Banking Awareness Quiz

1. If a bank is unable to refund the short term deposits as funds are locked in long term loans, it involves:
   (a) Interest Rate Risk
   (b) Operational Risk
   (c) Liquidity Risk
   (d) Market Risk
   (e) None of these
        


2. In computer parlance, "FTP" means:
    (a) File Transfer Protocol
    (b) File Transit Protocol
    (c) File Translate Protocol
    (d) File Typing Protocol
    (e) None of these
       

3. Net National Product is equivalent to:
    (a) Gross Domestic Product minus Depreciation
    (b) Gross National Product minus Indirect Taxes
    (c) Net National Income minus Depreciation
    (d) Gross National Product minus Depreciation
    (e) None of these
       

4. RBI pays interest to banks on their balances kept with it for purposes of Cash Reserve Ratio at:

Important Current Affairs Capsule Quiz of OCTOBER NOVEMBER AND DECEMBER 2015 CAPSULE

Download PDF Here

•

OCTOBER

•

1.  India will host G20 summit in ......... ?
Ans- 2018 (2016 to China and in 2017 Germany)
2. Which country / territory flag was raised at United Nations for the first time in october?
Ans- Palestine
3. The International Day of Older Persons (IDOP) was  observed across the world with the theme Sustainability and Age Inclusiveness in the Urban Environment ?
Ans- 1 October 2015
4. . World Vegetarian Day was observed on........?
Ans- 1 October 2015
5. What is the Full form of FATCA?
Ans- foreign account tax compliance act
6. Who was appointed as BCCI President ?
Ans-Shashank Manohar
7. Who has won the 2015 Right Livelihood Award ?
Ans-Inuit and Arctic activist Sheila Watt-Cloutier of Canada
8. Who has emerged as world’s largest cotton producer ?
Ans- India
9. Which Bank has become the first institution worldwide to launch m-Visa, a card-less and device-less solution to make the payments ?
Ans- ICICI Bank
10. India's first solar powered district court inaguratedby Prime Minister at which place ?
Ans- Khunti, Jharkhand
11. Who have won the 2015 Nobel Prize in Physics for their discovery of neutrino oscillations ?
Ans- Japan's Takaaki Kajita and American Arthur B. McDonald
12. Who have won the 2015 Nobel Prize in Physiology or Medicine-2015 ?
Ans- one half jointly to William C Campbell (Ireland) and Satoshi Omura (Japan) for their discoveries concerning a novel therapy against infections caused by roundworm parasites and the other half to Youyou Tu (China) for her discoveries concerning a novel therapy against Malaria.
13. DRDO inaugurated world’s highest Research Centre at which Place ?
Ans- Chang La, Ladakh in Jammu and Kashmir at 17600 feet
14. . India’s gross domestic product (GDP) is expected to grow at which rate according to United Nations Conference on Trade and Development (Unctad) ?
Ans-7.5 per cent
15. Who won 2015 Nobel Prize for Chemistry ?
Ans-Sweden's Tomas Lindahl, the US-based Paul Modrich and Turkish-born Aziz Sancar for work on mapping how cells repair damaged DNA.
16. The Pravasi Bharatiya Divas (PBD) Conference 2016 will be held at which place ?
Ans- New Delhi from 8 January to 10 January 2016.
17. India’s gross domestic product (GDP) is expected to grow at which rate

What is a Non-Performing Asset (NPA)? How assets are classified?

Assets for a bank are the loans it has given and investment made by the bank. Most important assets for banks are loans given by it. Similarly, banks make investment in government securities by purchasing them.

Usually, the health as well as the financial condition of a bank is measured through the proportion of bad assets or Non Performing Assets with it.

Simply, NPA indicates the amount of loan that was not returned by the customer. An asset becomes non-performing when it ceases to generate income for the bank.

As per the current norm, if a loan is overdue during the last 90 days, it will be categorized as a Non Performing Asset (NPA). A loan whose interest and / or installment of principal have remained 'overdue due' for a period of 90 days is thus considered as NPA. Overdue is a situation where the loan is not paid by the due date fixed by the bank.

From the banks’ health point of view, higher the NPA, lower will be its health. Attempt to strengthen a bank is mainly concentrated on NPA management.

Some of the assets of the banks may not have returned or were not repaid for a considerable point of time. Here, to measure the seriousness of repayment delay, assets are classified into different categories.

How assets are classified?

Assets of a bank are classified in terms of its repayment status. Standard assets, substandard assets, doubtful assets and loss assets are classifications of asset quality.

For a bank, classification of assets into different categories should be done taking into account credit weaknesses and the extent of dependence on collateral security for realization of dues.

What is a standard asset?

Standard Asset is one which does not disclose any problems and which does not carry more than normal risk attached to the business. Such an asset should not be an NPA.

What is a substandard asset?

A substandard asset would be one, which has remained NPA for a period less than or equal to 12 months.  

What is a doubtful asset?

An asset would be classified as doubtful if it has remained in the substandard category for a period of more than 12 months. 

What is a loss asset?

A loss asset is one where loss has been identified by the bank or internal or external auditors or by the RBI inspection but the amount has not been written off wholly. In other words, such an asset is considered uncollectible.

Loss assets should be written off. If loss assets are permitted to remain in the books for any reason, 100 percent of the outstanding should be provided for. This means that full amount of the loss assets should be kept from some other sources like profit of the bank to meet the loss.

The mechanism of Provisioning is done to address the asset quality deterioration for a bank’s assets. The worse is the assets’ quality; higher will be the provisioning coverage ratio. Banks should make provision against substandard assets, doubtful assets and loss assets in a differential manner.

To know more about PROVISIONING Click Here

What is provisioning? What is Provisioning Coverage Ratio?

One of the leading issues related with the banking sector nowadays is the rising level of NPAs. Higher NPAs worsens the financial health of a bank. To tackle the NPA or bad assets problem, RBI has designed several mechanisms. An import one among them is the Provisioning norms.

Under provisioning, banks have to set aside or provide funds to a prescribed percentage of their bad assets. The percentage of bad asset that has to be ‘provided for’ is called provisioning coverage ratio. The provisioning coverage ratio is the percentage of bad assets that the bank has to provide for (keep money) from their own funds –most probably profit.

For example, if the provisioning coverage ratio is 70% for a particular category of bad loans, banks have to set aside funds equivalent to 70% those bad assets out of their profits (in most cases).  Provisioning is a part of the RBI’s prudential regulation norm.

Assets of a bank means loans they have given and investment they have made. If the loans are not coming, there should be provisioning for such bad debts. The assets are classified by the RBI in terms of their duration of non-repayment.

To know about NPAs Click Here

Provisioning differs with asset quality  

Provisioning coverage ratio differs in terms of the quality of assets. Some assets may be lost forever and they are categorized as loss assets. This implies that such loans will never be repaid. For such assets, bank has to set aside 100% of such loss assets out of its profit. Similarly, there may be substandard assets where the loans are not repaid for a shorter period. In this case, less proportion of those assets can be set aside from profit.

When banks report profits, they give low dividends now a day because of the provisioning requirement. Many banks have substantial NPAs now and they are setting apart a major chunk of their profit to meet the provisioning.

What is current account deficit? What are the features of India’s current account deficit?

The current account of country shows its profile in goods and services trade. Technically, the current account of the balance of payments explains the money value of goods and service (services is contained under invisibles) exported and imported by the country during an accounting period.

To understand the Current Account Deficit (CAD), we should have an idea about Balance of Payments.

What is balance of payments (BoP) account?

Usually citizens and companies of a country make several types of transactions with other countries. Basically, there are three types of transactions: trade in goods, trade in services (or in a broader sense invisibles) and capital transactions.  

Balance of payment account of India is a systematic statement of all economic transactions between the residents of India and the residents of the rest of the world in an accounting period (say one year).

The BoP as a classification format, classifies the BoP account into two:

• Current account transactions that involves exports and imports of goods and services (services are incorporated under invisibles). And
• Capital account transactions that involve the flow of investable money to and from India.

What are the components of current account?

Current account has two components – exports and imports of goods and export and imports of invisibles (include services). Hence the current account has two subcomponents:

1. Merchandise trade account ( for exports and imports of goods) and
2. Invisible account ( for services, remittances and income)

Merchandise trade account: gives the money value of India’s exports and imports of goods. When we often mention exports and imports, it is about the merchandise account.

Invisible account: indicate India’s

 (a) Service exports and imports (software exports, tourism revenues, etc, various service imports)

(b) Remittances (private remittances from abroad and payment to foreign countries)

(c) Income (income earned by MNCs from their investment in India).

India’s current has some common trends during many years. First is that the country has a strong trade deficit. This means that exports of goods are significantly lower than imports of goods. Second, India has a reasonably good invisible surplus (because of software exports and remittance inflows). But for most years, the trade deficit will be higher than invisible surplus.  This in turn produces a current account deficit for the country in most years.  

The following table shows a typical current account situation for India. Minus sign indicates deficit whereas the plus sign indicates surplus.  

The Current Account

                                                                                  In US $ billion

  1. Trade balance (A+B)                                                  -190

  2. Invisible balance(C+D)                                     +100

  3. Current account balance (1+2)                               -90

The table shows that the country has a current account deficit of $ 90 billion.

(The figures in the table are approximation of the 2012-13 figures for India; Source: RBI)

          

As per the table, India had a trade deficit and invisible surplus for the year. Considerable invisible surplus helped India to offset most of the big trade deficit. But since the invisible surplus was lower than trade deficit, the current account of the country registered a deficit of $90 bn.

Since, balance of payment indicates transactions with other countries, it holds some extra importance. Most importantly the transactions are done through foreign currencies. We call such currencies as hard currencies or international reserve currencies (eg. US $). Hence, the export and imports of goods and services or capital inflow or outflow that takes place from and to India are expressed in terms of US $ in India’s balance of payment account.

What is Banking Ombudsman Scheme?

Banking Ombudsman Scheme is a mechanism created by the RBI to address the complaints raised by bank customers. It is run by the RBI directly to ensure customer protection in the banking industry.

According to the RBI, “The Scheme enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks.”

The Banking Ombudsman Scheme was introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI with effect from 1995. The present Ombudsman scheme was introduced in 2006.

The Banking Ombudsman is a senior official appointed by the Reserve Bank of India. He has the responsibility to redress customer complaints against deficiency in certain banking services. At present fifteen Ombudsmen were appointed by the RBI to settle complaints and they are appointed in state capitals.

All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are covered under the Scheme.

The Banking Ombudsman can receive and consider any complaint relating to a number of deficiencies related to banking operations including internet banking. RBI has mentioned a large number of service deficiencies by banks to customers where the customers can approach the Ombudsman through a complaint.

Following are some of the instances:

• 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 in respect thereof;
• non-acceptance, without sufficient cause, of coins tendered and for charging of commission in respect thereof;
• 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 ;

When a customer can approach the Ombudsman?

A customer can file a complaint before the Banking Ombudsman if the bank doesn’t gives a reply to the customer within a period of one month or the bank rejects the complaint, or if the complainant is not satisfied with the reply by the bank.

BASEL NORMS - Explained in Simple Language

What are BASEL 1, 2 and 3 norms? What are the basic differences between these norms?

Basel is a city in Switzerland which is also the headquarters of Bureau of International Settlement (BIS).BIS fosters co-operation among central banks with a common goal of financial stability and common standards of banking regulations.

The Bank for International Settlements (BIS) established on 17 May 1930,is the world's oldest international financial organization. There are two representative offices in the Hong Kong and in Mexico City. In total BIS has 60 member countries from all over the world and covers approx 95% of the world GDP.

OBJECTIVE-

The set of agreement by the BCBS(BASEL COMMITTEE ON BANKING SUPERVISION), which mainly focuses on risks to banks and the financial system are called Basel accord. The purpose of the accord is to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses. India has accepted Basel accords for the banking system.

Up till now BASEL ACCORD has given us three BASEL NORMS which are BASEL 1,2 and 3 but before coming to that we have to understand following terms-

• CAR/CRAR- Capital Adequacy Ratio/ Capital to Risk Weighted Asset Ratio
• RWA- Risk Weighted Assets

Formulae for CAR=Total Capital/RWA*100

Now here, Total Capital= Tier1+ Tier2 capital

Tier 1 - The Tier-I Capital is the core capital…….

For example - Paid up Capital , Statutory Reserves, Other disclosed free reserves, Capital Reserves which represent surplus arising out of the sale proceeds of the assets, other intangible assets are belongs from the category of Tier1 capital.

Tier 2 - Tier-II capital can be said to be subordinate capitals. 

For example - Undisclosed reserves, Revaluation Reserves, General Provisions and loss reserves , Hybrid debt capital instruments such as bonds, Long term unsecured loans, Debt Capital Instruments etc are belongs from the category of Tier2 capital.

RISK WEIGHTED ASSETS -

RWA means assets with different risk profiles; it means that we all know that is much larger risk in personal loans in comparison to the housing loan, so with different types of loans the risk percentage on these loans also varies.

BASEL-1

• In 1988,The Basel Committee on Banking Supervision (BCBS) introduced capital measurement system called Basel capital accord,also called as Basel 1. . It focused almost entirely on credit risk, It defined capital and structure of risk weights for banks.
• The minimum capital requirement was fixed at 8% of risk weighted assets (RWA).
• India adopted Basel 1 guidelines in 1999.

BASEL-2

• In 2004, Basel II guidelines were published by BCBS, which were considered to be the refined and reformed versions of Basel I accord.
• The guidelines were based on three parameters which are as follows-

• Banks should maintain a minimum capital adequacy requirement of 8% of risk assets.

• Banks were needed to develop and use better risk management techniques in monitoring and managing all the three types of risks that is credit and increased disclosure requirements.

• The three types of risk are- operational risk, market risk, capital risk.

• Banks need to mandatory disclose their risk exposure, etc to the central bank.

• Basel II norms in India and overseas are yet to be fully implemented.

• The three pillars of BASEL-3 can be understand from the following figure---

BASEL-3

• In 2010, Basel III guidelines were released. These guidelines were introduced in response to the financial crisis of 2008.
• In 2008, Lehman Brothers collapsed in September 2008, the need for a fundamental strengthening of the Basel II framework had become apparent.
• Basel III norms aim at making most banking activities such as their trading book activities more capital-intensive.
• The guidelines aim to promote a more resilient banking system by focusing on four vital banking parameters viz. capital, leverage, funding and liquidity.

• Presently Indian banking system follows basel II norms.

• The Reserve Bank of India has extended the timeline for full implementation of the Basel III capital regulations by a year to March 31, 2019.

IMPORTANT POINTS REGARDING TO THE IMPLEMENTATION OF BASEL-3

Government of India is scaling disinvesting their holdings in PSBs to 52 per cent.

Government will soon infuse Rs 6,990 crore in nine public sector banks including SBI, Bank of Baroda (BoB), Punjab National Bank (PNB) for enhancing their capital and meeting global risk norms.

This is the first tranche of capital infusion for which the government had allocated Rs 11,200 crore in the Budget for 2014-15.

The government has infused Rs 58,600 crore between 2011 to 2014 in the state-owned banks.

Finance Minister Arun Jaitley in the Budget speech had said that "to be in line with Basel-III norms there is a requirement to infuse Rs 2,40,000 crore as equity by 2018 in our banks. To meet this huge capital requirement we need to raise additional resources to fulfill this obligation.

Banking Awareness : RBI & Banking Termologies

Hello readers, here we are posting some notes on General Knowledge (Banking), which will be helpful in the upcoming exams.

                         Quick Notes

RBI: 

The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the RBI Act, 1934. RBI was nationalized in 1949 and it is fully owned by the Government of India. RBI was established on the recommendation of the Hilton Young Commission.

RBI’s FUNCTIONS:

Issue of currency notesControlling the monetary policyRegulator and supervisor of the financial systemBanker to other banksBanker to the governmentGranting licenses to banksControl over NBFIs (Non Banking Financial Institutions)Manager of Foreign Exchange of India (also known as FOREX)

RBI & Monetary Policy:

Monetary policy refers to the use of instruments under the control of the central bank to regulate the availability, cost and use of money and credit.

The main objectives of monetary policy in India are:

Maintaining price stability.Ensuring adequate flow of credit to the productive sectors of the economy to support economic growth.Financial stability.

There are several direct and indirect instruments that are used in the formulation and implementation of monetary policy.

Direct instruments:

Cash Reserve Ratio (CRR): The share of net demand and time liabilities that banks must maintain as cash balance with the Reserve Bank.

Statutory Liquidity Ratio (SLR): The share of net demand and time liabilities that banks must maintain in safe and liquid assets, such as government securities, cash and gold.

Refinance facilities: Sector-specific refinance facilities (e.g., against lending to export sector) provided to banks.

Indirect instruments:

Liquidity Adjustment Facility (LAF):Consists of daily infusion or absorption of liquidity on a repurchase basis, through repo (liquidity injection) and reverse repo (liquidity absorption) auction operations, using government securities as collateral.

Open Market Operations (OMO):Outright sales/purchases of government securities, in addition to LAF, as a tool to determine the level of liquidity over the medium term.

Market Stabilisation Scheme (MSS): This instrument for monetary management was introduced in 2004. Liquidity of a more enduring nature arising from large capital flows is absorbed through sale of short-dated government securities and treasury bills. The mobilised cash is held in a separate government account with the Reserve Bank.

Repo/reverse repo rate: These rates under the Liquidity Adjustment Facility (LAF) determine the corridor for short-term money market interest rates. In turn, this is expected to trigger movement in other segments of the financial market and the real economy.

Bank rate: It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers. It also signals the medium-term stance of monetary policy.

Some Key financial terms:

APR:  It stands for Annual Percentage Rate. APR is a percentage that is calculated on the basis of the amount financed, the finance charges, and the term of the loan.

ABS:  Asset-Backed Securities. It means a type of security that is backed by a pool of bank loans, leases, and other assets.

EPS:  Earnings Per Share means the amount of annual earnings available to common stockholders as stated on a per share basis.

CHAPS:  Clearing House Automated Payment System. It’s a type of electronic bank-to-bank payment system that guarantees same-day payment.

IPO:  Initial Public Offerings is defined as the event where the company sells its shares to the public for the first time. (or the first sale of stock by a private company to the public.)

FPO:  Follow on Public Offerings: An issuing of shares to investors by a public company that is already listed on an exchange. An FPO is essentially a stock issue of supplementary shares made by a company that is already publicly listed and has gone through the IPO process.

(Difference: IPO is for the companies which have not been listed on an exchange and FPO is for the companies which have already been listed on an exchange but want to raise funds by issuing some more equity shares.)

RTGS:  Real Time Gross Settlement systems is a funds transfer system where transfer of money or securities takes place from one bank to another on a “real time”. (‘Real time’ means within a fraction of seconds.) The minimum amount to be transferred through RTGS is Rs 2 lakh. Processing charges/Service charges for RTGS transactions vary from bank to bank.

NEFT: National Electronic Fund Transfer. This is a method used for transferring funds across banks in a secure manner. It usually takes 1-2 working days for the transfer to happen. NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches. (Note: RTGS is much faster than NEFT.)

CAR: Capital Adequacy Ratio. It’s a measure of a bank’s capital. Also known as “Capital to Risk Weighted Assets Ratio (CRAR)”, this ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. It is decided by the RBI.

NPA: Non-Performing Asset. It means once the borrower has failed to make interest or principal payments for 90 days, the loan is considered to be a non-performing asset. Presently it is 2.39%.

IMPS: Immediate Payment Service. It is an instant interbank electronic fund transfer service through mobile phones. Both the customers must have MMID (Mobile Money Identifier Number). For this service, we don’t need any GPS-enabled cell phones.

BCBS: Basel Committee on Banking Supervision is an institution created by the Central Bank governors of the Group of Ten nations.

IFSC code: Indian Financial System Code. The code consists of 11 characters for identifying the bank and branch where the account in actually held. The IFSC code is used both by the RTGS and NEFT transfer systems.

MICR Code:  Magnetic ink character recognition (MICR) is a character-recognition technology used mainly by the banking industry to ease the processing and clearance of cheques and other documents. It  is at the bottom of cheques and other vouchers and typically includes the document-type indicator, bank code, bank account number, cheque number, cheque amount, and a control indicator.

MSME and SME: Micro Small and Medium Enterprises (MSME), and SME stands for Small and Medium Enterprises. This is an initiative of the government to drive and encourage small manufacturers to enjoy facilities from banks at concessional rates.

LIBOR: London InterBank Offered Rate. An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market.

LIBID: London Interbank Bid Rate. The average interest rate at which major London banks borrow Eurocurrency deposits from other banks.

ECGC: Export Credit Guarantee Corporation of India. This organisation provides risk as well as insurance cover to the Indian exporters.

SWIFT: Society for Worldwide Interbank Financial Telecommunication. It operates a worldwide financial messaging network which exchanges messages between banks and other financial institutions.

STRIPS: Separate Trading for Registered Interest & Principal Securities.

CIBIL: Credit Information Bureau of India Limited. CIBIL is India’s first credit information bureau. Whenever a person applies for new loans or credit card(s) to a financial institution, they generate the CIBIL report of the said person or concern to judge the credit worthiness of the person and also to verify their existing track record. CIBIL actually maintains the borrower’s history.

CRISIL: Credit Rating Information Services of India Limited. Crisil is a global analytical company providing ratings, research, and risk and policy advisory services.

Banking Awareness: A summary on NEFT, RTGS & IMPS

National Electronic Fund Transfer (NEFT)

Meaning – It is way in which you can transfer fund from any bank account to any other bank account holder in India. NEFT is based on batch processing system.Minimum amount – Rs. 1Maximum amount – There is no upper ceiling for transferring money through NEFT, but generally RTGS is used for transfer of Rs 2,00,000 or aboveTime limit – The transactions are processed in hourly batches. There are twelve settlements from 8 A.M. to 7 P.M. on the weekdays (Monday – Friday) and six settlements from 8 A.M. to 1 P.M. on Saturday. The maximum time consumed is 2 hours from the submitting of the transaction in a batch.Availability – NEFT is not available on the bank holidays, RBI holiday and Sunday.
Note - For transferring funds to Nepal, the limit is of Rs. 50, 000.

Real Time Gross Settlement (RTGS)

Meaning – It is way in which you can transfer fund from any bank account to any other bank account holder in India in real time.Minimum amount – Rs 2,00,000Maximum amount – No limitTime limit – The transactions are processed on order basis i.e. Real time. The RTGS service is available from 8 A.M to 8 P.M. on the weekdays (Monday – Friday) and from 8 A.M. to 3:30 P.M. on Saturday. The transfer is instant but the bank is allowed to take up to 2 hours for crediting the amount to the depositor account.Availability – RTGS is not available on the bank holidays, RBI holiday and Sunday.

Inter Mobile Payment Service (IMPS)

Meaning – It is way in which you can transfer fund from any bank account to any other bank account holder in India anytime.Minimum amount – Rs 1Maximum amount – Banks are allowed to set their own limit for IMPS.Time limit – It is real time. The depositor account is credited in less than 1 minute from the submission of transaction.Availability – IMPS can be done 24X7 even on bank holidays, RBI holiday and Sunday

Thanks !!!