100% on entire outstanding (like loss assets).

Sub Standard Assets – 10% of amount outstanding and unsecured exposure additional 10%. It remained NPA for a period less than or equal to 12 months.In the event the value of security is less than 10% of aggregate funded and non funded exposure, it will attract 10% more provision on the outstanding funded exposure.

In case of infrastructure projects financed by banks, the date of completion of the project should be clearly spelt out at the time of financial closure of the project and if the date of commencement of commercial production extends beyond a period of two years after the date of completion of the project as originally envisaged, the account should be treated as substandard

Guidelines for making provision in standard assets :-

Direct advance to agriculture and SME 0.25%

Commercial Real Estate 1%

All other loans 0.40%

These provisions towards Standard Assets need not be netted from gross advances but shown separately as ‘contingent Provisions against Standard Assets’ under ‘other Liabilities and Provisions – others’ in Schedule 5 of the Balance Sheet.

Guidelines for making provisions in Restructured Accounts:-

The amount of sacrifice, if any, in the element of interest, measured in present value terms, is either to be written off or provision is to be made to the extent of the sacrifice involved. For the purpose, the future interest due as per the original loan agreement in respect of an account should be discounted to the present value at a rate appropriate to the risk category of the borrower and compared with the present value of the dues expected to be received under the restructuring package, discounted on the same basis.


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Up gradation of restructured accounts and impact on provision:-

The substandard accounts which have been subjected to restructuring, etc. whether in respect of principal instalment or interest amount, by whatever modality, would be eligible to be upgraded to the standard category only after the specified period i.e. a period of one year after the date when first payment of interest or of principal, whichever is earlier, falls due, subject to satisfactory performance during the period.

The amount of provision made earlier, net of the amount provided for the sacrifice in the interest amount in present value terms as aforesaid, can be reversed after the one year period.

Credit Guarantee Fund Trust Scheme for Micro and Small Enterprises(CGTMSE)

Coverage extended to all new and existing Micro and Small Enterprises(both manufacturing and Service Sector)

Eligible Loan limit Rs.100 lacs Maximum cover not to exceed 75% of amount in default upto Rs. 50 lacs and 50%

of amount in default above Rs. 50 lacs subject to maximum Rs.62.50 lacs (a)In case of Loan to Micro Enterprises the cover will be 85% up to Rs.5 lacs

subject to maximum of Rs. 4.25 lacs. Above Rs. 5 lacs upto Rs.50 lacs 75% of amount in default subject to maximum of Rs.37.50 lacs. Above Rs.50 lacs Rs, 37.50 lacs plus 50% if the amount in default subject to ceiling gof Rs,62.50 lacs (b) In case of Loan to Women Entrepreneurs located in North East Region 80% subject to maximum of Rs.40 lacs, . Rs. 40 lacs plus 50% of amount in default above Rs.50 lacs subject to ceiling of Rs.65 lacs (c) All other category of borrowers – 75% of amount in default subject to maximum of Rs.37.50 lacs in case of limit upto Rs.50 lacs. and Rs. 37.50 lacs plus 50% of the amount in default above Rs.50 lacs subject to ceiling of Rs.62.50 lacs.

Guarantee Fee – upfront 1.5% of the credit facility sanctioned. For North Eastern Region it will be 0.75%. To be paid within 30 days from the date of first disbursement.

Bank shares one time Annual Guarantee Fee and Annual Service Fee on 50:50 basis on all loans.

Advances granted for industrial activities under PMRY the entire annual fee is to be borne by bank from second year onwards

Annual service fee 0.75% in respect of credit limits above Rs.5 lacs and 0.50% in respect of credit limits upto Rs.5 lacs. To be paid within 60 days from the date of closure of year

For loans over Rs.50 lacs and up to Rs.100 lacs entire fee should be recovered from the borrower.

Loan will be collateral free Lock in period 18 months In case of claim 75% will be paid within one month. Remaining 25% on

conclusion of recovery proceedings. Zero Risk weightage for guaranteed portion of


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CRR

6.% of net demand and time liabilities to ensure liquidity and solvency to be kept with RBI

SLR

25%Cash in handGold owned by bankBalance with RBI/SBIInvestment in unencumbered approved government securities.

Bank Rate 6%

Repo Rate5.25%

Reverse Repo Rate 3.75%

Targets

Priority Sector:-

The targets and sub targets under priority sector lending would be linked to Adjusted Net Bank Credit (i.e. Net Bank Credit plus investments made by banks in non-SLR bonds held in HTM category) or credit Equivalent amount of Off-Balance Sheet Exposure(OBE), whichever is higher as on March 31 of the previous year.. For the purpose of calculation of credit equivalent of off-balance sheet exposures, banks may use current exposure method. Inter-bank exposures will not be taken into account for the purpose of priority sector lending targets/sub-tgargets.

Total Priority Sector - 40% of Adjusted net bank credit(ANBC)Total Agriculture Advance - 18% of ANBC(Indirect finance to Agriculture not to exceed 4.5% ANBC)Weaker Section -10% of ANBC to weaker sectionDRI – 1% of Advances outstanding in of previous year. Not less than 40% of total advances granted under DRI scheme should go to scheduled caste/scheduled tribes. At least two third of DRI advances should be granted through rural and semi urban branches.

In order to ensure that credit is available to all segments of small enterprises, banks were advised in July 2007 to ensure that (a) 40% of total advances to small enterprises sector should go to micro(manufacturing) enterprises having investment in plant & machinery up to Rs. 5 lacs and micro(service) having investment in equipments up to Rs.2 lacs(b) 20% of total advances to small enterprises sector should go to micro (manufacturing) enterprises with investment in plant & machinery above Rs. 5 lacs and up to Rs. 25 lacs, and micro(service) enterprises with investment in equipments above Rs.2 lacs but up to Rs.10 lacs. Thus 60% of small enterprises advances should go to the micro enterprises.


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Operational Risk

It is defined as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and system or from external events.

Operational risk covers any risk which is not categorized as market or credit risk or the risk of loss arising from the various types of human or technical error.

It is also synonymous with settlement or payments risk and business interruption, administrative and legal risks. An operational problem with a business transaction could trigger a credit or market risk.

Basel II- As of 2006 bank should be made to carry a capital cushion against losses from this risk.

The objective is to reduce the expected operational losses that focuses on systematic removal of operational risks sources and uses a set of key risk indicators to measure and control risk on continuous basis.

The ultimate objective of operational risk management is to enhance the Shareholder’s value by being ready for risk based capital allocation.

Six exposures – People, Process, Management, System, Business, External.

Guidelines for identifying, measuring and controlling Operational Risk:-Risk can be managed by identifying, measuring, monitoring and controlling the same. Operational Risk Management is the process of identifying, assessing and controlling risk arising from operational factors and making decisions that balance risk cost with risk benefits.

With a view to manage Operational Risk, the Bank has initiated many steps and issued various guidelines in this regard, from time to time, which are as under:-

Establishing Operational Risk Management Committee(ORMC). ORMC meets on a regular basis to review matters relating to operational risk

Reviewing internal systems and procedures and ensuring their compliance Collecting and analyzing data on operational risk on various different parameters

on a half yearly basis and corrective steps wherever necessary. Strengthening Corporate Governance with a view to achieved business excellence,

ensuring reasonable return to the shareholders. Adoption of Internal Checks and Balances. Increased thrust on Risk Based Internal Audit which is the very crux of Pillar II of

Basel II Accord. Setting up Basel II compliance Cell for identifying, measuring, monitoring,

controlling operational Risk.


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Our Bank has adopted Basic Indicator Approach for measurement of Operational Risk Management..

The Bank is collecting a statement for tracking of Operational Risk Loss Data from Branches, which broadly covers the following:-

Internal Frauds. External Frauds Employment practices and workplace safety Client product s and Business Practices. Damage to Physical Assets. Business Disruption and system failures. Execution, Delivery and Process management Short Recovery – Loss of Income. Time Barred and unenforceable documents including defective mortgages.

Country Risk:-

It is possibility that a country will be unable to service or repay its debts to foreign lenders in a timely manner. The risk manifests itself either in the inability or unwillingness of the borrower to meet its liability.

Risks are:-

Transfer Risk – possibility of loss due to restrictions on external remittance. Sovereign risk- associated with lending to government of sovereign nation. Political risk – arising due to political environment or legislative process of a country

leading government taking over the assets of financial entity and preventing discharge of its liabilities in a manner that had been agreed to.

Cross border risk- on account of borrower being a resident of a country other than country where the cross border assets is booked

Currency risk- due to exchange rate changes that will alter the expected amount of principal and return of the lending environment.

RFC (Domestic account)

Account with bank in India for crediting unspent balances after travel abroad, currency, T/Cs, DDs received as gift/services rendered to non resident while in India.Foreign earnings received through banking channel as honorarium. Consultancy, royalty for any services towards export of goodsNon interest bearing accountNo ceiling on balancesCan be used for purposes for which Foreign Exchange can be bought from a bank in India.


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US GAAP

Financial Accounting Standard Board of USA has adopted predictive value approach.In US GAAP, the philosophy behind annual reporting is to make :-

‘Risk Return’ relationship more transparent Provide shareholders and depositors with overall professional management expertise Give management an opportunity to amplify the financial statements with its own

insights into what has happened to the company and what lies ahead.

With the globalization of Indian economy, there is need to expedite the process of framing and issuing Standards, aiming to make India corporate sector well respected, good corporate citizen all over the world, so that they enjoy confidence of investors and consumers.

According to RBI there is need for bank and other organization to voluntarily accept internationally accepted accounting practice so that India could attract more capital from abroad

Prudential write off

Advance account becomes loss assets and 100% provisioning is made or advance account has become doubtful 3 category and is covered by 90% or more by provisions, interest suspense, DICGC/ECGC claim received and held in suit filed sundry deposit account.Decision on PWO is to be taken by Corporate Centre.

Value at Risk

VaR is the maximum loss over a target horizon such that there is a low prescribed probability that the actual loss will be larger. The maximum loss which will be suffered in a specified period and at a specified confidence level from a fall in the price of security (or exchange rate), given historic date on the price behavior of the security(exchange rate) on assessment of likely future market movements. The concept is applied to calculate the risk content of an individual security, a foreign exchange position, an equity share or a portfolio of these instruments.


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F O R E S I G H T S

Financial Strengths:-Improving quality of AssetsNPA ManagementTo deliver shareholders’ value

Offerings by banks To Customers – when field in competition.More customers centric in order to face competition from alternatives.We can not take customers granted.Structural products.Borrowing clients well informed.

Risk Management:-Ability to understand risk and take appropriate action – key to success.Risk takers survive.Effective risk manager prosper.Risk averse persons perishTo develop technology based risk management tools. Mitigating risks.Reputation risk.

Earnings:-Shareholder value.Expand avenues for earning income.Funds are chennalised for productive purpose.Interest bearing income need to be expanded.

Structure:-Consolidation is inevitable process – economies of size.We do not really figure high in the list of large banks. In top 200 only one bank of India gets listed.Center like Taiwan have larger than largest bank in India.Only the best and largest will survive.Bank mergers will be rule rather than exception.Synergies to be leveraged through consolidation.

Institutional Building:-A function of regulator.RBI to keep pace with the global changes that are taking place in regulatory sphere and ensure that they are implemented on timely basis Issue of corporate governance.

Globalization:-Follow global norms.


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FDI brings with it the right technology and mindset when would be required to stay globally competitive.Foreign capital will take care of enhanced capital adequacy requirement.

Human Resources:-With changing time different sets of skills would be required to keep up with the systems.Building and monitoring customer relationship would occupy central rule.Specialists in the area of Risk Management, Treasury, IT related services.To upgrade skill level.

Technology:-Efficiency driver of bankingNetworking of branches will become critical for banking business.ATM, ATM Sharing, Bills Payment, RTGS

Social Responsibility:-Primary goal of Government – priority sector credit.Need to go back to grassroots where the strength of the nation lies.Reforms – attention on agriculture.Customer driven and more cost effective.


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Customer Relationship Management (CRM)

It is neither a product nor a service, but a business strategy to learn more and more about the customers’ behavior and requirement in order to create long term relationship with them. It is comprehensive strategy and process of acquiring, retaining and partnering with selective customers to create superior value for the bank and its customers.

It consists:-

CA + CR = ICV

CA – Customer acquisition through counter staff and marketing.

CR- Customer Retention- Data warehousing and analytical tools, customer service, call service and call center.

ICV- Improved Customer Value – making automation, cross selling & up selling, Date warehousing and analytical tools

Convert ‘near’ customer into ‘dear’ one.

RISK BASED SUPERVISION

Risk Based Supervision of Banks by RBI

Reserve Bank of India in its monetary and credit policy for the year 2000-2001 announced that it would be moving towards Risk Based Supervision (RBS) in which it would focus its supervisory attention on the banks in accordance with the risk each bank poses to itself as well as to the system. The risk profile of the each bank would be determined by the supervisory off site surveillance, targeted on-site inspections, structured meetings with the banks, commissioned external audits, specific supervisory directions and new policy notices. It would be in conjunction with close monitoring through a Monitor able Action Plan (MAP) followed by enforcement action as warranted.

The salient features of RBS are as below :

RBI resources will be directed towards areas of greater risk.

The process will involve continuous monitoring and evaluation of risk profiles of the banks in relation to business strategy and exposures. It will be done by the construction of a Risk matrix for each bank.

The outcome of RBS will be forward looking. The extant of onsite inspection will be determined by quality and reliability of the off-

site data and reliability of the risk profile built by the bank.


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The central plank of RBS is accurate risk profile for each bank. Risk Profile document will contain various kinds of financial and non-financial risks faced by the Bank like credit, market, liquidity, operational, legal and reputation risks.

Quantity of risk associated with a given activity can be assessed by volume of assets and the off balance-sheet items that the activity represents or portion of revenue derived from that activity.

Activities which are new to the Bank also represent high risk to the Bank.

The risk profile of each bank will be based on various sources of information with RBI namely CAMELS Rating, OSMOS data, Market Intelligence Reports, Data from external and internal auditors, information from other domestic and overseas supervisors, on-site findings, sanctions applied etc.

Key components of risk profiled document with RBI would be o CAMELS Ratings with trendso Narrative description of key risk feature under each CAMELS componento Summary of key business riskso Monitor able Action Plan (MAP) and Banks progress on the same.o SWOT Analysiso Sensitivity Analysis

Supervisory cycle will be based on principle - higher the risk shorter the cycle

RBS will be banks specific and will focus on highest risk areas and investigation in identified problem areas. Supervisory process will be largely system based rather than laying emphasis on transactions and asset valuation. The supervisory tools would be

o greater off-site surveillance o targeted on-site inspectiono structured meetings with the bankso commissioned external auditso specific supervisory directionso new policy notices

Supervisory follow up under RBS will be by way of Monitrable Action Plan (MAP) in which remedial actions will be outlined and would be tied explicitly to the areas of high risk identified. Key individuals at the bank would be accountable for each of the action points.

The enforcement under RBS will be by incentives and disincentives. For banks with better compliance record, incentive package could be longer supervisory cycle and lesser supervisory intervention. The banks which fail to show improvement would be subjected to disincentive package which could include frequent supervisory examination and higher supervisory intervention including directions, sanctions, penalties etc.


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Mandatory and discretionary actions prescribed in Prompt Corrective Action (PCA) frame-work.

Enforcement function will be carried through independent enforcement cell.

Bank level preparations required under RBS

To enable RBI achieve its objectives of risk based supervision, it has laid down following pre-requisites to be complied with by the banks :

1. Setting up of risk management architecture 2. Adoption of Risk focused Internal Audit3. Strengthening of Management Information System (MIS) and Information

Technology (IT)4. Addressing HRD issues5. Setting up of Compliance Unit

Adoption of risk based internal audit is one of the important tools required to be implemented for achieving RBS objectives of RBI.

RISK BASED AUDIT

Historically, inspection / audit system in the banks has been concentrating on :-

a. transaction testing, accuracy and reliability of accounting records and financial reports.

b. testing the integrity, reliability and timeliness of control reports c. review of quality of assets, and d. adherence to legal and regulatory requirements.

Though, the transaction testing would remain an essential part of the risk based audit, the transaction testing will be on selective basis and the extent of reliance on individual transaction would be determined by the significance and materiality of activity. The extent of transaction testing will also be governed by the consideration of volume and amount of risk to which bank is exposed. In relation to an activity which is considered to be high risk activity, the transaction testing could be to the extent of 100%.

Existing Inspection / Audit will continue concurrently with RBIA in the form modified from time to time to meet with the need of exercising internal control mechanism even after the coverage of RBIA is substantially expanded. Geographical coverage of branches of the Bank, predominantly cash based nature of our economy, historical roots of systems and procedures and pace of computerization etc. will continue to demand and put pressure on the Bank for on-site inspections.


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The broad guidelines / scope of Risk focused Internal Audit as against the existing process of inspection based on transaction testing, are given below :1. It requires widening of scope of internal audit as transaction testing alone cannot keep

pace with rapid changes occurring in financial risk profiles.

2. The Internal Audit will have to capture effectiveness of risk management procedures, risk assessment methodology, critical evaluation of adequacy and effectiveness of internal control systems.

3. Audit will have to review and report on the control environment as a whole, the

process by which risks are identified, analyzed and managed, the line of controls over key processes, reliability and integrity of corporate management function, safeguarding of assets and compliance with rules and regulations.

4. The internal auditor would not only offer remedies for current trouble areas but also anticipate problems and play an important role in protecting the Bank from risk hazards.

5. Risk Based auditing will not only cover assessment of risk at branch level but also assessment of risk at corporate level and the overall processes in place, to identify, measure, monitor and control the risks.

6. In order to focus attention on areas of greater risk to the Bank, branch / location / activity-wise risk assessment would be performed in advance of an on-site risk based auditing.

Difference between Internal Audit & Risk Based Internal Audit

Internal Audit Risk Based Internal AuditTransaction based. No risk assessment. 100% transaction testing

Risk based. Level of transaction testing depends on risk assessment.

Process identical for each branch/unit. Process differs according to risk assessment.

Periodicity linked to rating. Periodicity linked to risk assessment.

Backward looking - focus on historical accounts, past performance and compliance because of lack of risk focus.

Forward looking - suggestions for risk mitigation.

Inadequate optimization of audit resources. Effective optimization of audit resources.

No direct linkage to supervisory process. Essential for regulatory Risk Based Supervision.

Assessment of L/C limit


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Indigenous raw material

Monthly consumption (lead time +A weeks cushion) i.e. 1* (2+0.25 months)*assuming that monthly consumption of material is Rs. 1 lac

Imported raw material:

Monthly consumption( Lead time +A month cushion) i.e 1*(4+1)

Lead time – it takes 2/4 months to deliver after opening L/c

Documents under DA LC limit:If it is on 2 months DA basis then 2 months should be added to lead time subject to adjustment of transit period already covered under lead time. Suppose transit period is 15 days.Indigenous = 1*(2+0.25+1.5) =3.75 lacsImported = 1*(4+1+1.5) =6.50 lacs

*assuming that monthly consumption of material is Rs.1 lac


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No exposure of Foreign Exchange! Do not worry

Just have a reading of the following terms

Foreign ExchangeIt is a mechanism by which currency of one country gets converted into the currency of another country.

Exchange Rate It is the price of a unit of one currency expressed in terms of another currency.

Spot RateIn this case settlement and delivery of currencies takes place within two business days from the transaction date of the deal.

Forward RateAll exchange rates quoted for the settlement to take place after the spot rate are termed as Forward Rates.

Cross RateIt is the price on one foreign currency in terms of another foreign currency. It excludes the currency of the country where the rate is offered.

GDR (Global Depository Receipts)

Depository receipts (DR) are negotiable securities issued outside India by Depository Bank, on behalf of Indian Company. The DR represent local rupee denominated equity shares of Indian company, held as deposit by a custodian bank in India. DR are traded in stock exchanges. The GDR holder, in fact, does not hold any shares in his name. Underlying shares/bonds issued by the company are in the name of overseas depository bank. In fact, the overseas depository bank also does not physically hold the shares. The shares or bonds are in physical custody of domestic custodian bank in India as agent of the overseas depository bank.

DR listed in US markets are known as ADR. DRs listed elsewhere are known as ‘GDR’

GDR came into picture after India decided to open up for investment from abroad. These are traded in overseas market and are free from Indian Capital gains tax. Most of these issues have been listed in Luxembourg stock exchange. A holder of GDR has a option to convert it into number of shares or bonds after 45 days from allotment. Till it is converted, GDR holder does not have any voting right. Once GDRs are converted , the shares issued are listed on any stock exchange in India.

Foreign Currency Convertible Bonds (FCCB)


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FCCB means a bond issued by Indian Company expressed in Foreign Currency, and principal and interest in respect of which is payable in foreign currency.FCCB are like convertible debentures. The bond has a fixed interest rate(coupon rate). It is convertible into shares at a pre fixed price. Till the conversion interest is payable in foreign currency. If the holder does not convert the bond, the redemption of bond has also to be done in foreign currency.

Derivatives.A derivative is a security whose value depends on the value of other more basic underlying variables. For example, it can be said that forward contract is a derivative of spot contract. Forward contract is derived from Spot Contract.

SwapsThe underlying principle in foreign exchange trading is that purchases should be offset by corresponding sales and vice versa, if a bank decides not to run the exchange rate fluctuation or indulge in speculation. It is an ideal situation in which a customer purchase is offset by customer sale. In practice, such a situation may not exist. It is, therefore, essential for banks to go for cover operations

Nostro Account

Foreign Currency Accounts maintained by us with Bank at overseas centre is Nostro Accoount. For example USD Account maintained by us with Bank of Baroda New York is called Nostro Account. This is meant for settlement of foreign currency transactions in USD. All overseas centers remit their remittances in USD into the nostro account. Payments will be made in India in home currency or in foreign currency by debiting the nostro account.

BITTA(Baroda Integrated Transaction Account):As a part of business transformation project and with a view to consolidating its treasury automation programme, the bank has embarked on the Global Treasury Project(GTB) to take care Treasury functions of all territories.BITTA will be introduced as realization account in CBS Finacle in place of FEXTA. The FEXTA Schedules P, S, E, and L have been withdrawn from the date of implementation of GTP. For each BITTA entry passed in the books of branches, a corresponding Cr/Dr entry will flow from SITB, Mumbai to branch BITTA. With the zeroisation of BITTA in CBS Finacle, BITTA will be reconciled by the branches daily. BITTA account has to be Zero before CSOLOP.

SWIFT

Society for worldwide inter bank Financial Telecommunication is a co operative society created under Belgian law and having its corporate office at Brussels. It operates computer – guided communication system to rationalize international payment transfers in a secured system driven environment. Only authorized officials can access and decode the data/information/message.


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HedgingIt means protection of a foreign exchange exposure either by forward exchange contract or by borrowing in local currency. The purpose of hedging is to make the net position at a given date equal to zero.

LIBORIt is the interest rate at which the prime bank offers to lend foreign currency to other prime bank in London as on a given date. This rate is fixed at 10.00 a.m. every day

Pre-shipment Credit

It means any loan or advance granted or any other credit provided by bank to an exporter for financing the purchase, processing, manufacturing or packing of the goods prior to shipment. Generally a letter of credit opened in favour of the exporter by an overseas buyer or a confirmed and irrevocable order for the export of goods from India or any other evidence form basis of granting packing credit.

RBI guidelines for granting packing credit:- Period for granting Packing Credit will depend upon the circumstances of

individual case, such as the time required for procuring, manufacturing or processing and shipping the relative goods/rendering of services.

As per RBI guidelines banks should charge interest on packing credit upto 270 days at the rate to be decided by the bank within ceiling rate arrived on the basis on BPLR relevant for the entire tenor of the export credit under the category(not exceeding Base Rate + 1.50% pa )

In case where exports do not take place within 360 days from the date of pre shipment advance, such credits will be treated as ‘ECNOS’(Export Credit Not Otherwise Specified) and banks may charge interest rate prescribed for ‘ECNOS’ pre-shipment from the very first day of the advance (15% in our Bank ).

In case where packing credit is not extended beyond the original period of sanction and exports take place after the expiry of sanction period but within a period of 360 days from the date of advance, exporter would be eligible for concessional credit only upto the sanctioned period. For the balance period, interest rate prescribed for ‘ECNOS’ at pre shipment stage will apply.

If exports do not materialize at all, banks should charge on relative packing credit domestic lending rate plus penal rate of interest, if any, to be decided by the banks on the basis of a transparent policy approved by the Board(17% in our Bank as on 31.08.2009).

Packing credit may be liquidated out of proceeds bills drawn for the exported commodities on its purchase, discount, etc, thereby converting pre-shipment credit into post shipment credit

Subject to mutual agreement between the exporter and the banker it can also be repaid/prepaid out of balances in EEFC A/c as also from rupee resources of exporters to the extent exports have actually taken place

Running Account Facility(in case of Packing Credit)Packing credit is normally provided on lodgment of LCs or firm export orders. In many cases, the exporters have to procure raw material, manufacture the export product and


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keep the same ready for shipment in anticipation of receipt of letters of credit/firm export orders from overseas buyers. Having regard to difficulties being faced by the exporters in availing of adequate pre-shipment credit in such cases, banks have been authorized to extend Pre shipment-Credit ‘Running Account’ facility in respect of any commodity without insisting on prior lodgment of letters of credit/firm export orders subject to following conditions:-

To be granted only to those exporters whose track record has been good as also to EOUs/units in EPZs, SEZs

Letter of credit/firm export orders should be produced within a reasonable period of time to be decided by the banks.

Banks should mark off individual export bills, as when they are received for negotiation/collection against earliest outstanding pre-shipment credit on First in First Out (FIFO) basis.

Concessive credit available in respect of individual pre-shipment credit does not go beyond the period of sanction or 360 days from the date of advance, whichever is earlier.

Packing credit can also be marked-off with proceeds of export documents against which no packing credit has been drawn by the exporter.

If exporter is found to be abusing the facility, the facility should be withdrawn forthwith.

In cases where exporters have not complied with the terms and conditions, the advance will attract commercial lending rate ab initio.

This facility should not be granted to sub-suppliers.

Post-shipment export credit

Post shipment credit means any loan or advance granted or any other credit provided by bank to an exporter of goods/services from India from the date of extending credit after shipment of goods/rendering services to the date of realization of export proceeds. It can be in the form of (a)Export bills purchase/discounted/negotiated (FBP/FBD)(b)Advance against bills for collection(PSDL)(c)Advance against duty draw back receivable from Government.

RBI norms in granting Post Shipment Credit:- Post shipment credit is to be liquidated by the proceeds of export bills received

from abroad in respect of goods exported/services rendered. In case of demand bills, the period advance shall be Normal Transit Period(NTP)

as specified by FEDAI (Normal Transit Period means the average period normally involved from the date of negotiation/purchase/discount till the receipt of bill proceeds in the Nostro Account of the Bank concerned, as prescribed by FEDAI from time to time)

In case of usance bills, credit can be granted for a maximum duration of 365 days from the date of shipment inclusive of NTP and grace period, if any.

A ceiling rate of interest has been prescribed by RBI for rupee export credit linked to Base Rate of individual banks available to their domestic borrowers. On demand bills for transit period and Usance bill for period up to 180 days(upto 365 days in case of Exporters under Gold Card Scheme) interest rate should not exceed Base Rate + 1.50%


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PCFC(Packing Credit in Foreign Currency)

With a view to making credit available to exporters at internationally competitive rates, banks have been permitted to extend pre-shipment credit in Foreign Currency to exporters for domestic and imported inputs of exported goods at LIBOR related rates of interest.

The facility may be extended in one of the convertible currencies viz. USD, GBP, JPY, EURO, etc.

Interest is collected at monthly intervals against sale of foreign currency Maximum period of credit is 360 days. If no export takes place within 360 days, the PCFC will be adjusted at TT Selling

rate of the currency concerned. Can be liquidated out of proceeds of export documents on their submission for

discounting/purchase. . Up to 180 days rate of interest should not exceed 350 basis points over six months

LIBOR. Beyond 180 days to 360 days – Rate of initial period of 180 days prevailing at the

time of extension plus 200 basis points.

Post-shipment in Foreign Currency(PSFC)

PCFC is a pre-shipment credit. Once the shipment is ready the exporter will give the documents to the Bank and the bill will be purchased by the bank by giving advance in Foreign Currency. With this amount outstanding PCFC will be adjusted. In case no PCFC has been given the rupee equivalent will be credited to account of Exporter. Interest in PSFC will be charged as under:-

On demand bill for transit period – Not exceeding 350 basis points over six months LIBOR

On usance bills upto 6 months from the date of shipment – Not exceeding 350 basis points over six months LIBOR(The interest will be for total period comprising usance period of export bills, transit period as specified by FEDAI and grace period where ever applicable)

Export bills realized after due date but upto date of crystallization – Rate above plus 200 basis points

Interest for period other than mentioned above is deregulated and banks are free to decide interest, keeping in view the BPLR and spread guidelines..

Crystallization of Foreign Currency Export Bill

As per FEDAI guidelines any Foreign Currency overdue purchased bill which is outstanding beyond 30 days after expiry of Normal Transit Period in case of demand bills and 30 days after notional due date in case of Usance bill should be converted into Rupee Liability. Guidelines formulated by our bank are as under:-


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1. To crystallize the overdue export bill on 30th day after expiry of the normal transit period in case of unpaid demand bills and on 30th day after the notional due date in case of unpaid usance bills.

2. To crystallize on any day between due date to 30th day if specific request is received from the exporter.

3. To recover or pass on the exchange difference arising out of crystallization of export bills from/to the customer as the case may be.

4. Exchange benefit arising out of crystallization should not be credited to the account of the exporter. Instead it should be adjusted against the respective outstanding overdue export bills.

Gold Card Scheme for Exporters

The Gold Card Schemed envisages certain additional benefits based on the performance record of exporters. The Gold Card Holder enjoys simpler and more efficient credit delivery mechanism in recognition of his good track record. The Gold Card is issued to creditworthy exporters with good track record. The features are:-

1. All exporters having good track record and credit worthiness with minimum credit rating of CR1 to CR 6

2. The account should be ‘Standard’ continuously for three years and should not be in the caution list of ECGC or RBI.

3. Export firms making losses for the past three years or having overdue export bills in excess of 10% of the current years’ turnover are not eligible.

4. Based on usual appraisal of the credit needs for export appropriate limits will be sanctioned for a period of three years subject to annual review of the account.

5. A stand by limit of not less than 20% of the assessed limit may be additionally granted for facilitating urgent credit needs for executing sudden orders.

6. Norms for inventory may be relaxed in case of unanticipated orders taking into account the size and nature of the export order.

7. Rate of interest - Base Rate plus 0.75% ( for account with credit rating CR 1 to CR 3) and Base Rate plus 1% (for account with credit rating CR 4 to CR 6) in case of Rupee Export Credit (In case of Pre Shipment Credit upto 270 days and in case of Post Shipment upto 365days). .

8. 10% concession is given to card holders in commission and exchange.9. The card is issued for 3 years and is renewed for a further period of 3 years unless

any adverse/irregularities are noticed, subject to annual review of the account.10. Preference will be given for grant of PCFC11. The loan application will be processed within 25 days (fresh application), 15 days

(renewal of limit) and 7 days(sanction of ad hoc)12. Security norms may be relaxed based on credit worthiness and track record of the

exporter eligible for Gold Card. 13. The premium under Export Credit Insurance Cover for Banks(WT-PC) is to be

borne by Bank

UCPDCIn its efforts to standardize the rules governing operation of documentary credits, ICC has modified a standard set of rules known as ‘The Uniform Customs and Practice for


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Documentary Credits(UCPDC). These are universally recognized set of rules governing Letter of Credits. The rules are published in the form of Brochure. The latest publication is known as ICC600 and adopted with effect July 1, 2007. UCPDC gives the maximum possible guidance and assistance to all parties. It guides the Buyer as responsible for stipulating clearly and precisely the documents required and conditions to be complied with. It stipulates the liabilities of Opening Bank, Advising Bank, Confirming Bank, Negotiating Bank, etc. Letter of Credit (L/C)It is an undertaking issued by a bank, on behalf of the buyer (importer) to the seller (exporter), to pay for goods and/or services, provided that the seller presents documents which comply fully with terms and conditions of the documentary credit. Art. 2 UCPDC defines L/C as:-Any arrangement, however named or described that is (a) Irrevocable, (b) Definite undertaking of issuing bank and (c) to honor a complying presentation.

Irrevocable letter of creditOnce issued the terms and conditions cannot be amended without the agreement of all the parties to the credit

Confirmed letter of creditThe advising bank may be requested to add its confirmation to the credit. The confirmation constitutes the undertaking of that bank, in addition to that of the issuing bank, to effect payment, upon presentation at its counters, of conforming documents.

Stand by letter of credit.(International Standby Practices (ISP) 98, ICC Publication)It performs similar function to a bank guarantee but is issued in a format corresponding to that of a documentary credit. Its prime function is to provide a financial remedy to the seller in the event of non/performance by the buyer. These credits are generally used as substitutes for performance guarantee or for securing repayments of loans. The document generally called for under such credits is simple statement of claim or proof of delivery of goods or certificate of non performance. This type of LC is opened mostly by banks in countries where, by law they are precluded from issuing guarantees and in such cases of credit is issued as a substitute for performance and other financial guarantees.

Stand by Letter of Credit is governed by International Stand by Practices (ISP 98), ICC Publication No.98

Transferable letter of creditTransferable credits are required when the seller is acting as an agent in the export order. Part or all the rights and obligations of seller under credit are transferred to the actual supplier of the goods. The credit must be specifically designated a 'Transferable' for any transfer to take place

Back to Back Letter of Credit:-Back to Back Letter of Credit is one which is issued on the backing of or on the basis of another Letter of Credit. If the beneficiary of a Letter of Credit needs to procure raw


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material or finished goods, etc. before effecting dispatch under the LC, he may approach a bank for issuance of L/C in favour of vendors/suppliers of such raw material/finished goods. The Letter of Credit thus issued by the Bank in favour of the suppliers as stated is called Back to Back Letter of Credit.

Capita Account ConvertibilityFreedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange (S S Tarapore 28.02.1997)

Capital Account TransactionsWhich alters the assets or liabilities including contingent liability outside India of persons of resident in India OR assets or liabilities in India of persons resident outside IndiaExamples are:-InvestmentForeign Currency LoansTransfer of immovable propertyGuaranteesExport/Import of currency notesLoan or OD from Non ResidentLoan or OD to Non Resident

Current Account TransactionsOther than capital account transactionsExamples are:-

Foreign Trade Services Short term banking facilities Credit facilities in ordinary course of business Interest on loans Net income from investment Living expenses Foreign Travel Medical care

EEFC AccountRecipients can retain 100% of amount in Foreign Currency account with ADForeign currency Loan against EEFC Balance - NoNo credit facility against the balance

Debits to EEFC AccountCurrent account transactionCustom dutyTrade related loans by exporter. .Loan transaction to be reported to RBI

RFC-Returning Indians


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Funds free from all restrictionsLoan can be granted against deposits

RFC(Domestic)Person resident of IndiaOut of Foreign exchange acquired by himNon interest bearing current account

FactoringAn arrangement between a factor and his client, which includes at least two of the followingFinanceMaintenance of accountCollection of DebtProtection against credit risk

Receivables arising out of sale of goods/services are sold by a firm (client) to the factor (financial institution) as a result of which the title of goods/services represented by the said receivable pass on to the factor.

ForfeitingIt is a form of financing of receivables pertaining to international trade. It denotes the purchase of trade bills/promissory notes by a financial institution without recourse to the seller

Forfeiting FactoringEntire value of bill is discounted Only partial ranging between 75% to

85%A pure financing arrangement Also includes ledger administration,

collection and so onSpread over 3 to 5 years Short term financing dealCharges premium for exchange risk

A factor does not guard against exchange risk

Money laundering

It means conversion or laundering of money, which is illegally obtained so as to make it appear to originate from legitimate source.

It involves three steps (Remember PLR)

P-Placement L-Layering - creating carpet layer over illegal moneyR- Regularizing- Money is shown as genuine/legal money


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Bilateral Loans:

These loans are given by a single bank to the borrowers. i.e. there are only two parties involved Bank and borrower, hence the name bilateral. These type of loans are normally granted to bank’s existing customers and are for a smaller amounts to the extent that bank is comfortable to take exposure singly on that borrower. The amount of the loan depends on the individual corporates, their size, standing, performance and financial position etc. Normally the amount of such loans is upto US$ 20-30 million. However, it may be larger also in case Banks are willing to take higher exposure.

Club Deal Loans:

In Club deal loans, normally a small group of banks (three/ four) depending on the size of the loan) take the exposure on the borrower. Formally, there is no official arranger in the club deal and the status of all the participating banks is equal, yet, de facto, such deals are usually originated by one bank, who assumes role of senior arranger and may negotiate an extra fee for bridging the information between the borrower and other lenders in the deal. The amount may range from, say, US$ 30 mn to even as high as , say, US$ 500 mn, depending on the appetite/ risk taking capacity on the Individual corporate and also as per the market behaviour to the particular corporate. .

Syndicated Loans:-In which minimum four to five banks participate, each funding a certain portion of loan. A syndicate of banks may be formed either before or after loan agreement is signed and identities of the participants may be changed during the life time of the loan subject to transfer assignment and participation provisions in loan agreement.

Floating Rate Notes (FRNs) and Fixed Rate Bond (FRB)Securitized instruments which are aimed at raising resources from Euro markets or US markets by tapping the investor base. These are market traded instruments and hence provide easy liquidity. Rating by internal agencies usually determines pricing level.

Foreign Currency Convertible Bonds(FCCB):Bonds issued by an Indian Company expressed in foreign currency, and interest in respect of which is payable in foreign currency. These Bonds can be converted in equity.

Export Credit Guarantee Corporation (ECGC)It is an organization, which assures the banks that, in the event of an exporter failing to discharge his liabilities to the bank, and thereby making the bank incur a loss, it would make good the major portion of the bank's loss. The bank is required to be co-insurer to the extent of remaining loss


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To support and strengthen export promotion drive by providing range of credit risk insurance

Risk covered by ECGC -Commercial risk

InsolvencyFailure to make payment with in 4 months from due dateBuyer's failure to accept goods

Political riskRestriction by Govt.War, civil war, civil disturbancesNew import restrictionsDiversion of voyage - payment of additional chargesLoss accruing outside India - payment not covered by General Insurance

Risks not covered: -Commercial disputeCauses inherent in the nature of goodsBuyer's failure to obtain exchange authorizationInsolvency/default of collecting bank or any agent of exporterExchange rate fluctuationFailure of exporter to fulfill terms of export contract or negligence on his part.

Export Credit Insurance Cover for Banks(Packing Credit- Whole Turnover & Post Shipment –Whole Turnover)

Our Bank has taken Customised Whole Turnover Packing Credit Guarantee and Whole Turnover Post Shipment Guarantee of Export Credit Guarantee Corporation of India Ltd. The period of Guarantee is 12 months from 1.07.2008

Different rate of premium is to be paid based on credit rating of the exporter customer.

The premium payable ranges from 2.5 paisa per month per Rs.100 to 8 paisa per month per Rs 100 in case of Pre shipment and 2 paisa per month per Rs. 100 to 7 paisa per month per Rs.100 in case of post shipment depending on the rating of exporter.

The premium is payable in advance The premium is absorbed by Bank for Gold Card Exporters under ECIB(WT-PC) Maximum Liability – Packing Credit Rs.600 crore, Post Shipment Rs.500 crore

per year. Percentage of cover – Packing Credit- Losses up to Rs.1599.78 lacs -75%,

Beyond Rs.1599.78 lacs 65%.Post shipment – For Policy Holder -90%, Non Policy Holder 60%

In case of Packing Credit granted to Small Scale Exporters (Annual Export Turnover not exceeding Rs.50 lacs) the cover available will be 90%

Limits to be advised to ECGC within 30 days from the date of sanction A/c already in default not covered


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Specific Approval List – Requires prior approval of ECGC Restricted cover countries (RCC) – prior approval of ECGC Accounts which are classified as new are covered to the extent of Discretionary

limit of Rs. 100 lacs. Up to this amount prior approval of ECGC is not required. For any amount in excess of this limit prior approval of ECGC is required. Accounts classified as substandard, Bad and doubtful require prior approval of ECGC is required. The Branch has to seek the approval of ECGC when the account has slipped from Standard status to Sub standard status or other inferior status

Limit sanctioned to be reported to ECGC within 30 days from sanction date default report - within one month from the date of recalling advance or within 4

months from due date/extended due date whichever is earlier. Payment of premium to be stopped on reporting default. Claim to be lodged within 6 months from the date of reporting of default.

External Commercial Borrowing(ECB):ECB refers to commercial loans, bank loan, buyer’s credit, suppliers credit, securitized instruments (Floating Rate Note, Fixed Rate Bond) availed from Non Resident Lender with minimum average maturity 3 years.

Buyer's creditFinancing of importer by a bank situated outside India.. As FEMA buyer’s credit period should be less than 3 years.(If it is for period of average maturity of 3 years or more, it will be called ECB(External Commercial Borrowing). As per RBI directives interest rate on Buyer’s credit is 6 Months LIBOR +200bps.

Supplier's creditA financing arrangement under which the supplier agrees to accept deferred payment terms from the buyer and funds itself by discounting or selling the bills of exchange or promissory notes so created with a bank in its own country.

Merchanting tradeIndian party purchases goods from one country for ultimate sale to party in another country. The movement of goods takes place from original seller's country directly to final buyer's country without being routed through India

e.ucpNecessary rules for presentation of electronic equivalents of paper documents under L/C Supplement to UCPDC

Project exportExport of engineering gods on deferred payment terms and execution of turnkey projects and civil construction contracts abroad are referred as project export

Forward Rate AgreementIt is contract between the buyer and seller where the buyer commits to pay the seller the contract interest rate on notional sum over the stipulated period. The nature of sum neither borrower nor lent


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Lock borrowing rateLock lending rateSpeculation on future level of interest rate

Interest rate swapA hedge instrumentHelps hedging interest rateB contracted LIBOR based floating rate . He is concerned about rise in interest rate with prospect of high LIBOR rate. Wants to go out of risk. Interested in converting into fixed rate liability. A swap dealer agrees the borrower LIBOR where the borrower can pass on to its banker and expects borrower to pay him in return a fixed rate on the amount of loan liability.Thus the borrower has converted his floating rate liability into fixed rate liability.

FEMA 1999 (w.e.f. 1.06.2000)

The friendly FEMA came into effect from 01.06.2000 replacing the stringent and draconian FERA of 1973. The object of FERA was to conserve the foreign exchange resources. The objective of enactment of FEMA, on the other hand, is to facilitate external trade payments for promoting the orderly development and maintenance of foreign exchange market in India.

FEMA 1999 (w.e.f.1.07.2000 replacing the stringent & draconian FERA 1973

FERA

To facilitate external trade payment development and maintenance of Forex market in India

To conserve Forex

Provisions are part of FEMA Through notificationsNo arrest only civil consequences The power to arrestMaximum penalty 3 times Max penalty 5 times'Mens rea' culpable mental state dropped 'Mens rea'

Options'Option contract' is a contract under which the buyer has a right but not an obligation to buy or sell a specific quantity of a given asset at a specified price at or before a particular date in future. To acquire this right buyer pays premium to seller (option writer). The potential loss to option seller is unlimited and to the buyer it is limited t premium paid.

Call optionCall option provides the buyer of the option with the right to acquire the underlying currency at the strike price on the expiry date. For example when a corporate buys a USD call option at a strike of Rs.51.00, he acquires the right to buy at Rs. 51.00 at the expiry and is protected at Rs.51.00 to buy his USD payables even if INR depreciates above Rs. 51.00.For Option buyer:


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If Spot USD/INR>51, the option will be exercised.If Spot USD/INR<51, the option will not be exercised as USD can be acquired at a better price from the cash/spot market.

Put optionThis option gives right but not obligation to sell the underlying assetsA put option provides the buyer with the right to deliver the underlying currency at a strike price on the expiry date. For example when a corporate buys a USD option at a strike price of 52.00 against INR, he acquires a right to sell USD at 52.00 against INR on expiry even if INR appreciates above 52.00 For option buyer:If spot USD/INR>52.00 the option will not be exercised as the USD can be sold to acquire INR at a better price in the Cash/Spot market.If spot USD/INR<52.00, the option will be exercised.

Risk Management

Banking business inherently involves risks and these risks need to be rigorously managed. Banks often distinguish expected and unexpected losses. Expected losses are those that banks know with reasonable certainty will occur and are typically reserved for in some manner. Unexpected losses are those associated with unforeseen events. Risk is usually defined as the adverse impact of several distinct sources of uncertainty on profitability. It is probability of unexpected happening – the probability of suffering loss.Risk management is the process by which organization identifies, measures, maintains and control its risk exposure. Risk management is a continuous process and not one time activity.

Credit Risk:- is inability or unwillingness of a borrower or counter party to fulfill its contractual obligations in relation to financial transactions or reduction in portfolio value due to deterioration of credit quality.

Market risk:- is the possibility of a loss to a bank caused by changes in market variables like interest rate, currency exchange rates, equity and commodity prices.

Operational Risk:- When the loss results from internal or external fraud, inadequate or failed process/system or external events, it is termed as operational risk

The impact of losses on account of various risks gets reflected in bank’s earnings and capital. Therefore, capital adequacy ratio gives a measure of risk cover, in terms of capital, in the event of losses caused due to above said risks.

Implementation of Operational Risk Management

First of all understand different components of ORM and decide methodology


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Developing ORM policy:-

identifying the riskmeasuring the riskmitigating the risktransferring the risk/financing riskmonitoring the riskproviding capital to cover the risk

ORM Policy to include the following:-

Scope and objective – Areas and the degree of depth and sophistication desired by the top management for ORM

Risk appetite:- The risk an organization is willing to take given the context of its corporate goals and its strategic imperatives. Risk appetite is Risk tolerance. At what level the risk is acceptable to the management What level of risk it is willing to take for fulfilling the broad objectives of the organization.

Risk Management strategies- an aid the operational staff to decide on the risks and its level to be taken in the products and processes.

Risk management architecture:- ORM organizational framework and the responsibilities and the powers of the different committees

Setting risk limits and Targets:-

Establishing methodology:- The system and procedure for identifying, measuring, mitigating, transferring/financing and monitoring risk.

Risk identification (Risk Mapping):- What can go wrong in the organization?

Identification of different processes and risk areas Identification of risk indicators – signal the presence of risk – used to track

and monitor the indicated risk Identification of Risk drivers. Is the cause of risk and risk is the effect of it-

lack of knowledge of the staff

Risk management does not mean risk elimination. This process involves assessment of the risk and evaluate it based on its criticality.Pareto principle:- most of the risk comes from a very small number of events. The Pareto principle suggests that 80% of the risk comes from 20% of the identified loss events. Critical events are identified by analyzing the following:-

Impact of the loss event:- The impact of the loss event is the product of the loss and the time structure of the event. A risk that resides for long in the process or system may cause devastating or catastrophic loss.


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Likelihood of the loss event:- How often the risk manifests or appears resulting in loss

Criticality of the loss event:- The simple measure of an event’s risk is its criticality. It is the product of the likelihood of occurrence of the event in a particular time period and its impact on the firm should the event appear in that time period. The most critical events are those that occur frequently with high impact.

Risk Mitigation:- by establishing control mechanisms, which decreases the likelihood of occurring of the risk, thereby reducing the criticality of it.

Risk transfer:- Risk transfer can take the form of insurance, hedging, etc.

Risk Financing:- Organization accepts the risk and decides to financing the loss, it occurs

Risk Monitoring:- To be continuously monitored. Risk monitoring can be done through Risk MIS e.g. faulty documentation – cases decided against bank – likelihood of the event –1 – impact of event -4- criticality of risk – control system available ( audit) – Risk driver (lack of knowledge) – Risk indicator (no faulty documents reported in audit) – REMARKS

Capital to cover Risks:- Basel –(i) Basic Indicator approach – 15% of average gross annual income of previous three years(Net interest income plus non interest income) (ii) Standardized approach – divided into eight business lines (iii) Advanced measurement approach

Management action:- on following lines:-

High Risks:- either avoid taking high risk, by changing the business process/sub process which carry risk or exit from such business that carry these risks.

Medium Risks:- Bank is prepared to carry the same

Low Risk:- Do not pose danger by virtue of low impact and least likelihood. Such risks prove to be uneconomical to be addressed. Hence such risks are allowed to remain in system

To conclude There is no return without Risk – rewards to go to those who take risk Risk should be fully understood. Seek experience – risk is managed and measured by people Know what you do not know. Communicate – risk should be discussed openly. Diversify – multiple risks will produce more consistent rewards. Show discipline Use common sense – it is better to be approximately right, than to be precisely wrong


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Return is only half the equation – decision should be made only by considering the risk and return of the possibilities.

Terms which a Banker is supposed to know

Acceptance - Assent of the drawee of a usance bill to pay the amount thereof on the due date. The assent is indicated by the signature of the drawee on the face or reverse of the bill. Acceptance should be unconditional. It is preferable to have the date of acceptance and place of payment indicated by the drawee at the time of his acceptance.

Book Debts - Amounts receivable for sale of goods/ services and appearing as current asset in the books of the seller. These are also called as trade debts or sundry debtors.

Contingent Liability - A liability which is contingent upon the happening or not happening of a specified event, i.e. a deferred payment guarantee issued by bank gives rise to a contingent liability. If the customer on whose behalf the guarantee was issued, fails to make payment of instalment amount on due dates, the bank will be called upon to pay the amount under its guarantee obligations.

Demand Bill - A bill of exchange which is payable by the drawee at sight or on presentation.

Documents of Title to Goods - Documents, the due possession of which gives title to the goods covered by them i.e. Bill of Lading, Railway Receipt, Delivery Order, Dock Warrant etc.

D.A Bill/ Usance Bill -A documentary usance bill of exchange, which carries a stipulation that the documents accompanying the bills are to be delivered to a drawee against acceptance of the bill.

Trade Bill - Bill of exchange drawn in connection with a genuine trade transaction, i.e. sale of goods/ services. Bills of exchange not supported by genuine trade transactions are commonly known as ‘Accommodation Bills’ (or ‘Kites’).

Demand Loan - A loan granted for a period of less than –36- months and carries a stipulation that the amount is repayable to the creditor by the debtor on demand.

Term Loan - A loan granted for a period of 3 years and above, which in the normal course is repayable in agreed instalment(s).


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Line of Credit - Agreement entered into with banks for making available to the borrower credit facilities upto the ceiling of ‘line of credit’ in various forms to suit mutual convenience, by way of Overdraft, Cash Credit, Loan, Guarantee, Letter of Credit, etc. on agreed terms and conditions.

Bullet Repayment - Bank loans are normally repayable over a specific time-span by monthly/ quarterly/ semi-annual/ annual instalments. However, when any such loan is repayable at maturity by one lump-sum repayment, it is called ‘Bullet Repayment’. Interest payments will, however, be made as usual.

Balloon Repayment - Usually amount of repayment of each instalment would remain the same for the entire period of loan. However, often stipulations are made towards Balloon repayments in which amount of successive instalments are higher than the previous instalments based on expected cash flow. This is suitable for new projects when the cash flow improve over a time period.

Roll-over -This refers to the periodical (say one month, three months, six months, etc.) repricing of credit facilities at agreed spread over the base rate like LIBOR, MIBOR, G-Sec., etc.

Documentary Bill - A bill of exchange accompanied by documents of title to goods.

Packing Credit - Pre-shipment finance provided to an exporter for purchase, manufacture or processing of goods meant for export. Packing credit finance is granted against lodgement of firm export order or Prime Bank’s Irrevocable Letters of Credit. Wherever feasible, pledge or hypothecation of goods meant for exports is obtained to secure the packing credit finance.

Letter of Credit - A document issued by the Bank authorising its branch or another banker to honour seller’s drafts for account of a buyer provided the terms and conditions of the letter of credit are satisfied.

Revolving Letter of Credit - Letter of Credit issued for a specific amount, which renews itself for the same amount on retirement of bills over a given period. The amount of Letter of Credit utilised by negotiation of bills, will become available to the beneficiary of the credit as soon as the buyer retires the said bills.

Re-instatement Clause - A clause in a Revolving Letter of Credit whereby the Bank opening the letter of credit stipulates that the amount utilised by negotiation of each bill gets reinstated only on retirement of the bill by the buyer.

ECGC Guarantee - Guarantee/ Policy issued by Export Credit & Guarantee Corporation of India (ECGC) to financial institutions including banks covering pre-shipment and post-shipment credit facilities granted to exporters.

Guarantees : A “Contract of Guarantee” under the Indian Contract Act is a contract to perform the promise or discharge the liability of a third person in case of his default.


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Guarantees issued by the Bank can be broadly classified into three categories viz. Financial, Performance and Deferred Payment Guarantees.

Financial Guarantees - Bank Guarantees issued to guarantee the customer’s financial worth; credit worthiness and his capacity to take up financial risks are classified as ‘Financial Guarantees’. Such guarantees do not require any specific performance on the party of constituents on whose behalf Bank Guarantee is issued. Following guarantees to be treated as ‘Financial Guarantees’:- a) Guarantees favoring tax/ customs/ excise/ court authorities in respect of disputed claims, payment of taxes, customs and excise duties etc.b) Deferred Payment Guarantees.

Performance Guarantees - Guarantees issued on behalf of constituents guaranteeing their performance of contracts entered into, supply machinery, due discharge of other contractual obligations undertaken etc. Following guarantees to be classified as ‘Performance Guarantees’:-a)Guarantees issued for performance of any contract by the constituents.b) Guarantees covering security deposits, earnest money/tender deposits, advance payment, mobilisation advance, Bid-Bonds etc., covering performance of underlying contract/ obligation. c)Standby letter of Credit. d)Shipping Guarantees (Guarantees issued on behalf of constituents to enable them to take delivery of goods from Shipping Companies in lieu of Bill of Lading) Guarantees for supply of Machinery/ Material). Guarantees for lifting material/ machinery ordered.

Deferred Payment Guarantee - Deferred Payment Guarantees (DPG) is a way of raising long-term resources by the buyers of fixed assets/ capital goods, securing guarantees for repayment of principal and interest from their banker to the supplier of capital goods for supplier’s credit. It is a financial guarantee.

‘Onerous Clause’ in Guarantee - Any provision in the guarantee, which is likely to give rise to further pecuniary liability on the bank like payment of interest, penalty, other charges, etc. or any liability which is unlimited.

Working Capital/ Net Working Capital - Funds requirement for day-to-day operations other than investment in ‘Fixed Assets’ and ‘Non-Current Assets’ is treated as ‘Working Capital’. Excess of current assets over current liabilities excluding bank finance is treated as ‘Working Capital Gap’. Excess of current assets over current liabilities including bank finance is treated as ‘Net Working Capital’, which is also treated as borrower’s contribution (i.e. margin) for working capital.

Stocks in process - Goods held/required to be held by a manufacturer, for process of conversion into finished products.

Sub-Limits - A subsidiary limit, which operates within the overall limit for an advance.

Parent Branch - Branch which has the job role of Appraisal of Credit Proposal, Documentation, Review of Credit facilities etc.

Parked Branch - Branch where credit facilities are parked by the parent branch after completing the process of sanction, documentation etc., for borrower’s operational


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convenience/other requirements. Advising the Drawing Powers, review of credit facilities, maintaining enforceable documents etc. is the responsibility of parent branch. Parked branch is required to apprise the parent branch about the operations in the account and other details to enable the parent branch to have effective monitoring of the account and to undertake review exercise from time to time. The requirements of carrying out inspection of securities may be worked out by the parent branch as per bank’s guidelines and accordingly the parked branch may be advised from time to time.

Hypothecation - A floating charge on specified movable assets by a borrower in favour of lender. Possession of and title to the assets hypothecated remains with the borrower until the lender crystallizes his charge by due process of law.

Mortgage - A charge on specified immovable property created by the borrower in favour of the lender. Mortgage may be registered or equitable. If the charge is created by a registered deed (adequately stamped), it is called registered mortgage. If the borrower deposits with the lender, documents of title to the property at a notified place with the intention of creating a charge on the property, it is called an equitable mortgage.

Pledge - A charge created on specified movable assets by the borrower in favour of the lender. Assets pledged remain under the actual or constructive possession of lender during the pendency of the loan. In the event of default in repayment of loan by the borrower the lender will have a right to sell the assets pledged (after giving reasonable notice to the borrower) and appropriate proceeds thereof towards dues.

Surrender Value - The amount, which an insurance company will pay if the policy is surrendered before its maturity date. Insurance policies will acquire surrender value only after the expiry of some initial period specified by the insurance company. Surrender value of the policy is different from paid up value, it may be ascertained from the insurance company from time to time.

Margin - Percentage difference, which a banker insists on being maintained between the value of security and amount advanced thereagainst.

Net Means - Difference between the total value of assets (Movable & Immovable) owned by a person and aggregate amount of his/her liabilities at any given time.

Selective Credit Control (SCC) - Credit restrictions imposed from time to time by Reserve Bank of India through its directives to Scheduled Commercial Banks over their advances against the security of certain specified commodities, which are presently buffer stock of sugar with sugar mills, unreleased stocks of sugar with sugar mills representing levy sugar and free sale sugar.

Supply Bills - A bill drawn by a contractor or supplier for goods supplied or services rendered to a Government/ Semi-Government Body or large limited company. Supply bills are to be accompanied by receipted challans for goods supplied or a certificate for the services rendered.


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Trust Receipt - At times Securities or payments are received by the Borrower without repayment of the corresponding debt and held in the capacity as trustees. In the trust receipt, the borrower declares that he holds the documents/ goods/ payments/ realisation of receivables etc. as trustees for the bank.


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Base Rate

As per Annual Policy Statement 2009-10 working group under the chairmanship of Mr Deepak Mohanty was constituted to review present BPLR and suggest changes.

BPLR introduced in 2003 fall short of its original objective of bringing transparency to lending rates

Base Rate- enhancing transparency in lending rates. Base Rate replaced BPLR w.e.f. 1.07.2010 Banks may determine their actual lending rates on loans and advances with

reference to Base Rate. Banks are permitted to change the benchmark and methodology any time during

the initial six months i.e. by end of December 2010 Actual lending rates charged may be transparent and consistent and be made

available for supervisory review. Advance under DRI, LABOD and staff loans are exempted from Base Rate

purview Base rate will serve as referenced benchmark rate for floating rate loan products. Changes in Base rate shall be applicable in respect of all existing loans linked to

Base Rate. No lending below Base Rate Review of Base Rate at least once in a quarter with the approval of Board/ALCO Banks to exhibit the information on their Base Rate at all branches and also on

their website Changes in Base Rate should also be conveyed to General Public from time to

time through appropriate channels. Banks to provide information on actual minimum and maximum lending rate to

RBI on quarterly basis. Base Rate will be applicable to all new loans, old loans and renewed loans. Existing loan on BPLR system may run till their maturity. An opetion for

switching to the borrower be given Base rate will be calculated by taking into account Cost of Deposit, Negative carry

on CRR/SLR, unallocated overhead cost and Average return on New Worth.

BCC:BR:102:178 dated 30.06.2010 on Base Rate:-

Our Bank has decided to have base rate at 8% w.e.f. 1.07.2010All existing facilities based on BPLR system may run with existing interest rate structure till their maturity/review.Existing borrowers have the option to switch to the Base Rate system, before maturity/review.Branches not to charge any fee on such switch over All the existing accounts falling due for review on or after Ist July would be priced with reference to Base Rate at the time of review.No loan shall be granted at the fixed rate option.


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Loans without reference to Base Rate:- DRI, Loans to bank’s own employees, LABOD, all agriculture loans upto Rs. 3 lacs for which subvention is available. All other loans cannot be less than base rate.


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Glossary of terms – International Business(For candidates appearing for interview for Overseas Postings)

1. Arbitrage Process of taking advantage of the existence of different

prices for the same product (or its substitute) like foreign

exchange, securities etc. at the same time but in different

markets. Different markets can be at different geographic

locations for the same financial assets or different

financial assets in one or more geographical locations.

2. Asset stripping Technique of selling off some assets by borrower when

pressed for repayment.

3. Banker’s

Acceptances

A money market instrument, bearing name of a Banker in

addition to customer’s name, making it highly secure and

marketable. Acceptance fee is charged by the banks for

accepting the drafts which together with the discount rate

makes the cost of credit through banker’s acceptance to

the borrower.

4. Base Lending Rate Credit facilities sanctioned at the rate of interest based on

some reference rate such as LIBOR, MIBOR, G-Sec., etc.

plus margin or spread on case-to-case bases. The reference

rate is called as Base Lending Rate.

5. Basis point &

percentage

The interest spread on loans or yield on securities is often

expressed in basis points (100% basis points = 1%).

When expressed in percentage, it is known as percentage

point, i.e. 1% or 2% (100 basis or 200 basis points).

6. Basis Swap This is a swap of floating rate based on one reference rate

(e.g. 3 months LIBOR) for floating rate based on another

reference rate (e.g. US Prime Rate).

7. Best Efforts Basis The offer of buying or selling of securities or currency or

raising of loans on partially underwritten basis is known as

Best Efforts Basis.

8. Bridge Finance/ Interim finance allowed by a bank normally on unsecured Courtesy:-B S BishtZonal Inspection CentreLucknow

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loan basis pending completion of documentation and other

formalities by the borrower, against medium or long term

finance agreed to by financial institutions and/or banks.

On the borrower completing formalities relating to

documentation etc. as may be required by the principal

lender, the proceeds of the loan will be routed through the

lender of Bridge finance for liquidation of Bridge Loan.

9. Bid/Offer rate Bid rate is the price at which the quoting party is prepared

to purchase a currency/ security or accept a deposit. Offer

rate is the price at which the quoting party is prepared to

sell a currency/ security or offer a deposit.

10. Capital Adequacy The capital (Tier I & Tier II) requirement by a financial

institution/ bank against its risk weighted assets.

11. Charging order An unsecured decree holder is entitled to approach court

for a charging order over properties, if any, owned by the

borrower. However, for sale of such property by the

decree holder, he has to obtain an order for sale from the

court. Thus, such charging order may in practice act as

legal charge.

12. Club Deal An arrangement in which a group of banks decide to lend

a borrower without any syndication arrangement.

Normally, number of banks may vary from three to five or

more and their strategy is to treat such loan assets on ‘take

and hold’ basis.

13. Commercial Paper This refers to short term usance Pronotes negotiable by

endorsement and delivery issued by major Limited

Companies/ Corporations. Such papers are normally

issued/sold at a discount. The issuing company may

request a bank to provide standby facility (also known as

Line of Credit) for meeting the liability of Commercial

Paper on maturity.

14. Cross-Border Lending where it is directed towards a project located in a


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Lending different country than that wherefrom lending is made.

15. Currency Swap

and Interest Rate

Swap

‘Swap’ means ‘exchange’. In the context of international

financial markets, it refers to an exchange of specified

streams of payment over an agreed period of time between

two parties. In currency swaps, streams of payment in two

different currencies are exchanged. In interest rate swaps,

streams of payment in the same currency but at different

interest rates are exchanged (generally for fixed rates

against floating rates and vice versa). Such swaps

generally extend for longer periods such as upto 3/5 years

than the period traded in the conventional markets.

Interest rate swap is also known as ‘Coupon Swap’.

16. Debt Equity Swap An exchange of outstanding loans/ advances by the lender

into equity of the borrower by conversion of the debt in

part or in full.

17. Debenture charge A document for creating fixed charge over the properties

specifically mentioned, viz. landed properties, plant and

machinery etc. and/or floating charge over other properties

viz. Stock-in-Trade, Book Debts etc. Both ownership and

possession remain with the Charger (Borrower) while only

‘security interest’ is acquired by the Charge (Lender).

Unlike in usual hypothecation arrangement, the Debenture

Holder (Lender) is empowered to appoint a Receiver at his

discretion.

18. Environmental

Audit/ Issue Audit

These Concepts long prevalent in United States have since

gained momentum in Europe as well. The business

organisations in particular in USA have always to ensure

their due compliance with legislations fixing

responsibilities for avoiding environmental pollution. The

Environmental Auditors examine plants and plant sites

and test products and processes to find out whether they

carry any surprise liabilities. A recent extension of


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environment audit is what is presently termed as Issue

Audit, which indicates specific issue areas to be studied

and reported, viz. impact of tropical rain forest, impact on

wet lands etc. Lenders have occasionally been held liable

for damages caused to environment by the borrowers.

19. Equity in Security

(second or

subsequent

charges)

Immovable property in particular can be charged to

various creditors simultaneously or in succession. Each

subsequent creditor is entitled to have security interest

after providing for the share of prior charge-holder(s) over

the duly assessed market value of the property. For

example, a second mortgage will have equity in property

on the surplus, if any, remaining after indebtedness to the

first mortgagee is deducted from the market value. If a

mortgage is created on pari-passu basis, each mortgagee

will have equal rights without any priority or preference of

one over the other.

20. Exit Bonds Sovereign borrowers when pressed for repayment by

lenders, who are not prepared to provide New Money,

often propose to issue Bonds (covering normally certain

portion of the indebtedness in full and final settlement of

the total dues), repayable over an agreed period (generally

long) so as to lessen the foreign debt pressure. These

Bonds are known as Exit Bonds. Interest rates on these

Bonds are below market rates and are exempt from future

debt relief options.

21. FED Bonds Money deposited with the Federal Reserve Bank in the

USA and often used for inter bank overnight borrowings.

These funds are traded in money market. The rate of

interest on such trading is known as Fed Funds Rate,

which is regulated by the FED through open market

operations. Fed Funds lent to other banks are called ‘Fed

Funds Sold’ and Feb Funds borrowed from other banks


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‘Fed Funds Purchased’

22. Footings Bottom line of a Balance Sheet (i.e. Total of Assets side

which equals total of Liabilities side) is currently called in

UK as ‘Footings’.

23. Foreclosure In case of mortgagor’s (of real estate) default, the

mortgagee is entitled to approach court praying that

mortgagor be debarred of his right to redeem the property.

This is known as Foreclosure.

24. Forward Rate

Agreement (FRA)

This is an agreement valid for a specified future period

between two counter parties in terms of which one party

protects the other from a rise or fall of interest rate during

the period for a specified principal. Under the agreement,

there will be no obligation to borrow or lend the principal

amount and only the difference between the interest on the

principal at the protected rate and the interest at the then

prevailing interest rate is settled.

25. Futures Standardised contracts for buying/selling specified

commodities or products in a Futures Exchange. A

financial future is a commitment to buy/sell a financial

instrument during a specified month or on a specified

future date on a Financial Futures Exchange. A wide

variety of instruments such as Treasury Bonds, foreign

exchange etc. including specifically made up financial

products are traded in the Futures Exchanges. Financial

Futures are used for hedging against currency and interest

rate exposures.

26. Highly leveraged

transaction

When a high level of credit is extended in a business for

financing buyout, acquisition or recapitalisation of an

existing business. It is known as Highly Leveraged

Transaction. Bankers are discouraged in USA in

particular from participating in such transactions.

27. Issuer-Set Margin In the issuance request for CDs under RUF arrangements,


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the issuer specifies the margin-known as Issuer Set

Margin–relative to LIBOR, which is considered to be the

appropriate cost of CDs of particular series.

28. Junk Bonds High yielding but unsecured and therefore high-risk debt

used commonly in buyouts in the USA. Being in bond

form rather than in loan form, these Bonds are easily

tradeable in the secondary markets in the USA unlike in

certain other countries like UK. The credit rating of Junk

Bond issuers is generally low.

29. Legal Charge A document duly registered with the competent authorities

for mortgage of real estate. When, circumstances so

necessitate, the lender can peaceably take possession of

the property, if it is vacant and sell the property in the

open market. Otherwise the lender will have to obtain

possession order and secure possession of the property and

then sell the same as Mortgagee.

30. Lender Liability Borrower is under an unqualified obligation to repay to the

lender. However, in USA, in some court judgements since

1982, lenders have been made liable to pay large damages

to the borrowers if due to sudden withdrawal of agreed

credit lines without compliance of necessary formalities or

for other similar reasons, the borrowers have suffered

business loss and/or inconvenience.

31. Leveraged Buy-

Out

Buy-out of company shares or company assets by

financers through a high proportion of debt using the

assets being purchased as leverage.

32. Mezzanine

Finance

Unsecured loans taken by companies, which rank after

secured debt (i.e. senior debt) but before equity in the

event of company failure is known as Mezzanine Finance.

Because of greater risk for the lender of mezzanine

finance, such loans earn a higher rate of interest. They

also often carry an equity conversion option for the lender


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to compensate for the higher risks involved in the

financing. The most risky layer in a company’s finance is

the equity portion, the least risky being senior debt

secured against assets. Mezzanine debt is the

subordinated debt falling between these two layers.

33. Multi Currency

Clause

Sometimes Euro loan documents provide a Multi

Currency Option Clause permitting the borrower to switch

from one specified currency to another specified currency

on roll over date.

34. New Money Fresh loans and advances required to be made available as

part of a package to facilitate servicing and repayment of

existing loans. This mostly arises in cases of Sovereign

Risk category loans.

35. Non-Performing

Credit

Non-payment of interest when accruing due in respect of

availed credit makes such a credit a Non-Performing one

(i.e. credit falls to perform its role of servicing reward of

interest to the Lender).

36. Note Issuance

Facility

Note Issuance Facility is a legally binding medium term

commitment under which a borrower can issue short term

paper called ‘Notes’ in his own name, but where the

underwriting banks are committed either to purchase any

notes which the borrower is unable to sell or to provide

standby credit. Bank borrowers generally drawn funds

under the facility by means of short term ‘Certificates of

Deposit’. RUF is a variant of the NIF where the

placement and the underwriting functions stand separated.

37. Off Balance Sheet

Exposure

Banks incur certain contingent liabilities as an integral

part of their business, which are shown below the line of

Balance Sheet, they are classified as ‘Off Balance Sheet

Exposures’ e.g.

1. Short-term trade related contingent liabilities arising

from movement of goods.


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2. Commitments of over one year maturity – RUF, DPG

etc.

3. Sophisticated money market products like Swaps,

Futures and Options.

4. Forward Exchange Contracts.

38. Option This refers to a contract bestowing a ‘right’ but not an

obligation to buy or sell a financial instrument at a fixed

price (exercise or strike price) before or at a designated

future date. Call Option is a buying option and Put Option

a selling option. Option is in the nature of an insurance

obtained by the buyer of the Option from the ‘Writer’ of

the Option against adverse price movements, like Interest

Rate, Exchange Rate, etc. against payment of a premium

to the Writer.

39. Prime Rate This is the rate of interest fixed by Bankers for lending to

their best (prime) customers. All-in-cost to the borrower

is the Prime Rate plus cost of compensating balance to be

maintained by him.

40. Problem Credits Problem credits are those which have shown signs of

default of principal and/or interest viz. sticky and stagnant

account, non payment of one or more instalments due

from borrowers having prolonged cash flow problems or

whose net worth has gone negative etc.

41. Repurchase

Agreement (also

known as Repo)

Agreement in which the seller of an asset agrees to buy

back the asset he sold at fixed price on a specified future

date. Money Market Dealers use REPOs for selling

securities to finance their fund requirements. Banks

frequently adopt this technique.

42. Revolving

Underwriting

Facility

A medium term arrangement, in which a borrower can

raise short-term resources by issuing notes or CDs in the

International Money Markets, backed up by underwriting

commitments upto the agreed limit by a syndicate of


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banks over the period of the agreement (generally five

years). RUF is a variant of NIF.

43. Sovereign Risk Risk that the Government of a country may Interfere with

the repayment of a debt contracted by a national of that

country with a lender outside the country. When country

of residence of the borrower and country of operation of

the lender differ, the risks such as non-externalisation of

foreign currency by the authorities of Debtor’s country or

embargo on repayment imposed by the Government of the

Debtor’s country, arise which are referred to generally as

Sovereign Risks. Such risks may arise even if the debtor

is economically sound and capable of repaying the loan in

local currency. Mostly money raised for government/

semi-government projects under general-purpose loans

also fall under this category. Sovereign risk is to be given

due weightage while fixing interest rates.

44. Special Mention

Credit

When an advance is considered potentially weak and may

cause difficulties of recovery, it is sometimes desired to be

classified as ‘Special Mention Credit’. This term is used

by the regulatory authorities in UK, USA etc.

45. Term Insurance Life insurance coverage protecting the individual for a

specified period of years at the end of which there is no

value left in the policy. Such a policy has no saving

features unlike other policies, viz. Endowment Policy,

Whole Life Policy etc.

46. Value Dating/

Compensation

Day on which a financial transaction involving payment

and receipt is settled, i.e. date on which payments are

actually made and received. Deployment of funds carries

normally a financial reward (receipt of interest) and

receipt of funds in like manner, a financial sacrifice

(payment of interest). In such funding settlements,

therefore, the date of delivery of funds on either side is


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very important and must be done on the same day, known

as value date or value compensation date.

47. Zero Coupon

Bonds (Also

known as Zero

Bonds or Discount

Debentures)

These are Bonds issued for medium term and long-term

maturities generally by corporate borrowers, but also

sometimes by sovereign bodies, having no interest

coupons. These Bonds are generally issued at a deep

discount on the face value. Sometimes, the coupons borne

on normal interest bearing bonds are separated from the

bonds and disposed of in the secondary market. This is

called ‘Coupon Stripping’. The remainder of such bonds

will also be Zero Bonds. Coupon stripping is done for

meeting requirements of certain investors who need only

interest income and certain others who wish to have only

capital gains.

For example, bond with face value of Rs.100 may be

issued at Rs. 85.00 for a duration of two years. At the end

of two years the investor will get Rs. 100 implying an

interest income of Rs.15.00


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Financial Ratios for Credit Appraisal.

While appraising credit proposal various items in profit and loss account and balance sheet of the borrower should be analysed to arrive at meaningful conclusions. Ratios analysis can be expressed in percentage terms or as a simple ratio (like 2:1). Whenever we recast the profit & loss and balance sheet, the recasted figures should be taken into account for analysis. Some of the important financial ratio, required for credit appraisal are as under: -

Current Ratio:

It is also called the Liquidity Ratio and a test for short-term solvency. Current ratio is arrived at by dividing, as on a date, total value of current assets by current liabilities.

Current Ratio = Current Assets/Current Liabilities.

Hence, Any adverse trend should be carefully examined. Generally a current ratio of 1.33:1 is considered satisfactory, which may be treated as a benchmark rather than the minimum acceptable level. It should not be applied uniformly as it varies from industry to industry. The reasons for a lower or higher current ratio to the benchmark needs to be examined. The sanctioning authority may take a view and satisfy himself/herself while accepting a lower current ratio and the reasons may be suitably recorded. While taking a final view on the current ratio and/or projected level of current ratio, the sanctioning authority may examine various options to improve the ratio such as exploring possibility of injection of additional funds and / or ploughing back of profits, stipulations for not declaring dividend / non withdrawal of profits, reduction in the level of non-current assets and liquidation of investments outside business, if any, within a reasonable time.

Debt – Equity Ratio :

This ratio indicates relationship between the external term borrowings and the own funds of the concern. Bank takes total term liabilities as Debt i.e. total liabilities minus net worth and total current liabilities. Equity means net worth of the concern minus intangible and fictitious assets. However, the subordinated funds (i.e. long-term unsecured loans from friends and relatives, etc.) may be considered as quasi-equity and included in equity while arriving at ratio, if the borrower retains the same at the existing level/ projected level and generally for non-corporate borrowers. The subordinated debt however should not to exceed borrower’s tier I capital i.e. capital plus free reserves less intangible assets.


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Debt-Equity Ratio = Total Term Liabilities (TL)/Tangible Net Worth.

A ratio of 3:1 is considered satisfactory. However, higher ratio is generally allowed keeping in view activity of the borrower, industry, sectoral classification such as SSI units, other priority sector advances etc.

Fixed Assets Coverage Ratio (Applicable for Term Loan):This ratio shows the number of times the value of fixed assets (after providing depreciation) covers term liabilities.

Fixed Assets Coverage Ratio = Net Fixed Assets/ Term Debts (Medium & Long)

Fixed Assets Coverage Ratio of more than 1 is considered reasonable.

Debt Service Coverage Ratio (DSCR) - Applicable for Term Loan :

Ability of a concern to service its term liabilities can be assessed from this ratio, which is applied while appraising all term loans proposals, studying rehabilitation/ reschedulement proposals, etc. DSCR measures whether interest and instalments can be paid out of internal generation of funds. A ratio of 1.75 would indicates that the concern’s internal generation of funds would be 1.75 times of its commitments towards term loan obligations and interest thereon. It works out as under: -

DSCR = (Profit after tax + Dep.+ Int. on TL) / (Int. on TL+TL Instalment).

The average DSCR (i.e. the sum of numerator divided by the sum of denominator of DSCR formula as stated above for entire repayment period of the loan) of 1.75 is considered reasonable. However, in any year it should not be less than 1.25. The sanctioning authority may consider lower average DSCR depending upon the nature of project / Industry after recording the reasons for the same.

Pricing of the loanAs per extant guidelines, the pricing has been de-linked from credit rating in respect of advances (fund based) over Rs. 2 lacs but less than Rs.25 lacs and the pricing is based on predetermined spread irrespective of credit rating. For loans of Rs.25 lacs and above pricing continues to be determined by the rating of the borrower with appropriate spread.


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TAKE OVER OF LOAN ACCOUNTS

Bank provides the operating units to take over accounts from other FI s/Banks keeping in view the foremost objective of canvassing only good quality accounts. The following financial and Non financial aspects are however to be followed:

Non-Financial:

a) Accounts of profit-making (i.e. net profit before tax) concerns only as per last audited balance sheet.

b) Accounts with existing lenders should be under the category of “Standard Assets”c) Satisfactory report from the existing bank/FI and/or satisfactory conduct of account as

per latest statement of accounts.d) Take-over accounts are to be rated as under:-

As per BOBRAM credit rating model (CRISIL), minimum ‘BOB6’ obligor ratding rade for all exposures of Rs. 25 lacs and above, other than MSME exposures. For MSME exposures, this rating model is applicable for accounts having exposure of above Rs. 2 crore.

As per New Scoring Card Type model for MSME accounts of Rs.25 lac and above up to Rs.2 crore subject to minimum ‘MSMEBOB 6’ rating (Circular No. BCC:BR:101:194 dated 13.07.2009)

e) Take-over accounts (retails) are to be rated as per the applicable scoring model subject to minimum grade as per the scoring model.

f) There should not have been any reschedulement / restructuring in the account during last two years.

g) All other existing norms, guidelines as applicable to borrowal accounts are to be scrupulously followed.

Financial(other than Retail & SME –Regulatory & Expended)

a. Current Ratio : Min. 1.33.

b. TOL/ Equity : Max. 4.5:1

c. Debt Equity Ratio : Max: 3:1

Max: 4:1

d. Debt Service Coverage Ratio : Min 1.75 in case of Term Loan

(Average DSCR to be calculated for entire

repayment period).Authority for Take-over

1. Proposal for takeover under the powers of Chief Manager and above: -

Proposals under the powers of Chief Manager and above no prior clearance from next

higher authority is required for takeover. Delegated authorities under bank’s discretionary lending powers may consider

takeover cases within their powers.


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2. Proposal for takeover under the powers of below Chief Manager: - Prior approval of next higher authority i.e. Regional Manager is required for takeover. After obtaining prior clearance as above, delegated authorities may consider the

proposals as per their discretionary lending powers. In case of take over of retail loan, approval from Regional Manager/Zonal

Manager is not required.

Take over of Retail Loan Accounts

Take over accounts are to be rated as per the applicable scoring model subject to securing minimum investment grade for the specific produce.Accounts with existing lenders should be under the category of ‘Standard Assets’. There should not have been any reschedulement/restructuring in the account during the last two years.In case of traders loan, accounts should be profit-making and with minimum of Current Ratio 1.17 and maximum Debt Equity Ration of 6.1All existing norms, guidelines as applicable to borrowal accounts re to be scrupulously followed

Exposure to unsecured guarantees and unsecured advancesThe domestic outstanding unsecured guarantee plus the total of domestic outstanding unsecured advances in terms of definition of ‘unsecured exposure’ of RBI should not exceed 30% of total domestic outstanding advances.

Limit on shareholding in companiesIn terms of Section 19(2) of Banking Regulation Act 1949 no banking company shall hold shares in any company, whether as pledge, mortgagee or absolute owner, of an mount exceeding 30 per centof the paid up share capital of that company or 30 per cent of its own paid share capital and reserves, whichever is less

Exposure to Capital MarketThe aggregate exposure of a bank to the capital markets in all forms( fund and non fund basis) should not exceed 40% of its net worth as on March 31 of the previous year. Within this overall ceiling, the bank’s direct investment in shares, convertible bond/debenture, units of equity-oriented mutual funds and all exposures to Venture Capital Funds(VCFs) should not exceed 20% of its net worth.

Advances against shares/issue of guarantees Margin of 50% on all advances/financing of IPOs/issue of guarantee for capital

market exposure. A minimum cash margin of 25%(within margin of 50% shall have to be maintained in respect of guarantees issued by banks for capital market operations

No advance against partly paid shares. No advances to partnership/proprietorship concern against shares/debentures. Not to undertake financing of badla transactions. Not to undertake arbitrage operations.


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No financing for undertaking arbitrage operations in Stock Market. Loans against shares/convertible bonds/convertible debentures/units of mutual

funds to individual should not exceed 10 lacs per individual in case of securities in physical form and Rs.20 lacs in case of securities in demat form.(for financing equities and investments in shaqres)

For subscribing to IPOs limit is Rs.10 lacs per individual No finance to NBFCs for further lending to individuals for IPOs No advance against primary security of shares and debentures. But can be

accepted as collateral

Margin trading Bank has formulated a policy for Margin Trading within the cap of Rs.200 crores

of exposure to Stock brokers and Market Makers. Conditions are:- Minimum margin of 50% Shares purchased should be in dematerialized mode under pledge to bank System for monitoring and maintaining margin of 50% should be established by

Treasury Branch No ‘nexus’ develops between inter-connected stock broking entities/sstock

brokers and bank in respect of Margin Trading

CREDIT RISK MANAGEMENT

Bank continue to comply with the guidance note on management of credit risk and hence following particulars, of Credit Risk Management are to be kept in view by the branches/offices:-

Corporate office has already issued detailed industry profile/studies of various industries/sectors (covered under DSB Return of RBI). The overall performance of the industry/sector as per the study report will facilitate our operating units in dealing with borrowal accounts.

Credit rating framework enables bank to classify various categories of borrowers as a tool of identification of borrower risk grades on the basis of rating. In this context, bank has in place an appropriate credit rating mechanism. The operating units would continue to rate the borrowal accounts as per the applicable credit rating mechanism.

Bank’s guidelines on periodic inspection of securities/business sites should be followed and depending upon the findings of such inspection reports the account is to be monitored accordingly.

Bank has already introduced credit approval system at Corporate Office and Zonal/Regional Offices in respect of sanction/review of credit limit. The credit approval system as per extant guidelines are to be scrupulously followed.

Credit Audit / Loan Review Mechanism is being undertaken as per RBI guidelines for various borrowal accounts as a mechanism to ensure compliance with extant sanction and post sanction process/ procedures including picking up early warning signals and initiating corrective action to improve the credit quality would continue to be adhered to.


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Bank’s existing system of early problem recognition, classification of problem exposure and remedial action to be followed.

Besides the foregoing, bank will continue to review and fix industry/sectoral internal caps in the light of Eco-Industry scoring system introduced in the bank, to avoid credit concentration in a particular industry/sector.

Restrictions for grant of Loans & Advances.

No loan to be granted to Wilful Defaulters of our Bank/Other Banks/Financial Institutions as per RBI / CIBIL 170uthori defaulters list etc.

Advances against Bank’s Own Shares:In terms of the Banking Regulation Act, 1949, Bank cannot grant any loan and advance on the security of its own shares.

Advances to Bank’s Directors:Banking Regulation Act, 1949 lays down restrictions on loans and advances to the directors and the concerns in which they hold substantial interest.

Restrictions on holding shares in companies:In terms of Section 19(2) of the Banking Regulation Act, 1949, no banking company shall hold shares in any company, whether as pledge or mortgagee or absolute owner, of an amount exceeding 30 percent of the paid-up share capital of that company or 30 percent of its own paid-up share capital and reserves, whichever is less, except as provided in sub-section (1) of Section 19 of the Act. Shares held in demat form should also be included for the purpose of determining the exposure limit. This is an aggregate holding limit for each company. While granting any advance against shares, underwriting an issue of shares, or acquiring any shares on investment account or even in lieu of debt of any company, these statutory provisions should continue to be strictly adhered to.

Restrictions on Credit to Companies for Buy-Back of their securities:In view of provisions contained in section 77 A(1) of the Companies Act, 1956 bank should not provide loans to companies for buy-back of their own shares/securities.

Granting loans & advances to relatives of Directors:Without prior approval of the Board or without the knowledge of the Board, no loans and advances should be granted to Directors (including Chairman & Managing Director) and relatives of directors of Bank, other banks, Scheduled Co-operative Banks, Subsidiaries/Trustees of Mutual Funds/ Venture Capital Funds set up by the Bank/ Other Banks subject to the following:-

a) Loans & advances aggregating Rs. 25 lacs and above are to sanctioned by the Board of Directors/MCB.

b) The proposals for credit facilities of an amount less than Rs. 25 lacs to these borrowers may be sanctioned by the appropriate authority under powers vested in such authority, subject to reporting to the Board.

Every borrower should furnish a declaration to the bank to the effect that:-a) he is not a director or specified near relation of director of a banking company.b) None of the partners is a director or specified near relation of a director of a

banking company; andc) None of its directors, is a director or specified near relation of a director of a

banking company.


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Grant of loans & advances to officers and the relatives of Sr. Officers:RBI guidelines on grant of loans and advances to officers of the Bank and to relatives of senior officers of the bank will continue to be scrupulously followed. The term senior officer will refer to officials in Grade/Scale SM IV and above.

Restrictions under Selective Credit Control (SCC):Presently the following commodities are covered under Selective Credit Control (SCC):-

- Buffer Stock of sugar with sugar mills.- Unreleased stocks of sugar with sugar mills representing levy sugar and

free sale sugar. Restrictions on loans & advances to industries producing/ consuming Ozone

Depleting Substances (ODS):Bank should not extend finance for setting up of new units producing/ consuming following Ozone Depleting Substance (ODS):-

Loans & advances against shares, debentures and bonds:Following restrictions are applicable on grant of loans and advances against

shares and debentures:-- No Loan to be granted against partly paid shares.- No loan to be granted to partnership/ proprietorship concerns against the

primary security of shares and debentures.- Banks and their subsidiaries should not undertake financing of “Badla”

transactions. Advances against Fixed Deposits Receipts issued by other Banks.

Bank should desist from sanctioning advances against FDRs, or other term deposits of other banks.

Advances to Agents/Intermediaries based on Consideration of Deposit Mobilisation.Bank should desist from being party to unethical practices of raising of resources through agents/ intermediaries to meet the credit needs of the existing/ prospective borrowers or from granting loans to the intermediaries, based on the consideration of deposit mobilisation, who may not require the funds for their genuine business requirements.

Loans against Certificate of Deposits (CDs)No loan can be granted against Certificate of Deposits.

Bridge Loans

RBI has permitted Banks to sanction bridge loans to companies for a period not exceeding one year against expected equity flows/issues. Such loans would be included within the ceiling of 40% of consolidated net worth as on March 31 of the previous year for exposure of bank to capital market, including both fund based and non fund based exposure to capital market in all forms . Banks can also extend bridge loans against the expected proceeds of Non-Convertible Debentures, External Commercial Borrowings, Global Depository Receipts and/or funds in the nature of Foreign Direct Investments, provided the banks are satisfied that the borrowing company has already made firm arrangements for raising the aforesaid resources/funds.


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Keeping in view the RBI guidelines, Bank has devised the following guidelines: Such loans to be considered only at our Corporate Centre, for Corporates who

are banking with us with satisfactory track records. Bridge Loans capped at Rs.75 crores (all type of facilities) Such Bridge Lending should be used for the purpose for which the issue

(debenture/ECB/Equity etc.,) is proposed and not for any other purpose. The amount of individual Bridge Loan shall not exceed 75% of the amount

called-up on the shares minus any other similar bridge lending, interim finance availed or to be availed.

Repayment period upto a maximum of one year.

Monthly MonitoringFor the purpose of monitoring of large borrowal accounts, to prevent asset quality slippage, to take timely corrective steps and to improve the quality of credit portfolio bank has the system of monthly monitoring. Under the system, advance accounts with exposure(FB+NFN) are to be monitored at Regiona/Zonal/Baroda Corporate Centre levels based on monthly monitoring reports submitted by branches within 5 days of reporting date(i.e. 15th of each month) of MMR to Regional office as under:-.

Advance accounts of over Rs.10 crores through Zonal Office to Baroda Corporate Centre within 10 days of reporting date.

Zonal Manager to monitor all advance accounts above Rs.5 crore to Rs. 10 crore. The Zones will also submit copies of the MMRs of these accounts to BCC for further monitoring.

Regional Manager to monitor all accounts above Rs.1 crore to Rs. 5 crores. Regional Office will also submit copies of the MMRs of these accounts to Zonal Office for further monitoring

Branch Manager to monitor accounts of Rs. 1 crore and below.

Accounts Causing Concern:

Regional Offices are to submit a summary report in the prescribed format on advance accounts causing concern:

With exposure of above Rs. 1 Crore to Rs. 5 Crore along with copy of MMRs to BCC with a copy to Zonal Office at monthly interval, within 7 days of reporting date of MMR (i.e. before 22nd of each month).

With exposure of above Rs. 25 Lac to Rs. 1 Crore along with copy of quarterly monitoring report (QMR) to BCC with a copy to Zonal Office at quarterly interval, within 7 days of reporting dates of QMR which are 15 th March, 15th

June,15th September and 15th December.

The Regional Office will also submit their views/recommendations on the above accounts causing concern, with the steps taken by them to safeguard the bank’s interest & future strategy /recommendations.

As regards to accounts causing concern, officials from RO/ZO may take appropriate decision to visit such accounts on case- to-case basis, to conduct on the


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spot study of the unit and discussions with the borrower for taking timely remedial actions to prevent slippage in the account

Commitment Charges:

Commitment charges are to be levied on quarterly basis at following rates:-

0.50% p.a. in case of accounts where the average utilization is below 75% of the Limit OR as indicated in the QIS/ QMR statements.

0.75% p.a. in case of accounts where the average utilization is below 50% of the Limit OR as indicated in the QIS/ QMR statements

1.00% p.a. in case of accounts where the average utilization is below 25% of the Limit OR as indicated in the QIS/ QMR statements

PENAL INTEREST & ADDITIONAL INTEREST

Penal interest is charged over and above the regular/ applicable interest rate of the borrower when the borrower fails to comply with one or more stipulated terms and conditions, such as delay in submission of financial statements/ stock statements, creation of security, etc. without any explicit approval / concurrence of appropriate authority,.

Bank also charges additional interest over and above applicable / regular interest for any adhoc credit facilities, disbursement of credit facilities pending compliance of certain terms and conditions.

The additional or penal interest rates are charged to motivate the borrower to comply the terms & conditions as described and to deter the borrower from remaining non-compliant.

Other points: The bank shall charge overall penal and additional interest upto 2% p.a. over the

applicable/regular interest rate. Waiver/ relaxation of penal interest for non-compliance of terms other than

default of interest/ instalment payments. a) Zonal Heads, upto the designation of Deputy General Manager, are

authorized to waive/relax levy of penal/ additional interest in respect of accounts falling upto the powers of Regional Managers.

GMs (including GMs as Zonal Head) are Authorized to waive / relax levy of penal / additional interest in all other cases.

REJECTION OF PROPOSALS

Credit Proposals falling beyond the discretionary lending powers of Branch Managers shall not be rejected at the level of Branches. The authority empowered to sanction a credit proposal may reject such proposal. Branches shall at monthly intervals submit a consolidated statement to the Regional Office, giving the details of the applicant viz., name, activity, facility sought etc., along with reasons for rejection of the proposal for


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their perusal and comments. However, proposals of MCB powers may be rejected by CMD/ED.The rejection of credit proposal pertaining to Priority Sector and Export Credit shall be by the next higher authority. The existing guidelines about reporting of rejection of Export Credit proposals to CMD through concerned department at Corporate Centre continue.

The time frame for conveying reasons of rejection will be as under:-

Priority Sector – upto Rs. 25000 – within two weeks, upto Rs.5 lacs – within 4 weeks, Above Rs 5 lacs within 8-9 weeks, Export Credit- within 45 working days.Others – within 46 working days.

Credit Audit

The Bank has established Credit Audit Wing in Central Inspection and Audit Department to achieve following objectives:

Improvement in quality of credit portfolio Review Sanction process and compliance status of large loans Feedback on regulatory compliance Independent Review of Credit Risk Assessment Pick-up early warning signals and suggest remedial measures Recommend corrective action to improve credit quality, credit administration and

credit skills of staff etc.,

The major features of Credit Audit are:

Following accounts are covered under Credit Audit:-- All fresh sanction / increase limit where Fund based and / or Non-Funded

limits individually and combined exceeds Rs. 5.00 crores.- All existing accounts with sanctioned limit (Fund based and Non-Fund based)

of Rs.10.00 crores and above.- 5% accounts of Region on random selection basis with sanctioned limit of Rs.

1.00 crore and below Rs. 10.00 crores (from rest of the portfolio).-

Credit audit should be conducted within 3 to 6 months of sanction. Credit Audit of eligible accounts of one Region is to be carried out by Officers of

another Region within the Zone. Zonal Office shall do identification of Credit Auditors and eligible accounts.

Accounts of CFS/CBB/IFB/Specialised branches shall be treated accounts of the region to which these branches are reporting for administrative purposes.

Identified Credit Auditors shall submit the Credit Audit Report in the prescribed format within a period of 15 days to Credit Audit Department with a copy to Branch & Regional Office.


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Project Finance

Project Finance may be defined as an arrangement of financing long term Capital Projects, large in scale, long in life.Usually projects cover life cycle of a minimum of 8/10 years although it would depend on the nature and size of projects.The term Project for the purpose of Project Finance refers to:

All new projects involving outlay of fixed assets afresh or relocation with or without balancing equipments in connection with any commercial venture;

All existing projects involving outlay of fixed assets under expansion for de-bottlenecking, increasing capacity, forward/backward integration, diversification, renovation etc., in connection with any commercial venture.

The bank uses its team of technical officers for appraisal of Projects, which come up for financing. The Bank also utilizes the services of reputed and empanelled Technical Consultants for viability study, if necessary.

Bank has formulated detailed guidelines in respect of Project Finance proposals regarding the conduct of viability of the project for existing borrowers and also for new borrowers based on the Project Cost and the bank’s exposure, which are conveyed by circular BCC:BR:99/109 dated 3rd April, 2007..

Line of Credit

Line of Credit system offers flexibility to clients to switch over between the various working capital facilities sanctioned with relative ease as per their needs compared to the prevalent system of restricting the usage of funds within the maximum limits available within the facility only. This system will essentially facilitate medium/large business units in efficient management of their borrowing requirements within the sanctioned Line of Credit facility. Under the Line of Credit, instead of considering/ sanctioning separate limits for Cash Credit (Stocks/Book Debts) and DA LC facilities, a combined limit for Cash Credit (Stocks & Book Debts)-cum-DA LC limit is to be sanctioned, with a sub-limit for DA-LC facility. The Line of Credit as a product is innovative and the branches should take every effort to canvass and make it the Unique Selling Proposition (USP) of the bank.

MIBOR Linked AdvancesTo facilitate better funds planning, limit utilization and considering the scope for credit expansion bank has in existence this short term credit product. This is linked market related Anchor Rate viz. MIBOR for eligible corporates. The product is top-notch for general corporate purpose including substitution to CPs, working capital limit, etc. to be marketed very selectively to top rated corporates after ascertaining the bank’s funds position. Eligibility is:-

Large corporate borrower of the bank with credit rating not less than BOB-3 of our bank or preferable P1 or equivalent by reputed credit rating agencies.

Overall exposure ceiling prescribed is Rs.2000 crores.

Film Financing Over all cap of Rs.250 crore


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To be considered only by ED Well known/well established with good track record Advance from distributors at least 35% of the budget and producer’s contribution

25% Bank finance shall exceed 40% of project cost. Maximum 2 years Average DSCR not less than 2.5:1 Personal guarantee of Promoters/directors Assignment of Intellectual Property Rights in favour of bank Tangible collateral security coverage 1.25 times, etc.

DRI Advances

As per RBI guidelines for lending under DRI Scheme, banks are required to grant loans at concessional rate of interest 4% p.a. to the eligible beneficiaries.

Ceiling of family income of the borrower per annum in rural and urban should be Rs18000 and Rs.24000 respectively.

Only to the borrowers who are not assisted under any subsidy linked schemes of Government.

Limit Rs.15000. For Housing loan Rs.20000 per beneficiary. The loans to be granted under the scheme should be not less than 1% of total

advances. Not less than 40% of total DRI advances should be granted to borrowers

belonging to SC/ST communities and 2/3 rd of DRI advances shall be granted through rural and semi-urban area branches.

Loans granted to Institutions/organizations for the purpose of their onward lending to beneficiaries eligible for coverage under DRI Scheme shall be covered under DRI advances of the bank.

Bank is required to lend 1% of total outstanding advances as at the end of previous year under DRI Scheme. Further 2/3rd of advances should be routed through rural and semi urban branches.

Weaker SectionWeaker section includes the following:

Small and marginal farmers with land holding of 5 acres and less and landless labourers, tenant farmers and sharecroppers.

Artisans, village and cottage industries where individual credit limits do not exceed Rs. 50,000/-.

Beneficiaries of Swarnjayanti Gram Swarojgar Yojana (SGSY), Swarna Jayanti Shahari Rojgar Yojana (SJSRY) & Scheme for Liberation and Rehabilitation of Scavangers (SLRS).

Scheduled Castes and Scheduled Tribes. Advance to Self Help Groups – Bank Linkage Programme Beneficiaries of Differential Rate of Interest (DRI) scheme

Priority Sector Classification


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Housing Loans upto Rs.20 lacs irrespective of locations, for constructions of houses.

Loans for repair and renovations up to Rs. 1 lac in Rural and Semi Urban Area and upto Rs. 2 lacs in Urban Areas.

Education Loan – Study in India up to Rs.10 lacs and Study abroad – up to Rs.20 lacs

Traders Loan up to Rs. 20 lacs under Baroda Traders Loan Enterprises whose investment in equipments does not exceed Rs.2 crores-. Micro

Enterprises and Small Enterprises. Agriculture(Direct and Indirect Finance) Small Enterprises Advance granted to Fair price shops dealing in essential commodities, consumer

co operative stores Micro Credit- Loan of very small amount not exceeding Rs.50000 per borrower

either directly or through SHG/JLG Investment by banks in securitized assets, representing loans to various categories

of priority sector Outright purchase of any loan asset eligible to be categorized under priority sector Fresh deposits placed by banks on or after 30.04.2007 with NABARD/SIDBI on

account of non achievement of priority sector lending targets


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Major Loan Products of bank for financing under Farm Sector Baroda Kisan Credit Card Financing farmers for purchase of agricultural land Financing for setting up Agri clinics and agri business centres by Agricultural

graduates Capital Investment subsidy scheme for construction of cold storage and onion

godowns. Capital investment subsidy scheme for construction/renovation/expansion of rural

godowns. Farm Water Management Scheme Financing farmers in Agri Export Zones under contract farming Advances against pledge of gold ornament ts Scheme for providing fresh finance to borrowers who have settled their NPA as

per one time settlement schemed of RBI Scheme of providing production credit to tenant farmers and sharecroppers. Financing of hi-tech agri projects under co financing arrangement with NABARD Farm produce marketing loans to farmers against pledge of receipt of private

registered warehouses, godowns and cold storages. Baroda General Credit Card Scheme Baroda Kisan Group Loan Scheme (JLG)

Procedure of charging interest in Agriculture Advances"

(a) In respect of direct agricultural advances, the interest should not be compounded in the case of current dues, i.e. crop loans and installments not fallen due in respect of term loans, as the agriculturists do not have any regular source of income other than sale proceeds of their crops.

(b) When crop loans or installments under term loans become overdue, interest can be added to the principal.

(c) Where the default is due to genuine reasons the period of loan should be extended or the installments should be rescheduled under term loan. Once such a relief has been extended, the overdues become current dues and interest should not be compounded.

(d) Interest on agricultural advances in respect of long duration crops should be charged at annual rests instead of quarterly or longer rests, and the interest can be compounded, if the loan/installment becomes overdue

In case of sanction of fresh loans to borrowers upto Rs. 5.00 lacs who have settled their accounts under “one time settlement” scheme of RBI/our Bank may be considered after obtaining prior clearance from next higher authority as per circular no. BCC:BR:95/108 dated 26.03.2003 & BCC:BR:95/155 dated 02.05.2003

Security Norms in case of Agriculture Advances: Crop Loan – upto Rs. 50,000.00 no mortgage. Investment Loan – Upto Rs. 1,00,000.00 no mortgage Land Based activities – Upto Rs. 10,000.00 no mortgage.


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Wherever there is genuine difficulty in creation of mortgage, sanctioning authority/ Regional authority is empowered to waive it upto Rs. 3.00 lacs for investment loans wherever moveable assets are created & upto Rs. 50000/- for investment loan where moveable assets are not created (i.e. dug well, land development etc.).

In case of non-land based activities such as marine fisheries etc, third party guarantee may be accepted in place of mortgage of land.

Bank’s Specific Priority Sector Products

Baroda Kisan Credit Card

Government of India introduced Kisan Credit Card Scheme in 1998-99, for short-term credit access to farmers. The objective of the scheme is to provide adequate and timely support from the banking system to farmers for cultivation needs including purchase of inputs in a flexible and cost effective manner. Our Bank has launched Baroda Kisan Credit Card for meeting such short-term as well as long term financial needs of farmers for cultivation and allied needs.

Baroda Traders’ Loan

For meeting the working capital requirements, Bank has a specific scheme for persons engaged in trade of commodity/goods, which are required by community and trading in them is not prohibited by law or opposed to public interest. A minimum of Rs.25,000/- upto Rs.25 lacs can be sanctioned, subject to the guidelines. Loans granted to Private Retails would be eligible for classification under Micro & Small Enterprises ector within Priority Sector only upto a credit limit not exceeding Rs. 20 lacs and provided they satisfy the definition of Micro and Small(Service) Enterprises in respect of investment in equipment. (BCC:BR:102/24 dated 21.01.2010)

BOB Laghu Udhyami Credit Card (BOBLUCC)

Bank has introduced a Credit Card Scheme for SSI borrowers for providing hassle free credit facilities with credit limits upto Rs.10 lacs. The scheme would enable the borrowers to avail credit limits with minimum paper work. The cumbersome procedural aspects relating to reviews/renewals and submission of statements, Balance Sheet etc., are done away with and credit delivery is made simple and easy. The limit fixed under the scheme will be valid for a period of –3- years subject to annual review.

Swarojgar Credit Card Scheme

SCC scheme aims at providing adequate and timely credit by way of composite loan to small artisans, handloom weavers, service sector, self employed persons and other micro-entrepreneurs in a hassle free and cost effective manner. The normal limit under the scheme is Rs. 25,000/- per borrower. However in deserving cases branches may consider higher quantum of loan upto a maximum of Rs. 50,000/- per borrower. Payment of


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interest as applicable to saving bank (SB) a/c on credit balances maintained in cash credit account is also paid.A laminated credit card and a pass book is issued to the beneficiaries under the scheme.

Baroda Artisans Credit Card All artisans involved in production/manufacturing process (otherwise eligible for credit facility for carrying out the proposed activity as per the bank’s existing schemes) would be eligible for adequate and timely assistance to meet their credit requirements, both investment needs as well as working capital in a flexible and cost effective manner. The scheme is operational in rural and urban areas. The credit limit is fixed based on assessment of working capital requirements as well as cost of tools and equipments required for carrying out manufacturing process. The maximum limit of Rs. 2 lacs is sanctioned under this scheme for a period of –3- years subject to annual review.

Baroda General Credit Card(BGCC)Introduced to provide hassle-free credit to rural customers based on the assessment of cash flow without insisting on purpose or end use of the credit. For rural and semi urban branches.

No other credit card is issued. Maximum loan limit Rs. 25000 – or two times of Net Accepted Annual

Income(whichever is less) No security or purpose of end use stipulation Interest will be paid on credit balance at Savings Bank Account rate. Minimum documentation Valid for 5 years. Turnover in account should be equivalent to or more than the limit sanctioned plus

interest charged.

Baroda Kisan Group Loan SchemeIntroduced to finance tenant farmers cultivating land either as oral lessees or sharecroppers and small farmers who do not have proper title to their land holdingFinancing by forming Joint Liability Group(JLG)The JLG would prepare a credit plan for its individual members.The individual credit plans will be discussed in the JLG and consensus arrived on the amount of debt liability of each member.All members would jointly execute one inter-se document making each one jointly and severally liable for repayment of all loans taken by all individuals in the GroupPurpose – crop production, consumption, marketing, other productive purpose.Maximum loan – individual Rs.50000.00, JLG Rs.5 lakhs

Corporate Social Responsibility (CSR) of Bank

As a responsible corporate citizen, it has been the vision of the Bank to empower the community through socio-economic development of underprivileged and weaker sections. In its continued efforts to make a difference to the society at large, the Bank further intensified its efforts inthis direction in FY10.


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(i) Baroda Swarozgar Vikas Sansthan (Baroda R-SETI) has been established for imparting training to unemployed youth, free of cost for gainful self employment and entrepreneurship skill development which help them improve their family economic status and also gives a boost to the local economy in those locations. So far 25 such Santhans have been established by the Bank in which more than 37,000 youth have been trained and around 22,000 have been gainfully self employed.

(ii) Baroda Gramin Paramarsh Kendra(BGPK):- Most of the Bank’s social activities are linked to rural masses. The Bank has established 52 Baroda Gramin Paramarsh Kendra for knowledge sharing, problem solving and credit counseling for rural masses across the country. In order to spread awareness among the rural mass on various financial and banking services and to speed up the process of financial inclusion, the Bank has also established four Financial literacy and Credit counseling Centres (FLCC) at Ajmer, Amethi,Baroda and Raebareli.

(iii) Micro Loan Factory:- The Bank has opened Micro Loan Factory at Sultanpur UP. The bank is already having mobile micro finance factory at Rae Bareilly. The Micro Finance Loan Factory has mibile van with facilities and all related stationeries/documents on SHG financing. It is manned by officers who are duly authorized to sanction disburse loans upto Rs. 25,000.00 to SHGs on the spot and their door steps.

(iv) The Bank has adopted 101 villages across India for their all around development of infrastructure facilities like setting up village libraries, community hall and solar lighting systems in villages. The Bank has also adopted Dungarpur District in Rajasthan for total integraed rural development and 100% financial inclusion. Under the project, the Bank has also provided scholarships to 50 tribal girls to promote education among tribal community.

Direct Finance to Agriculture: Crop Loan Advances upto Rs.10 lacs against pledge/hypothecation of agriculture

produce for a period not exceeding 12 months. Working capital term loan for financing production and investment

requirements for agriculture and allied activities. Loans to small and marginal farmers for purchase of land for agricultural

purposes. Loans to distressed farmers indebted to non-institutional lenders Loans granted for pre harvest and post harvest activities. Finance to others(such as corporates partnership firms and institutions) for

agriculture and allied activities

Indirect Agriculture Finance Loans to food and agro based processing units with investments in plant and

machinery utpo Rs.10 crores. Credit for purchase and distribution of fertilizers, pesticides, seeds, etc.


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Loans upto to Rs. 40 lacs granted for purchase and distribution of inputs for the allied activities such as cattle feed, poultry feed, etc.

Financed for Agriclinics and Agribusiness Centres Finance for hire-purchase scheme for distribution of agricultural machinery and

implements. Loans to farmers through Primary Agricultural Credit Socities(PACS), Farmers’

Service Societies(FSS) and Large-sized Advasi Multi Purpose Socities(LAMPS) Loans to co operative societies of farmers for disposing of the produce of

members. Financing farmers indirectly through co operative system. Existing investments as on March 31, 2007, made be banks in special bonds

issued by NABARD with the objective of financing exclusively agriculture/allied activities may be classified as Indirect finance to agriculture till the date of maturity of such bonds or March 31, 2010 which ever is earlier.

Loans for construction and running storage facilities designed to store agriculture produce.

Advances to Custom Service Units who maintain a fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc.

Finance extended to dealers in drip irrigation/sprinkler irrigation system upto a ceiling of Rs.30 lacs per dealer.

Loans to Arthis for extending credit to farmers for supply of inpouts as also for buying the output from the individual farmers/SHGs/JLGs

Fifty per cent of the credit outstanding under loans for general purposes under General Credit Cards.

Loans to NBFCs for on lending to individual farmers or SHGs/JLGs Loans granted to NGOs/MFIs for on lending to individual farmers/SHGs/JLGc

CRISIL Rating Models

Management of Credit Risk determines the asset quality of the Bank. An effective way to mitigate credit risk is to have robust credit rating system in place.

Bank has introduced Basel II compliant credit risk rating models of M/s CRISIL. The new rating models are based on two-dimensional rating methodologies specified under Basel II requirements wherein 4 types of risks viz. industry risk, business risk, financial risk and management quality risk are assessed pertaining to characteristics on an obligor(borrower) while facilities proposed/sanctioned to a borrower are assessed separately under second dimension of rating i.e. Facility Rating

The Credit rating can (i) Identify potential risk in a particular asset.(ii) Allow a bank to maintain healthy Asset Quality (iii) Impart flexibility in pricing assets to meet the required risk return parameters as per the bank’s strategy and credit policy.

New CRISIL Rating Models for commercial advances are based on two dimensional rating methodology specified under Basel II Accord requirements


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Eleven models for Credit Risk rating of all commercial advances i.e. existing as well as new with exposure of Rs.25 lacs and above (FB+NFB) for implementation have been introduced by our Bank. The details of applicability of these models are:-

1. Large Corporate-Manufacturing units with Annual Net Sales of over Rs.100 crores and investment in Plant and Machinery of Rs. 10 crore and above and for infrastructure projects which have started cash generations from the project operation with part/full implementation

Service sector units with net annual sales over Rs.100 crore and/or investment in equipment of over Rs.5 crore.

2. SME(Manufacturing)-Manufacturing units with Annual Net sales of Rs.100 crore and below and/or investments in P & M less than Rs.10 crore.

3. SME(Services)-Service Sector with Annual Net Sales of Rs.100 crore and below and/or investment in equipment of Rs.5 crore and below.

4. Traders-Units engaged in trading activities irrespective of sales turnover.

5. Banks

6. NBFCs-Organizations registered with RBI/NHB

7. Brokers

8. Infrastructure(Power)

9. Infrastructure (Roads and Bridges)

10. Infrastructure(Ports)

11. Infrastructure (Telecom)

Large Corporate ModelThis model is applicable in case of Manufacturing units with Annual Net Sales of over Rs.100 crores and investment in Plant and Machinery of Rs. 10 crore and above and for infrastructure projects which have started cash generations from the project operation with part/full implementation. In case of Service sector units with net annual sales over Rs.100 crore and/or investment in equipment of over Rs.5 crore.

These models are applicable to SME(Manufacturing Sector), SME(Services), Traders, Banks, NBFCs,. infrastructure(Power), Infrastructure(Roads & Bridge), Infrastructure(Ports) and Infrastructure(Telecom)

These Models involves three types of ratings- Obligor Rating(PD)


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Facility Risk Rating(LGD) Composite Rating(EL)


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Obligor (borrower) Rating for credit worthiness indicating the Probability of Default (PD). The obligor rating is indicative of creditworthiness of an obligor or the Probability of Default(PD) and it is based on the assessment of past; and projected cash flows of the company

For assessment of an obligor, the rating structure consists of evaluation by way of four models viz.:-

Industry Risk:- The assessment of this module which is external to borrower and is done by assessment of industry related macro economic parameters like demand supply gap/capacity utilization level/financial ratios like ROCE/OPM etc. applicable to the specific industry and having different risk weights.

Business Risk:- The assessment of this module is based on internal working of the Borrower and relates to parameters such as after sales service, distribution set up, capacity utilization etc.

Financial Risk: - The assessment of this module is based on internal working of the Borrower and relates to parameters ;such as past and projected financials.

Management Quality:- The assessment of this module is based on internal working of the Borrower’s management and relates to parameters such as past repayment record, quality of information submitted, group support, etc.

Obligor rating grades range from BOB 1 to BOB 10

Facility Rating:-It involves assessment of the security coverage for a given facility and indicates the Loss Given Default(LGD) for a particular facility.

Facility Rating is dependent upon the type of facility and securities charged to the bank against the facility.

Facility rating grade ranges from FR 1 to FR 8

3.Composite Rating (CR 1 to CR 10) It is matrix of PD and LGD and indicates the Expected Loss in case the facility is defaulted. The composite rating is worked out automatically by software based on the matrix of Obligor Grade and Facility Rating Grade

Composite rating grade ranges from CR 1 to CR 10. Bank has accepted BOB 6 as the cut off point for the acceptance of an obligor based on obligor rating carried out as the applicable model

Scoring Models for Educational Loan, Baroda Traders’ Loan have also been approved by the Board rolled out for implementation. Efforts are being made to have scoring model for all retail products keeping in view Basel II Accord.


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Small and Medium Enterprises (SME) Model

There are two models for SMEs viz. SME(Manufacturing) and SME(Services)For all units engaged in trading activities, there is a separate model called Traders Model.SME Model (Manufacturing Sector) – Applicable for manufacturing units with Annual Net Sales Less than Rs.100 cr and/or investment in Plant and Machinery less than Rs.10 cr.SME Model (Service Sector) – Applicable for Service Sector units with Annual Net Sales less than Rs.150 ccr. And/or investment in Plant and Machinery less than Rs.10 cr.

Broad parameters are same in both the above models as applicable in case of Large Corporates models except that the branch evaluates all modules including industry risk, where as under large corporate model(LCM) the industry risk is evaluated at Corporate Level and ready score is provided in the system to the branches New Rating Models for commercial lending have been rolled out for all branches w.e.f. 1st January, 2004.

Assessment of Working Capital

PBF I Non SSI Limit Rs.2 lacs to Rs.2 CroresSSI upto limit of Rs.5 crores

Example:

Turnover Rs.100 croresProjected annual sales 25% of turnover as per Nayak CommitteeGross Working Capital Rs.25 croresLess Margin 20% Rs 5 crores

PBF Rs 20 crores

PBF II Non SSI Rs.2 crores upto Rs.5 crores.

Example

Turnover Rs.100 crores

Projected annual sales 25%Gross working capital Rs. 25 croresMargin 25% Rs 6.26 croresPBF Rs 18.75 crores

PBF III

All borrowers above Rs.5 crores upto Rs.10 crores


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2nd method of lending

Total Current AssetsLess 25% of total current assetsLess Current liabilitiesMPBFFExample

Current Assets Amount(Rs. In crores)

Current Liabilities

Amount(Rs. In crores)

Plant & Mach. 200 Creditors 100Stocks 110 Other C/L 50Receivables 50 Bank Borrowing 200Total Current Assets

370 Total Current Liabilities

350

In Second Method of Lending(Rs. In Crores)

Total Current Assets 370Less 25% of C/A 92

278Less C/L other thanBank Borrowing 150

Bank Borrowing 128

Excess Borrowing 72

PBF IV Cash Flow Basis:

Cash Flow financing conceives self liquidating finance during various time zones unlike the present MPBF system which is defacto a perpetual of financing working capital requirement .

The cash requirement lending is aimed at to perceive the borrower’s requirement rather than monotonously assess with arithmetical rigidities.

Cash requirement financing imposes its own discipline , such as sound resource planning, receivable management, purchase planning and management of inventory.

More suitably, working capital finance on the basis of future cash flows facilitates a more holistic view of the company’s earning capacity rather than on the basis of its capacity to maintain a particular asset holding level.

The method is not applicable in – NDFC Construction Company, tea company, ship-breaking, diamond industry, sugar, gud and khandsary company, SSI upto Rs.500 lacs,


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small borrowers upto Rs.2 lacs, specific long term working capital and software companies.

SME

Our bank has for internal purposes given focused attention to finance all Commercial enterprioes i.e. enterprises which may be outside the purview of regulatory definition of SME but having turnover upto 150 crores and new infrastructure and real estate projects where the project cost is upto Rs.50 crores by treating them as part of SME segment. SME Banking will include the following across the bank:

Micro, Small and Medium Enterprises – as per regulatory definition irrespective geographical location, i.e. rural, semi-urban, metro areas.

All other entities with their annual sales turnover of Rs.1 crore to Rs.150 crores and new infrastructure and real estate projects, where the project cost is up to Rs.50 crores.

SMEs which are Associate/sister concerns of Wholesale Banking customers. Club, Trust, etc. Financing under various Government schemes launched for MSME Sector. Loans granted by banks to Retail Traders dealing in essential commodities/Fair Price

Shops and Consumer Cooperative Stores are eligible for classification under Micro and Small Enterprises Sector within Priority Sector, without any ceiling in credit limit, provided investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under MSMED Act) does not exceed Rs.10 lacs and Rs. 2 crores for Micro(Service) Enterprises and Small(Service) Enterpruses respectively.(BCC:BR:102/24 dated 21.01.2010)

Loans granted to Private Retails would be eligible for classification under Micro & Small Enterprises ector within Priority Sector only upto a credit limit not exceeding Rs. 20 lacs and provided they satisfy the definition of Micro and Small(Service) Enterprises in respect of investment in equipment. (BCC:BR:102/24 dated 21.01.2010)

SME Business segment will not include the following:-

Financial institutions including banks, RRBs and all types of NBFCsCentral and State GovernmentsAssociate/sister concerns of Wholesale Banking Customers, irrespective of their annual sales/income turnover.Direct & Indirect Agricultural Business as per Regulatory definitionMicro Finance

Whosesale Proposals SME ProposalsAs per our bank’s guidelines, this proposal is in respect of those borrowers whose projected gross turnover is more than Rs.150 crore

As per our bank’s guidelines, this proposal is in respect of those borrowers whose projected gross turnover is upto Rs.150 crores.

Credit rating is done under Large Corporate Module onlhy

Credit Rating is done under both SME(Mfg/Service) and Large Corporate Module

Working capital requirement is assessed Working capital requirement upto Rs.500


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as per PBF method(I-IV) lacs is assessed as per turnover method or as per Ist method of lending, whichever is higher. Above Rs.500 lacs, in the same manner as is done for a Wholesale Proposals.

- Micro (manufacturing) Enterprises

Enterprises engaged in the manufacture / production, processing or preservation of goods and whose investment in plant and machinery (original cost) does not exceed Rs.25 lakh, irrespective of the location of the unit.

Small (manufacturing) Enterprises

Enterprises engaged in the manufacture / production, processing or preservation of goods and whole investment in plant and machinery (original cost excluding land and building does not exceed Rs. 5 crores.

Micro (service) Enterprises

Enterprises engaged in providing /rendering of service and whole investment in equipment ( original cost excluding land and building and furniture, fittings, items) does not exceed Rs.10 lakh.

Small (service) Enterprises

Enterprises engaged in providing / rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) does not exceed Rs.2 crores.

. The Small and Micro (service) Enteprises shall also include Small Road and Water Transport Operators, Small Business, Professional and self-employed Persons and all other Service Enterprises as detailed below :Small Business (whose original cost price of the equipment does not exceed Rs.20 lacs.-Professional and self-employed persons (with limits upto Rs.10 lacs with sub-ceiling of

Rs.2 lacs for working capital) and in case of professionally qualified Medical Practitioner in semi-urban and rural areas with limits of Rs.15 lacs with sub-ceiling of Rs.3 lacs for working capital).

Khadi and Village Industries Sector (KVI)All advances to units in the KVI sector, irrespective of their size of operations, location and amount of original investment in plant and machinery would be part of direct finance to Small Enteprises. Such advance will be eligible for consideration under the sub target of the Small Enterprise segment within the Priority Sector.


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Indirect finance to Small Enterprises :It will include finance to Persons involved in assisting the decentralized sector in the supply of inputs to and marketing of outputs of artisans, village and cottage industries, Advances to co-operatives of producers in the decentralized sector viz. artisan, village and cottage industries, existing investments as on March 31, 2007, made by banks in special bonds issued by NABARD, loans granted by banks to NBFCs for on-lending to Small and Micro Enterprises (Manufacturing as well as Service Sector).

Finance to Medium Enteprises i)A medium (Manufacturing) Enterprises.:

An Enterprise where the investment in Plant and Machineries (Original Cost excluding Land and Building) is more than Rs.5 crores but does not exceed Rs.10 crores.

ii) Medium (Service) Entperprises :An Enterprise where the investment in Equipments is more than Rs.2 crores but does not exceed Rs.5 crores.

Accordingly, definition of Micro, Small and Medium Enterprises is summarized as under based on original investment in Plant and Machinery in case of manufacturing units and original investment in equipment in case of Service Sector units :

Particulars In case of Manufacturing Enterprises, original investment in Plant and Machineries

In case of Service Sector Enterprises, original investment in Equipments

Classification

Micro Enterprises

Upto Rs.25 lacs Upto Rs.10 lacs` Will form part of Priority Sector Advance

Small Enterprises

Above Rs.25 lacs and upto Rs.500 lacs


Will form part of Priority Sector Advance

Medium Enterprises



Will not form part of Priority Sector Advance.

Banks lending to Micro Enterprises and Small Enterprises will be classified under Priority Sector.

Bank’s lending to Medium Enterprises will not be included for the purpose of reckoning finance under Priority Sector.


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With implementation of above guidelines, instead of Tiny and SSI units, such industries will now be recognized as Micro Enterprises and Small Enterprises respectively.

With the revised guidelines as issued by the RBI, Advance to Priority Sector will also stand increased as :

Advances to Manufacturing units with investment in Plant and Machineries upto Rs.5 crores will form part of priority sector advance.

Many Service Sector units with investment in equipments upto Rs.2 crores will form part of priority sector advance.


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SME LOAN FACTORY – CONCEPT, STRUCTURE & ROLE

Bank has for internal purpose redefined SME as those entities with gross turnover upto Rs.150 crores including:-

ProfessionalsTradersSSI as defined by RBIMEs as defined by RBIClubs, Trust, etc with large investable assetsAll other entities(including services) with gross sales turnover upto Rs.100 crores.

In order to achieve the above objective, the bank has set up dedicated SME Loan Factories at identified centres for providing customized products and services to SME customer through simplified processes with the least turnaround time.

Structure:

SME factory is divided into two divisions – Central Hub and Sales Hub

Central Hub to be headed by Head(Credit)Sales Hub to be headed by Head (Sales) and sales coordinatdor.

Both are located in same premises for better liaison and coordination.

Relationship Managers and Relationship officers are located at strategic designated branches in various locations of the city, based on business potential available in the designated branches and other factors.

The Head of SME Loan factory is ex-officio Head of Processing Hub

Head(credit) and Head(Sales) are executives/officials holding one rank lower than the Head of SME Loan Factory. All the credit officers in the Credit Appraisal Hub report to the Head(Credit), who in turn, reports to the Head of SME Loan Factory. All Relationship managers and Relationship officers report to the Head (Sales) irrespective of their locations.

Role and Functions:-

Role of Marketing Team is to generate leads, exploring new customers and strengthening relations with existing customers.Targets are fixed for Relationship Managers/officers for growth in advances to SME as also cross selling and monitoring of their performanceRole of Credit Hub is to examine/purse leads generated by Marketing Team for

financing. Based on proposals received from successful leads, credit proposals are

processed. Proposals falling under the powers of Head of SME Loan Factory/in-charge


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of Credit Hub will be prepared and sanctioned at the Hub. And proposals beyond the

powers of the Head of SME Loan will be submitted directly to the sanctioning

authorities.

Follow up with customer/Relationship officer/Manager for required documents,

preparation of sanction letters and documents is also carried by Credit Hub.

The entire sanction procedure is to be completed within a maximum of 11 working days

from the date of receipt of complete information and disbursement is to be completed

within 14 days. In case TEV study is required the time taken is 20 days

Advantages of SME loan factories

Focused attention to the proposals leading to better quality of borrowers and projects

financed.

Developing complete customer franchised leading to growth of overall business

including non-interest income.

Development of expertise among credit officers and relationship managers who handle

the sale part.

Service as per customer’s convenience and requirements. Prompt attention to customer.

Great potential – develop high yielding business.

Step in line with government priorities

Difference from our normal credit delivery system:-

SME loan factories work on assembly line factory concept in which each individual

performs specialized functions to achieve efficiencies of scale through simplified

processes with the least turn around time as against normal credit delivery system at

branch level where all functions are performed by same branch functionaries.


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Urban Retail Loan Factories(URLF):

With a view to maintaining high standards of credit quality and at the same time delivering the decisions faster, the bank has set up a new outfit known as Urban Retail Loan Factory comprising of two units i.e. Sales and Central Processing Cell (CPC) in a few cities.

The area of operation of URLF is extended to entire city, wherein it is located, covering area of all Regions operating in that city. Retail Loan Factories are attached to one of the Regions located in the city for all administrative and PSR proposals.

The primary objectives are:- To market/ sell various retail products. To assist Regional/Zonal Authorities in gathering information about builders

functioning in the area for the purpose of approving the builders and their projects To popularize the Bank’s products through participating in various exhibitions,

fairs, conferences, etc. To cross sell the bank’s various products.

Central processing cell is catering to the processing needs of retail loan proposals emanating from the Urban Sales units/branches in the same city.

Branches functioning the operational area of URLF shall continue to canvass new retail business and pass on leads to the Loan Factories for quick processing and decision.


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SME Loan products

Bank has recently launched 4 new SME products:-

a. Baroda SME Loan Packb. Overdraft against Land and Buildingc. Baroda Vidyasthali Loand. Baroda Arogyadham Loan

Other SME products are:-

a. SME Short term loanb. SME Medium Term Loanc. Baroda Laghu Udyami Credit Card (BLUCC)d. Baroda Artisans Credit Card(BACC)e. Credit Linked subsidy Scheme for Technological Upgradation of Small Scale

Textile and Jute Industries (CLCSS TUFS)f. Credit Linked Subsidy Scheme for SSI Units (CLCSS)g. Collateral Free Loans under Credit Guarantee Fund Trust Scheme for Micro &

Small Enterprises (CGTMSE)h. Loans under National Equity Fund(NEF) Scheme

Baroda SME Loan Pack

Parameters ParticularsEligibility All commercial Enterprises, i.e. S & M Enterprises and other

entities (including service sector) wit sales turnover upto 100 crores exclusively banking with us.

New borrowers if desirous of having sole banking arrangement with us.

Purpose W.C. as well as capital expenditure related to borrower’s business.Composite Limit 4 times of borrower’s tangible net worth as per last audited B/s or

Rs. 2.00 crores whichever is lower.Delivery of Product

Fund based and non fund as per the borrowers requirements, within overall composite limit sanctioned.

Margin 25% on all the facilitiesROI As per credit rating & guidelinesSecurity Exclusive charge on the assets of the enterprise. Personal

Guarantee of all promoter directors Charge on the unencumbered personal properties of the partners, promoter directors. Wherever applicable IIIrd party guarantee in case of credit line is above Rs. 25.00 lacs. Any other collateral for the credit line above Rs. 20.00 lac to maintain asset coverage ratio above 1.25.

Documentation DP Note Letter of Continuing security Letter of installment with acceleration clause General form of Guarantee signed by the promoter directors /


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other guarantors / corporate guarantee etc. in terms of sanction. Composite agreement. Equitable mortgage of fixed assets All other usual undertakings / documents as per bank’s

guidelines.Other Conditions Minimum Financial Ratio

Current Ratio 1.20D/E ratio 3.00Assets coverage ratio 1.25

Provisions of CGFTS of SIDBI applicable for credit lines upto Rs. 25.00 lacs in case of SSI unit.

Credit rating as per extant guidelines.

OVERDRAFT AGAINST LAND & BUILDING

Parameters ParticularsNature of facility OverdraftPurpose To meet fund based Working capital requirements

To augument long term Margin requirementsLimit Minimum Rs. 15.00 lac for all types of branches

Maximum Rs. 50.00 lac (Rural / S-U branches) Rs.200.00 lac (Urban / Metro branches)

Eligibility Proprietorship, partnership firms, Pvt. / Public Ltd. Company engaged in Manufacturing and / or service sector of any commodity goods.

Notes

The unit should have been established in the line of activity for a minimum period of 2 years.

In case of new units the facility can be granted if the unit is being established by the existing customers with satisfactory track record from their own resources.

Units with less than two years establishments may be considered with the prior approval of one authority higher than the sanctioning authority.

Units with credit rating B+ ad above (Old module)Units with credit rating BOB6 and above (New Module)

For take over of accounts :Product norms plus norms prescribed in domestic loan policy 2005 / SME policy 2005 to be complied with.

Security Primary Mortgage of factory, Land & Building and/or any other


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property (L&B) belonging to promoters. Personal Guarantees of all partners / directors IIIrd party guarantee if available Charge on unencumbered personal properties of the partners,

Promoters Directors if available.

Margin 40% of the Market Value of the property Mortgaged. Regional Head may reduce to 35%.

Period 12 monthsDocumentation DP Note

Letter of continuing security Hypo of goods covering stocks, book debts Equitable Mortgage of the property General form of Guarantee signed by the Directors / other

guarantors Undertaking from the borrower to exclusively deal with our

Bank. Other documents / undertakings as per bank’s guidelines.

ROI As per guidelinesSanctioning Authority

As per discretionary lending policy

Method of Assessment

W.C Limits

Manufacturing sector :As per Nayak Committee recommendations viz. Min, 20% of accepted turnover, or, under PBF method, whichever is higher.

Service Sector :

20% of projected gross receipts subject to verification of ST returns of previous years / quarters in case the enterprises is not under audit.

Note

Drawl for working capital (Fund based and non fund based) should not exceed advance value of L & B / sanctioned limit whichever is lower.

Insurance Security / property charged / mortgaged to be insured as per banks norms.

Classification SSI / ME in manufacturing / service sector as the case may be.Financial Ratios Current Ratio SSI (Manf) 1.17

ME (Manuf) 1.20

Debt Equity Ratio Existing A/cs Take over A/csTL/TNW 3:1 3:1 (4:1 in case of SSI)TOL / TNW 4.5:1 4.5:1


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Asset Coverage Ratio : 1.50Other conditions Credit rating as per loan policy, 2005 norms.

Borrowers to route the sales and other transactions through OD a/c

Stock / book debt statement to be obtained on half yearly basis. Facility under the scheme and as well as under usual scheme not

to be considered simultaneously. Existing borrowers can get their facilities transferred to OD

against Fixed Assets after compliance of terms and conditions. In case any defect is observed during inspection of security,

security is to be substituted of equal value otherwise the facility is to be liquidated immediately but not later than 12 months.

In case of Guarantee and L/C the bank’s extant guidelines to be followed against earmarking of OD facility.

Processing & Documentation Fee

As per prevalent service charges.

Baroda SME Gold Card

All Micro, Small & Medium Enterprises as per the regulatory definition in standard category for last two years and with obligor rating of ‘BOB4’ and above in CRISIL module are eligible for Gold Card. The product is also available to SMEs in service sector also

Baroda SME Gold Card envisages provision of additional limit of 10% of the assessed eligible bank finance for working capital to existing Small and Medium Enterprises, on request along with regular application for Working Capital Limits to meet emergent requirements.

Parameters ParticularsPurpose To provide hassle – free on the spot assistance to take care of

borrowers’ emergent requirements and tie-up temporary mismatch in liquidity arising out of delayed payment buyers, tax payment, execution of bulk orders etc.

Enterprises Criteria

Accounts in Standard Category for last 2 years, with Obligor Rating of ‘BOB4’and above and enjoying Working Capital limits of Rs. 25 lacs and the above.

Accounts having sole banking arrangement with our Bank.Rate of interest As applicable for regular Cash Credit facility depending upon

applicable credit rating.Security Charge on current assets, extension of charge on fixed assets if

stipulated for Cash Credit Personal Guarantee of Directors

Collateral security as available to other facilities.


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Documents DP note Hypothecation Agreement General Form of Guarantee signed by the Guarantors

Note

Documents to be obtained along with the documents for other facilities.

Margin NILPeriod 12 months to be allowed on 4 occasions during the year for a

maximum period of 2 months on each occasion.


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TIE-UP DETAILS (3 rd Party Product)

Bancassurance:-

Name of Tie-up Partner Name of Product Date of Tie-upNational Insurance Co Ltd Non Life Insurance -

General01.06.2004

National Insurance Co Ltd Medical aid Insurance Co-branded Product – “Baroda Health”

23.02.2006

IndiaFirst Life Ins. Co. Ltd. Life Insurance 13.11.2009

Mutual Funds:-

Name of Tie-up Partner Name of Product Date of Tie-up

UTI Mutual Fund AMC Various Mutual Fund Products

01.03.2006

Birla Sunlife AMC Various Mutual Fund Products

05.04.2006

Reliance Capital AMC Various Mutual Fund Products

06.06.2007

Sundaram BNP Paribas AMC

Various Mutual Fund Products

15.10.2007

Franklin Templeton MF Various Mutual Fund Products

15.10.2007

Baroda Pioneer AMC Ltd. Various Mutual Fund Products

05-10-2007

Kotak Mahindra AMC Ltd. Various Mutual Fund Products

03.06.2009

IDFC AMC Ltd. Various Mutual Fund Products

05.06.2009

Products under other Tie-up Arrangements:-

Name of Tie-up Partner Name of Product Date of Tie-up

M/s India Infoline Limited E-Trading 25.01.2007


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ECGC Ltd. Export Credit Insurance 06.11.2007


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Introduction of General Credit Card

The Reserve Bank has advised scheduled commercial banks and RRBs to introduce a General Credit Card (GCC) Scheme for issuing GCC to their customers in rural and semi-urban areas. The GCC will operate like the Kisan Credit Card and there will be no linkage to purpose or end-use of funds or security. The GCC can also be used for withdrawing cash against the limit sanctioned. Fifty per cent of the outstanding amount will be treated as indirect finance to agriculture. Women will be given preferential treatment under the GCC Scheme. Banks have been asked to utilise the services of local post offices, schools, primary health centres, local government functionaries, farmers' associations/clubs, etc., for sourcing of borrowers for issuance of GCC. Detailed guidelines have been communicated to banks in this regard.


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General Insurance

1. Bank has signed an MOU with National Insurance Co. Ltd for distributing their non life insurance products through our branch network under Corporate Agency arrangement.

2. Bank is acting as an Agent of the National Insurance Co. Ltd.

3. There is no risk participation by the Bank.

4. Bank gets 10% average commission on premium collected from all General Insurance policies.

5. This is yet another stream for generating fee income for the Bank.

6. There are over 200 general insurance policies. Some important policies are Fire, Motor, Shopkeepers, Householders, Personal Accident, Mediclaim etc.

7. All Bank branches are selling general insurance policies of National Insurance Co. Ltd.

8. From corporate office we done mapping of our branches with offices of NICL and advised the names of contact persons from NICL to our branches at various locations for necessary support and handholding to ensure business through NICL.

9. We have huge captive business and potential.

10. All the assets financed by the Bank are to be insured and if we convince the borrower to take insurance from our Bancassurance partner Bank can earn sizable fee income.

11. Insurance is a subject matter of solicitation and hence we should not insist unwilling customers to take insurance policies from NICL.

BARODA HEALTH MEDICALIM INSURANCE POLICY

It is a Medical Insurance Scheme, available only to account holders of our Bank, which takes care of the hospitalization expenses incurred by the customer up to the amount of sum insured, in respect of the following eventualities.

Any illness / disease. Accident injury. Any surgery that is required in respect of any disease of accident that has arisen

during the policy period. The minimum Hospitalization should be for 24 hours.


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This policy is available only to account holders of our Bank. It is available for a very low premium compared with similar products available in the

market. The insured pays one single premium and obtains cover for a family of 4- self, spouse

and 2 dependent children ( A family Floater Scheme ), i.e. either one of all of the entire family, as stated, can avail of the sum insured opted.

Non- earning son / daughter is considered dependent (Scholarship amount is not considered as income). However, Married daughters are not considered dependent.

No medical examination required for commencement of health cover. Income Tax benefit is available under section 80 D for the premium paid. Pre-existing diseases also get coverage after -3- continuous claim-free policy year. Insurance coverage i.e. sum assured may range from Rs.50, 000/- to Rs5.00 lacs per

family of 1+3. Upper age limit of primary member ( first name person ) is allowed upto 80 years, if a

person obtains the insurance cover before completion of 65 years and continue to renew the policy upto the age he wishes to or 80 year, whichever is earlier.

Period of insurance cover is one year. The policy needs renewal on or before the expiry date for continuity. A grace period of 15 days may be allowed in case of break in renewal caused due to circumstances beyond the physical control of the policyholder.

The scheme is administered through Third Party Administrators (TPAs) for settlement of Hospitalization Claims under the insurance cover.

The insured individuals get cashless hospitalization facility also in the selected hospitals through TPAs. The whole process is hassle-free and treatment upto the limit of insurance is available without any payment at the time of admission or discharge. Payment of hospital bill up to the sum insured will be taken care of by the TPA directly.

Other Third Party Products:

India Infoline: For on line trading in equity and futures.Western Union Money Transfer for remittance of funds from abroadBaroda Remit Express.


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Selling Points on Housing Loan

Service at your door step Sanction within 6 working days Branch of your choice Maximum amount auto 60 times of gross monthly salary Highest Loan upto Rs100 lacs Lowest Margin 15% Free Personal Accident Insurance No Hidden charges Low Processing Charges 8 AM to 8 PM branch – convenience in repayment No processing charges for taking over account 0.25% discount to group borrowers Longest repayment- upto 25 years Home improvement Loan Additional Assured Advance(AAA) Finance for registration and stamp charges Pre closure option is free if payment is made from own sources

Selling Points on Education Loan

Collateral free upto Rs.7.50 lacs No guarantee upto Rs. 4 lacs 1% Interest concession for girls. Processing charges NIL Documentation charges Nil 1% rebate if interest debited is serviced during repayment holiday Margin NIL upto Rs.4 lacs Simple interest charged during moratorium period Free debit card to student In Baroda Scholar Remittance charges NilCapability Certificate is issued free of charge in Baroda Scholar Scheme.


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Important Issues related to Heart (As advised by a Medical Practitioner): Coronary related treatment is a 400 billion dollar industry in USA. 50% of the cardiologists in USA agree that angiography is not the reliable test for

measuring the health of the heart. Invaded heart (heart and arteries treated by angioplasty / bi-pass surgery is never

better than a natural heart. So it is better not to go for any surgery. A person can die of heart attack even if the heart is healthy and a person can live for

years even with weak/sick heart. Heart does not decide life. It is decided by GOD. Lot many cardiologists have died of heart attack. Bi-pass surgery or Angioplasty promises 24 carat Gold but delivers Lead.

Precautions / Measures suggested for heart patient: Walk leisurely in the morning and evening as long as the person/patient can

undertake; preferably for one hour at a time. Prefer standing position than sitting or sleeping position for most part of the

day. Practice breathing exercises (Pranayam) and Yogasans. Do not lift any weight of more than 5 kg. Enjoy taking meal very slowly; do maximum chewing of food; have food in

about 30 minutes. Do not drink tea/coffee/aerated drinks. Do not take catered food/ refrigerated food/ stale food. Avoid dosa/idli/vada/fast food. Do not take Khatta (sour) food items – khatta in past, present or future like

oranges, pine-apple, mangoes, lemon, imli, mausami, grapes, cooked tomato. Banana, Papaya, Chikoo and Kharbooja can be taken. Vegetables are always better than fruits. Curd (not sour) can be had but with malai. Ghia(uncooked) is Hridyavardhak. Have Ghia (loki) and Pumpkin (Green outside and white inside) as much as

possible. Pumpkin is Good, Cheap, Easy, available all the year round, available

everywhere, no side effect. Fresh Ghia should be taken preferably in natural form or boiled form. Do not take white sugar or white salt. Brown sugar and rock salt can be taken. Pumpkin juice is to be taken for about 10 times a day; anytime during the day.

The procedure for making pumpkin juice is:“Take 200 gm of pumpkin,10 leaves of Tulsi, 10 leaves of Pudina, 4 seeds of Black Pepper, a pinch of Rock Salt Grate and whip them in a blender/juicer and take it. Drink fresh juice each time.”

Prayer to Almighty God daily. Meditate daily saying that I am OK. My heart is strong and healthy. See a movie every week. Socialise. Remain cheerful and Happy.


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