As on 25-01-2018

A- About Our Bank

Rs. in Crores)
Parameter MARCH MARCH MARCH MARCH Sep
2014 2015 2016 2017
(12M) (12M) (12M) (12M) 2017
(6M)
Total Business
532007 579627 620445 680076 695978
(Global)
Total Business
509562 553553 587739 644014 656046
(Domestic)
Deposit (Global) 297675 316870 342720 378392 386025
Deposit (Domestic) 292811 312230 336086 371776 379031
Advances (GLOBAL) 234332 262757 277725 301684 309953
Advances (Domestic) 216751 241323 251653 272238 277015
NET PROFIT 1696 1782 1352 556 (-)1414
CASA % 29.50 29.20 32.30 34.40 33.6
CAR - % 10.80 11.79 11.22
(under Basel III) 10.22 10.56
NIM (Global) 2.56 2.48 2.32 2.23 2.07
ROE (%) (Global) 9.98 9.73 6.84 2.91 -16.54
ROA (%) 0.52 0.49 0.35 0.13 -0.59
GNPA (%) 4.08 4.96 8.70 11.17 12.35
NNPA (%) 2.33 2.71 5.25 6.57 6.70
PCR (%) 59.89 59.23 50.98 51.41 56.06
No. of Branches 3871 4081 4200 4282 4295
Foreign Branches 2 3 4 4 4
6429
No of ATMs 7020 6883 7518 7674

Staff Strength 33806 35514 35473 36877 38390

Union Bank of India‘s offer of QIP was oversubscribed & the Bank has issued 12.93

1 crore shares aggregating to Rs.2000 crore. The shares were allotted on Dec 14, 2017

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DART :For large ticket exposures the specialised team namely the DART team/

2 Difficult Access Recovery Team, has been proactively engaging with all stakeholders
and legal recourse has been taken where needed
Guidance for financial year 2017-2018.

3  Credit growth to be around 8% to 10% and deposit growth to be around 7% to

8%.
 CASA share objective is 34% to 35%. NIM to be around 2.25 by quarter end
March 2018.
 PCR to rise to around 60%.
 Delinquency to be around 4.5% and credit cost around 3.3%. It is mainly due to
additional provisions required on accounts referred to NCLT as per RBI list.
 Cost to income ratio to be around 48% considering the imminent wage revision.
 To contain gross NPA at 13% by March 2018.
 NIM: Domestic net interest margin narrowed sequentially to 2.19 percent from 2.2

4 percent

 Shares of Union Bank closed 1.43 percent higher, ahead of the Sept results-17

5  Gross NPA ratio declined to 12.3% as of September 2017 from 12.6% as at end

June 2017 while net NPA ratio also declined to 6.7% from 7.5% during previous

quarter

Growth in our RAM Sector ;(Sep-2017)

6 Retail loan book grew 22.5% while saving deposit rose 18.8% on annual basis. MSME

book and agricultural portfolio remained in sync with overall trend of scheduled

commercial bank. Accordingly RAM share stood at 54.1%

SDR,&S4A Accounts (Sept-2017):

7  Total number of SDR is 24 accounts, Rs.5094 out of which restructured is also

there in 10 accounts amounting to Rs.1383

 S4 total exposure is Rs.1724 in 9 accounts out of which 2 accounts is also

categorizing restructuring for an amount of 764.76.

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 As on 25-01-2018

Digital Product:The Union Bank Contactless Debit Card facilitates cardholders to

8 make electronic payments quickly by just waving the card near the merchant terminal

in lieu of dipping or swiping the card.( Mumbai, 22nd Dec 2017)

Global Business: grew by 8.8 per cent to 695978 crore as on September 30, 2017&
Domestic business grew by 8.1 per
9

CASA deposits :

10  Grew by 13.7 per cent to 129588 crore as on September 30, 2017 CASA share

in total deposits improved to 33.6 per cent as on September 30, 2017

 A total of 27 lakh CASA accounts were opened during the current Financial
Year so far. Out of these 20 lakh were Savings Bank Accounts (excl.
BSBDA/BSBDS accounts)
High cost deposits: Share of high cost deposits in total deposits declined to 0.71 per

11 cent in September 2017

Bank‟s Global Advances :Grew by 11.4 per cent YoY to `309953 crore as on

12 September 30, 2017 Due to encouraging growth of 10.3 per cent in RAM (Retail,

Agriculture & MSME) sector, Domestic Advances increased by 10 per cent from

`251888 crore as on September 30, 2016 to `277015 crore as on September 30,

2017.

Digital Initiatives during the Q2-2017:

13  Union Recovery App: Union Recovery mobile App For effective monitoring of

NPA accounts,

 Union Sahyog mobile App – One app with multiple functionality features aiming

to provide single interface across all mobile & web based payment channels,

more customers friendly in providing information on various products offering

of the Bank in both English & Hindi.

 75 per cent growth in mobile banking users on YoY basis.

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 As on 25-01-2018

 74 per cent growth in number of PoS terminals on YoY basis.

 28 per cent growth in Credit Cards on YoY basis.

 56 per cent growth in Talking ATMs on YoY basis.

 71 per cent share of ―transactions through digital channels‖ in ―overall

transactions‖.

PMJDY: Under the Pradhan Manrti Jan Dhan Yojana (PMJDY), the Bank has more than

14 73 lakh accounts having a balance of `1293 crore. 48.56 lakh Rupay Card issued under

PMJDY as on September 30, 2017.

PMSBY , PMJJBY &APJ :Total enrollment under Pradhan Mantri Suraksha Bima

Yojana (PMSBY), Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Atal

Pension Yojana (APJ) increased to 30.5 lakh, 13.0 lakh and 2.6 lakh respectively.

PMMY:The Bank financed `1240 crore in 46543 accounts under Pradhan Mantri Mudra

Yojana, including an amount of `363 crore to 14484 beneficiaries through a specific

scheme for financing of light commercial vehicle during July–September 2017.

Awards & Accolades during July- September 2017:

15  SKOCH Order of Merit Award – Business Continuity Planning and IT Recovery

 SKOCH Order of Merit Award – Disaster Management & Disaster Recovery
 SKOCH Order of Merit Award – Data Centre Security SKOCH Order of Merit
 Award – Network Access Control (NAC) IDRBT Banking Technology Award –
 Best Emerging Bank PFRDA award for NPS performance in 2016-17
 2nd rank Best PSU Bank for Branch Activation PFRDA award for NPS
performance in 2016-17
 3rd rank Best PSU Bank NPS Private Sector
Note ; Union Bank of India, was also conferred with prestigious SKOCH AWARD –
‗Banker of the year – Consistent Performance‘-June-2017
BRANCH & ATM NETWORK:

16  The Bank has 4295 branches as of September 30, 2017 including 4 overseas
branches at Hong Kong, DIFC (Dubai), Antwerp (Belgium) and Sydney
(Australia).
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 In addition, the Bank has representative offices at Shanghai, Beijing and Abu
Dhabi.
 The Bank also operates in United Kingdom through its wholly owned subsidiary,
Union Bank of India (UK) Ltd.
 Total number of ATMs stood at 7674 including 2495 talking ATMs as of
September 30, 2017.
 ATM to branch ratio stood at 1.79.
Union AMC :

17 Union Bank of India today entered into Investment & Subscription agreements with

globally leading life insurer, Dai-ichi Life Holdings, Inc., Japan (Dai-ichi Life) for their

investment of Rs.133.43 crore in Union Asset Management Company Private Ltd.

through Compulsorily Convertible Preference Shares (CCPS).The investment of Dai-

ichi Life would be 39.62% on fully diluted basis post conversion to equity.

TReDS (Trade Receivable Discounting System)

18 Union Bank of India has immense pleasure in partnering up with RXIL (Receivable

Exchange of India Ltd) as a TReDS (Trade Receivable Discounting System) partner

for discounting invoice of MSMEs on digital platform.

RXIL is a joint venture between SIDBI and NSE, set up to operate a TReDS Platform

for factoring of the invoices of the MSME‘s in compliance with TReDS guidelines

issued by RBI. December 5, 2017

(B) Banking updates

Govt.of India will Infuse over Rs. 88,000 crore as capital in public sector banks

19
 Rs. 80,000 crore through recapitalisation bonds and Rs. 8,139 crore as budgetary
support.

 Reforms package finalised basedon six themes of customer responsiveness,

responsible banking, credit offtake, PSBs as Udyami Mitra, deepening financial

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inclusion & digitalisation and developing personnel for brand PSB.

 Union Bank of India will get Rs. 4,524 crore.

 The recapitalisation bonds - non SLR status and non-tradeable.& will be issued in
six tranches with a tenure of 10-15 years, .they will be a cash neutral arrangement
and so will not impact the Centre‘s fiscal deficit.

Invoice mart:
20 Axis Bank-backed online platform for financing Micro, Small & Medium Enterprises

(MSMEs) named Invoicemart clocked Rs 100 crore worth of invoices within first 100

days of operations.

Note: TReDS is an initiative launched by the Reserve Bank of India with an aim to

increase availability of funds for MSMEs

Linkage of Aadhaar number to bank account is mandatory under the Prevention of

21 Money Laundering (Maintenance of Records) Second Amendment Rules,

Growth rate of Indian economy :

22
 7.2% in 2018 and accelerate to 7.4% in 2019 as a result of robust private
consumption, public investment and structural reforms,( United Nations
report).
 Forecast that inflation in India will be 4.5% in 2018 and 4.8% in 2019, slightly
above the Reserve Bank of India‘s (RBI) medium-term consumer price index-
based (CPI-based) inflation target of 4%.

Stressed loans postions of banks in India ;( sept 2017)

23
 21 state run banks -8.25 lakh Cr ( 16.2 % of loan book)
 Pvt banks ;-1.06 lakh Cr (4.65%)
 Foreign banks india operation -14852 Cr (4.2 %)

New Lending rate Mechanism for better policy transmission:

24
The RBI‘s Internal Working Group analyzed 13 possible external benchmarks and
narrowed them down to three — CD rate, Treasury Bill rate and policy repo rate —
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 As on 25-01-2018

which could be used by banks to set their new lending rates.

Prompt Corrective Action, or PCA
25 RBI has set trigger points on the basis of CRAR less than 9%(a metric to measure
balance sheet strength), net NPAs Over 10% and ROA below 0.25%to assess,
monitor, control and take corrective actions on banks which are weak and troubled.
If PCA is triggered Banks are not allowed:
 To renew or access costly deposits or take steps to increase their fee-based
income & to enter into new lines of business
 Borrowings from interbank market.
 To announcing dividend, opening branches, hiring and giving loans to companies
rated below investment grade
Banks so far under PCA:
Central Bank of India, IDBI Bank, UCO Bank, Dena Bank, Indian Overseas, Bank of
Maharashtra, OBC, corporation bank, BOI, United bank of India latest one being
Allahabad bank
(Rating agency ICRA has stated that 16 government owned banks out of 21 (excluding
SBI associates) and two out of 16 private banks might come under the PCA
framework)
Crypto currency :
26
 The world‘s first cryptocurrency - Bitcoin, ( 2009)
 Crypto currency dealer Pluto Exchange has announced the launch of India's
first mobile application for transacting in virtual currencies.
 By using a four-digit personal identification number (PIN), users can now buy,
sell, store and spend bitcoins via a mobile number,
 Kerala based Federal Bank has announced a partnership with Abu Dhabi-based
LuLu Exchange to leverage blockchain technology for cross-border remittances.
 Recently, reports suggested that the RBI may be in the process of developing a
central bank-backed cryptocurrency, or a crypto-rupee. might be named after
the Indian goddess of wealth ‗Lakshmi‘.
 Ripple surged nearly 56 percent to an all-time high, surpassing ethereum as the
second-largest cryptocurrency by market capitalization.:Officially called XRP,
 Banks like SBI,AXIS,ICICI suspend some accounts of major Bitcoin exchanges
/platforms in the country like Zebpay,Unocoin, Coinsecure, BtcxIndia ( News
:Money control 20.01.2018)

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Banks Board Bureau (BBB)-

27 The government has recently expanded by inducting 2 independent members in
the Banks Board Bureau (BBB)-May 2017
 Former Allahabad Bank chairperson and managing director Shubhalaxmi
Panse
 private equity veteran Pradip Shah
This expansion of the Bureau will eliminate delays in timely holding of
interviews for filling up key positions in PSU banks,.

Chairman: Shri Vinod Rai, Former CAG of India

Independent Members: 3 Members have been appointed, which are:
 Shri Anil K. Khandelwal, Former CMD of Bank of Baroda
 Shri H.N. Sinor, Former Joint MD, ICICI Bank
 Rupa Kudwa, Former MD&CEO, CRISIL
Ex- Officio Members: They will be in the ranks of
 Secretary, Department Financial Services
 Secretary, Department of Public Enterprises
 Deputy Governor, Reserve Bank of India- Sri N S Vishwanathan
The Monetary Policy Committee :
28  Fixing the benchmark policy rate (repo rate) required to contain inflation within
the specified target level.
 The meetings at least 4 times a year
 six Members of Monetary Policy Committee, three Members will be from the
RBI and the other three Members of MPC will be appointed by the Central
Government.

1. Urjit Patel, The Governor of the Bank—Chairperson, ex officio;

2. Deputy Governor of the Bank, in charge of Monetary Policy—Member, ex officio
3. One officer of the Bank to be nominated by the Central Board—Member, ex
officio;
4. Shri Chetan Ghate, Professor, Indian Statistical Institute (ISI) —Member
5. Professor Pami Dua, Director, Delhi School of Economics (DSE) — Member
6. Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management (IIM),
Ahmedabad— Member

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Sectors where FDI is ALLOWED and the latest caps.

29
 Petroleum Refining by PSU (49%).
 Cable Networks (49%).
 Print Media (26%).
 Air transport services- scheduled air transport (49%), non-scheduled air
transport (74%).
 Ground handling services – Civil Aviation (74%).
 Satellites- establishment and operation (74%).
 Private security agencies (49%).
 Private Sector Banking (74%).
 Public Sector Banking (20%).
 Commodity exchanges (49%).
 Credit information companies (74%).
 Infrastructure companies in securities market (49%).
 Insurance and sub-activities (49%).
 Power exchanges (49%).
 Defence (49% above 49% to CCS).
 Pension Sector (49%)

Sectors where FDI is NOT ALLOWED

FDI in the following sectors are prohibited completely – i.e., under both Automatic
and Government routes it is not allowed.

 Atomic Energy
 Agricultural and Plantation activities
 Gambling, betting and lottery
 Nidh is and Chit Funds
 Real Estate
 Manufacture of cigarettes and tobacco

IND-AS by banks :
 Ministry of corporate Affairs nominated 39 Indian Accounting Standards.
30
 RBI advised that SCBs (excluding RRB) shall follow IND-AS for financial
statements for accounting standards from 01.04.2018

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Domestic Systemically Important Banks (DSIBs): The failure of certain banks can
31 cause disruption to banking service ―too big to fail. Framework of GSIBS in Nov 2011―
was introduced by Basel committee

The Reserve Bank of India (RBI) has added HDFC Bank, is third bank in country to be
added in list of D-SIBs after State Bank of India (SBI) and ICICI Bank which were
added in 2016.

Assessment Indicator : size, interconnectedness substitutability & complexity

In India The updated list of D-SIBs is as follows-

Additional Common Equity Additional Common Equity

Tier 1 requirement as a Tier 1 requirement
Bucket Banks percentage of Risk applicable from April 1,
Weighted Assets (RWAs) 2018 (as per phase-in
for FY 2017-18 arrangement)
5 - 0.50% 0.75%
4 - 0.40% 0.60%
3 State Bank of India 0.30% 0.45%
2 - 0.20% 0.30%
1 ICICI Bank 0.10% 0.15%
HDFC Bank* -
• D-SIB surcharge for HDFC Bank will be applicable from April 1, 2018.
India recorded its sharpest jump of 30 places to 100th place in the 2018 World
32 Bank‘s ease of doing business rankings

(c) Credit
UNION TRADE-GST:
33  Union Bank of India, in its pursuit to give impetus to small traders and
manufacturers especially in SME segment, has launched a new working
capital finance scheme by the name of ―UNION TRADE-GST‖.
 We are the 1st Bank in India to have scheme of financing regular working
capital limit based on GST returns.
 Generally Banks are providing 20% of the sales turnover as working
capital limit to a business entity, but to have ease in GST regime, under
this scheme Union Bank of India is providing hassle free regular working

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capital limit upto 30% of the turnover as per GST returns without
insisting on assessment on other financial returns.
 The scheme will provide regular working capital limit above Rs 10.00 lacs
upto Rs 200.00 lacs.
 The assessment of turnover & quantum of working capital is tailor-made
to benefit especially the SME sector
Working Capital Accounts: are to be renewed at periodical intervals depending
34 upon the rating of the borrowers. The Bank shall adopt discriminatory time
schedule for renewal/review of credit limits of Rs.10lacs and above based on
the credit rating assigned as under.

Risk Rating Pendency of Review/Renewal

CR1 18 months

CR2 to CR5 Annual (12 months)

CR6 to CR8 Biannual (6 months)

- However, advances where credit rating is not applicable and advances below
Rs10 lacs will continue to be reviewed / renewed once in a year.

Methods of assessment of Working Capital requirement:

35 1.Turnover Method:

1) 20% of the projected sales turnover accepted by the Bank.

2) MSE borrowers upto Rs.500 Lacs, Non-MSE (Under Union Trade), -
Rs200lacs, Others upto Rs.100 Lacs.

2.Flexible Bank Finance Method: Ratio is taken at 1.17: 1 against benchmark

level of 1.33: 1. Flexible Bank Finance method is applicable for account with
credit limits of Rs. 1 Crore & above for other Advances, Rs2Crores under Union
Trade & above Rs.5 Crores for MSE advances.

3.Cash Budget Method: specific Industries/seasonal activities such as

Software Development, Construction Industry, Film Industry, NBFCs other
than RNBCs, Sugar, Fertilizers etc., the required finance is arrived at from the
projected cash flows and not from the projected values of assets/ liabilities.

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 As on 25-01-2018

Credit Process Audit (CPA):

36  In all advance accounts (existing as well as new) with aggregate fund
based & non fund based limits of Rs 1.00 crore and above

 Retail loans, (disbursed on or after 01.04.2013) for accounts of Rs.10 lacs

and above for Rural& Semi Urban Branches and Rs.50 lacs and above for
Urban and Metro Branches,

The Credit Process Audit officer is also required to verify:

o Applicable processing Charges are recovered / not recovered.
o Creation of correct / incorrect account master in the system
o Rate of interest is fed / not fed in the system as per terms of
sanction
o Correct feeding/updation of Internal Credit Rating in Finacle
(Credit Rating in Finacle should match with IRB rating)

Financial strength / Bench Mark Ratios:

37  Current Ratio (CR) of 1.17 and above, Debt Equity Ratio (DER) < 2.00:1,
Total Outside Liabilities to Net Worth Ratio (TOL/TNW) of < 4:1 (in case
of Trade advances it is 5:1) and average DSCR of 1.5: 1 with minimum
DSCR of 1.2: 1 will be considered as reasonable requirement for any
credit proposal. These bench marks will generally be observed for new
connection.

o As per Loan Policy 2017-18, few more benchmark ratios added:

o DER-Operational Phase ≤4:1
o Average DSCR of 1.3:1 with Minimum DSCR of 1.1:1 only for
Solar/wind power, Road-Annuity/Hybrid Annuity projects
o In case of project appraised /syndicated by other Banks/FI
Project DER <=4.00:1
 CR less than 1 (one) -may be permitted by authority not less than RLCCs.&
ZLCC may approve TOL/TNW relaxation upto 5:1 in deserving cases

Quasi Equity: Unsecured loans by the promoters/family members/associate

38 concerns shall be accepted as promoters' contribution and treated as Quasi
Equity provided;

o It is subordinated to the bank's loan. The unsecured loan should

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not be repaid during the currency of the bank loan or without prior
concurrence of the bank.

o As far as possible it should not carry an interest at least up to

COD.

o If such loan carries interest, it should be only with prior consent of

the bank and servicing of interest would also be subordinated to
interest on the bank loan.

o An undertaking to the effect as above should be obtained from

both, from the borrower company as well as from lenders of the
unsecured loans.

Credit Rating/Risk Rating (IC NO 10004 dated 08.07.2014)

39  For borrowers rated with Bank's own models, the hurdle rate for new
borrowers will be CR-5 and takeover and CRE loans to builders will be CR-
4.The Bank has developed a comprehensive Risk rating model (UBI Model)

RATING RISK RATING RISK NOMENCLATURE

NOMENCLATURE
CR1 Lowest Risk CR7 Risk Prone
CR2 Minimal Risk CR8 High Risk
CR3 Moderate Risk CR9 Substandard
CR4 Satisfactory Risk CR10 Doubtful
CR5 Acceptable Risk CR11 Loss
CR6 Watch List

UBI credit Rating Model : In case of borrowers with aggregate exposure upto
40 Rs.5 crores

UBI Model Applicability linked to aggregate exposure (FB+NFB)

I Above Rs2lacs & upto Rs10 lacs
II Above Rs10acs & upto Rs1crore
III Above Rs1crore & upto Rs5crore
Union Trade I Above Rs2 lacs & upto Rs50 lacs for Union Trade
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Union Trade I Above Rs50 lacs & upto Rs5crores Union Trade
CRISIL RAM model : for pricing and hurdle rate, CRISIL Ram Model has been
41 adopted which is IRB compliant

 For borrowers with aggregate exposure (FB+NFB) of above Rs. 5.00

crores
 NBFCs, CRE, MFI, Capital Market and Banks irrespective of exposure.
Exposure to SMEs with average turnover of Rs.25 crores and above also
will be rated under CRISIL RAM model.

Stand Up India:
42  SC/ST and/or women entrepreneurs above 18 years of age and for the
first time venture (green field projects) in manufacturing, services or the
trading sector are eligible under the scheme.
 Composite loan (working capital and term loan) between Rs.10 lacs to
Rs.100 lacs are considered under the scheme.
 In case of non individual enterprises, atleast 51% of the shareholding and
controlling stake should be held by either SC/ST and/or Women
entrepreneurs.
 The scheme envisages margin money of 25% of the project cost. The
subsidy provided by the government may be treated as margin money
subject to the borrower bringing in minimum of 10% of the project cost
as own contribution.
 Besides prime security, the loan is secured by collateral security or
guarantee of Credit Guarantee Fund Scheme for Stand-Up India Loans
wherever applicable.
 The loan is repayable in 7 years with maximum moratorium period of 18
months.
 Accounts under the scheme are to be flagged as ―STANDUP‖ and accounts
under Union Progress and Union Narisakthi can also be included under the
scheme subject to maintenance of margin as per the scheme.

E-confirmation of bank guarantees: The E confirmation cell will seek

43 telephone / electronic confirmation from the issuing branch along with
verification through finacle for BG of Rs.10 lacs and above.
Policy on valuation of properties and Empanelment of valuers:IC No. 810-2017
dated 31.03.2017:
44  Two independent valuations are to be obtained from the panel valuers
where the value of any particular property (ies) is Rs. 10 crores and
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 As on 25-01-2018

above.
 Properties mortgaged / fixed assets hypothecated are to be revalued at
least once in 3 years.
 For credit limits upto Rs. 10 lacs, the valuation of property offered only
as collateral security, should be made by the bank officials themselves.
 It is to be ensured that the residual age of the immovable property
should be atleast 5 years more than the tenure of the loan.
 For undertaking valuations under the SARFAESI Act, valuation has to be
obtained from Registered valuer under the Wealth Taxt Act.
The duration of empanelment will be for a period of 3 years and the
quality of service of the valuers shall be reviewed annually by GM headed
committee
Empanelment of Engineers and Valuers for TEV and LIE study [IC 554 dated
06.08.2016:]
45
The Lenders Independent Engineers (LIE) and Techno Economic Viability
(TEV) study made compulsory in following cases as per latest Loan Policy.
 New Term Loan for value Rs.25 crores and above
 Project Term Loan where the value of the Project is Rs.50 crores and
above.
 The delegated authority can stipulate the LIE and TEV for the above
projects to be carried out for all sanctions.
 Provision for cancellation of their empanelment is also possible where
there services are not satisfactory and upto the mark.
PMMY (Prime Minister Mudra Yojana)
46  Introduced by the bank after establishment of Mudra bank for popularizing
and increasing credit limits to the ―funding the unfunded‖ and ―formalizing
the informals‖.
As such all finances upto Rs.10 lakhs to micro should be christened as PMMY
Union Liqui Property Scheme
47  New scheme replacing SOD (Title Deeds)
 Eligibility: All Business enterprises except Individual Borrowers, HUF,
NBFC, Partnerships where HUF is a partner, Speculative and Real Estate
activities
 Purpose: Working Capital, Term Loan (Both new expansion and renovation),
Replacing high cost debts, shore up of margin.
 Amount: Minimum Rs.10 lakhs, Maximum Rs.1000 lakhs.

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 Assessment: 5 times the average last 3 years net income as per IT returns
(Cash accruals) in case of term loan and 20% of last year‘s turnover as per
audited balance sheet in case of working capital
Or
 50% of fair market value of the property whichever is lower
Union NariShakth -A new scheme exclusively for financing women
48 entrepreneurs, No Processing charges for this scheme. Margin is only 5% and
collateral coverage is 15%. All eligible cases to be mandatorily covered under
CGTMSE. Existing accounts can also be covered. Minimum 2 lakhs and maximum
100 lakhs

Revaluation Reserve Revaluation reserve is normally on revaluing the fixed

49 assets like land whose value is appreciating over a period of years. It is only a
book entry. To know the real worth of the company this is calculated.

Adjusted TNW-Adjusted TNW is arrived after reducing the investments in

50 group companies especially for NBFCs.

Interest Service Coverage Ratio :it is used mainly in working capital

assessments.

5:25 scheme:
51  5:25 scheme (Flexible Structuring of existing Infrastructure loans) is
applicable for Long term infrastructure projects where the moratorium
period is very long.
 Banks have the liberty to revisit the options after every 5 years and
continue the finance, provide additional finance, or exit the exposure. The
maximum period for such projects can go up to 25 years.
 Total loan period should not exceed 85% of initial concession period
(leaving a tail of 15%).
 Revisiting the performance and accordingly the advances are rescheduled
at the end of every five years. It is applicable for Rs.250 crores and
above

Project and Asset Finance

52 If the finance is based on existing cash flow then it is asset finance and if the
finance depends upon future cash flows out of the usage of asset created by
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our finance then it is project finance.

Moratorium is not given in case of asset financing except housing loan:

53 As the repayment source already exists normally moratorium is not given for
asset finance. In case of housing loan construction period involves in the
creation of assets and loan is not fully disbursed in a single installment due to
which moratorium is given. In case of ready built house there is no moratorium
JLA :
54 Joint Lending Arrangement where all the banks are on one side and borrower on
the other side as two parties through this agreement. It is for advances of
Rs.150 crores and above availed from more than one Public Sector Bank.

RAROC:
55 It is Risk Adjusted Return on Capital. It is used for individual customers to
have a 360 degree view to give net benefit accrued from him.

Internal Rate of Return. [IRR]:

56  For Term loans of Rs.10 crores and above with a repayment period of 5
years and above this is compulsory.
 This is important from the borrower‘s point of view to know when he is
getting back his money in present day‘s value.

CGTMSE : Claim is restricted to Rs.200 lakhs. In Cash Credit if we could not

57 cover before the end of next quarter, the same can be covered during next
renewal. In case of term loan it is not possible during next review.

(D) Digital
Green Pin :solution for instant regeneration of ATM pin and Customer can
58 generate the Green Pin through Union Bank ATM and validate it from any ATM
(Union Bank or Others) .
Business Debit Card
59  Card Shall be issued to all Current Account customers,( Individual,
Proprietorship Partnership, HUF ) with AQB Rs. 1.00 lacs and above
 Free issuance charges
 Withdrawal limit through ATM – Rs. 50,000
17
 As on 25-01-2018

 Daily shopping through POS & online – Rs. 2 lacs

 Free Airport lounge access at airport- 2 in a quarter
 Personal Accidental Insurance cover – Rs. 2 lacs
 Exclusive offers from Visa on travel, entertainment and dining
Usecure Credit Card:
60  International EMV Chip Card
 Credit Card against Term deposit
 Limit: 80% of Deposit under lien
 Min. limit - Rs. 25000 : Max. Rs. 5.00 lacs
 Target Group: Customers do not have IT return/Income proof, PAN,
sufficient CIBIL Score etc.
 Age : 18 years and above
 Interest : 1.30% per month
 Insurance : Accident Death : Rs. 5.00 lacs, Air Accident Rs. 8.00 lacs.
 Value added services like exclusive VISA offers on Travel, Dining etc
Signature Credit Card
61  International EMV Chip Card
 Limit 20% of Annual Income. Min. Rs. 1.00 lacs
 Target Group: HNIs, SB Tier Platinum/Gold Customers, Union Home/Mile
Borrowers, other having card limit of Rs. 1.00 lac and above
 Min. Income Rs. 5.00 lacs per annual
 Annual Charge : Rs. 250
 Interest : 1.90% per month
 Insurance : Accident Death : Rs. 6.00 lacs, Air Accident Rs. 10.00 lacs
 Two add on cards and Value added services like Free Airport Lounge
access
U Control:
With U-Control, credit card holders now can manage usage of all their
62
credit cards from a single mobile application.

o Add /Remove Cards,Temporary Activation/ Deactivation the card

o Set Spending limit,spend history & analyser
o Enable / Disable Payment Channels (POS, ATM and e-Commerce)
o Enable / Disable International transactions
o Card Hot listing
Union Selfie
63  Union Selfie" a mobile application based savings account opening process. just
by scanning his Aadhaar card and by uploading a "Selfie" through his smart

18
 As on 25-01-2018

phone
Union e-cash
65  Help customers to send money to Recipients who are not our bank‘s customer
 . Anyone having a debit card ofNFS/Visa/MasterCard member bank can
receive money and draw it from UnionBank ATMs.
 Beneficiary having any debit card can withdraw the money .The facility of
remittance is available in all Union bank ATMs .
 Daily limit : Rs5000,Monthly is Rs: 25000.Minimum Union e-cash remittance :
Rs.100
 No partial withdrawal permitted..The money not withdrawn is refund
automatically after 7 days.
 . UTR-22character unique transaction reference
66  IFSC-11 digits( first four bank 5th zero and last 6 branch identifier)
Per day cash withdrawal @POS with debit card- Rs. 1000/(tier I&II) and 2000/
67 (tier III to VI)

(E) Banking law and practice

Repo rate [ Present Repo Rate 6%] : Repo rate is the rate at which banks borrow
funds from the RBI to meet the gap between the demand they are facing for money
68
(loans) and how much they have on hand to lend. If the RBI wants to make it more
expensive for the banks to borrow money, it increases the repo rate; similarly, if it
wants to make it cheaper for banks to borrow money, it reduces the repo rate.

Reverse repo rate [ Present Reverse repo Rate 5.75%] : This is the exact opposite
of repo rate. The rate at which RBI borrows money from the banks (or banks lend
69
money to the RBI) is termed the reverse repo rate. The RBI uses this tool when it
feels there is too much money floating in the banking system
If the reverse repo rate is increased, it means the RBI will borrow money from the
bank and offer them a lucrative rate of interest. As a result, banks would prefer to
keep their money with the RBI (which is absolutely risk free) instead of lending it
out (this option comes with a certain amount of risk)
Consequently, banks would have lesser funds to lend to their customers. This helps
stem the flow of excess money into the economy Reverse repo rate signifies the
rate at which the central bank absorbs liquidity from the banks, while repo
signifies the rate at which liquidity is injected.

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 As on 25-01-2018

Secured advance- as per BRA 1949 (section 5 n) advances where the market
value of security is not less than the advance outstanding
70
Bank rate [Present bank Rate: 6.25%]:This is the rate at which RBI lends money to
other banks (or financial institutions The bank rate signals the central bank’s long-
71 term outlook on interest rates. If the bank rate moves up, long-term interest rates
also tend to move up, and vice-versa. Banks make a profit by borrowing at a lower
rate and lending the same funds at a higher rate of interest. If the RBI hikes the
bank rate (this is currently 6 per cent), the interest that a bank pays for borrowing
money (banks borrow money either from each other or from the RBI) increases. It,
in turn, hikes its own lending rates to ensure it continues to make a profit.
Marginal standing facility[Present MSF 6.25%]
It provides additional liquidity to banks against securities (introduced 09.05.2011).
72 Maximum amount under this scheme is 1% of NDTL (minimum Rs.1.0 crore) at
repo+1% rate of interest for maximum period of borrowing overnight + RBI holidays.
Call rate? : Call rate is the interest rate paid by the banks for lending and
borrowing for daily fund requirement. Since banks need funds on a daily basis, they
lend to and borrow from other banks according to their daily or short-term
requirements on a regular basis.
MCLR:
Reserve Bank of India has directed banks to adopt Marginal Cost of Funds based
73 Lending Rate (MCLR) for determining their respective Base Rates. It is felt that
banks are not passing the benefit of reduction in RBI policy rates to borrowers.
During last one year, RBI has cut the repo rates by 125 basis points but banks
reduced their base rates by an average of 60 basis points only.
With effect from 1st April, 2016, all loans in India shall be priced with reference to
Marginal Cost of Funds based Lending Rates (MCLR) which will comprise of :- a.
Marginal Cost of Funds b. Negative carry on account of CRR c. Operating Costs d.
Tenor of premium. Banks shall review and publish their MCLR every month on a
pre-announced date.
SLR [ Present SLR 19.5%of NDTL] : Besides the CRR, banks are required to invest a
portion of their deposits in government securities as a part of their statutory
74
liquidity ratio (SLR) requirements. As per BRA sec-24 every schedule and non
schedule bank is to maintain this on daily basis . RBI is empowered to vary it from
0% to 40 %
CRR [present CRR 4.00% of NDTL] Cash Reserve Ratio, refers to a portion of
75 deposits (as cash) which banks have to keep/maintain with the RBI. This serves two
purposes. It ensures that a portion of bank deposits is totally risk-free and secondly
it enables that RBI control liquidity in the system, and thereby, inflation by tying
their hands in lending money. AS per RBI act section 42 -1 All SCB maintain balance
in their CD account with RBI with zero rate of interest
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 As on 25-01-2018

Marginal Cost Of Funds Based Lending Rate With Effect From 1.01.2018 -
31.01.2018 (Union bank of India)
76 Tenor MCLR (%)
Overnight MCLR 7.70
1 Month MCLR 7.90
3 Months MCLR 7.95
6 Months MCLR 8.05
1 year MCLR 8.20
2 year MCLR 8.25
3 year MCLR 8.30
Base rate-[Union bank, present 8.95% ]- BPLR system introduced in 2003 has
fell short of its original objectives of bringing transparency as Banks could not
77
lend below BPLR.RBI now introduced base rate wef July 01,2010 to have
transparency and nondiscriminatory manner. All advance except certain
specified categories (loans against banks own deposit,DRI loan, staff loans) are
now linked to base rate. No advance can be given below base rate.
BPLR (Union Bank, Bench prime lending rate: presently -13.80
Selective credit control : Also known as qualitative control is used to regulate Cost
78 and quantum of credit to selected sectors, by stipulating (a) minimum margin for
lending against selected commodities (b) Ceiling on level of credit (c) Minimum rate
of interest to be charged on advances against particular commodities
Banking Regulation Act-1949
Section -5 (b)- define banking - Accepting deposits of money from the public for
79 the purpose of lending or investment which is repayable on demand .
Section -9 no bank can hold immovable property for any purpose for the period of
exceeding 7 years except for its own use
Section 20 (a)- no banking company shall grant any loan and advance on the
security on its own shares.
Section 22- licensing of the banks
Section 23- branch licensing
Section 24 SLR
Section 26- unclaimed deposit returns every calendar year which have been not
operated for 10 years and above
Section 45 Z- return of paid cheques to customers
Broad money and narrow money
80 Money supply in banking system is calculated by 4 types of money stock i.e.M0, M1,
M2.M3. M0 is called monetary base (currency in circulation + deposit of banks in
RBI+ other deposits in RBI)
M1- narrow money = M0+ demand deposit with banks
M2= currency in circulation + all demand deposit with banks + term deposit with
maturity up to 1 year( excluding FCNRB)

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 As on 25-01-2018

M3- Broad Money currency in circulation + all demand deposit with banks +all term
deposit excluding FCNRB) + other deposit with RBI
Right of general lien-
Right of creditor to retain goods and securities(of debtor) in his possession is called
81 lien
It gives power to retain not to sell
Right is lost when possession is lost
Banker lien is general lien and implied pledge so banker as a exception can sell
good and securities after giving the debtor a reasonable notice
Deposit balance is neither good nor securities so right to lien is not applicable so
only right of set off is available over the deposit balance of its debtor
Bank can exercise lien on the goods and securities belonging to guarantor when
debt is due for payment
Not barred by law of limitation and also applicable to time barred debt
Bank can sell gold ornaments by exercising right of general lien to liquidate the
loan account
Right of set off-
Right to adjust credit balance of one account and debit balance of other
account of customer to arrive net sum due is right of set off.
Pre-condition of this right -Balances are certain not contingent , due for
payment, held in same capacity and prior notice to the customer is given.
Right of set off can be exercised on the happening of
death,lunacy,insolvency of the customer, dissolution of firm, liquidation
of company and on receipt of GO/ITO
Also available for time barred debts and deposit balance in other
branches of the bank.

Clayton case( devayanas vs noble states)

It speaks about rule of appropriation in running accounts like cash credit
and over draft
Rule of appropriation is laid down in Indian contract act sections 59-61
As per this rule cash credit account is considered as a new loan and each
deposit of the loan as a repayment of the same in order in which it is
made
In order to avoid this rule banker should stop the operation of the account
in case of death/retirement/insolvency of partner/guarantor/joint
account holder

Banking Ombudsman Scheme

June 15, 1995 – RBI announced the Banking Ombudsman Scheme, revised wef.
82
14.06.2006, Amended in 2007 and 2009.
Ombudsman: RBI Governor appointed for 3 years and extension of 2 years
subject to maximum age of 65 years
Essential Requirements for complaint: The complainant had, before making a
complaint to the Banking Ombudsman made a written representation to the

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bank and the bank had rejected the complaint or the complainant had not
received any reply within a period of month after the bank received his
representation or the complainant is not satisfied with the reply given to him by
the bank.
A period of 1 year has not lapsed
Not a subject matter settled through Ombudsman in previous proceeding and
not pending with any other court
Not frivolous or vexatious in nature.
Limit of amount: The compensation payable to the complainant is limited to
the amount arising directly out of the act or omission of the bank or Rs 10
lakhs whichever is lower.
Award
Complaint if not settled within 1 month from the date of receipt of complaint
Banking Ombudsman may pass an award after affording the parties reasonable
opportunity to present their case.
Binding of Award: Within 30 days of receipt of award it has to be presented to
the Bank, and a letter of acceptance of the award in full and final settlement
of his claim in the matter
The bank shall within one month – comply and intimate the compliance to
ombudsman unless it chooses to appeal.
Review Application: Bank may file review application before the Review
Authority within one month from the date of receiving the copy of Award if
the bank opines the award against it.
(In case of appeal by a bank, the period of thirty days for filing an appeal shall
commence from the date on which the bank receives letter of acceptance of
Award by complainant)
Provided that the Appellate Authority may, if he is satisfied that the applicant
had sufficient cause for not making the appeal within time, allow a further
period of not exceeding 30 days.
As per the amendment dated 02/03/2009 In case of complaints arising out of
credit card operations, the Banking Ombudsman may also award compensation
not exceeding Rs 1 lakh to the complainant, taking into account the loss of the
complainant’s time, expenses incurred by the complainant, harassment and
mental anguish suffered by the complainant”.

CONSUMER PROTECTION ACT AND BANKING BUSINESS

COPRA – enacted in 1986 implemented w.e.f 15.04.87
83
Comprehensively amended on 17.12.2002 implemented w.e.f.15.03.2003
Consumer : Person buying goods or hires services for consideration for
his/her use. All Banking services where deficiency in service is observed, the

23
 As on 25-01-2018

consumer can file a complaint under COPRA.

Limitation : 2 years from the date of cause of action
Pecuniary ( financial) jurisdiction of different authorities:
 District Forum Up to Rs.20.00 lacs
 State Commission Up to Rs.100.00 lacs
 National Commission above Rs.100.00 lac
Time Limits for disposal:
 Admissibility of complaint – within 21 days
 Decision on complaint – Without analysis or testing of commodities – 3
months
 With analysis or testing of commodities – 5 months
 National and State Commission – 3 months

BCSBI - Banking Codes and Standard Board of India

As per recommendation of committee headed by shri S.S. Tarapore to
84 improve customer service RBI has set up BCSBI as a society on 18.02.2006
with its registered office in Mumbai
This is a voluntary code which sets minimum standards of banking practices
for banks to follow when they are dealing with Individual customers.
BCSBI has formulated a code of bank's commitment to customer ( code of
BCTC) which mentions minimum standard of services a bank should
undertake to provide to its individual customer not corporates
Important provisions of the code-
Disposal of complains - acknowledge the complaint within 7 days and
should reply within 30 days. Display the name of nodal officer at branch,
regional manager, banking ombudsman
Code for recovery agent- should approach at his residential address only
between 7 am to 7 pm
New account -opening- if customer is not happy after opening any
account in branch bank will allow to change the account or close as per
request of the customer without any charge within a period of 14 days
2-3 month notice to shift the branch
Statement of account free of cost at monthly interval
Settlement of death claim within 15 days
Return of securities within 15 days from the date of closure of loan
account
Transfer of loan account within 21 days
Copy of loan documents to borrower at bank's cost
Closure of account within 3 days

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 As on 25-01-2018

Right to information act-

RTI act came in to effect from October 12,2005
85 Applicable to Whole India except J&K
Right to get information - access to the information by way of inspection,
taking note, taking certified samples to the material obtain electronic copy
of the information
All citizens can apply barring corporates and companies
Applicant need not to give any reason
In case of bank public information officer are appointed by its board of
directors eg. FGM is ACPIO in respective zone.
Fee for application Rs.10/- can be paid in form of DD, banker cheque, IPO or
by cash
Where applicant request copies of record they have to pay Rs.2/ per copy
barring BPLs
Within 30 days PIO has to provide information or reject from the date of
application. If delay information commissioner can levy penalty Rs.250/ per
day (maximum 25000/-)
As per this act all public authorities are required to maintain record from
minimum period of 20 years.

What is Para Banking:-

In recent past banks are providing various ancillary services such as -
86  opening and operating Demat Accounts for securities and shares transactions
 Sale of Units of Mutual Funds
 Portfolio Management services
 Wealth management services
 Merchant Banking Services
 Bancassurance - Sale of Insurance Products [life as well as non-life]
 Setting up of subsidiary to carry out insurance business
 Credit Cards, Tax collections
 Utility payment services
 -Providing facility of purchase of Railway /Airway – tickets
 Stamp Vending ----etc. these activities are known as Para Banking
activities
WHAT IS BANKING:

87 Banking is defined in section 5(b) of the BR Act as the acceptance of deposits

of money from the public for the purpose of lending or investment and
repayable on demand or otherwise and withdrawable by cheque, draft, and
order or otherwise
Under sec 49A of BR Act, no person other than a Bank is authorized to
accept deposits withdrawable by cheque

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 As on 25-01-2018

Section 8 of BR Act prohibits a Banking company from engaging directly or

indirectly in trading activity and undertaking trading risks.

Customer :
 Not defined by any act.
88  Anyone conducting banking transaction with a bank is a bank customer.
 KYC Guidelines issued by Reserve Bank of India, defines the customer as a
person or entity that maintains an account and/or has a business relationship
with bank, one on whose behalf the account is maintained ( i.e. the beneficial
owner) beneficiaries of transactions conducted by professional intermediaries,
such stock brokers, Chartered Accountants, Solicitors etc, any person or entity
connected with a financial transaction which can pose significant reputational or
other risks to the bank say a wire transfer or issue of high value demand draft as
a single transaction.

GARNISHEE ORDER
A garnishee order is an attachment order issued by a competent court under
89 section 60 of civil procedure code (Rule 46 of Order XXI of schedule) at the
request of a creditor to attach his debtor’s funds in the hands of a Banker.
A garnishee order is issued in two stages, first an order Nisi and then an order
Absolute
Banker – Garnishee; Person approached the court - judgment creditor and
person whose funds are to be attached - Judgment Debtor.
Order Nisi
 An order Nisi requires the banker to explain as to why the funds of the
depositors should not be attached
 On receipt of order Nisi the bank is bound to stop operation in the
depositors account
 Bank must immediately inform the customer about the receipt of the
order.
Order Absolute
 After receipt of the explanation from the bank the court may issue
order Absolute.
 On receipt of an order Absolute the bank should pay the amount to the
court.
 Production of pass Book/ Deposit receipt not necessary for making
such payment
 Amount of the Garnishee Orders.
 A Garnishee order usually does not mention the amount. In case, no
amt is mentioned, the entire balance to be attached. If issued for
26
 As on 25-01-2018

specific amount only that amount to be attached

Accounts to be attached
 Garnishee order extends only to those accounts, which are held in the same
capacity in which the order is issued.
 If the order is in the name of A and the account is in the name of a partnership
firm where A is a partner the firm account cannot be attached.
 If the order is in the name of a partnership firm, not only the firm account but
also the balance in the individual partner’s account can be attached.
 If the order is in the name of individual it would extend any account
maintained by him in the name of a firm as sole proprietor
 Accounts held by a person as a trustee (Trust Accounts) are not attached by a
Garnishee order issued in individual name
Accounts not attached
Deceased person’s account
Insolvent person’s account

INCOME – TAX ATTACHMENT ORDER

(As per 226(3) of IT Act, 1961)

It can attach SB, CD term deposit (payable on maturity), proceeds of

collection items to be credited to account
Even though the order is received in a single name, it attaches balance (pro
rata) in any joint account maintained by such person)
Even the amount deposited after the receipt of order, it is attachable
No need to insist upon presentation of Deposit Receipt to make payment

Garnishee order Attachment order

Issued by court issued by IT Dept
Usually amount not mentioned Amount mentioned
Deposits held at the time of receipt of same and future credits
order
Proceeds of instruments on collection attached
not attached
If issued in single name joint a/c not Attached pro rata
attached
Issued in joint names, balance in same
individual attached
A/c of deceased/ insolvent cannot be Are attachable
attached

(F) Forex
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FEMA (Foreign exchange Management Act – 1999):

90
It is the act which regulates all forex transactions in India. Its jurisdiction
extends to whole of India and also to all offices outside India which are
controlled by person(s) resident in India. The act has repealed the earlier act
‗FERA‘ and has come into effect from 01/06/2000. The objective of this act is
not to control and restrict forex transactions, but to regulate them so as to
―facilitate external trade and payments‖ and ―to have a well developed forex
market in India
Authorised Person:
91 Any entity (i.e., company / firm / individual) appointed by RBI to deal in (buy and
sell) foreign exchange is called an Authorised Person. Depending on powers
delegated by RBI, authorized persons classified in to two broad categories viz.,
a) Authorised Dealer (AD-I)
b) b) Authorised Dealer (AD-II) -Full Fledged Money Changers(FFMC)
ADs can normally undertake all types of forex transactions, where as FFMCs can
92 undertake only non trade related current account transactions (eg: buy / sale of
forex for tourists etc).
Exchange Rate: The rates at which an authorized dealer buys and sells foreign
93 exchange are called exchange rates. The exchange rates are of two types viz.,
Buying Rate & Selling Rate. Buying rate is applied by for buying transactions and
selling rate for selling transactions. The selling rate is to be higher than the
buying rate, the difference being the margin / / spread for the bank.
Direct Quote: It is an exchange rate quotation where the variable unit will be
94 domestic currency and foreign currency will be the fixed unit (Eg: $ 1 = Rs 65/-).
Here ‗$‘ is constant, but ‗Rs‘ will vary. In India, direct quotes are used since 1993
Indirect Quote: In indirect quote, the home currency is kept constant and
95 foreign currency is the variable currency (Eg. Rs 100 = $ 1.54). Here ‗Rs‘ is
constant but ‗$‘ will vary.
Capital a/c transaction: It means a transaction which alters the assets or
96 liabilities, including contingent liabilities, outside India of persons resident in
India or assets or liabilities in India of persons resident outside India. (Eg: Indian
entities purchasing house, Investing in companies outside India or External.
Commercial Borrowings. Similarly Foreign entities investing in India, NRI deposits
etc).
Current a/c transaction: A transaction which is not a capital a/c transaction is
97 called current a/c transaction. It is a transaction which does not affect the
balance sheet items (i.e., assets / liabilities) of a resident in India or of a non-
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 As on 25-01-2018

resident (Eg. Exports / Imports / Remittances etc)

Nostro account(our account with Foreign correspondent abroad (or) our a/c
98 with you): A bank account held in a foreign country by a domestic bank, normally
denominated in the currency of that country is called Nostro a/c. For example:
UBI‘s a/c in USD with Citi Bank, New York.
Vostro account(Foreign correspondent‟s a/c with us (or) your a/c with us) is
99 one in which the domestic bank acts as custodian or manages the account of a
foreign counterpart. For example, the account maintained by National Commercial
Bank, KSA with UBI in India is referred to as Vostro a/c
Escrow a/c: It is a bank account where money is held in trust by a bank for
100 utilization for some specific purposes as agreed by the account holder. Since the
account is held in trust, the bank cannot exercise its lien over the same. The
account holder cannot be allowed to operate the account for any purpose other
than the purpose for which the drawal is allowed as per terms of the account.
Convertible Currency: This refers to any currency which does not require
101 authorisation from Central Bank of the country in order to be freely traded
against other currencies in the forex market
Permitted Currency: Means a foreign currency which is freely convertible
Hard Currency A freely tradable currency that inspires confidence because of
stable economy of that particular country is called hard currency (Eg.USD, GBP,
Euro, CHF etc)
Non Convertible Currency: Any currency that is primarily used for domestic
transaction and is not openly traded in the forex market. Usually, this is a result
of government restrictions which prevent it from being exchanged for foreign
currency.

CDF: Currency Declaration Form - Any person bringing foreign currency of

102 more than USD 5000 or equivalent (or) Traveler Cheques exceeding USD 10000/-
or equiv(or) both(FC + TC) put together exceeding USD 10000 or equiv. should
declare with customs authorities on prescribed form ‗CDF‘ at the time of entering
India.
Derivatives:Derivatives are financial instruments whose values are derived from
103 the values of underlying financial instruments. Basic derivatives are forwards,
futures, swaps, options
Forward Contract: Forwards are financial instruments by which the counter
104 parties agree to exchange the specified quantity of underlying financial
instruments at a pre-determined price on a specified date in future.

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Futures: A futures contract is an agreement between two parties to buy or sell

105 an asset at a certain time in the future for a certain price. Unlike forward
contracts, future contracts are normally traded on an exchange.
Option: An option contract is the right to buy or sell a specific quantity of a given
106 asset at a specific price at or before a specific date in the future. An option
confers upon the buyer a right to buy or sell but not an obligation.

Call option: An option in which one investor acquires the right but not the
107 obligation to buy an underlying commodity from another investor for a specified
price during a specified period of time
Put Option: An option in which one investor acquires the right but not the
obligation to sell an underlying commodity from another investor for a specified
price during a specified period of time.
Hedging: Hedging is the act of passing on your risk to someone else willing to
108 assume and manage the risk. Hedging can also be defined as a method of reducing
risk by making transactions that reduce exposure to market fluctuations.
Swap: It is a transaction where the bank purchases or sells the foreign currency
109 simultaneously, for different maturities, say purchase of spot and sale of forward
or vice versa.
Arbitrage: The transactions involving purchase and sale of foreign currency in
110 different centers to take advantage of the rate differentials are called arbitrage
operations.
Mark to Market: Mark-to-market is to calculate the value of a financial
111 instrument based on the current market rates or prices of the underlying
commodity
FEDAI: Foreign Exchange Dealers Association of India - It is an association of
112 banks dealing in Foreign Exchange in India & is a self regulatory body. It frames
rules governing the conduct of inter-bank foreign exchange business among banks
vis-a-vis public and liaison with RBI for reforms and development of forex
market.
Unhedged Foreign Currency Exposure (UFCE): Unhedged Foreign Currency
113 Exposure- UFCE refers to the gross sum of all items on the balance sheet that
have impact on profit and loss account due to movement in foreign exchange
rates.
Reasons to track UFCE
Significant losses due to Erratic Exchange Rate Movement
Increases the probability of default in times of high currency volatility
Affects the health of the entire banking system
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Monitor the UFCE of borrower clients and factor this risk into pricing.
Introduction of Incremental Provisioning and Capital Requirements
External Commercial Borrowings: ECB - Refers to Commercial loans availed by
114 Indian companies in the form of
• Bank loans,
• Buyers credit, Suppliers credit,
• Other Securitized instruments (bonds)
ECB Can be availed under 2 routes : i) Automatic Route (No Permission
from RBI required) ii) Approval Route (Permission from RBI required
Trade Credits:
115 Trade credits (TC) refer to credits available for imports into India from the
overseas supplier or banks / financial institutions for maturity of less than three
years.
Suppliers‟ Credits:
116 Suppliers‘ credit relates to credit for imports into India extended by the
overseas supplier.
o This can be under Usance LC established by the AD Bank for a period
exceeding 6 months. As mentioned earlier all imports payable within six
months are cash imports for which the importer does not need special
permission.

(G) General banking

“Decoy Customer: A ―Decoy Customer‖ is an officer of the bank
117 , who will be deputed for a day to some other branch in an adjoining district in a
disguised manner i.e., without disclosing the fact that he is an employee of the
bank with the intention of noting down whether the branch is following all the
KYC norms for opening an account.

PUBLIC PROVIDENT FUND:

118
 Minimum yearly deposit of Rs.500 is required to open and maintain a PPF
account and maximum deposit of Rs.150000 can be made in PPF account in
any given financial year.

 The subscription, which shall be in multiples of Rs. 500, may, and to be paid
into the account not exceeding twelve times in a year.
31
 As on 25-01-2018

 Interest on the lowest balance at credit between the close of the fifth day
and the end of the month and shall be credited to the account at the end
of each year

 Withdrawal can be made from the PPF account any time after the expiry of
five financial years from the end of the year in which the initial
subscription was made. Withdrawal amount should not exceed fifty per
cent of the amount that stood in credit at the end of the forth year
immediately preceding the year of withdrawal or at the end of preceding
year, whichever is lower

 Not more than one withdrawal shall be permissible during a year

 Closure of PPF account is allowed any time after the expiry of 15 years
from the end of the year in which the initial subscription was made

 Loan against PPF is allowed any time after the expiry of one year but
before five years from the end of the year in which the initial subscription
was made. The loan amount should not exceed twenty five percent of
amount that stood to credit at the end of second year immediately
preceding the year in which the loan is applied for

 No Nomination shall be made in respect of an account opened on behalf of

minor.

 Opening of HUF PPF Accounts are not permitted.

Aadhaar Based Payment Services :
119 AEPS:
 Our Bank is the pioneer bank showcasing AEPS system implementation for
FI customers in co-ordination with NPCI and UIDAI.

 AEPS empowers the marginalised and excluded segments to conduct

financial transactions (Credit, Debit, Remittances, Balance Enquiry, etc)
through micro ATMs deployed by Banks in their villages.

Aadhar Payment Bridge System (APBS)

120  Financial Inclusion is achieved by way of processing government
disbursement using Aadhaar number to support various Schemes like
32
 As on 25-01-2018

MNREGA, Social Security Pension, Handicapped Old Age Pension etc., to

send financial details to the beneficiary using Aadhaar number.
 This platform has been successfully integrated our system with APBS
system of NPCI for Govt. Subsidy and DBT files.
 Apart from these payment services, our Bank uses Aadhar for seeding of
accounts and demographic verifications for KYC norms.
Aadhaar Seeding:
121  It is a process by which AADHAAR numbers of Indian residents are seeded in
the Bank database for enabling AADHAAR based authentication during
financial services.
 Aadhaar numbers of the Customers are being linked to their Account numbers
for crediting Govt. benefits based on Aadhaar number.
 This initiative is to support DBT implementation by smooth linking of Aadhaar
Number to Account Number.
 The seeding of Aadhaar numbers is available 24x7 in our Bank through various
channels viz. Internet Banking, ATMs, Corporate Website & SMS/Mobile
Banking apart from bank branch.
 Customers can use these channels for seeding their account with Aadhaar
numbers. Our Bank uses the SMS channel for updating the customer regarding
the various updates of the Aadhaar seeding process.
Union Easy Tax Saver Fixed Deposit
122  Individual either singly or jointly or in the name of HUF can open account
under this scheme.
 Other customers like Associations, Clubs, Partnership, Limited Company, etc
are not permitted.
 PAN is mandatory.
 The depositor can start investing with a minimum of Rs.1,000/- and in
multiples of Rs. 1,000/- any number of times up to a maximum of Rs.
1,50,000/- in a financial year.
 Any deposit made in the account will be swept-out and locked-in for a period
of 5 years.
 The latest prevailing rate of interest for 5 year as on the date of each
deposit will be applicable.
FATCA (FOREIGN ACCOUNT TAX COMPLIANCE ACT)
123  This was enacted in US in 2010 to combat tax evasion by US person
33
 As on 25-01-2018

 India has signed the inter government Agreement (IGA) with US on

09.07.2015 for reporting under FATCA
 Declaration is mandatory while opening account
DICGC
Deposits of all commercial, cooperative and regional rural Banks are covered
124 under the DICGC scheme, Maximum cover is 1 lac per depositor per Bank
&Deposits in name of Central/State Govt./Foreign Govt. and Banks are not
covered
Rate of premium is 10 paisa per Rs 100,Premium is to be paid in advance for
the half year in April and October, Premium is borne by Bank
 Deposit Insurance is compulsory

Parameters of ranking the Bank by BCSBI

125  Transparency
 Customer Centricity
 Information Dissemination
 Customer Feedback
 Grievance Redressal

(H) RABD
'Pradhan Mantri Fasal Bima Yojana' :
126  Premium rates to be paid by farmers; are very low­ 2% of sum insured for all
Kharif crops, 1.5% for all Rabi crops' and 5% for commercial and
horticulture crops.
 The new insurance scheme involves use of simple and smart technology
through phones & remote sensing for quick estimation and early
settlement of claims.
 The Government has also launched a Mobile App "Crop Insurance" which will
help farmers to find out complete details about insurance cover available in
their area and to calculate the insurance premium for notified crops.
Components under Priority sector advances?
127 1. Agriculture

2. Micro small and Medium enterprises

3. Export advances

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 As on 25-01-2018

4. Housing Loan

5. Education Loan

6. Social Infrastructure

7. Renewable Energy

8. Other Priority sector

Few important changes in Priority sector advances/lending(PSL)(wef 23.04.2015)

128
1. Medium enterprises comes under the purview of PSL

2. Concept of direct agriculture and indirect agriculture is dispensed with

3. Social infrastructure and Renewable energy sector introduced

4. Finance to food and agro processing units now comes under Agriculture (up to Rs.

100 crore)

5. Agriculture is broadly classified into Farm credit, Agri infrastructure and agri

Ancillary activities

6. ANBC achievement calculation annually based on the quarterly average, not on the

annual terminal figure.

7. Separate benchmark under ANBC for small and marginal farmers

8. Separate benchmark under ANBC for Micro enterprises

Important Benchmarks under priority sector :

129 1. Total Priority Sector – 40% of ANBC

2. Agriculture – 18% of ANBC

3. Small & Marginal Farmers – 8% ( 7& by March 2016 and 8% by March 2017)

4. Micro Enterprises – 7.5% ( 7.00% by March 2016 and 7.5% by March 2017)

5. Weaker sections- 10% of ANBC

6. Women – 5% of ANBC

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 As on 25-01-2018

RIDF (Rural Infrastructure Development Fund):

130  Failure to achieve the bench mark stipulated by RBI under priority sector

advances attracts penalty.

 The gap between the bench mark and achievement is to be kept under

RIDF/SIDBI/NHB which attracts very low of interest

 Rate of interest on the amount deposited is inversely proportional to gap

Agricultural credit shortfall to Applicable Rate of Interest

ANBC

Less than 5 % Bank Rate- 2%

Over 5% and up to 10% Bank Rate-3%

Over 10 % Bank Rate – 4%

(RBI circular dated 10.12.2014)

 It drains bank‘s profitability

 Non achievement of benchmarks/targets under priority sector is a great

reputational risk to the bank.

Computation of Adjusted Net Bank Credit:

131 I Bank credit in India (As prescribed in item No VI of Form ‗A‘
(Special return as on March 31st ) under section 42 (2) of the RBI Act,
1934
II Bills rediscounted with RBI and other approved Financial Institutions
III(I- Net Bank Credit (NBC)*
II)
IV Bonds/debentures in Non-SLR categories under HTM category +
other investments eligible to be treated as priority sector +
outstanding deposits, as on preceding March 31st , under RIDF,
and other eligible funds with NABARD, NHB,SIDBI and
MUDRA Ltd + outstanding PSLCs
V Eligible amount for exemption on issuance of long term bonds for
infrastructure and affordable housing

36
 As on 25-01-2018

VI + Advances extended in India against the incremental FCNR (B)/ NRE

deposits, qualifying for exemption from CRR/SLR requirements, till
their maturity
III+IV- Adjusted net Bank Credit (ANBC)
V- VI
components of weaker sections category
132 Priority sector loans to the following borrowers will be considered under weaker

sections category:

1. Agricultural labourers – more than 50% of their annual income is from activities

related to agriculture

2. Tenant farmers – farmers who take land on lease for cultivation

3. Share croppers – persons who cultivate others land with a condition to share the

produce on an agreed basis

4. Artisans, village and cottage industries where individual credit limits do not

exceed Rs. 100000/-.

5. Beneficiaries of National Rural Livelihood Mission (NRLM)

6. Scheduled castes and scheduled tribes

7. Beneficiaries of Differential Rate of Interest (DRI) scheme

8. Beneficiaries of National Urban Livelihood Mission (NULM)

9. Beneficiaries under the scheme for Rehabilitation of Manual Scavengers (SRMS)

10. Loans to Self Help Groups (SHG)

11. Loans to distressed farmers indebted to non- institutional lenders

12. Loans to distressed persons other than farmers not exceeding Rs. 100000/- per

borrower to prepay their debt to non- institutional lenders

13. Loan to individual women beneficiaries up to Rs. 100000/- per borrower

14. Loan sanctioned under (1) to (13) above to persons from minority communities

as notified by Govt. of India.

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 As on 25-01-2018

15. Person with disabilities

16. Overdraft in PMJDY accounts upto Rs.5000/-.

Minority Communities means

133
1. Sikhs, Muslims, Christians, Zoroastrians, Buddhists and Jain are notified
minority communities.
2. In states, where one of the minority communities notified is, in fact , in majority,
the other notified minority communities only coming under purview of weaker
sections
3. In the case of a partnership firm, SHGs, JLGs, if the majority of the
partners/members belong to one or the other of the specified minority
communities, advances granted to such partnership firms may be treated as
advances granted to minority communities

Deepak Mohanty committee on financial inclusion under agriculture

134  Digitization of land records backed by an Aadhaar-linked mechanism for Credit
Eligibility Certificates to facilitate credit flow to actual cultivators.
 Phase out the agricultural interest subvention scheme
 Universal crop insurance scheme for marginal and small farmers for all crops with
a monetary ceiling of Rs.200,000 at a nominal premium to end agrarian distress.
 A scheme of ‗Gold KCC‘ (kisan credit card) with higher flexibility for borrowers

(I) KYC /AML

Money Laundering
135 Section 3 of the Prevention of Money Laundering (PML) Act 2002 has defined the
―offence of money laundering‖ as ―whosoever directly or indirectly attempts to
indulge or knowingly assists or knowingly is a party or is actually involved in any
process or activity connected with the proceeds of crime and projecting it as
untainted property shall be guilty of offence of money laundering.‖

Process of Money Laundering

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 As on 25-01-2018

The entire process of money laundering involves three stages;

The first stage is known as ‗Placement‟. In this stage large amount of cash generated
through criminal activities is sought to be introduced into the legitimate financial
channels in small quantities through transactions of small value often through Benami
means.

The second stage is known as „Layering‟. In this stage the funds introduced into the
financial channels are moved/rotated through a number of accounts in order to mask
the origins of the funds.

The third stage is known as „Integration‟. In this stage the layered funds are
brought together in an account directly or indirectly controlled by the owners of the
tainted funds. Very often at this stage shell companies purportedly dealing in
exports/imports, real estate, casinos etc are used.

Definition of Customer
136
A ‗Customer‘ is defined as:

i. A person or entity that maintains an account and/or has a business

relationship with the Branch;

ii. One on whose behalf the account is maintained (i.e. the beneficial owner);

iii. Beneficiaries of transactions conducted by professional intermediaries, such

as Stock Brokers, Chartered Accountants, Solicitors etc. as permitted under
the law

iv. Any person or entity concerned with a financial transaction which can pose
significant reputational or other risks to the bank, say a wire transfer or
issue of high value demand draft as a single transaction.

Key Elements of KYC Policy

137 KYC policy is framed incorporating the following four key elements:

a) Customer Acceptance Policy;

b) Customer Identification Procedures;

39
 As on 25-01-2018

c) Monitoring of Transactions; and

d) Risk Management.

Updation of Customer Identification Data (Re-KYC: IC 606-2016 dt.03.10.2016)

138 a. For Low risk customers once in 10 years

b. For medium Risk customers once in 8 years

c. For High Risk customers once in 2 years

d. Fresh photographs will be required to be obtained from minor customer

on becoming major

Risk Classification
139 i. Low Risk Customers: - For the purpose of risk categorization,
individuals (other than High Net Worth) and entities whose identities
and sources of wealth can be easily identified and transactions in whose
accounts by and large conform to the known profile, shall be
categorized as low risk.

ii. Medium Risk Customers:-Customers that are likely to pose a higher

than average risk to the Branch or which are neither low risk nor High
Risk shall be categorized as medium risk customers.

iii. High risk customers:- Customers, especially those for whom the
sources of funds are not clear or are in cash intensive business, such
as accounts of bullion dealers (including sub-dealers), jewellers, dealers
in wild life articles, Arms and Ammunition dealers, etc will be
categorized as ‗high risk‘ requiring enhanced due diligence

Low Risk

Organization type i) Accounts of Government Departments, Government

owned companies/undertakings/Agencies, Local Bodies
like Gram panchayats, Mandal Parishads, Zilla Parishads,
Municipalities, Municipal corporation

ii) Self Help Groups

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 As on 25-01-2018

iii) Regulatory and Statutory Bodies

Specific type of Salary, Pension, No Frill Accounts , PMJDY

accounts

Not classified Customers who are not classified under High or Medium
Risk

Salaried employees

People from low economic strata-accounts show small balances and low turnover

Government. Dept. & Govt. owned companies

Regulatory and statutory bodies etc.

Medium Risk

Location Customers living in Medium Risk Countries

Net worth Individuals with net worth of Rupees Five Crore and
above

Nature of Activity Export/Import

Nature of Account Dormant Account

Business people, Traders

All others those who are not coming under Low and high risk category

High Risk

Activity/occupation Customer engaged in the professions where money-

laundering possibilities are high

i) Antique dealers (individuals and entities) – Code No. 103

under Occupation

ii) Money Service Bureau such as money exchangers –

Code Not Available. To be recorded in the register

iii) Dealers in arms – Code No. 102 under Occupation

iv) Bullion dealers – Code No. 101 under Occupation

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 As on 25-01-2018

v) Real estate/construction business – Code No. 24 under

Occupation

vi) Trusts/charities/NGOs – Code No. 55 under

Constitution

vii) Pooled accounts managed by Attorneys, CAs or stock

brokers for funds held ―on deposit‖ or ―in escrow‖ for a
range of clients – Code Not Available. To be recorded in
the register

Location Customer who live in High Risk Countries – Country code

enclosed

Political exposure Politically Exposed Persons (PEPs)

Foreign contributions Organizations receiving donations under FCRA 1976

Reputation Persons or entities with dubious reputation as per public

information available

Interaction Non-face-to-face customers

Residence Non-Resident customers – Code No. 02 under Constitution

Type of Constitution 1.Trusts, 2.JV/Wholly Owned Subsidiary

Type of Customer 1. Non-Resident,

2. Foreign National,

3. Foreign Organisation,

4. Trusts, Associations, Clubs

5. NGOs / Trusts

6. Foreign Government & Banks

Permanent Account Number (PAN)

140
Following banking transactions have been specified under the Income Tax Rules for
which PAN should be quoted:

a. All transactions of term deposit exceeding Rs.50,000/- during any one day
42
 As on 25-01-2018

or aggregating to more than Rs.5,00,000/- in a FY.

b. Opening an account with amount exceeding Rs.50000/-

c. Payment in cash for purchase of bank drafts or pay orders or bankers

cheques for an amount aggregating Rs.50000/- or more during one day.

d. Deposit in cash aggregating Rs.50000/- or more during anyone day.

e. Payment in cash or by DD/PO/BC aggregating to more than Rs.5,00,000/-

in a FY for purchase of pre paid instruments.

f. Making an application for issue of a credit card

When the customer quotes his PAN, a copy of the PAN card issued by the
Income Tax department should be obtained and kept on record.

Cash Transaction
141 The maximum permissible cash transaction in an account in a day is Rs.10 lac
(both receipts & withdrawals). In case, a customer desires higher cash
transaction levels, the same will have to be approved for each account by the
concerned Regional Office. For this purpose, the branch will submit supporting
evidences viz. Income tax returns, Sales tax returns or Sales tax assessment
orders or any other documents justifying higher levels of deposit/withdrawal
of cash.
In respect of Bullion dealers, the maximum permissible daily cash level has
been fixed at Rs.50 lacs. This will be available for the bullion dealers buying
bullion directly from our bank. Transactions beyond this limit needs to get
approved by IBD, CO.
Suspicious Transaction
142 Suspicious transaction means a transaction whether or not made in cash which a
person acting in good faith –
(a) Gives rise to a reasonable ground of suspicion that it may involve the
proceeds of crime or
(b) Appears to be made in circumstances of unusual or unjustified complexity
or
(c) Appears to have no economic rationale or bonafide purpose

43
 As on 25-01-2018

 Certain transactions not in line with the profile of the customer

 Certain behavior displayed by the customer during interactions

 Analysis of exceptional transaction reports etc.

Maintenance and Preservation of Records

143 The Branch shall maintain the records containing information in respect of
transactions referred to in Rule 3 of the Prevention of Money-Laundering
(Maintenance of Records, etc.) Rules, 2005. The Branch shall evolve a system
for proper maintenance and preservation of account information in a manner
that allows data to be retrieved easily and quickly, which shall contain all
necessary information for reconstruction of individual transaction whenever
required or when requested by the competent authorities.

The Branch shall maintain for at least five (5) years from the date of
transaction between the Bank and the client, all necessary records of
transactions, both domestic or international, which will permit reconstruction
of individual transactions (including the amounts and types of currency
involved, if any) so as to provide, if necessary, evidence for prosecution of
persons involved in criminal activity.

The Branch shall ensure that records pertaining to the identification of the
customer and his address (e.g. copies of documents like passports, identity cards,
driving licenses, PAN card, utility bills, etc.) obtained while opening the account and
during the course of business relationship, are properly preserved for at least five
(5) years after the business relationship is ended.

e-KYC
144 E-KYC is a screen-based interface that accepts Aadhaar number and
fingerprint and sends it to NPCI through bank's network. If the fingerprint is
matched at UIDAI, the KYC data as defined in their interface specifications
will be returned. E-KYC application will display the KYC data on screen and on
acceptance; it will be saved into the database.

i. The solution also exports an interface that can be invoked by any client
application to use e-KYC services. The client application will invoke the
interface and submit the Aadhaar number and the encrypted
44
 As on 25-01-2018

fingerprint as specified in NPCI specifications. The application will use

e-KYC interface of NPCI to get the e-KYC data. The interface will
return KYC data or error code based on the return value from NPCI.

ii. The application will store the KYC data in the DB identified by Aadhaar
number.

iii. A separate process is available to extract the KYC data from the DB in
the form of a flat file that can be used by the banking application.

Cash Transaction Report (CTR)

145 a. All cash transactions of more than Rs.10 lakh or its equivalent in foreign
currency

b. All series of integrally connected cash transactions exceeding Rs.10 lakh or

its equivalent in foreign currency in a month

c. CTR has to be submitted by Central Office to FIU-IND by 15th day of

succeeding month

NPO Transaction Report (NTR)

146 All transactions involving receipt by non-profit organizations exceeding Rs. 10
lakh or its equivalent in foreign currency

Counterfeit Currency Report (CCR): All cash transactions using forged currency
147 notes or valuable security or document. CCR has to be submitted by the Branch to
Nodal Currency Chest Officer. Simultaneously the branches/currency chests have
to report detection of fake notes to KYC AML Division, Mumbai in the single page
prescribed format. Delay and/or non-reporting may attract financial penalty by FIU
India Ministry of Finance, recoverable from erring officials as personal liability.

Cross Border Wire Transfer Reporting (CBWTR):

148 Every reporting entity is required to maintain the record of all transactions
including the record of all cross border wire transfers of more than Rs.5.00 laks or
its equivalent in foreign currency, where either the origin or destination of the
fund is in India. Bank shall ensure that the information of all such transactions shall
be furnished to Director, FIU-IND by 15th of the succeeding month.

45
 As on 25-01-2018

(I) LC/LG
Letter of Credit (LC):
149  LC or, Documentary Credit is a letter of assurance issued by a Bank to a
seller at the request of a buyer for payment of cost of goods / services
sold on certain terms and conditions.

 LC is also termed as contingent liability and it is off-balance sheet item.

 It is a commercial instrument of assured payment and widely used by the

business community.

 This non-fund based limit is converted into fund based limit after
performance of the parties unlike LG.

 All parties to the credit deal only with the documents and not the goods.

 An instrument by which a bank undertakes to pay a seller for his goods,

provided he complies with the conditions laid down in the credit.

 LC specifies as to when payment is to be made which may be either when the

documents are presented to the paying bank or at some future date,
depending upon the usance of draft as stipulated in the credit.

 LCs are available for settlement by acceptance / payment / deferred

payment / negotiation.

 The negotiation under a confirmed credit is without recourse to drawer.

 LC may be Inland or, Import in nature.

Different parties of LC :
150  The Applicant/ Buyer: On whose behalf the credit is issued.

 The beneficiary / seller: In whose favour the credit is issued.

 The issuing Bank: The Bank that issues LC on behalf of an applicant.

 Advising Bank: The Bank that advise the credit at the request of the issuing
bank, usually located in the beneficiary‘s country, certifying the genuineness of
the documentary credit issued by the issuing Bank.

46
 As on 25-01-2018

 Confirming Bank: The bank that adds its conformation to a credit upon the
issuing bank‘s authorization or request. A confirmed irrevocable credit gives the
seller a double assurance of payment, since a bank in the seller's country has
now added its own undertaking in addition to that of the issuing bank.

 Negotiating Bank: A bank which effectively negotiates draft(s) / document(s)

buys them from the beneficiary, thereby becomes a holder in due course.

 Reimbursing Bank: The bank which maintains nostro account of the opening bank
and reimburses the claiming bank.

Classification of LC:
151 The Letter of Credit based on the mode of payment may be DA or DP.

 DP/ LC: If the LC stipulates that when the payment is made available to the
seller against delivery of certain specified documents.

 DA/ LC: If the credit stipulates the delivery of documents by the seller
against acceptance and that the payment will be made on a future final date.

LC is classified in to various categories depending upon the nature and

the functions of the credit. Some of them are:

Inland LC:

 A Letter of Credit where all the parties including buyer and seller of goods
and services are located within the country.

Import LC:

 A LC where either the opener or the beneficiary is located outside the country
of issue and the LC arises out of export or import of goods/services out
of/into the country of issue.

 A payment mechanism, widely used all over the world, for settlement of trade
payment between the importer and exporter.

 It is a written conditional undertaking issued on behalf of the importer

(applicant) by the issuing bank to the exporter (beneficiary) to pay for the
goods or services provided the terms and conditions of the credit are complied
with.

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 As on 25-01-2018

 All Import LCs are subject to:

1. Uniform Customs and Practices for Documentary Credits (UCPDC),

2. Exchange Control Regulations (ECR),

3. Export and Import Policy and Public notices issued by Director General
of Foreign Trade from time to time.

Irrevocable credit:
152  The irrevocable credit is definite undertaking of the issuing bank and
cannot be amended or cancelled without the agreement of the issuing
bank, the confirming bank (if any) and the beneficiary.

 All documentary credits are irrevocable whether expressly mentioned or

otherwise as per article 3 of UCP 600.

Deferred Payment Credit:

153  It is a usance credit where payment will be made by designated bank, on
respective due dates, determined in accordance with stipulations of the credit.

 Under deferred payment credit, no draft will be called upon to be drawn, but it
must specify the maturity at which payment is to be made and how such
maturity is to be determined.

Transferable Credit:
154  A Transferable Credit under Article 38 of UCP 600 is a credit under which the
beneficiary has the right to give instructions to the bank called upon to effect
payment or acceptance or any bank entitled to effect negotiation to make the
credit available in whole or in part to one or more parties.

 A letter of credit can be transferred only if it is expressly designated as

transferable by the issuing bank and can be transferred once only

 Although if part shipments are not prohibited fractions of a transferable credit

may be transferred to more than one beneficiary.

Back to back credit:

155  Back- to-Back credit is also called as Countervailing Credit.

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 As on 25-01-2018

 When a second credit is issued on the basis of a parent credit, the second
credit will be termed as a ‗back- to- back credit.

Revolving Credit:
156  Revolving credit is one where, under the terms and conditions of the credit, the
amount is revived or reinstated without requiring specific amendment to the
credit.

 The amount under the credit can revolve in relation to time or value.

 The basic principle of a revolving credit is that ―after a drawing is made, the
credit reverts to its original amount for re-use by beneficiary‖

Anticipatory Credit:
157  In case of anticipatory credits, payment is made to beneficiary at pre-
shipment stage in anticipation of his actual shipment and submission of
bills at a future date.

 The payment which is provided through an anticipatory credit is generally

a part or full amount of the credit to be adjusted at the time of
submission of final documents.

 The credit contains a special clause authorizing the bank to make

advances to the beneficiary which are recovered from the beneficiary out
of the proceeds of bills to be presented under the credit.

 But if no presentation is made the recovery will be made from the issuing
bank.

 Two types of anticipatory credits are Red Clause Credit & Green Clause
Credit.

 Red Clause Credit contains a clause providing for payment in advance for
purchasing raw materials / processing and / or packing the goods.

 Green Clause Credit not only provides for advance towards purchase,
processing and packing but also for warehousing and insurance charges at
port when goods are stored pending availability of ship/shipping space.

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 As on 25-01-2018

Standby Letter of Credit:

158  While possessing all the elements of a documentary credit, it is generally
used as substitutes for performance guarantee.

 This type of credit is issued mostly by banks in countries (USA etc)

where, by law they are precluded from issuing guarantees.

 It is merely backup available to the beneficiary (from issuing bank) in

case the applicant fails to pay or perform.

 The document generally called for under such credits is a simple

statement of claim of proof of delivery of goods or certificate of non-
performance.

 No transport document is called for under this credit.

 Standby credits are independent of the underlying contract and provide

the beneficiary the same degree of protection as a bank guarantee.

 The standby credit is intended to cover a non performance(default)

situation instead of a performance situation as with the traditional
documentary credit.

Letter of Guarantee (LG):

159  Sec.126 of Indian Contract Act, 1872 defines guarantees as a contract to
perform the promise or discharge the liability of a third person in case of his
default.

 LG is also termed as contingent liability and it is off-balance sheet item.

It is also known as Bank Guarantee (BG).

 As a part of business, banks issue guarantees on behalf of their customers

for various purposes.

 Bank by issuing such guarantees steps into the shoes of the constituent and
assumes the financial risk and responsibility attached to it.

 This non-fund based limit is converted into fund based limit after non-
performance of the parties unlike LC.

 During the course of business, banks are often required to furnish

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guarantee on behalf of their own customers in lieu of their obligations,

performance or engagement.

 Used for participation in tenders, security deposits for participation in

tenders, for capacity to perform contracts, avail concessions in duty on
imports when tagged to some export obligations etc.

 The guarantee with a maturity of more than 10 years may be issued only
after prior permission of CAC-II / CAC-I.

 Our Bank has set up ―E-confirmation Cell‖ at Central Office, MSME Dept.
for electronic confirmation of genuineness of bank guarantees issued.

Classification of Guarantees:
160 A guarantee based on location can be either of the following:

 Inland Guarantee: Executed between the parties in India and in respect of all
transactions in India.

 Foreign Guarantee: Executed by or in favour of a party residing outside India

and in respect of transactions both in India as well as outside.

Financial Guarantee:
161  For discharge of a pecuniary liability of the principal debtor on his default.

 Broadly they are the guarantees for repayment of a debt.

 Issued in favour of banks, chit funds, Financial Institutions, undertaking

repayment of advances/payment of prize money.

 Guarantees issued in favour of Income Tax/Sales Tax/ Excise Dept., in

respect of disputed assessment etc.

 Guarantee for obtaining mobilisation advance

Performance guarantee: A guarantee which lays stress on the performance of

162 certain acts like supply of a product, completion of a work, or achievement of
certain level of exports etc.

 Issued for the due performance of a contract or an obligation arising out of

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a contract within a given time frame.

 The banker has to discharge the financial liability if the customer does not
perform the contract.

 The instances of such guarantees are

- Bid Bonds

- Guarantee on behalf of a manufacturing co. in respect of supply

- Guarantee on behalf of a contractor for due completion of work

- Guarantee in favour of Railways for due performance/licence fee etc.

- Export Performance Guarantee

Deferred payment guarantee:

163  In case of purchase of capital goods like machinery, the necessity to
issue deferred payment guarantee arises.

 In such guarantees, the banks are undertaking to pay the installments

due under the deferred payment schedule.

 Unlike all other L.G‘s, the payment will have to be made by the banks on
the accepted due dates and thereafter the installment is recovered from
the party.

Mobilization guarantee:
164  When the beneficiary agrees to allow certain advance to the
applicant to enable him to complete the contractual obligations.

 The mobilization of advances will be utilized for the completion of

the project.

 This can also be called as an advance payment guarantee.

Bid bond guarantee:

165  As and when tenders are called for, the beneficiary ask for a bid
bond, being the part of the total contract value say 5%.

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Retention money guarantee:

166  The beneficiary as part of the contract, may retain some portion of
the contract amount say 10% to ensure that the project has come
out as expected.

 This retained money is released only after being satisfied about

the project, say erection of a machinery.

 This amount is used for minor repairs etc. in cases of need or the
full retained amount is released also, if not needed.

 To enable our customer to mobilize that fund, bank issue a

retention money guarantee.

(J) MSME
Definition of Micro, Small & Medium Enterprises
167 Segment Enterprises engaged in the Enterprises engaged in
manufacture or production, providing or rendering
processing or preservation of services
of goods
Criteria Investment in Plant & Investment in
machinery Equipment
Micro Enterprises upto Rs.25 lacs Upto Rs.10 lacs
Small Enterprises More than Rs.25 lacs upto More than Rs10 lacs
Rs5crores. upto Rs2crores.
Medium More than Rs 5 crores upto More than Rs.2 crores
Enterprises Rs10crores. upto Rs.5 crores.
MSE-Priority Sector Lending:
168  Micro, Small & Medium Enterprises (Manufacturing Units) will be a part of
Priority Sector Lending, irrespective of the exposure.

 Micro & Small Enterprises engaged in providing or rendering of services

having aggregate limit up to Rs.5 crores and medium enterprises upto Rs. 10
crores only will be eligible for classification under Priority Sector Advances.

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 All advances granted to units in the KVI sector, irrespective of their size of
operation, location and amount of original investment in Plant & Machinery will
be covered under Micro & Small Enterprises segment and will be covered
under Priority Sector Advances.

Prime Minister's Task Force on MSMEs, Bank has to achieve:

169 *20 per cent year-on-year growth in credit to micro and small enterprises,

*10 per cent annual growth in the number of micro enterprise accounts and 60% of
total lending to MSE sector as on preceding March 31 should be to Micro
enterprises.

MSE and Collateral free loan (CGTMSE)

170  To strengthen credit delivery system and increase the flow of credit to the MSE
sector, Credit Guarantee Fund Trust for Micro & Small Enterprises (CGTMSE)
has come in place.

 Credit limit upto Rs10 lacs to MSE without any collateral security and third party
guarantee is mandatory as covered under CGTMSE.

 Credit limits to the MSEs above Rs10lacs & upto Rs 200lacs without any
collateral security and third party guarantee can be extended subject to the
condition that they are covered under Credit Guarantee Scheme of CGTMSE.

 Credit facilities to MSEs extended by more than one bank and /or financial
institution jointly and/or separately to eligible borrower up to a maximum up to
Rs200lacs per borrower.

 The guarantee cover available under the scheme is to extent of 75%/80% of the
sanctioned amount of the credit facility, with a maximum cap of Rs. 100.00 lacs.
The extent of guarantee cover is 85% for Micro enterprises for credit up to
Rs.5 lacs.

(K)Monitoring & NPA

Front loaded provision :

171  Reported a loss of Rs 1,530.72 crore for the quarter ended September 30-

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2017, due to front-loaded the provisions this quarter ( though The RBI had

allowed banks to spread provisions on NCLT accounts over three quarters),

 The bank now has to make provisions worth Rs 1,080 crore in the December
and March-ending quarters for the 18 accounts in RBI‘s second list of
accounts that need urgent resolution.
 Additional upfront provision of entire amount of `1566 crore for 11 accounts

referred to National Company Law Tribunal (NCLT),

 Slippage : 2686 crore ( Sep -17) down 40% QoQ
 PCR -56.06% (up 561 bps YoY)
 “Modular Dues”
172 Modular dues is the minimum amount to be recovered from the borrower in case of
OTS, based on Module defined by Recovery policy
 NPV” (Net Present Value)
 Net present value is the realizable value of available securities, discounted by
value and time.
 Wherever securities are available against NPA exposure, the NPV also is to be
taken as a deciding factor for arriving at the minimum amount of settlement with
the borrower.
 The reference rate in calculation of NPV is changed to 1 year MCLR +5 in the new
Recovery Policy. (previously it was @ BASE rate)
 The minimum amount is to be the Module amount or NPV, whichever is higher.
This will be the minimum amount, we shall try to recover more than this minimum
through negotiation
Crystallized Dues”
173 Crystallized dues comprises of the Ledger outstanding as on the date of NPA +
Simple interest @ ONE year MCLR up to the date of settlement. If the borrower
agrees to pay Crystallized dues, the OTS proposal is considered to be without
―Sacrifice” and Branch Manager can sanction such proposals irrespective of the
scale
“Relief” under OTS proposal :Relief is the total amount of contractual dues minus
the settlement amount.
Prudential Write off
174
 PWO is writing off in NPA accounts affected by Bank to clean off the balance
sheet.

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 Normally it is resorted to where 100% provisioning is already made by bank,

and the chances of recovery are bleak. Instead of carrying these accounts on
the Books of account, write off is affected.
 This will help bank in better utilization of available capital, besides saving
time, cost and efforts.
 Borrowers have no information about this kind of write off. Normal recovery
efforts should continue in those accounts.

Holding on operations
175  In case of an NPA account where the unit is working and cash flows are there,
but the level of operations is not sufficient to pay the total dues, bank may
allow operations in the account to continue, subject to a cut back arrangement
in the total limit.
 This will be preferred in cases where the Bank finds even legal measures also
will not be much effective
SARFAESIA:
176 time allowed under Demand Notice under Section 13(2)-60 days - possession can
be taken thereafter
Reserve Price : It is the minimum price below which the property taken into
possession under SARFAESIA cannot be sold
Eeligibility criteria for Taking Action under SARFAESIA: ( Written exam -2017
union bank of india scale IV-V)
 Account should be classified as NPA
 The total dues in the account should be more than Rs.1 lac
 The property against which action is proposed should be Non-
Agricultural(however usage of property at the time of initiating SARFAESIA is
other than agriculture, then such properties can be attached)
Total dues in the account should be more than 20% of the original loan amount plus
interest charged in the account

Out of Order :
177 A running account becomes NPA if it is ―Out of Order‖. i.e.,
 No credit for 90 days,
 Account continuously overdrawn for 90 days,
 No sufficient credits to cover the interest in 90days period
Account turning NPA on technical grounds:
178 180 days delay in submission of stock statement and/or Non review/renewal of
credit limits

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Provisioning to be made Doubtful category:

179  For unsecured -100%
Where security is available,
 25% up to 1 year,
 40% above 1year and up to 3 years,
 100% above 3 years
Special Settlement Scheme:
180  A scheme devised by bank for settlement of NPA accounts with outstanding
up to Rs.25 lacs, where delegated authority is vested with Branch Head
 NPV concept is not applicable for Special Settlement Scheme:
 Even though security is available, in case of SSS, Branch Head can approve
the proposal, without referring the NPV of the security.
Compromise Settlement (OTS) :
181  it can be arrived at with the Guarantors of an advance
 It can be done if they come forward for a compromise settlement.
 This can be explored where the borrower is not traceable or not willing to
settle
DRT:
182  outstanding dues of Rs.10 lacs and above.

Penal interest in NPA Accounts

183 As per Recovery Management Policy 2016, no penal interest is required to be
charged on NPA accounts. Once the account becomes NPA penal interest will stop.
Classification of stressed :
184 SMA 0, SMA 1, SMA 2
(In case of Review renewal of accounts, the old classification of ―EAS II‖ is
retained, and continued). Loan default up to 30 days is SMA-0, 31-60 days SMA-1
and 61-90 days SMA-2. The accounts which are in SMA-02 category are reflected
in the mock run
“Loss Asset: An account is classified as Loss asset primarily based on the value of
security. If the value of security goes below 10% of the outstanding amount, the
account will be classified as Loss. Further, in cases where fraud is detected in any
account, it should be classified as Loss Asset
MAP (Monitoring Action Plan.)
185  MAP is the action suggested by the Monitoring authority to correct the
irregularities persisting in an account.
 Based on the MCMR (Monthly Credit Monitoring Report) submitted by the
branch, MAP is suggested for rectification/ restructuring /recovery
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Most common monitoring tools available at branch level :

186 Stock Statement, Account operations, Financial statements, QPR, MSOD, inspection
reports, audit reports etc.
Borrower shifts his godown/place of storage of goods without information to the
187 branch:
Branch has to immediately insist for a letter of free access from the new owner of
godown if it is rented, besides obtaining and scrutinizing lease deed copy etc. The
change in address is to be notified to the Insurance company and acknowledgement
kept on record
NPA accounts can be referred to LOK ADALAT- With total dues up to Rs. 20.00
188 lacs.(normally)
Pledge and Hypothecation
189 • In case of Pledge, Possession of goods is with the Bank, while in Hypothecation,
possession of goods is with the borrower
• Example where bank charge is by way of pledge:
Gold ornaments, , warehouse receipt, etc
• Example where bank charge is by way of Hypothecation:
Stocks, vehicles, crop, plant & machinery etc.
Simple and Equitable mortgage
200  Simple Mortgage is a mortgage created through a deed which is to be
compulsorily registered.
 Equitable mortgage is mortgage by deposit of Title Deeds. Bank only draws
the Memorandum of Deposit of Title deeds (this is also registered in some
states)
CERSAI :
201 Central Registry of Securitisation, Asset reconstruction and security interest of
India.
This body is set up on 31.3.2011, in accordance of SARFAESI Act 2002
Any charge of the Bank on the assets taken as security. Charge is to be registered
within 30 days of creation of charge
Stamp duty :
202 The stamp duty payable on a Document depends on:
 Nature of document
 Place of execution (state)
 Duty payable as on date of execution of document
Limitation :
203 Document in use in our bank to get extension of limitation of documents are:
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 SD -23 A (Composite Debit Balance confirmation wherever property is

mortgaged)
 SD-22 (Simple Debit Balance Confirmation for unsecured loans)
 In case Documents are expired: If we obtain Format 29 (Letter of Revival of
time barred debt ) along with a fresh DP note for the amount of liability as on
date, it will give rise to a fresh limitation from that date
Valuation report/certificate for property
204 If the property is offered as collateral, Branch Head can issue the valuation report
for credit limits up to Rs.10.00 lacs. In all other cases it should be obtained from
the panel valuer
Periodicity for submission of Monitoring Reports in case of Stressed accounts
205  SMA category Monthly Basis.
 Standard accounts :Quarterly basis
Recovery in case of NPA account is to be appropriated in order:
206
It will be appropriated in the following order( except OTS where special stipulation
may be made for appropriation )
 Firstly towards running ledger (arrears of principal, EMI)
 Secondly towards Dummy Ledger
 Thirdly towards costs and expenses
In Case an account covered under CGTMSE slips to NPA, the information is to be
given to CGTMSE within the end of the next quarter in which the account is
classified as NPA.
SDRs:
207  It is Strategic Debt Restructuring Scheme announced by RBI, where banks
can acquire ownership of borrowal units wherever such accounts are under
stress/NPA. Alternatively,
 Transfering ownership to such units to more efficient persons, which will
result in revival of the economic value of the unit.
 Such ownership can take place only where all the banks put together equity
holding exceeds 51% (debt is converted into equity).
Corrective Action Plan. Once JLF is formed it should discuss the issue and suggest
208 the Corrective Action Plan
Corrective Action Plan suggested by JLF comprises of what aspects?
a) Rectification of the irregularities within time bound commitment
b) Restructuring as per norms, if unit is viable and the borrower is not a willful
defaulter
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Recovery if the above two options are not feasible

Joint Lenders Forum.
 Suggested by RBI Framework on Revitalizing Distressed assets in the
economy (Feb 2014).
 JLF is to be mandatory when an account with aggregate fund based and non
fund based limits of Rs.100 crores and above is classified as SMA 2.
 The Banks participating in the finance have to form the JLF
Strategies for meeting the capital requirements :
209 general options to infuse additional Capital:
1. Improving profitability to increase retained profits.
2. Follow on public issue (subject to head room)
3. Rights issue
4. QIPs (subject to head room and regulatory approval)
5. Issue of innovative perpetual debt instrument for inclusion as Tier 1 capital
(Subject to headroom Basel-III guidelines).
6. Issue of sub-ordinate bonds (subject to head room)
7. Issue of Upper Tier 2 subject to Basel-Ill norms.
8. Revaluation of Assets

Capital Calculation Approach/s

210
Under Basel norms, three approaches available :Standardised Approach,
Foundation IRB Approach & Advanced IRB Approach

Our Bank is presently adopting Standardised Approach for Capital calculation

under Credit risk. We are in the process of moving to IRB approach. In
Internal Rating Based Approach (IRBA), Credit Risk measurement involves
identification of risk components viz. PD, LGD, EAD, EL & UL.
(PD- Probability of Default, LGD- Loss Given Default, EAD- Exposure At
Default, EL- Expected Loss and UL- Unexpected Loss).

Approaches in Market Risk

211
There are two approaches in Market Risk.
1. Standardised Duration Method
2. Internal Models Method

Our Bank is using Duration approach of Standardised Method for arriving at

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capital charge for market risk in Trading Book. Bank has already applied to
RBI to move towards Internal Models approach. We are presently using
‗Kastle Risk Free‘ software to compute VaR (Value at Risk) on Trading
portfolio.
Operational Risk: Approaches
212
There are three approaches in Operational Risk.

1. Basic Indicator Approach

2. The Standardised Approach
3. Advanced Measurement Approach.
 Our Bank has adopted Basic Indicator Approach for calculation of
minimum capital requirements, which is the simple method of
quantifying Operational Risk. In this approach capital charge of 15% is
applied to a single indicator, specifically, the average Gross Income
over the last 3 years.
 Bank has applied to RBI for moving to TSA and submitted its proposal.

Important Ratios in Basel III:

213 Basel II and Basel III Minimum Capital Requirements
Basel II Basel
III

1 Common Equity Tier I (CET 1) 3.6 to 5.1% 5.5%

(floor)

2 Additional Tier I (max) 2.4 to 0.9% 1.5%

3 Minimum Tier I 6% 7%
4 Capital conservation buffer (CCB) -- 2.5%
5 Tier I including CCB 6% 9.5%
6 Tier II (max) 3% 2%
7 Total capital ratio 9% 9%
8 Total capital ratio including CCB - 11.5%
Under Basel III certain new ratios have been introduced , what are those ?
214  Leverage Ratio
 Liquidity Ratios
Leverage Ratio
215 This means a bank should have a minimum amount of loss-absorbing capital
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relative to all of a bank‘s assets and off-balance sheet exposures regardless

of risk weighting. A bank whose leverage ratio is below 4.5% may endeavor to
bring it above 4.5% as early as possible.
Liquidity Ratios:
216  Liquidity Coverage Ratio (LCR): To promote short term resilience of
banks to potential liquidity disruption by insuring that banks have
sufficient HQLAS to survive to survive acute stress scenario lasting
for 30 days
 Net Stable Funding Ratio (NSFR) : To promote resilience over long
term time horizons by requiring banks to fund their activities with
more stable sources of funding
Tier I Capital of the bank
217 Tier 1 capital of a Bank is based on the sum of its equity capital and disclosed
reserves, and sometimes non-redeemable, non-cumulative preferred stock.
Thus the Tier 1 capital has two parts: one called as Common Equity (CET) and
the other as Additional Tier I (AT1).
'Tier 1 Common Capital Ratio„?
218 A measurement of a bank's core equity capital compared with its total risk-
weighted assets. This is the measure of a bank's financial strength.

Components Under Different Types Of

219 Capital
Tier I Tier II

Paid Up PNCPS (Basel III General Provisions

capital compliant) and Loss reserves
Stock Stock surplus Debt capital
Core surplus (Share premium) instruments
Capi resulting from
tal instruments
included in AT I
capital
Statutory Debt capital PCPS/RNCPS/RC
Reserves instruments PS
Capital reserves Any other type of Stock surplus
arising out of sale instrument as (Share premium)
proceeds of assets notified by the resulting from

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GoI instruments
included in Tier II
capital
Other disclosed Adjustments/Dedu Revaluation
free reserves ctions reserves at a
discount of 55%
Balance in P & L Any other type of
accounts at the end instrument as
of the previous notified by the
financial year GoI
Adjustments/Dedu Adjustments/Dedu
ctions ctions
Capital conservation buffer (CCB)
220
• The Basel III introduces a capital conservation buffer (CCB) of 2.5% of
RWA over and above the minimum capital requirement, raising the total
capital requirement to 11.5% in Basel III against 9.0% under Basel II.
• This buffer is intended to ensure that banks are able to absorb losses
without breaching the minimum capital requirement, and are able to carry
on business even in a downturn without deleveraging.
• While the buffer is not part of the regulatory minimum; the level of the
buffer will determine the dividend distributed to shareholders and the
bonus paid to staff.
• The implementation of CCB in India will began as on March 31, 2016
Counter cyclical capital buffer (CCCB)
221
 The CCCB framework envisages consistency in capital maintained by
the banking sector with the macro-financial environment in which the
banks operate.
 It is a macro-prudential tool to ensure that the banking system
accumulates sufficient capital to protect itself against future
potential losses.
 The CCCB shall increase gradually from 0 to 2.5% of the risk weighted
assets (RWA) of the bank but the rate of increase would be different
based on the level/position of Credit-to-GDP gap between 3% and 15%
points. However, if the Credit-to-GDP gap exceeds 15% points, the
buffer shall remain at 2.5% of the RWA. If the Credit-to-GDP gap is
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below 3% points then there will not be any CCCB requirement.

Operational Risk appetite
222  Overall risk appetite for operational losses shall be of not more than
5% of the operating profit of the previous year.
 Risk Appetite for the External fraud is 2% of the operating profit of
the previous year.
 Bank has Zero tolerance for internal frauds as well as KYC in case of
newCustomers.
[ Source: Operational Risk Management Policy 2016-17 (IC:433/ dated 26.04.2016]

Capital position of our bank :

223  The Tier I ratio as of September 30, 2017 is 8.50 per cent, within which
Common Equity Tier 1 ratio is 7.00 per cent compared to regulatory
minimum of 6.75 %
 During Q2 -2017-18 Growth of Risk Weighted Assets (RWA) was
contained at 3.18 per cent on YoY against Advance growth of 11.35 per
cent on YoY basis.
 Capital need -Rs 3,500-4,000 Cr in FY 2017-18
 Bank‘s common equity tier I ratio and Capital adequacy ratio as of Sep 30,
2017 was 7.00 % & 11.22 % respectively.

 The Centre announced that it would infuse over Rs. 88,000 crore as
capital in public sector banks this fiscal, including Rs. 80,000 crore
through recapitalization bonds and Rs. 8,139 crore as budgetary support.
Union bank will get capital from GOI - Rs. 4,524 crore.( news 24.01.2018)

(L)NEGOTIABLE INSTRUMENTS ACT

NI Act : 1881
 Implemented w.e.f. March 01, 1882
224
 147 Sections with 17 Chapters [ 138-142 added in 1988 w.e.f. 01.04.89 &
143 –147 added during Dec.2002]
Sec. 13 – Negotiable Instruments means and include – Promissory Note, Bills
of Exchange & Cheque.

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Negotiability: Transfer of the instrument to any person so as to constitute

225 him holder.
Negotiation means:
01. Transfer without restriction
02. Transferee taking the instrument for value and in good faith, gets better and
absolute title despite any defect in the title of transferor [ endorser]
Negotiation of Bearer cheque is completed by delivery [47] and that of order
instrument is completed by delivery and endorsement [48]

Sec.4 – Defines Promissory Note

PN is an instrument in writing, containing an unconditional undertaking (or
226
promise), signed by maker, to pay a certain sum of money, to or to the order of
certain person or to the bearer of the instrument.
 Parties : Maker and Payee
 PN requires to be stamped.
 2 types of PNs: Demand Promissory Note and Usance Promissory Note.
 PN can be drawn payable in installments also and a provision also can be
made that on default of one installment entire amount mentioned in PN
becomes payable.
 Currency Notes being money, though fulfills conditions of PN are not
promissory notes and governed by Indian Currency Act [Sec21]

Sec 5 – Bill of Exchange

A Bill of Exchange is an instrument in writing, containing an unconditional
227
order, signed by maker, directing a certain person to pay, a certain sum of
money only, to or to the order of certain person or to the bearer of the
instrument.
 Parties : Drawer, Drawee [ Acceptor ] and Payee
 Where no period is mentioned on PN or BOE for payment, is payable on
demand
 Where the BOE is lost, the drawer is under obligation [Sec45A] to issue a
duplicate bill.
 An instrument can be made payable to two or more persons jointly or
payable to one of two or one or some several payees.
Sec 6 – Cheque :
Cheque is a bill of exchange drawn on a specified bank and not expressed to be
228 payable otherwise than on demand.
Parties to cheque : Drawer [ account holder], drawee [ the bank where the
account is maintained] an payee [person named in the cheque]

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Electronic Cheque / Truncated Cheque

229 In terms of amendments to NI Act during Dec 2002, Cheque Means - the Cheque
in Electronic form and Truncated cheque transacted during clearing process
Electronic Cheque : Electronic cheque is a cheque which contains the exact
mirror image of a paper cheque and is generated, written and signed in a
secured system ensuring the minimum safety standards with the use of digital
signature (with or without biometrics signature and asymmetric crypto system)
Cheque Truncation
In Truncation the cheque is scanned and electronic image, instead of physical
cheque is transmitted in clearing cycle. The cheque is truncated either by clearing
house or by the bank. Immediately on generation of an electronic image for
transmission, further physical movement of the cheque in physical form is
substituted with such image.
Restrictions on Instruments being made payable to bearer

230 RBI Act 1934 – Section 31: states that no person other than RBI or Central Govt.
can draw, accept, make or issue any bill of exchange or promissory note
payable to bearer on demand. Section 31(2) puts a restriction on making a
promissory note payable to bearer by a person other than RBI/Central Govt
Cheques in Practice:

231 NI Act does not prescribe any specific form of a cheque.

 Withdrawal slips used by customers are not regarded as cheques.
 Withdrawals by customer by writing an application on a plain paper, would not
be unlawful but banks do not permit due to inherent risks except under
exceptional circumstances.
 Cheques drawn in different inks, scripts and handwritings : Cheques should be
paid, if otherwise in order and paying bank is in a position to read and
understand the instructions of drawer
Date of cheque:
Cheques without date: Not payable. However holder can complete it.
232 Cheque bearing a date being holiday: Cheque can be paid.
Cheque bearing date in National Saka calendar [Hindu]: can be paid
Cheque bearing impossible date: e.g. cheque dated 31st Nov, 30th Feb can be
paid on 30th Nov or 28/29th Feb. However cheque dated 26th Jan cannot be paid
on 25th Jan.
Stale Cheque: The validity period of cheque is expired due to date mentioned
on cheque i.e.3 months from the date.(WEF 01.04.2012)
Revalidation: After cheque becomes stale it can be revalidated any number of
times.
Ante Dated Cheque: Cheque bearing date prior to actual date of signing the
cheque or prior to opening of account is valid and can be paid till it becomes
stale.
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Postdated cheque: Cheque bears a date not fallen due till presentment. Such
cheque becomes effective only from the date mentioned on cheque.
Payment of such cheque is not a payment in due course and additionally poses
following risks:
 Drawer can stop payment
 Death / insolvency or lunacy of customer may happen
 Garnishee Order may be served on account
Holder: [8]
The holder means any person who is entitled in his own name to the possession
233 thereof. Legal right to possess is enough. A person who was entitled to receive
payment of an instrument and the instrument has been lost, will continue to be
treated as holder.
Holder in due course [9]
A holder in due course is a person (payee or endorsee or bearer) who must have
234 the instrument in his possession He must obtain possession of it for valuable and
lawful consideration (and not as a gift) before its maturity (in case of bill)
He must obtain it in good faith without any sufficient reason to believe that any
defect existed in the title of the person from whom he obtained it.
Holder in due course gets a better title than the transferor even when the
transferor had defective title.

Payment of cheques and Payment in due course

U/s Sec 31 – statutory obligation to honour the customer’s cheques subject to
235 conditions:
There are sufficient funds of the drawer available with the bank
These funds are meant for payment of such cheques
There is proper demand to make the payment

Payment in Due course: [10]

Payment would be considered in due course if:
Payment is in accordance with the apparent tenor of the instrument
Payment must be made in good faith and without negligence
Payment must be made to the person in possession of the instrument
Payment must be made under circumstances which do not afford a reasonable
ground for believing that he is not entitled to receive payment of amount
mentioned therein and Payment must be made in money only

Protection to Paying Bank 85[1] order cheque i.e. regularity in endorsement,

85[2]-bearer cheque 85 A DD, 89 – Cheque with material alteration not visible
236 with naked eye, 128 – payment of crossed cheques.
Negotiation:
Negotiation means transferring an instrument from one person to another in
237 such a manner to convey title and to constitute the transferee the holder
thereof:
Bearer Instrument: Negotiation completes with delivery of instrument [47]
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Order Instrument: The negotiation by endorsement and delivery would be

required in case of NIs payable to order [48]
Importance of Delivery: 46 May be actual or constructive. Without the delivery
the property will not be considered to have been transferred.
Delivery of instrument by legal heirs, endorsed by a deceased person considered
negotiation is not complete [57
Endorsement [15]
 Endorsing means signing on the face or backside of an instrument [or even
238
on a piece of paper called Allonge] for the purpose of negotiating an
instrument.
 Person who signs and transfers the instrument is called – endorser
Person in whose favour the endorsement is done is called – endorsee
 Holder of an instrument, payee of a cheque or promissory note and drawer
of an accepted bill can endorse an NI
Types of Endorsements
Blank Endorsement: Endorser only signs without adding any words, directions.
239 This makes the instrument payable to bearer as per Sec 54.
Endorsement in Full: Endorser signs his name and adds the name of endorsee
specifically.
Restrictive Endorsement: Endorser adds along with sign such as Pay to A only
Conditional Endorsement An endorsement which stipulates certain condition.
Pay to A when he marries.
Partial Endorsement: When endorser transfers part of amount mentioned in
Negotiable instrument.
Sans Recourse Endorsement Signature of endorser with words pay to A without
recourse to me.
Facultative Endorsement: Where endorser waives the condition of notice of
dishonour.

Crossing of Cheque
 Crossing is applicable in case of cheques only [ does not cover Bill of
240 exchange and Promissory Note]
 Crossing is either general crossing [123] or special crossing [124]

General Crossing: Two parallel transverse lines on the face with or without
words, such as ‘& Co’, ‘not negotiable’, ‘payees account only’ etc. These words
without lines will not constitute crossing. [Lines are important and not the
words] These cheques are payable to a banker

Special Crossing: Cheque bears across its face, an addition of the name of the
banker, either with or without the words not-negotiable. These cheques are
payable to the specific banker whose name appears on the face of the cheque.
[Name of the bank is important and not the words/lines]
Not Negotiable Crossing:[130] – A person taking a cheque crossed generally or
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specially bearing in either case the words ‘not negotiable’ shall not have and
shall not be capable of giving a better title to the cheque than that of the
person from whom he took it ‘had’. Such crossing does not restrict further
transfers but the endorsees do not get better title than the endorsers.
Account payee crossing [direction to collecting bank] – NI act does not define it.
It is result of custom, use and practice and legal decision.
Law does not prohibit but cheques with such crossings cannot be endorsed
Presumptions with regard to Negotiable Instruments:[118]
 NI was made, drawn, accepted, endorsed and negotiated or transferred for
241 considerations
 It bears the date on with it was made or drawn
 It was accepted within a reasonable time after its date and before maturity
 Every transfer of NI was made before maturity
 Endorsements appearing on NI were made in the order in which they appear
thereon
 It was duly stamped and stamp duty cancelled, when NI stands lost
 Holder is holder in due course.

Dishonour of cheques [138-142] wef 01.04.1989

242 Drawer of cheque, which is returned unpaid because of insufficiency of funds or
stopping the payment of cheques, is deemed to have committed criminal
offence under section138.

The pre-requisites for prosecution –

 Cheque should have been issued to discharge of a liability. Cheque given a
gift, will not fall in the framework.
 Cheque should be presented timely i.e. within validity period of cheque
 The payee or holder in due course should give notice demanding payment
within 30 days of his receiving information of dishonour which should be for
reason such as insufficiency of funds, refer to drawer, payment stopped.
 The drawer can make payment within 15 days of receipt of notice and if he
fails to do so, prosecution could take place.
 The complaint can be made only by the payee or holder in due course.
 The complaint should be made within one month of the cause of action
 No court inferior to that of Metropolitan Magistrate or Judicial Magistrate of
first class will try the office
 An offence is punishable with imprisonment for a term which may extend to
2 year or with fine which extend to twice the amount of cheque or both.
 In case of compounding of offence court can impose a fine up to Rs.5000 and
imprisonment up to one year.

Calculation Of Due Date Of Bill Of Exchange

243  Is required for Usance Promissory Note and Usance bill of exchange
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 While calculating the due date 3 days of grace are required to be added
 If drawer has either already mentioned the due date or due date is already
calculated by the drawer then the grace period is not to be given
 In case of usance promissory note on each installment three days of grace
are to be added
 In case of Commercial Paper and Certificate of Deposits even though they
are usance P/N, days of grace not be given.
 Principles for calculating the due date
 Usance period is mentioned in complete months while calculating due date
corresponding date of the respective month is to be taken and there after 3
days of grace to be added
 If the concerned date is not available, then last date of the month is to be
taken.
 If the usance period is stated in days, then while calculating the due date,
1st day is to be excluded and last day to be included.
 If the maturity date falls on public holiday/Sunday, the bill will become
payable on next preceding business day. Public holidays are declared under
Sec 25 of NI Act.

Material Alteration
244 Material alteration is an alteration of an negotiable instrument which brings
basic change in the operation/characteristic of the instrument [ i.e. mandate]
and liabilities of the parties thereof, whether the change be beneficial or
detrimental.
Alterations would be taken as material when it relates to date, sum payable,
time of payment, place of payment, rate of interest, addition of new party,
tearing material part of NI, date of endorsement.
Alterations which are not material: such as crossing an uncrossed cheque, filling
the date, converting a general crossing into a special crossing etc.

Only the drawer of a cheque can correct material alterations.

Protection: Payment of a material altered cheque is not considered a payment
in due course and bank will have to make good the loss if any. Sec 89 protects a
banker only if the material alteration is not apparent i.e. it is done in such a
way that it cannot be detected with reasonable care, prudence and scrutiny.
NEGOTIABLE INSTRUMENTS ACT -
Negotiable Instruments Act - Important Sections with contents title
245 4 – Promissory note definition
5 - BOE definition
6 – Cheque definition
7 – Drawer, drawee, acceptor defined
8 – Holder
9 – Holder in due course

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10 – Payment in due-course
11 – Inland instruments
12 – Foreign instruments
13 – Negotiable instruments
14 – Negotiation defined
15 – Endorsement defined
16 – Endorsements in blank and full
17 – Ambiguous instruments
18 –Amount in words & figures if differ
19 – Instruments payable on demand
20 – Inchoate instruments
21 – Instruments payable at sight
24 – Calculation of maturity of bills/DPN
25 – Bill maturity on a holiday
26 – Capacity of the minor
31_ to honour cheques
36 – Every prior party to NI is liable thereon to a holder in due course until
instrument is duly satisfied
47 – Bearer cheque
48 - Order cheque negotiation
49 – Conversion of blank endorsement in full
50 - Restricted endorsement
51 - All joint holders should sign for negotiation
52 - Sans recourse endorsement
53 – Holder of a NI derives title from a holder in due course has the right
thereon of that holder in due course
56 - Partial endorsement
58 – Stolen cheque
60 - NI can be endorsed until its payment is made
65 – Hours of presentment
80 – Rate of interest
85(a) – Payment of order instrument
85(b) – Payment of bearer cheque
87 – Material alteration
89 – Protection to paying banker – obliterating of crossing and material
alterations
99 – Noting
100 – Protesting
118 - Presumptions of NI
123 – Cheques crossed generally
124 – Cheques crossed specially
125 – Who can cross?
126 – Effect of crossing
128 - Protection to paying banker in case of crossed cheques
129 - Liability to true owner in case of crossed cheques
130 - Not negotiable crossing
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131 – Protection to collecting banks

138 – Dishonour of a cheque for insufficiency of funds
139 – Presumption in favour of holder
140 – Defence not allowed in prosecution U/S 138
141 – Offence by company U/S 138
142-147: are sections related to summary trial.

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