This comprehensive CAIIB ABM Maha Marathon session by Saloni Ma'am from Oliveboard covers Module B (Human Resource Management) and Module C (Credit Management) for the June 2026 exam. The session explains key HRM concepts including management definitions, VUCA framework, HRM vs HRD, job analysis, job enrichment, training vs development, motivation theories (Herzberg, ERG, Vroom, Porter-Lawler), and conflict management. For credit management, it covers credit appraisal, asset classification, provisioning, ratio analysis, working capital cycle, projected turnover method, trade receivables electronic discounting system, letter of credit, commercial paper, credit risk types, and the IBC Code 2016 resolution process. The session also addresses compliance frameworks, CCO roles, internal controls, and NBFC regulatory layers.
CAIIB June ABM Marathon 2026 | Maha Marathon All Modules Summary | CAIIB June 2026 | English MediumAdded:
Hello everyone. A very good evening to all. Welcome everyone in this session. I hope you all are fine and I also hope I'm audible properly.
All right. So today we have to start a maha marathon session of all the modules. So in this today's session we will be doing summary of all the modules. So all the modules means we will be doing three modules today and one module tomorrow that is module A. So B, C, D I am going to complete today itself and rest of the module A we will be doing tomorrow and tomorrow also we will be pract.
All right. along with module A. After completing module A, we will be doing uh 30 40 questions of each p uh of each module.
So module A, B, C and D. All right. So if you're new to this channel, I highly request you please do subscribe our YouTube channel. Kindly watch the entire session. Okay. So session will be of approx 4 plus hours. And if you feel sessions are beneficial, it is beneficial to you, then please like the session as well. Okay. So we are doing the summary of all the modules and this session is entirely in English medium.
Yes. Good evening to all. So we were doing our capsule batches in our paid classes and it is already uh completed.
So tomorrow would be the last batch of English medium capsule batch. So lecture 8 we will be doing tomorrow in the morning 8:00 a.m.
Okay. So let's start the session. So first we will be doing module B that is all about human resource management. V1 resource management. It is starting from unit number 10. Now what is management?
First it is important to know management. So management is the process of analyzing things. It is the process of how to how workers can do their task.
How planning can be done, organizing can be done, staffing, okay, directing, controlling. So all these are included in the process of management. Now once you have managed your entire organization, now next thing that you have to manage is a human resource human. So how to manage the human resource? So different different contributors have given different different definitions. So Peter Fraker has said that management is all about human beings and if you're talking about human beings. So certain positive characteristics are also there, negative characteristics are also there. So now its task is to collect all the strength of the people and ignore their weaknesses to make people capable of their joint performance. The collaboration is must how the people are working in team and take their positive factors and ignore their relevant ignore their weakness that are irrelevant to the company. So this is said by PJ. So what is the scope of HRM? So in HRM we do recruitment, we do hiring, we do selection, then after recruitment and hiring we provide training to the employees. Once the training is given to the employees, then we will decide the fair compensation that whether this employee is given how much compensation according to the task. Once the compensation is given then performance management is there, policy development is there. So how the uh how we can provide them the motivation, how we can give them the safety measures and at last what are the relations of the employees. So how employees they are having good relations with each other.
So this is all about scope of HRM.
Now so uh one term comes that is bua.
Okay. So this is very very important.
Many times question come from this topic that is vaua. What is the full full form of vaua? So vaua means volatility.
Volatility means we know that the business is completely volatile. The environment is completely volatile. We have to study the macro environment. So as per the environment is changing. So according to that we also have to change. The business also have to change according to the rapid and unexpected change like certain price are there in the market shift. So according accordingly that so accordingly that the company also have to prepare itself then complexities so it's not that all the task will be easy in the company some task will be difficult some task will be easy so we have to interconnect all the factors so that our task can become easy uncertaintity so risk will also arise uncertaintity will also arise and by analyzing those uncertaintities we can make our future more better so how to predict the future how to through forecasting with the with analyzing the risk and uncertaintity and ambiguitity is when nothing is clear when you have no idea what to do with the things like when you are when you have unclear situations when you are stuck in any uh complex situations. So how you will going to cope up with that that like entering a brand new market with zero past data you have entered a new market but you have not collected a sufficient data for that market. So that is what you have a unclear okay to start your business that is ambiguity. So this is very very important.
Now next is what all about HRM and HRD.
So what is HRM and HRD? So HRM is what it it includes all the principles and practices that are used to run the business that are used to make your employees motivated so that they can perform better. So it focuses on maintaining existing system. It handles all the process of human resource that is hiring, selecting, providing, training, giving compensation and policy enforcement.
Whereas HRD is development. HRD stands for human resource development. So development is the ongoing activity. It is the activity that keeps on going. It is not a one day activity. So here you will you have you do the development of skills. Okay? You uh develop the skills of people. You develop the knowledge of people. So that is what it is the development function. So here it focuses on building organizational skills and culture and how the different different competencies are there how we are coping up with. So improving performance with the help of competencies. So competencies are what these are the different different types of skills and remember HRM is what it is the supererset of HRD and HRD is what? HRD is subset of HRM.
subset of HR. This line is very very important.
Now next is what the perspective. See in organization different people have different different perspective. All right. So some have said something different other have said something different. So organization exists only when people they are together they have to fulfill they have joined the company just to fulfill their needs and achieve their achieve the goals of the company as well. The individuals they join organization to earn money to grow to learn skills and in this both the organization and the people means the employees and the managers they have to understand that both of them are important to each other. So Robert Oven has said what that is advocate of better working condition for vital machines. So Robert Oen has said that the humans are what humans are the vital machines. So we have to provide them better uh better condition so that they can work more effectively. Charles Babage has said that division of labor division of labor means work should be divided into small small pieces. If you will give the one work entire work then it is difficult to handle. But if you will divide the work and then if you will distribute to the individuals then they can perform it better and they will know their responsibility as well.
All right. Next are there are some of the different different roles in organization that are very very important. First is the core people rule means the organization has to follow these rules. These are the most important like selection, orientation, career development, motivation, compensation, welfare, retention. So these are the core people role that the individuals have to perform like individuals have to select, they have to do orientation, they have to introduce induction program, they have to give better trainings to their new employees, to the freshers, motivate employees. So this is the work of the HR professionals. Now second type of role is what such role that can create the value in the organization.
So what are those roles that create value in the organization like HR tech services, learning involvement, organizational development, consulting, the learning uh involvement, knowledge management. So this is what these are all the things all the roles that will add value to the organization. And third type of role is what the role that can make transformation that can make changes in the company. Like if your if if a company is having a flexible culture, it means the company is giving full freedom to their employees that whatever they want to do they can do it.
Okay, they have flexibility. Aligning HR to business strategy is also checking that the HR activities should match with the business strategy. It's not that the people are working in left direction and the organizational objectives are in the right direction. No, both have to move in the same direction and also assessing the ROI on human capital. ROI on human capital means return on investment in human capital. So if you are hiring any employee, if you are paying to that employee, so are you getting more than that employee or not? Means suppose you are paying 50,000 to employees. So if if the company is earning 60,000, if the company is earning 70,000, then only company will going to pay 50,000 to that employee. then only the company will keep that employee. Otherwise, why would company will keep the employee if the company is not earning more than what the company is paying to the employee.
So that is why assessing ROI on human capital.
Then we have certain different different terms in HRM. Okay. The hierarchy of human effort. So first is task, second is job, third is position, fourth is role and work. Okay. So what is task?
Task means a specific activity. Like I have given you the task that every one of you have to join this live session and watch this session. Now this is what this is the task for you. All right. Job is what? Job is all the different different task. Okay. Some of you are in your office, some of you are traveling, some of you are in your in your home. So you are watching this session, you are also doing the other work and you're watching the session. So task is not a one activity. It is a composition of many activities.
So collection of related task is known as what? That is job. Position means at what position you are working what uh in what level you are working. You are working at top level you are working at middle level or you are working at lower level. The place an individual hold in the hierarchy that is are you assistant manager? Are you associate manager? Are you professor that is role? Okay. Role is what that is what activities you are performing. If you are on the top level like if you are the assistant manager then what is the work of the assistant manager? What activities? What role the assistant manager has to play in his office? That is what the role is. And work is what? It includes all the things. It includes role, position, job, task. The work is the complete package of including all these things together.
Next is there are different different terms related to job and most important are there definitely question will come from all these topics. Job analysis means what that is collecting everything all the data related to job. So what is the duty what are the responsibilities where the job is located under what condition the employee will perform the job. So job analysis means collecting data on duties responsibilities and conditions. Job description see job analysis has two main components. One is JD and one is JS. JD is job description.
So description means you're describing about the job. So here we are describing about what is job everything related to job whether what are the duties what is the purpose where the job is located on the job training is given of the job training is given everything related to job is job description everything related to candidate candidate means employees. So everything related to employees is job specification. So specification includes what? It includes the skills of the employees, the education of the employees, experience required, uh how many years the person has worked in previous company that is experience, education, knowledge, qualification. So everything related to candidate is what that is job specification.
Next is all about job enrichment. Job enrichment is what? See here one word is there that is enrichment. Rich means making job more better. Okay? by adding extra features by adding extra responsibilities in it. So job enrichment is what? It is the vertical expansion where the growth is also and plus promotion is also there. So remember job enrichment means getting promoted to another department to another role and here the increment of salary is also there that is job enrichment. Job rotation means shifting of employees from one job to another means one employee is performing sometimes this job then another job then another job. So that is what why it is done so that employee can learn variety of task at the same time. So see it is basically done when any employee gets absent on that particular day. So at least I should know that what that employee was performing I can perform at his place for certain days or for few days. That is what rotation is. So moving employees across different job and it is done horizontally means it is at the same level.
All right. It is at the same level.
Whereas enlargement say enlargement is also done at the same level. But what is the difference between rotation and enlargement? In rotation individual is performing one job at a time.
Enlargement individual is performing multiple jobs at a time. So here variety of jobs are added to reduce boredom.
Here also variety of jobs are added but at one time you are performing only one job. Here you are doing your job plus additional jobs you are doing additional work you are taking that is job enlarge.
Next is job evaluation. So evaluation is what one word comes over here in evaluation that is value means finding the relative worth of job. finding the relative worth of job means seeing whether this job is having that amount to be paid or not. So what company will do? Company will compare all the different different multiple jobs and then company will decide the compensation. Why it is done to decide the compensations.
It is a systematic process of comparing jobs. So here jobs are compared like suppose um okay some of you are the assistant manager already some of you are clerk some of you are PO. So now all the jobs are compared and then the compensation is decided which job is having more value then accordingly the salary is provided. So job A suppose high complexity is there in job A high risk is there. So the job which is having more risky more salary is given.
The job which is having less risk less salary is there. So it ensures to decide the fair compensation.
Now some of the terms are there all these terms that are important question can come from these learning training development education. So what is learning? Learning is the acquisition of knowledge. So you are learning you are acquiring any new knowledge. You are acquiring any new skills. So it can be done through observation. It can be done through experience. You can acquire the knowledge through study also through teaching also. So it doesn't mean that you have to sit. Okay. You have to watch the session then only you can learn anything. No, you can learn from your parents also. You can learn from your peer members also. You can learn from your friends also. So learning means acquiring new knowledge.
Training is done for the specific activity. Once that activity is over, that training period is over. Suppose you are being appointed for the post of accountant in your bank. Now you don't know the advanced version of tally. You only know the basic of tally. So company will provide you the advanced version of tally training. Okay. Suppose you have you have left this job you have joined another job in another company and you are at the position of let's take an example a probationary officer. So now at that time this accountant job will not going to help you. So training is what it is for the specific period. It is for fulfilling the immediate application needs like knowledge, skills, attitudes used in specific job. Whereas development is what it is for overall period. So development means okay suppose you have developed the communication skill. So no matter what job you are doing either you are a school teacher or you are a banker or you are a poet or any who whatever job you are doing you need you need that communication skill. Communication skill is required in all the types of job. So that is why development is for a long period of time. Training is for a short period of time, long-term and it is for overall development.
It is for future goals. Development usually happens voluntarily. It is not for forcefully happen. But training is happened forcefully. You have joined the company. Okay. And you don't know the training if you don't see even if you don't want to get the training but still you have to perform that job and by for performing that job you need to take the training. So it is sometimes voluntarily also and involuntarily but your development is always voluntary.
Education is more formal way. So in a more formal way you are grasping the knowledge like right now you're watching this session. Okay. Or the student who goes to school and they listen to their teacher. So that is all that is the education. So it also broadens one's knowledge and it is non-specific and applicable for long term. So it is not related to any particular thing. In school, in college, we learn moral values also. We learn the we learn our subjects also. So it is non-specific and applicable for learn.
Now different different theories of learning are there. First is mechanistic, cognitive, organismic.
Mechanistic theory what it says? It says that the learner is what? Learner is passive. If we want to make learner active, we need to give the right stimulus. So if they will provide the right stimulus then only they will give the right response otherwise not cognitive theory what it says cognitive is related to your brain.
So it means you have the capability yet that you can solve any kind of tough situation tough problem. So you can do critical thinking you can solve problems. Organismic theory what it says that is freedom to learn. Let the students let the learners give freedom to learn because they know very well what is good for their life. what is wrong for their life. So what is relevant for their personal life situation they know it very well. So that is why in order to uh always uh always uh giving them uh like uh tips and tricks it's better to give them full freedom they will decide what they have to do.
Next is what all about systematic approach to training. So systematic approach to training it says that it says what suppose any employee has joined the company after joining the company the employee needs training so first the company will decide whether there is need of any kind of training or not if yes then a systematic approach is designed for the training. So in systematic approach first the first need first is to be checked that training need analysis TNA. So whether there is need of any training or not. Suppose for example okay you have seen in your company that your sales are going very down. Why? Because your employees are not communicating well with their customers. So that is why the sales ratio sales percentage is very dark. So why? Because the employees they are not communicating. So you have to provide them good communication skills. So for that you have decided to that you will provide training to them. So first analysis is there whether there is any need of training or not. If yes then the company will decide how to provide the training preparation of training plan.
Third will be uh for uh how many months the training will be provided what is included in the training. Then next is the evaluation. Once the training is provided next the company will evaluate that whether the employee is now perfect in communication skills or not. And fifth is finally you will implement that that is selection and development of trainers to the further approach. So four types of level of evaluation are the reaction after getting the training what would be your reaction are you happy with that learning level how much you have the capability to learn in anything behavioral what is your behavior is there any changes in your communication skill is there any changes in your attitude and last is how you are functioning with the organization how you are functioning in the organization how you will going to communicate now with your employees next is talent management very important important. Two times the question came in the exam. First is July 2025, June, July 2025 and previously also one time came. Talent management means managing the talent in the employees. See how managing the talent? Why the talent is necessary in the employees so that you can make that that employees prepare for the future leader. So if succession planning the company is doing so company should have the employee in his hand that company can place that employee in that particular vacant position that is why talent management is that so in talent management three C's model is there what is first is competence how much competent you are to perform the job at that particular level so being able to do with head in mind second is contribution how much you are contributing are you contributing 100% are you contributing 70%. So how much contribution you are doing, how much with full heart you are contributing.
And third is commitment. So whatever you have said, whatever promises you have made with the company, are you fulfilling it? How what is your commitment level with hands and feet?
That is three C's of talent management.
Next is all about career path. So career part C employees they don't they not only work in your company for money for monetary benefit they also work in your company for growing their career and for growing their career career path is there. So every individual has different different career path one is linear career concept. Linear career concept what it says that the only upward movement in the hierarchy. So you will not going to give any kind of exam or any kind of promotion. you will not get uh see here only the linear following the hierarchical pattern you are increasing to the above level. So upward movement is there within the same profession. So 2 years 3 years after every 2 years 3 years you will get okay you will get the increment in your position that is what the line. So some individuals follow that.
Second type of individual they join the company they acquire higher skills but after a period of time they don't want to go more above. Why? Because they feel that if going more above it does not increase your salary but also increases your responsibility and liability. So they choose not to go higher up in the hierarchy. Transctory pattern is when individual shift from one job to another. Individual is not working.
Individual is not working for like one year. Individual is working for few months. Then again that individual has shifted to another job.
There also he worked for two three two three months then again he or she shifted to another job that is shifting from one job to another and unrelated to the previous one. It may happen that the job is unrelated or related as spiral career is what it is like this. In spiral career individual is performing well. Okay. Um acquiring huge knowledge uh then earning huge name and fame. Then individual is shifting to another job that is spiral career. Here individual is shifting but not fulfilling not acquiring any name fame not doing anything big in the company.
But in spiral career the individual has gained a lot of good reputation and then individual is shifting to another job.
The same thing the individual is performing in second job and then he's he or she is shifting to third and fourth job that is spiral career and plate career is what? So when individual has reached at a position suppose individual has reached at this position. Now if he or she is shifting to another job so he or she will start from the same position only not from this position that is platinum.
Then we have stages of progression. So stages of progression means how the career will progress. So first is first career stages is what that is apprentice. Second is colleague. Third is mentor. Four is sponsor. So apprentice is the basic level of your career. Okay. In this you will join the company. You will work under the supervision of any person. There is more dependency in learning. Once you moved from apprentice to colleague. Now at this stage now you can take uh responsibilities but still you work under the supervision of a person because you only know few things of the company. You're not pro in your field.
So still independent contribution you will give but dependency is still there.
There is less dependency. Now third is what that is mentor. In this now you will take responsibilities with full heart. You will manage everything by your own. You don't want the help of any other person. You are at the position where you will guide the junior ones also that is mentor and sponsor is what it is the last level where you are at a position now you want to become the top manager or you want to become a decision maker of the company so top management broad perspective is there long-term thinking is there and you are influencing the organizational to work in the proper direction so a cm apprentice colleague mentor and sponsor Next we have the career anchor. So career anchors what it says see given by sign career anchor it basically says that the individual should do the job according to their personality. Means if they feel they are okay in doing the technical work more better they can choose a technical career. If they feel that they are not such type of person they can work under any person under they want their own business to set up.
So they can start their own startup or they can start their own business they can become manager. So technical functional what it says if you are desire to be outstanding in any field if you want technical work then you can go for technical field. Autonomy means some individuals they don't want the interruption of any other people. They want independent life. They want to take independent decisions. They want freedom. So such people can become the business owner, the business manager.
Now creativity is what? Creativity is when you have something uh like you are a imaginative person you build you make different different you give different different ideas you build something different. So if you want if you have something new in your mind and if you want to implement that in the nation in the economy then you can go for that job like you can become the uh artist you can become the painter okay you can become the investigator. So that is creativity. Managerial means if you want to manage other people, you can become the manager manager of the company. And security means some individuals they want more secure life. They want a type of job that should always near their house. Okay? Because they like safety.
Uh they like more safety. They like more security. So they can seek a secure environment to work.
Next is what next uh the Raymond has told about the dimensions of the personality of the people. So individuals they have different different types of personality dimension and these are said by the Raymon tattlele given two terms one is extraversion second is neurodyisma. So extraversion is what extraversion means.
If you are a more like if you want if you are a type of person who likes society who likes to be surrounded people who likes to be work in who likes to work in team. So it means you have the high extraversion. If you are a type of people you are very introvert you don't want to be work you don't want to work in group you want to you like your own company you don't want a crowd you don't want to stay with the people. So it means you have less extraversion and neurotism means what? Neurotism is all about the emotional stability. How much emotional stability do you have? Are you you stay calm, relaxed, you can handle stress well you are you have serious motions it means you have low neurotism.
If you take stress a lot if you worries a lot okay get you get upset like day after tomorrow you have your paper. Some will be more relaxed. Some will say that yes I have done my preparation well. So I will definitely clear this exam. Some will have more stress. Okay. They will be more anxious. Their anxiety level will be very high. So it means they have high neuroism.
All right. Next type of personality traits given by prideman and roseman. So these three are people who has given the personality trait. He those these three people have said that there are two types of personality of people. One is type A personality, one is type B personality. Type A personality people are those who are restless by nature.
They are impatient. They are multitasker.
Multitasker means they perform several work at the same time. No matter whether they can fulfill all the work on time or not but they take all the work on time.
So that is multitasker. They schedule more and less time. They start new task before completing the old one. The old task are not completed and they have started the new task. So this is the type of personality a voice. They they don't have time to relax. They don't have time to enjoy life. They don't keep personal and professional life different. Okay. There is no space in their personal and professional life. So these are such type of employees. On the other hand, type B employees are what type B employees are? They are more calm and composed. They have the opposite characteristics of type A. They are more relaxed. They have the they give time to their family also. They have different time for their personal life. Okay.
Professional life. So they have the space between these.
Next what next? Uh see a split brain psychology is there. Now split brain psychology what it says that that see in we have the brain we the okay suppose let's take this is brain. Now one is left side of the brain one is right side of the brain. So how your left side of the brain is controlling your body and how your right side of the brain controlling your body. So left hemisphere the left side of the hemisphere it will control your right side of the body and right side of the hemisphere will control your left side of the body. So what comes under left hemisphere like you are more verbal.
Okay. You have more logics. You do everything in detail. Okay. You follow systematic approach. You are more controlled, intellectual, dominant, analytic. So these are what these are the left hemisphere components. Similarly we have right hemisphere components that you are a if you love music if you are artistic person histic person if you schedule more work at the same time if you're emotional person so these creative person so these will control your left side of the body. So right hemisphere control left side of the body.
See we cannot say which type is best A or B it depends on the person to person.
See in type A if you if you give more importance to work more importance to office more importance to your career then you are you can say that type A is good. If if you give more importance to your family more importance to your kids then you can say that yes type B personality is good. So we cannot we cannot do justice with type A and type B personality. It depends upon person to person what their perception are.
Okay. Now next next is the Holland model theory. Now Holland model theory, Holland approach theory.
In Holland see in exam this type of question will not come that which is the best type. They can ask you that what comes under type A personality. Okay.
They will give you some few statements and then the question will be what comes under type A, what comes under type B.
Identify which is not a part of type B personality or identify the statements which is not the part of type A. So such question will come they will not going to ask you which is good which is bad.
All right. Now Holland typology or we can say Holland bond. So what this Holland model says Holland model says the same thing that we have studied just now. So it says according to your personality individuals should select the job like and he has given in six components for this. Okay the raz so realistic investigative social conventional enterprising artistic. So raic razek means R stands for realistic. So realistic means if you are a practical sort of person if you are a more uh like you want to do more physical work you don't want to give more you don't want to apply more brain you can give your hands and feet on work then you can you are a realistic sort of you have a realistic sort of personality so what you can become you can become farmer you can become mechanic you can become any other person who does the physical work if you are a investig investigative sort of person means you like to do investigation You like to do case study, you are a very uh analytical person. So you can become economist, you can become biologist. Social means if you are a such person who like to be surrounded by people, you like to work with people, you like to work with uh uh like you you like more and more people around you. So you can become the uh like uh teacher, you can become counselor, you can start your NPO, nonprofit organization, you can help others. So that is helping and friendly. Conventional means old type.
If you are okay with what type of work you are doing from the last 10 years, if you are okay with that, it means you have the conventional approach. You don't want to accept new things in life.
You don't want to accept new methods in company. You follow the orderly what is going on in the company from the last 5 10 years. So such type of people can become accountant, bank teller because they do the same type of work every day.
Enterprising means if you are a very ambitious person okay you always want to find what is correct what is right what is wrong you always want to find the reason behind that so you can become the real estate agent lawyer and if you are artistic person you can become musician you have more imagination writer unsistatic means you follow new new things in life all right now next is job enlargement and okay this is another topic but it is included in this so let's do it job enlargement is what enlarging your job means expanding your job so enlargement just we have done enlargement means here you are doing multiple jobs all right at the same time why to reduce the boredom so that you can reduce your boredom you can learn new new ways you can learn new new things in the company so it diversifies your skill and it prevents boredom whereas roles Ro stagnation is what?
When your role has been stagnated. Role has been stagnated means there is no growth. Whatever you are doing from the last 5 10 years you are doing the same thing. If suddenly any changes are there then you are not able to accept that changes. Why? Because you have not learned anything new. Okay. You don't know about technology. You you are following the paperwork. Okay. You are doing the manual work only. You don't know the automated approach of the AI.
So it means your role has been stagnated. So directly causes boredom and there is lack of motivation. There is lack of motivation and there is no growth.
All right. So different different types of role okay uh role related topics are there. So when role conflict arises what are the different different approaches for that. First is ambiguity. Ambility means when your role is not clearly defined. You are appointed for the role of let's take an example a relationship manager but you are given the task of other people also. So it means you don't know what your actual role is. So ambiguitity is there. Expectation conflict means you have expected something different from the company and company is expecting something different from you. So when your expectation with the company is not matching that is expectation content. Overload means when you are performing two three work at the same time. So boss tells you that you have to complete all these files. Okay, you have to mark all these things. Then you have to do the other client work also. So this is what too much work is given on one person that is role overload.
Role erosion is what? When the whatever task have been assigned to you if some of the task has been taken from you. So what you will feel? You will feel that uh the company is not giving importance to me. the company has uh taken the taken my task and company has assigned to some other person. It means you will feel that now you are no more important to the company. So your role will be your role will be eroded. So important work are taken away from you and it is assigned to some other new pressure a new person.
Resource inadequacy means when the proper resources are not handed over to you. Okay. You you have given the work that you have to check all the accounts of the customer. This is the work being assigned to you. But for that no system is given. Okay. Laptop is not given. The fan is not working in good condition. So resources are not properly given to you so that you can complete your work. That is resource inadequacy. Personal inadequacy means when you yourself are not enough to complete that work. You lack personal, you lack the experience, you lack knowledge, you lack the work, the task. That is inadequacy is in you.
When you don't have skills to do that job. Isolation means see this person is standing alone it means when you are standing alone no one is with you when you are doing your work alone that is role isolation and stagnation means this is the thing we have done that is if there is no growth your role has been stabled over here there is no growth all right now next concept is very important and whether you are giving exam in first shift in second shift in Third shift. So most of the time in all the shift this question has come from the Johari window concept that is self-awareness concept. So self-awareness is what? See like how we do the sort analysis of company we do know what is the strength of the company, what is the weakness, what are the opportunities, what are the threats of the company. So similar to that that the humans should also do the SWAT analysis of themselves. So what are the human strength? What are the weakness?
What are the opportunity? What are the thread? And for this the Johari window has this concept is given by whom? Given by lock and which concept is Johari window concept. So it gives about the four quadrants are there. Known to self, not known to self, known to others, not known to others. Now known to self means what is the thing that you know about yourself and other people also know about you. It is known as arena. Arena means open. What is the thing that you also know? You are a banker. You work in bank. You know that you are a good banker. And other people who is working with you, who are your relatives, who are your friends, they also know that you are a banker. You you do job in bank. This is what this is open to everyone. What is the thing that is known to self that you know about yourself but you have kept it hidden from others that is known as closed and closed is also known as hidden like uh okay you are you are a good singer you know you are a good singer you also sing well okay you you're doing the work you are doing job in bank and at the same time whenever you get free time okay you do singing also this you know and your family members know But from others you have kept this hidden. So it means what is the thing that you know about yourself and others are not knowing that is hidden that is closed.
Now not known to self known known to others. What is the thing that you don't know about yourself and other people they know better than you like uh you are a manipulative person.
Okay. Everyone says that you can manipulate others wealth but you are not accepting this fact. You are saying that no I'm not manipulative no I'm not selfish or I'm not self centered person but others other knows very well that yes you are a manipulative person but you are not accepting this fact it means you are blind towards you and dark is what the thing which you also don't know about yourself and other people also don't know about yourself that is what that is dark next is all about succession planning so this we have done why succession planning is done when the retirement happens when suddenly the employee leaves the company or sudden demise of the employee is there then in that case the succession planning is done. It is the planning so that you can keep a relevant employee okay having good skills high skills high experience high knowledge so that the person can fit in that weekend position that is why that is what the succession planning is. So it is a pillar of talent management.
Okay. Here the demographic shifts are there. Why shift is done? If any kind if any employee leaves the company suddenly then this is done to fill that vacant position safeguarding against the vacancies.
Now next we have different different types of motivational theories in this is in your ABM also and this is in your ABFM also. So different different types of motivational theories are there. So let's do one by one. All right. So first theory is known as the motivation hygiene theory given by Herzburg.
Now what Herzburg says that there are some of the factors that creates satisfaction among employees and some of the factors that creates dissatisfaction among employees. Now what is the factor that creates satisfaction and dissatisfaction? So if if the absence of hygiene factor is there, absence of hygiene factors will create dissatisfaction among employees and presence of motivation factors will create a satisfaction among employees.
Or we can say in this way that presence of hygiene factors they will prevent dissatisfaction and presence of motivation factors they will they will create satisfaction. So what comes under hygiene factors?
These are all things that comes under hygiene factors. Like for example, every day you are visit, every day you are going to your office, you are seeing chair, okay, you are seeing your laptop, your system, okay, the tea and snacks are also offered to you. Every day this were given to you. You were having this.
Nothing was happening to you. But suddenly you went one day and you have seen that the system was in the bad condition. There was no chair, no tea and snacks were offered to you. So what how what will happen to you? You will become dissatisfied. Why? Because these are the factors that are hygiene factors. It is not available. It is not present. So what it says the absence of hygiene factors create dissatisfaction.
Like working condition if it is not good every day you are seeing good condition you are not saying that yes today the condition is good but someday the condition is bad. You have immediately have done the complaint. Immediately you become dissatisfied. Every time the salary was coming on time, nothing was happening to you. But 1 month the salary came 10 days late, 15 days delay. So you became dissatisfied. So these are all the factors that comes under hygiene factors and these are achievement, recognition, work, advancement opportunities, growth opportunities.
These are what motivating factors.
So uh Frederick Hzborg extended the work of Massro and see Frederick Hzborg has conducted okay Frederick Hzborg has conducted the uh experiment on 200 accountants and engineers from different different 11 industries in Pittsburgh USA. And he asked them two questions.
What did you feel particularly good about your job? Means what turns you on?
What turns you off? And from this answer only he got an idea that there are two factors that create satisfaction and dissatisfaction. And what are those two factors? Hygiene and motivating factors.
So hygiene factors they prevent dissatisfaction but they do not motivate it. Motivating factors they create satisfaction and they drive performance.
Next is ERG theory. So ERG theory is the extension of Maslo's hierarchy theory.
Okay. So here we will see the Maslo hierarchy theory also. Now Maslo hierarchy has given total five needs.
Maslo says that the human needs are to be fulfilled in the hierarchical manner and it starts from physiological to self-actualization. Physiological is the basic level of need and self-actualization is the advanced or highest level of need. This is given by Maslo in total five stages. What is the uh shape of this uh you can say this theory? So this the shape is what it is in the shape of pyramid. Okay remember the shape is the this is what this is the shape of pyramid. This is what the maslo says.
Now erg theory is the extension of maslo and given by whom? Clayton elder in 1961 to78. He said that human needs are fulfilled not it's not that the human needs should be fulfilled in the hierarchical manner only. So that is the ERG does not follows the fixed hierarchy but mass loss they follow the fixed hierarchy. This is one difference between ERG and MASO. Second difference is ERG. ERG theory is based on three factors existence relatedness growth physiological safety existence love and belonging and uh internal part of esteem is relatedness. External part of estimate self-actualization is growth and it is given in three stages. Master has given total five stages. This is the second difference between these two.
Now next is the broom expectancy theory.
So broom expectancy theory given by Victor Herald Broom. Now this expectancy theory says all about expectancy, instrumentality and balance. What does Victor Broom says that expectancy means what you are expecting okay from your job. So how strongly someone believes that if they put more and more effort then their performance will be good.
That is what the expectancy expectancy means. You are expecting that if I will give my 100% if I will study more okay I'm dedicating more hours in my study then I will clear this exam. This is what this is your expectancy.
Instrumentality means how strongly you believe that if you put put 100% effort then you will definitely get the desired outcome that is instrumentality and balance means the result which you have got how much value you are doing how much value you are giving to that result. So result balance means how desirable the outcome is instrumentality expectancy and balance.
So what are the result of broom expectancy theory? Room expectancy theory says that people are only motivated by rewards. Okay. If if those rewards are meaningful to them. If they feel that these rewards are meaningful to them, then only they will put effort otherwise not. Second, if people feel that the certain goals are impossible to achieve, why they will put their effort on that? So they will only achieve those goals that are within their reach. And third is what the uh this broom theory says that if the company has promised to deliver the proper incentives to the employees once the work is completed once the task is done then the company should promise the the company should promise all the incentives all the bonus commission whatever the company has done the company should give all the incentives to the people. So keep promising, build trust and ensures people they stay motivated in the company.
Next is Porter and Lawler theory of motivation. So this theory of motivation is called the per performance and satisfaction theory. Now what does this theory says the theory of motivation given by Porter and Ner when in 1960 this theory talks about the relationship between performance and satisfaction. So what it says that if employee are giving input in the company, input means what is the input like your skills, your knowledge, your education, your efforts, your competence, these are the input that you are giving in the company. So once you have given the input then according to that input you will do the performance. So this refers how will employees they will execute their task and with this see not only your inputs will help if the company is giving their support tools then only you can perform better. Okay you know how to uh okay you know how to use the AI tools but if the system is not providing you the updated technology then you can do it no you cannot do it.
So performance is what it is influenced by both input and the context in which the work occurs means what company is providing. Third is with the help of AI tools with the help of support services given by the company what your outcomes are. Your outcomes these are the rewards that individual get it is outcome can be intrinsic also it can be extrinsic also.
Intrinsic means like person satisfaction, achievement, it comes from inside and the extrinsic means the salary, promotion, recognition. So this is what this is the outcome means the result and satisfaction means whatever result you have got, how much satisfied you are with your result. All right. So how much satisfied you are with your result that is what the satisfaction. So input what you are giving in the company performance with the input how your performance are and the organization is also giving its support tools after performing what outcomes are there what result are there whatever the result are are you satisfied with your result or not if yes then you are motivated if not you are demotivated what portal versus Adam equity we have not come okay when we will reach then we will discuss So Adam equity talks about the balance between the input and output. The input and out input and output should be balanced means how much you are giving to the company the company should also give you in the same amount like you are giving 100% in the company. So company should also give you the fair compensation 100%. That is the difference between porter and next is human relation theory. So human relation theory it says from the name itself it is clear that good relations should be there in the company. If there is healthy relation then only the company can achieve their objectives well. So unlike older ideas that workers only care about money. No bio see human relation concept is given by Elton Mayo.
So Elton Mayo says that the human relation matters a lot in the company.
If the relations are good, if people are working in team, they're working in collaboration, then only they can get a good level of respect. They will be motivated and they will be satisfied as well.
Equity theory, this is what you are asking equity theory. It it gave it gave whom? Adam equity. It is known as Adam's equity theory. It talks about the input and output that both input and output should be balanced. There should be the balance between the input and output.
How much employee is giving in the company? The company should also give him or her the fair pay wages. There should be the right balance within the input and output. Then only productive relationship will be there and result will be there.
Reinforcement theory talks about the rewards and punishment given by BF Skinner.
It talks about the reward and punishment. It it says what if employee is doing good job in the company then rewards are there for him. If employees not performing the work on time, not doing work on time, then punishment is there. So that is what positive and negative reinforcement. Positive reinforcement means reward, negative reinforcement means punishment.
Next is scientific management. So scientific management theory what it says? It says that gone were the days when the people were using old methods for doing their business. This theory is given by Frederick Winslaw Taylor and Patrick Winslow Taylor is the father of scientific management. So he said that now the work should be done in a more scientific manner. Scientific manner means the machines, the tools, the methods should be used in a scientific way. Okay. So scientific management set of methods and techniques applied to organization so that efficiency can be high and effectiveness can be high. So people will give uh people if the humans employees they will use scientific approaches then they can surely increase their output in the organization.
Next is all about the employee feedback and reward system. This is the next chapter. Employee feedback and reward system means why the feedback of employees are important that the company may get to know if there are any changes that are required any uh things because employees are working on the ground level. They are working with they are working with the clients, they are working with the customers. So they know better that what the customers need.
They know better what the desires of the customers are. So they can give the better feedback to the manager about the changes about the transitions.
So employee feedback means it refers to the opinions, insights or suggestions provided by the employees. So employee feedback means what suggestions the employees are giving, what opinions the employees are giving, what advices the employee are giving regarding their workplace where they are working, regarding their role or regarding their organizational activities. So employee feedback can be taken formally also like through surveys, performance reviews and informally means when you are taking a a tea snack break. So now you are talking and you are giving the feedback that I don't like the culture of this organization or it should be like this it should be like that like suggestion boxes casual conversations. So it can be done formal also and informal also.
Why? Because if employees are satisfied, if employees are motivated, then only your company will run otherwise not.
Next is all about why a total rewards.
Okay. Why? See employees because employees they are working the company responsibility is that they should give rewards to the employees. So rewards should be in different different phases.
So total rewards includes what? The compensation, the fair amount, the fair salary, the benefit, the incentives like health insurance, income uh commission, bonus, savings, retirement, work life effectiveness like if uh suppose any employee okay for your business to the employee has to go out of India. So whatever the expenses would be who will bear that the company will bear that. So balancing their personal expenses also because the person has to go for the business suit. So whatever the expenses the conveyance expenses the company has to bear it and any kind of professional demands are there that recognition. So acknowledging if individuals employees they also want that manager should give them the recognition should acknowledge them how the performance management according to the level of performance the individual should be given appraisal and talent development. This is done for future leaders or for succession planning.
So two types of rewards are there. One is performance based. The second is foundational rewards. So foundational means from the name itself it is clear.
Foundation means the base. Yes. So what are the base rewards? The basic salary is there. Healthare retirement plans are there. Insurance is there and performance based reward means as and how your performance are accordingly that the rewards will be given. If your performance is good, more reward, less less reward. So share uh short-term incentives, profit sharing plans, long-term incentives, all this.
And competitive advantage relies on structuring both foundation and performance. So if your company is having competitive advantage, if your company is far better than ahead of the competitors, then again the whole merit goes to the managers and employees of the company. So for that also different types of rewards are there.
Now two terms are there in employees uh compensation feedback. One is program and one is value. Now program means what? What is giving what is given to the employees means what is offered to the employees. So pay salary bonus benefit training. So what the company is giving to their employees is program and how much employees giving value to those things that is what the value. So how much employees actually appreciate the rewards based on the individual needs.
How are employees value salary? Another will prioritize flexible hours. So how employees are giving value? Some will give value to the salary. Some will give value to the yes in this uh office uh a lot of leaves are there. Casual leaves are also high. Medical leaves are also more than other companies. So some will give priority to this one. So it depends individual to individual.
Next is what different different types of compensation. So individual see it's not that if you are giving salary to labor the same uh if you are giving compensation to labor it will be set same if you are giving compensation to managers it will be named as same no different different level of jobs will have different different types of compensation. So compensation is what it is expressed in terms of money wages salary bonus allowances and benefit. So in job classification group or different different groups are there. The managerial carder like the one who is working at the top layer, middle layer, junior. So the type of compensation the managerial level person is getting is known as remuneration. The one who is working as supervisors okay subordinates, clerical, administrative, the type of compensation they get is known as salary. And if the labor class persons are labor class person is getting compensation whether the labor is unskilled, semi-skilled, skilled, highly skilled.
So the type of compensation offered is known as wing.
Next is job evaluation. So this we have done job evaluation means finding the relative worth of the job. Why it is done? See not no two jobs are equal.
Yes, we have to compare different different types of job and whose jobs is more hazardous the more salary is given whose job is more easy less salary is there. So that is why job evaluation is done. We find the value of the job to to determine the compensation rate to link the pay with the requirement of job.
According to the job the amount will be paid different different types of job will be given different different salary like according to skills. Some are having less skill so they will be given less job. Some are having more skill they will be given more uh you can say more money more salary according to hazards and efforts and to establish a structured compensation hierarchy that is why we do job evaluation.
Next is the uh techniques or the methods of job evaluation.
Methods of job evaluation. So what are the two?
There are two methods of job evaluation.
Non-quantitative and quantitative.
Non-quantitative means where numbers are not included and quantitative means where numbers are included. So non-quantitative is ranking and job comparison and grading and job classification. See you you will say that in rank also we give rank 1 2 3 4.
Why it is non-quantitative? See here we are giving rank according to the uh characteristics or attributes we are seeing we are comparing the people not on the basis of numbers we are giving the rank. So the one who is good in all the criteria we are putting that person at first the one who is less good then we are giving putting at second putting at third. So this only we are giving the we are putting on stages okay it is not including numbers in that. So ranking is done from simplest to hardest or from the toughest to lowest. Grading and job classification means when you give grades to the employees like A1, A2, okay, B1 or A++, A + C. So this is what on the B on the basis of different different parameters when the job is compared and then the grades are given.
So this is also known as job classification like this. This is what this is the example of job classification or job grades.
Okay. So class one, class 2, class 3, class 4. So these are what these are the grades. So in class one, the top level people will be there like executive, office manager, deputy manager. In class two, skilled workers are there. Then in class three great semi-skilled workers are there. In class four more less semi-skilled workers are there like file clerks, office boys, hair operators, switchboard operators. So this is uh the the differences are done on the basis of grades. Now next is quantitative. So here factor comparison and point rating.
Now factor comparison means see certain factors are decided. If I say suppose I'm saying I want to I want to evaluate you. So I'm evaluating you. I'm giving how much punctual you are. Okay. How much hard work you are doing. how much attentive you are. So these are what these are the factors and on these factors I will give you the monk number like in punctuality I'm giving you four out of five in hard work I'm giving you three out of five in smart work I'm giving you five out of five so this is what these are the factors so job compared against five component factors okay it can be five it can be six also but these factors are same for all the people okay if I if I'm evaluating employee A these factors will be same if I'm evaluating employee B these factors are same there is no change in the factors all right so that is factor comparison and point rating means see okay if I'm taking one factor like communication skill now in communication skill there are many sub factors okay technical skills are there managerial communication managerial skills are there uh let's take it skills managerial skills are there then communication skills are there persuasion skills are there so these are what these are more sub factors. So key factors are skilled then sub factors are determined and then the points are given and then the total will be done. So here the numbers are included.
So factor comparison it is again method used to compare job. This one the factor comparison and the factors are taken like skill, effort, responsibility.
Choose factors then give some key points to those factors. After that add all those factors and then compare the other with other jobs. That is what the factor comparison is.
Next is what next is the compare ratio.
So compare ratio is also known as comparative ratio. Comparative ratio means here the comparison is done. Okay.
What type of comparison is done? The comparison is basically done. See okay. Suppose uh the company has hired the accountant.
Now the company is paying accountant uh 30,000 per month salary. So compare ratio helps to analyze that the salary which the company is paying to the accountant is that is the salary is according to market standard or not.
That is what it helps to do the comparison. So whatever salary the company is paying to their employees those salaries according to the market standard or not. If it is according to market standard it means the employees are actual paid.
If it is less than the market standard it means employees are underpaid.
If it is more than the market standard it means employees are overpaid. All right. So how to calculate this? So for that we have one formula actual salary paid divide divided by midpoint of salary range. Actual salary means suppose employee is getting 30,000. All right. This is what the employee is getting and mark and the uh midpoint of salary is let's take it 60,000. Midpoint means market standard. So employee is getting 30,000. Midpoint of salary is 60,000 into 100. It means what? The employees are getting how much?
Employees are getting 50%, it means according to the market standard employee are being paid only 50%. So it is less than 50% it means employees are underpaid. If it would be more than 100% or one it means employees are overpaid. If it is actual to 100% it means the employees are actually paid. Clear? Done.
All right. So all these are why it is done to so that uh from that it it is clear that okay whether we have to increase the salary of the employees or decrease the salary of the employees. So for pay raises for promotion for merit pay that is why it is decided. So compare ratio below market employees are paid less than midpoint. Competent performer means they are given 100% salary is exactly the midpoint of the market standard and experience and premium. Okay some employees they are getting overpaid. Why? because they have a lot of years of experience they are they come under premium uh premium employees so that is why they are paid more than the mid quality.
So this is one example just to understand. So receptionist position is given. All right. Market ranges. Okay.
Receptionist position is given. Market range is 20,000 to 28,000. So first we will find the midpoint. How to find the midpoint? 20,000 + 28,000 divided by 2.
So 48 divided by 2 is what? 24. This is what the midpoint is means market standard. Receptionist is getting 21,000. B 23, C 24, D 26, E 28. Now see whether the receptionist is getting more than the market standard or less than.
So 21 21 is what? The employee salary divided by midpoint of salary into 100 is 87.5. It means it needs adjustment.
The receptionist A is underpaid.
Okay, this is also underpaid. 95.8 8 100% means actual paid. So actual is competent performer. This is above market means it is overpaid and this is also overpaid. So premium max or above market.
All right.
Now next is all about the lecture five that is performance management.
Performance management is also known as performance appraisal.
How to do the appraisal of the candidate? Once they have performed in the company after getting training after getting development skills then what is their performance throughout the year according to their performance appraisal is given by the company.
So the performance appraisal why it is done so that we can evaluate against the job requirements. Okay. We can give the we can place the candidate we can uh give promotion to the candidate. we can provide the financial rewards and other actions can be taken that is why performance appraisal is done. So these are all the uh modern and the traditional methods of performance appraisal. So first is what free form essay method.
Okay. So free form essay method this is what this is a type of method just like see when you were in school when you were in college you were given one topic to write the essay on it. So this is just like that. So here you will get the name of the employee. Now you have to write all the features, all the attributes, all the characteristics of an employee. So this is just like the SM method that is and it is free form means it is open to everyone. It is unstructured the one which is important.
I'm underlining it is open-ended appraisal. So anyone has the freedom to write anything. It gives absolute freedom to the superior.
Now what is the drawback of this method?
That is it is totally subjective evaluation. It is not objective. It is not a impartial evaluation. It is a subjective evaluation. And sometimes the comparison becomes difficult. Why it is a subjective thing? Suppose if I personally don't like you. Okay, we have personal grudges or any kind of personal issue is there. So would I going to give you uh would I going to write everything uh good of of yourself? No, I'm not going to write good about yourself. I will write only the bad features about yourself. So that is why this method is subjective. Straight ranking method here is what it is the oldest method. Oldest and simplest simple the ranking is provided first, second, third, fourth.
Okay. So people are rated in order of their merit. Again this also method has the drawbacks. Why? It is difficult to compare and here because different different behavioral traits are there.
Okay. One thing is important why this method is known as traditional and why this method is known as modern because in traditional methods we are measuring the historical or the past records of the individual. So past records are being analyzed over here and here the current situation is also analyzed in modern methods. That is why it is called modern and traditional.
Then comparison method. So comparison method here you will compare one employee to another. That is comparison method on the basis of selected factors like again the leadership. So in leadership you will compare employee A is good, employee B is good. In initiative you will compare employee A is good, employee B is good. So this method is also known as factor comparison method. Why? Because the factors are there.
All right.
Next. So comparison method is okay when the size of the organization is small.
But if the size of the organization is large, it becomes difficult to compare.
So if the if employees are 200, if employees are 300 in the organization, can you compare one one employee each?
No, it is difficult. So in that case what the company will do? Company will compare, company will do paired comparison method. So company will make the pair of the employees and then these will be compared with the other two pairs. So that is paired comparison method. Okay. Okay. So like this all the factors are there. So these are all the factors. Mental requirements, physical skills, working condition and different different type of jobs are there. So electrician mental requirement 13, welder 10, mechanist 25. So these factors are same for all the level of employers and then the points are added.
Okay. So like uh a tool maker job has to be evaluated. After comparison, it is found that skill is similar to electrician. So skill is similar to electrician means what are the skills?
Five is given. Mental requirements are similar to welter. Mental requirement is similar to welter means 10. So 10. So likewise now we will add all these numbers. So this is what this is the factor comparison method or we can say it is point rating method.
Next is the grading and graphic method.
So grading is simple. Grades are given to the employees like A, B, C, D. And in graphical linear rating is what? Here the employees are given the rating on the basis of their characteristics and contribution. How much employee has contributed in the critical situation.
How what characteristic employee was good in the company? According to that the graphic the linear rating scales are used and the appraisal is done.
All right. So this is also subjective.
Okay. So like contribution if I ask you how much you have contributed so I will always give myself more number okay I'm why I'm going to give the others more number so that is why it is what it is subjective so not all the types of jobs are equally important for all next is the force distribution method now what is why this is called a force distribution because already the criteria is set so here The criteria is set means suppose 100 employees are there in the company. If I tell you that you have to keep at the top category only 10% of the employees. It means out of 100 what is the 10%? 10. So you have to keep it only at the top level 10%.
That is 10 employees. Even if if in your company there are 20 employees who have who can be at this position because they are good in all aspect but still the company has given the fixed parameter that only 10% is good. So that is poor 10 or below average you can keep it 20 average you can keep it 40 good you can keep it 20 excellent you can keep it 10.
So this is known as the force distribution method and one more method is there that is force choice.
All right force choice method is what here the choice is given. You have to do the choices but again the forceful choices are there. Suppose op five limited options are given. I'm asking which employee is good in uh handling situations of the company. Employee A, employee B, employee C. You know that employee D is very good for handling tough situation in the company. For talking with the clients or customers when they are angry but still there are no option for that. we I cannot make choices uh among these three because option D is not available but still the company has given me only three options.
So I have to make choices from these three option. Even if D is not available still I have to choose one out of these three that is known as the force choice method.
Next we have new modern methods of performance appraisal. So modern methods of performance appraisal is what is the MBUS? Okay, it is given by Peter Frakan.
In the first book, this term was approved that is known as the practice of management. And MBU says that both managers and employees they have to take the decisions of the company together.
Whatever whatever objectives are set by the company both have to take both have to work together on these objectives efficiently and effectively. So with this the employees will also feel that yes managers are giving importance to them and at the same time managers will also feel that yes if I'm I'm communicating with my people then they will retain in my company for longer period of time.
Assessment center exercises these are done okay these are done for the managerial level post or top level post managerial or supervisor of top level post. Now this type this assessment center exercises is mainly conducted to test multiple languages to test multiple skills. Sorry not languages to test multiple skills of a candidate.
That is why this assessment center is done. In this assessment center different different uh activities are conducted like role playing. Individual will be asked to perform the role of manager. individual will be asked to uh give the reaction if any angry customer comes in the bank how you will going to handle that customer. Okay. So in case study exercises are there a scenario is created a virtual scenario is created to you and you are asked to act on that scenario. Why it is done? The presentations are given to you.
The company will ask you to show the presentation so that the company can know whether you have presentable skills or not. That is why the assessment centers are fielded.
Now 360 degree is done. Why it is done?
When the feedback is not only taken from one single person from senior manager, when the feedback is taken from managers, when the feedback is taken from customers, from direct reports, from clients, from suppliers, from owners, from outsiders, then so that all together will give you the feedback and the feedback will be some feedback will be positive, some feedback will be negative. So that is called 360 feedback. So not only one person is giving the feedback here multiple person will give the feedback to the influence.
Next is human asset accounting model. So human asset accounting model it says that the humans are the asset of the company. Okay. If we are considering them as cost then it is not good for the company because ultimately these are the only people who are bringing the revenue in the company who are generating the money in the company. So we have to quantify the worth of these human people. Okay. We don't have to take them as cost to the company. We have to take them as asset to the company. So employers are asset. These are not expenses. So we have to invest in people. If we will invest more in human then only we can get more good result.
Then next is all about the conflict conflict management. So conflict is what see conflict is the thing which is universal every time uh every time in all the companies it will going to happen. It's not that not not even a single company where conflict has not taken place. So Hawker and Wilmont in 1991 has said that the conflict is universal. We cannot avoid the conflict.
It will remain among the human and all.
It is structurally uh structurally driven means it is conflict is what it is associated with the incompatible goals. When the thought process is not matching, when ideas are not matching, when opinions are not matching, then only uh then only the conflict will occur.
Okay. 720° feedback is C. In 360 feedback suppose one feedback the employes this is the employee one feedback the employee receives that the employee has to work on his communication skills. Okay, this is the feedback that he gets. Okay, a negative feedback he gets that his communication are not good. He not communicate properly with the consumers with the customers. After getting this feedback when the employee is working on his communication skill, if again the if again the 360° conducted to get to know that whether the feedback the employee has received employee has worked on the feedback or not. So if again if second time see this is the one evaluation first evaluation cycle if second time the 360° is happening just to know that whatever the feedback the employee has received now that feedback is he he has worked on that feedback or not. So that is known as 720° field clear.
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Okay. And it is an opportunity. So yes, with conflict one will get to know that okay yes I see sometime it happens now when you are indulged in any conflict and suddenly you have experiences that yes I can speak this much also I have this much confidence also. So that is why sometimes it is an opportunity for the people so that they can uh okay they can showcase their skills. They can showcase their way in front of other people.
Next is behavioral event interview. This is important. And last thing the question came from star. The star. What is behavioral event interview? See when interview is conducted. So normal what happens? The interviewer will ask you general questions. Okay. What are your expectation? Have you worked in this uh field previously? Okay. Uh how you have worked? What are your qualification?
What type of project you have done? So these were these are the general questions that the interviewer will ask.
But in behavioral event interview what are the questions the interviewer will ask? The interviewer will ask that uh when you when you were working in your previous company have you support any kind of critical incident critical situation? If yes, how you have reacted, what action you have taken, how you have solved that problem, what were your methods, does the uh does it it was solved or not or see this is basically it is asked just to know that if in this company if such type of situation comes in future so how that person would take steps because already that the person has gone through with those situation so whether this person will handle the situation more better or That is why behavioral event interview is conducted.
All right. So instead of asking general questions, it focuses on real life experiences and it follows the star method. So star method is what? This is the star method. Situation, task, action and result.
So what was the background? What problem occurred in past? What was your responsibility? How you have tackled that problem? And what happened in the last whether you have achieved or not this is what the star okay so it is what it past behavior is the best predictor of the future behavior. So here the past behavior is analyzed so to know whether the person will going to behave good in future or not.
Next is all about the different different types of conflict. So one is what the task to conflict. When the conflict arises from your work that is known as the task conflict like the methods that was given to you it was not fit according to you. Okay. So disputes were according to the methods according to the ways. So when the conflict arises on the task on the work that is task conflict. Relationship conflict is when you have any personal issue with any other person that is called relationship conflict. See task conflict can be resolved once the task is completed the conflict is over. But relation relationship conflict is not uh it is it is not easily resolved because if the personal issues arose then you will not going to uh solve it soon. So disagreements and differences between individuals these are not related to work these are related to person and role and value conflict is what when you you role okay you have different expectation from your role and the people in the company the employees the manager the supervisor they are expecting something different from your role that is why the role and value conflict arises. So when expectation and person believes are there they are not matching then role and value conflict arises.
Then role conflict. Some other types of conflict are the intra role, inter role and person role. Intra conflict is what?
When you have the conflict with your own role like the manager is asking you to finish the task immediately and at the same time the manager is saying that you have to finish it with 100% accuracy. So speed should be there and 100% accuracy should be there. So that is intra conflict. Conflict occurring within the same rules. Interrule conflict means when conflict occurs between two different different roles. You are performing the role of father in your house. You are performing the role of manager in the office. So at the same time you have to perform multiple roles.
And person role conflict is when you have conflict with your values and the role that has been assigned. So employees asked to sell a product that employees not believing. That product is not good for the consumer but still the company is asking to sell that product.
That is what that is personal conflict.
So different different types of phases of conflict are there. Life cycle means phases of conflict. So first phase is what that is the prelude phase. So it is pneumonic is pt i dr. First is prelude phase. So in this phase what happens the opinions are not matching the coordination is not the cooperation is not there. Poor communication is there.
So this is the prelude phase. Second is what the triggering phase when actually someone has triggered. Okay. Two person are not their opinions are not matching their thought process are not matching and in second phase the other person has triggered like other person has criticized that first person. So the triggering phase arises. Now triggering phase because the person got triggered.
So definitely if anyone will get triggered so that person will uh start the conflict. So in the third phase the actual conflict will start.
Okay. So in the initiation phase the actual conflict will start. So arguments and disagreements will become visible.
In fourth phase the differentiation. So first in fourth phase the both the person will try to differentiate that why they are not coordinating each other. What are their viewpoints? What are why what are the reasons why there why the conflict arise between them? And fifth is the resolution phase. So in this phase the people will try to resolve the conflict through different different methods.
Next type of uh conflict next type of conflict resolution process is given by Thomas Gilman model. So in this total five ways through five ways we can resolve the conflict. The first is competing. So competing means in this both the parties will try to prove themsel correct. So assertive is high assertive is there. No cooperation is there only one can win and I want to win this uh fight. So that is what competing collaborating is what here here uh both the party will have to fulfill their okay what they are saying their wish will be their desire will be fulfilled. So assertiveness is high and high cooperation is there. So we can we both can get what we need. So our bothh desires or wishes can be fulfilled. That is what the collaborating is. Avoiding means you know that the conflict okay will take place at a high note. So it's better to avoid it. Okay. So you are avoiding the conflict. So it means assertiveness is low and cooperation is also low.
Okay.
Okay. I'm not aware about the HRM paper.
Avoiding is what it's better to avoid the conflict. So exertiveness and cooperation both are. So what you will do you will say okay let's talk about this some other time or right now I'm busy I'll talk on this matter to next day or some other day. So that is what you are avoiding. Compromising is both will come with their 50/50%. So both will come okay uh let's find the midway solution. Why we are fighting on this matter? Let's find the middle way solution. So medium exotics will say and accommodating means you are satisfying the other party need other party concern. You are saying okay don't fight let's do what you are saying you are correct I am wrong let's do it in your way so that is assertiveness is very low and cooperation is very high so resolution pipeline means how what are the ways how to resolve the any conflict so first uh step to resolve the conflict is find the source find the exact root why this conflict occur then look beyond look beyond Means not only see from upper upper okay just don't do overview look in deep why it occurred take suggestions from people who are present around you ask from them take their advices take their suggestions then find acceptable solutions okay so listen it everyone but what is the acceptable go for that and fifth is the final agreement that is the compromise with compromise we can solve the conflict or it's better to talk on that order talk on that matter and formalize a new alignment. So this is how you can solve the conflict.
All right. Next we have next topic that is HR and IT human resource and information technology. So why HR and IT is there? So see human resource how to make the human resource activities more better automated with the help of information technology. So with HR we can do with HR IT we can do recruitment that is online application resumeum screening the payroll is done automated salary we can record we can keep the employees record on the database then training can be done through online through LMS performance like 360° 720° performance appraisal is there all right see collaborating is what in collaborating you see both the party 100% 100% person desire will be fulfilled in collaborating but in compromising both party will compromise little bit little bit means okay I'm also compromising you're also compromising so let's okay some okay suppose a fight took place on method okay that the project has to be completed and one employee saying we can do with this method other employee saying that no we can do with this method so in compromising what we will say okay let's do 50/50 okay half of the thing we will do we will follow your method and Half of the in half of the project we will follow your method that is what the both are coming with 50/50%.
And the 100 100% is what that okay uh we can take two projects okay let's in all in instead of doing one we can go with two project in one project I will use 100% of your method and in another project I will use my own method that is what the collaborating and compromising in compromising little bit little bit they will compromise and in collaborating both will collaborate together and they will achie and they will achieve the project or goal whatever why the conflict occurs whatever the thing that is on that now it's clear.
All right. So next we have self if employee wants to check anything about their self-service then analytics. Okay analytics like business analytics how to take informed decisions and if the customer have any issue any problem so they can also give the online feedback through chat bots support as well.
So in HR is what that is human resource information system. So it is a system where all the information of the human are stored. Okay. It collect all the important employ employee related information at one place. HRMS is what that is human resource management. So it not only contains the information but it also manages the HRity. It also manages the ma the process the methods on boarding the evaluation of candidate as well. And ehrm is electronic HRM. So it uses the electronic mode the online mode to use the web based technologies are there so that the managerial operations can be done better.
So EHRM is in EHRM three components are there operational relational transformational operational means how we are doing our day-to-day activities.
In day-to-day activities we need the administrative work. So like we need to manage the employee data we need need to manage the payroll processing. So operational ehrm is the day-to-day activities are done online with the help of database with the help of web- based technology. Relational EHRM is all about the social ehrm. So here how the activities are supported how HR activities are used so that they can support each other. The virtual how the people can make the relationship virtually good not only physically but the virtual relation should be good like providing training doing giving recruitment uh doing selection okay recruiting candidates then giving training sharing data. So people should be involved in virtual relationship as well and transformational means how the entire business is transforming. So how the learning management sessions are there, how the knowledge management is used, how the strategic reorientation is done, how the decisions are made so that that transition can be done in an ease manner.
So five pillars of KM means knowledge management. So what is knowledge management? Knowledge management is the process where knowledge is shared, knowledge is stored, knowledge is uh uh you can say see every person they will bring their own knowledge they have their own ideas they will do brainstorming. So with this all how the knowledge is being collected together and how it is shared among people in the organization. The five pillars of KM is what the people that is the employees how they are guiding influencing and people to grow together to achieve the targets together. Process means what process the company is using. The process should be clearly defined among each and every individual. What type of culture the organization is having. If the positive culture is there then people will share pe people will give more suggestions. They will take smart decisions. Okay. They will make quick decisions. Technology is what is the uh what is the type of technology the uh like how AI tools are used the supportive tools are used the smart systems are used to automate the search and structure means what is the organization structure how many levels are there which in which level which department is there who is heading that department so how cross departmental collaboration is done okay so ehrm is electronic HRM eHrm means what that in this whatever the activities are being conducted okay in HRM with the help of IT information technology services so how these are being bifurcated in different different phases so in operational it is related to your day-to-day activities like if you're managing the payroll if you are giving salary to your employees if you are recruit if you're doing recruitment okay if you are managing the personal data so for that you need web- based technology so where you are storing the data how you have stored the data how you are retrieving that data everything relational means it is all about social social means the relationship relationship means the person who are connecting with each other so if you are doing the recruitment you have to talk with other people yes you have to collect their application forms you have to review it if you are selecting once you have selected then you have to provide them training so how it is done how you are connecting with people either in the virtual relationship so that is called ehr and transformational means how the company is transitioning to another business model or to another level of strategy different strategy the business has taken. So the transition should be done with the web based technology in ease manner means in easy manner and next is the HR research. So see human resource research is also important why it is done so that we can know which statistical tools are best for the company. After com after doing the comparison with the competitors how the competitors are leading why we are lacking okay we have also launched the product as compared to the competitor's product but our product is not working good. So that is what you will do the comparison and if any divisions are there so for that you will find the reason behind it. If you are unable to find the issues or the reason behind it then you will hire the outside party. So outside authority approach is there. So you will rely on the expertise of external consultant. You will take the help of them to find the correct the root cause of the problem and accordingly you will work. And compliance approach means so company should follow all the guidelines, regulatory approach, the compliances, the rules and regulations to follow the everything.
Okay. So we have completed module B. Now let's start with module C.
All right. So just wait for 1 minute.
All right. So module C is all about your credit management. Overview of credit management. So here we will be seeing all about the credit. How the credit is dis how the credit how credit means the loan. How the loan is dispersed. How the loan is sanctioned. What is the loan policy of the bank? The credit control.
The credit monitoring the credit dispersement. then three different different courses of action then IBC code. So all these things we will going to study in module C.
See weightage of all the module see already I have taken the study plan if if it's better you can watch that session because I if I tell you each and everything in in this session then we could not complete all the topics. Okay.
So weightage of all the modules I have already told in the study plan kindly watch that session. So first important module is what that is module C then B and A equal important then last is module D. So round about 30% question comes from module C 25 to 28% question comes from module B A and D is all about 18 to 20%.
Now let's start with the credit management framework. So in credit we will see what all the types of credit the borrowers the different different life cycle the working capital cycle the priority sector limits the MSME classification the entire one ceilings of NBFC non NBFC specified borrowers NP classification what the provisioning fee PCR ratio are all the seven credits of components of credit management so first is what first it is important to check the loan policy so before it is worthing like in your bank also the loan officer if any loan has to be given. So first the loan officer will check the loan policy of the bank. After that the credit appraisal will be done. The appraisal will be done of the company that whether this company is healthy to give loans or not.
It is checked. Then next is the credit delivery. So credit will be delivered.
The finally credit will be sanctioned to the borrower company. After giving the credit bank will not going to keep it quiet. Bank will have to do the credit control and monitoring. So bank will see that whether the funds of the bank are in the safe hands or not. Then risk management is done. Uncertaintities are there. So risk will also have to be managed. Sixth is if any default is done by the borrower and the borrower is or the borrower is not in a position to repay the money then bank will provide different different courses of action to recover their money. That is rectification, recovery, restructuring and refinance that if extra money the company needs the borrower needs. So how to provide the refinance that is all the components of credit management.
All right. So there are two different types of fund. One is fund based credit non-f fund based credit. Fund based credit is when there is actual transfer of money from bank account to the borrower's account. That is called the fund based money. Like I went to the bank I reached the bank for 10 lakh rupees. Bank has given me 10 lakh rupees. Bank has transferred it to my account. That is fund base.
All right. So is there any actual transfer of money from the bank to the borrower? Yes, it is in fund based. No, not in fund based. Non-f fund based credit means when there is no actual transfer of money from bank account to the borrower. But there's a commitment that in future it may happen like bank has given the guarantee of its customer to the supplier that if my customer will not pay you the money then I would be liable for that. Like bank guarantee is given letter of credit is there. So it is issued by bank on behalf of the import exporter. So that is what non-fund based trade is.
Next we have the targets of priority sector. What is important in this? See this is the new amendment that is important. Rest you all have studied previously also. So all the values are same. So values are important. So total priority sector for domestic commercial bank. Okay. In this the RBS and SFBs are not included. Why? because we have different column for this and those foreign banks who are having more than 20 branches. So 40% is the main target of NBC CEO BC adjusted bank credit and CEO BC whichever is higher. So we will take the higher band agriculture 18% of BBC and in this the 14% is for non-ooperative farmers and 10% is for small and marginal farmers.
Microenterprise 7.5 advanced to weaker section 12%. This is for domestic commercial banks and for foreign banks with 20 branches and above. Foreign banks with less than 20 branches 40% is there 32% is export credit and in these three no applicabilities there. RRBs 75% is there of NBC in agriculture 18% is there microenterprise microenterprise is same for RBS small finance bank and domestic commercial bank advances to weaker section here it is 50 now this has been changed previously it was 75 it has been changed from 75 to 60%. All right. 18% is for agriculture same micro is also for same and advanced weaker section is 12%.
Now housing finance what is the criteria for housing finance? So if any individual is taking housing finance and if the center with population is 50 lakh and above. So if the population is greater than 50 lakh and above and the loan limit is how much for that the loan limit is up to 50 lakh. So 50 lakh can come under PSL and the maximum cost of dwelling unit should not exceed 63 lakh then only the individual will be applicable for PSL.
Similarly centers having 10 lakh but below 50 lakh more than 10 lakh and u yes more than 10 lakh and below 50 lakh so loan limit is up to 45 lakh and maximum cost of dwelling unit should not exceed 57 lakhs. Similarly, population with 10 lakh 35 lakh is the loan limit and maximum cost. Okay, what is maximum cost of dwelling unit? It means the maximum the amount for making the house for building a house that is what the cost of dwelling unit. So all the both the criteria has to be fulfilled. If any one criteria is fulfilled, the other is not fulfilled. So it will not be eligible for PFL.
So housing loans to banks own employee will not be eligible. If housing loan is provided to the bank's own employees, so this will not be eligible under PSL.
Okay. If the if the if uh the for the repairment purpose, okay, if loans are required for the repairment to damaged dwelling units for priority sector lending, so what should be the criteria?
The same is center population of 50 lakh and above. So loan limit should be 50 lakh only. Maximum cost of dwelling unit is same because the cost of making the house cannot change. But if the repair you have to do only repairment so that amount can change. So that is why maximum cost of dwelling house is same in these two loan limit it is 15 12 and 10. This if both the condition is fulfilled then only the loans will qualify as PSP.
Education okay this is uh don't go this education. The loan is not exceeding 25 lakh means up to 25 lakh would be considered for PSL. For startups loans up to 50 K is considered to startups under PSL social infrastructure. So for social infrastructure if the uh bank is giving loans up to limit of 8 K per borrower for uh for the setting of schools okay sanitation facilities, drinking water facilities. So this will be included up to 8 K per borrower. So one borrower can get one borrower can can avail up to 8 cr under PS and if loans are given 12 crores per borrower but that should be under which uh you can say program Aish man bharat and tire 2 to tire six etc. So in this loans can be given to one borrower up to how much? 12 cr otherwise it is 8 cr per borrower for renewable energy. This was the question that was asked in December 2025. So if uh companies or institutions they want to generate a renewable energy. Okay. So for the companies up to one up to 35 cr per borrower is for companies and if in case the individual they want to install solar power plant solar power panels in their house. So for that up to 10 lakh per borrower will be considered under PSA.
Now urban cooperative banks what is the revised limit? So again before it was 75 now it has been changed to 60%.
So credit exposure norms are what these are the uh guidelines. Okay these basically says that how much exposure is decided for each and every sector. So if bank is given to any more sector like bank has given more loan to any single sector. So it will create the concentration risk. So to reduce the concentration risk that is why credit exposure norms are there. So credit exposure norms means a large exposure. Now what comes under large exposure? If the sum of all the exposure value is equal to greater than 10% of credit of banks one capital. So such type of loan will be said as large exposure. So for that the maximum limit is set for NBFCs and for non NBFCs. So what is the limit the ceiling limit for NBFCs and for non NBFCs both of them is same non NBFCs and for NBFCs it is same so for single counterparty or single NBFC it is 20% for group of connected counterparties group of NBFCs it is 25%.
Similarly for single counterparty non NBFC it is 20%. And for single uh for group of interconnected counterparties for connected non-NBCs it is it is 25%.
All right. Now suppose the T one capital is 1,000 K. So how much exposure to one company will get okay the one company single company will get that is 20%. It means 200 two uh 200 K can be given 200 K will be allotted for more than that.
Now the classification for MSME. So how would one know that whether this enterprise would come under micro, whether this enterprise would come under small or whether this enterprise would come under medium. So for that we have criteria set and we have to remember the revised one not the current one. So for considering enterprise as micro the investment and turnover work condition has to be fulfilled. In investment 2.5 cr if any enterprise is having the investment up to 2.5 cr and turnover up to 10 cr then that will be considered as micro. Similarly so small is 2500 medium is 125 500. Okay, if you remember one also investment you can easily find the turnover. How? Just multiply it by four.
2.5 into 4 10 25 into 400 125 into 4 500 or if you if you are okay to remember this then you have to simply divide it by four then you will get the turnover and remember both the condition has to be fulfilled.
So what are the uh lending act lending schemes to MSME sector? So mandatorily issue of acknowledgement of loan letters. So how the bank will provide loans to MSME borrower. So first is what that is collateral. So banks are mandated that they are not allowed to accept any kind of collateral security if they are lending loan up to rupees 10 lakh. And banks they are also advised that they can extend the collateral free loan up to 10 lakh if it is coming under PMEG that is prime minister employment generation program. So if the banks are g banks are giving the loans up to 10 lakh. So in that case banks are not allowed to accept any kind of collateral security from MSME. What is the total value of the composite loan? Okay. When the MSME is taking for working capital they can avail for working capital. So the composite loan limit is 1 K given to MSME enterprise and this is what this is the class class is what importance if MSME wants to uh upgrade their technology like MSME company say they want to upgrade their technology or they want to purchase any kind of new machinery so for that under this class means credit linked class subsidy scheme how much subsidy is provided so that is 15% upfront capital CD or 15 lakh whichever value is small that is provided. So 15% or not more than 15 lakh.
Okay. If 15% is is 10 lakh. So how much MSME will get 10 lakh. If 15% is 30 lakh how much MSME can aail only 15 lakh.
Next is all about the special mention account. So special mention account is a type of account. RB says that when you have obtained when you when you have reached your overdue period. So why you are waiting for overdue period more than 90 days from first day to 90 days. So once you have once the repayment date comes arrives and the borrower has not repaid you the money. So start making your SMA account that is special mention account. So in special mention three accounts are there SMA 012. So when principal or interest amount is due for a period of 1 to 30 days it will be included in SMA 0 31 to 60 SMA 1 and 61 to 90 it is SMA2 remember see what mistake many of you will do you will consider 1 to 30 1 okay 1 to 30 then 30 to 60 then 60 to 90. So no this is wrong 1 to 30 31 to 60 61 to 90 and for cash credit only two accounts are there 31 to 60 and 61 to 90.
Okay. So what are the different different uh types of uh assets NPA the different different uh you can say the categories are there. So first the categories of standard asset means the loan is healthy no overdue period is there it is repaid on time. Then when the NP arrives when 90 days are there.
So first category category substandard assets when the payment is overdue for a 90 more than 90 days and less than 12 months. Doubtful is more than 12 months and loss asset is when bank auditor or director feels that now the bank will not going to recover their money. So those assets will be considered as loss.
There is no chance of recovery. So this is very dangerous.
Now this is important for the asset classification. All right. The normal provisioning and accelerated provisioning. So accelerated provisioning means you are keeping the money aside more money if you are keeping aside for covering your losses that is accelerated provision. Normal means when you are keeping normal amount aside. So when the asset classification is substandard it is up to 6 months 15% here 15%. 6 month to 1 year here normal provisioning is 15 and accelerated 25.
Substandard if it is unsecured means no security is given due up to 6 months 25 other than infrastructure loans for infrastructure it is 20%.
Here only one that is 25 above 6 month 25 20 same for infrastructure other loan 40% for accelerated doubtful one second year that is 25% 100% for unsecured and here it is 40%. Doubtful to 40% for secured. Here is 100% for both secured and unsecured.
Now next is all about next is all about unit number 18 that is accounting standards. Okay. So accounting standards are what? These are the guidelines. These are the principles that the companies have to follow when you are when when they are maintaining their accounts. So accounting standards are what? These are the written documents. These are the written policies that are issued by government ministry of corporate affairs in consultation with NFR. The financial statement it considers how to recognize the assets or liabilities. How to measure the assets or liabilities the values of all the items. How to present the items through different different format like TL account uh cash flow statement fund flow statement trial balance and disclosure. How to disclose the all the items of the account.
The financial statement we have profit and loss account, cash flow and balance sheet. So profit and loss account will tell all about the profit. Okay. From where the operating profit, the net profit, the cost of goods sold, operating loss. Okay. Or it tells all about the income and expenses over accounting period. Cash flow will tell you all about the cash flow inflows and outflows from where the cash flow came and from where the cash gone. And balance sheet tells about the financial health of the company. Financial statements of the company with assets and liabilities.
Assets is equal to liabilities and equity. Asset means what the company owns, what the company is having right now. That is their asset. And how much the company has to repay, what is the obligation on the company, that is what the liabilities are. So it evaluates how well a company is doing financially. If it can cover debts with its assets. If you are having more assets and less debts then the company is healthy. If you're having more debt and less asset, it means you your obligation is high than the amount you have in your company.
Next is all about the cash flow statements. When cash flow statement for analyzing how much cash inflows and outflows are there. So for this we will prepare three different different types of activities over here. Operating cash flows, operating activities, investing and financing. So operating will tell all about the day-to-day transaction, day-to-day things that are happening in the company like paying uh uh purchasing raw material, giving salaries, maintaining records, okay, miscellaneous expenses, advertisement expenses. So these are all about your operating activities. Now investment activities, investment cash flows means where the company has invested either in short-term or in long-term either in working capital or in capital investment capital transactions and financing cash includes and outflows will tell about all the uh repayment structure that is the debt and equity.
So equity plus debt all about the capital structure then that is cash flow. Now next is what that is fund flow statement. So fund flow statement will tell all about the sources and application of fund. Sources means from where the money has come inside the company and application means from where the money has gone to like loans taken. So when when the company has taken loans so money comes inside the company. So this is the sources of fund. Sale of assets money is coming issuing new shares. Okay. So the public will give you the money. So money is coming operating profit money is coming in the company and money is going out means if you're purchasing any asset if you're paying dividend if you are paying salary if you are paying loan increasing working capital so all these are the application of funds.
Next is all about the ratio analysis. So ratio analysis will tell you all about the financial health of a company. So whether the company is in a position to repay all their obligation, all their short-term obligation as well as all their long-term obligation. So for short-term obligation, we will see the liquidity ratios, okay, the current ratios, the asset test ratios, the cash ratios and for seeing the long-term scenario that whether the company is in a position to repay the long-term okay obligation. So we will look for the solveny ratio, leverage ratio.
So liquidity versus solveny. So liquidity is all about short-term. It tells about the company whether the company is in a position to to meet to meet obligations as they become due using current or quick assets. See in liquidity ratio we will see that how much the company is in a position to repay their short-term obligation whether company can convert all their all their liquid assets into cash or not. So easily convertible into cash is possible or not. So in this we will see the current ratio and quick ratio and solveny ratio is all about the financial leverage. So here the company will see the long-term obligation.
Uh long-term obligation means how much the company is capable to repay their long-term debt. Okay. And with this we will be seeing the debt equity ratio, debt assets ratio, ROI, interest coverage ratio and this time the question was from interest coverage ratio.
All right. So current ratio is what?
Current ratio is all about current assets upon current liabilities. Current assets means what? Your short-term assets. Current liabilities means short-term liabilities. So what is ideal current ratio? That is to mean if your current ratios are always greater than current liabilities that is healthy for the company. All right? Means current ratio should always be more than the current liabilities. Suppose your liability is 1 lakh and your current asset is two lakh. It means what? If you are paying from two lakh to one lakh current liability still you are still you are left with one lakh in your hand.
Yes that one lakh in your hand is what?
That is the current assets. You can do your business from that one lakh. That is the difference. That is why the current ratio should be 2 is to1 or greater than that. So ideal benchmark is 2 is to1.
How easily short-term debts can be repaid? Now quick ratio is what cist in quick ratio we have to convert we need emergency funds we need emergency cash.
So that is why in quick ratio inventory is not included we will deduct the stock. Why? Okay, you only think if suppose you have stock worth rupees 20 lakh in your bod is it possible can you can you sell all these stocks in one day or in few uh in uh like in few hours is it possible to sell all these stocks? No, it is not possible. So that is why if we need urgent cash or emergency cash we don't include stock in this case. So current assets minus stock minus prepaid expenses this is also deducted and upon current liabilities. Now that is why the idle quick ratio is called 1 is to 1. Okay. So 1 is to1 is what? It is the idle for the company. 2 is to1 is for current ratio. 1 is to1 is for quick ratio. Why 1 is to1? Because already we are deducting the stock and stock carries a huge amount. So that is why the idle is 1 is to1.
Then all these are are about the profitability ratios. Okay. So we have seen this earlier also the all the formulas. So raw material consumption to cost of production. So this is value raw material. So how much raw material you are consuming as compared to what is the cost comes when you are producing that good. So value of RM consumed upon cost of production into 100. Profit before tax means what is the profit before giving taxes to the government. So PBT upon net sales into 100. What is the taxes? What is the profit after giving taxes? So PP it is not before tax.
It is it is profit after tax. Okay. Next is all about EITA. So EITA earnings before interest tax, depreciation, amotization.
Now for tangible assets we do we do depreciation and for intangible assets we do amotization. So amortization is used for intangible assets. So part profit after tax plus interest depreciation tax amotization upon net into 100 return on capital employed means what that how much returns you are getting when you are investing on any capital investment or any further long-term investment. So it is a bit upon total sides of balance sheet into 100 operating profit by net sales into 100. So this is all about how much profits the company is making.
Now next is all about the vanquish ratio. So this question this time came uh vanquish ratio in June attempt. So long-term debt upon EITa interest coverage ratio also came EITA upon interest on all borrowings interest coverage ratio it means how much company is in a position see if you are taking debt from bank you have to repay this debt but at the same time the burden of interest is also there the company has to pay the interest as well. So if the company is repaying the debt the principal plus interest amount both are paid and this interest is what that is interest coverage. So how much company is capable to repay not only the principal amount but also the interest amount that is principal plus interest.
So it is also included in DSCR that is debt service and coverage ratio.
Okay. Next we have that is all about debt service coverage ratio. So debt service coverage ratio is what? AITA.
Okay. This is all about the AITA upon interest plus C. That is why debt service coverage ratio means company is in a position to cover their debt obligation or not. So how much debt the company has taken and how much time the company is taking to cover that debt. So it includes a bitter operating profit upon interest and the sorry principle and interest amount as well. So both the things are included over here. Debt service coverage ratio can be written aa minus capital expenditure divided by interest. capital expenditure is for it is for long-term upon principle plus interest amount.
Okay, done this much.
See cash flow it it basically tracks your the actual movement of physical cash. Okay, physical cash and all the cash equivalent. But from uh fund flow statement you will get all about the knowledge of working capital. So working capital how how much changes is there in working capital with the when the cash is coming or when the cash is going outside. So for cash flow talks about cash and cash equivalent and in fund flow we will see the working capital scenario.
Okay. So fund flow it talks about the changes in working capital full form of see earnings it is written earnings before interest tax depreciation and amotization. See earnings before interest, depreciation, tax and amortization this is written.
Okay. Done.
All right. So these are all the different different types of ratio. What is important? Current ratio is important. Quick ratio see inventory minus prepaid expenses. Then PBT ratio is important. AITA ratio is important.
Return on capital employed important.
AITA total this we have seen. Operating profit is also important. Debt equity ratio is important.
This is important.
DSDR inventory turnover ratio. A lot of question comes Cox upon average inventory. How to calculate average?
Cost of books sold is given. How to calculate average inventory? Opening plus closing divided by two. So Cox is opening stock minus closing stock plus purchase plus direct wages if not given you can calculate with this debt turnover ratio all the credit sales okay not cash sales are included credit sales are included upon BR or average uh average receivables then vanquish ratio this came last time this also came last time these two ratios already came last time all right then raw material holding ratio so how much raw material the company is holding with respect to how much raw material they have consumed in that particular period when the goods are converted from uh work in progress to the finished goods. Then stock in progress means when the goods are converted from uh work in progress to finished goods. So what is the timing?
What is the period that the company has to hold on? FG holding goods finished goods average stock means once the goods are ready see suppose your goods are ready today. Okay, today is what? Today is 29th. Now it's not that you have make your goods ready today on 29th of May.
So we you will start going to sell tomorrow onwards. No, how much period of time your goods are staying in your goon and after that it is converted into the cash. So that is what FG holding ratio holding. Holding means how much it is how much for how much period these things are being in your company in your go down. Okay. Receivable holding. So how much time the dattors are taking to convert to give you the cash and from that cash again you will use your you will purchase raw material then you will convert your raw material into work in progress then work in progress into finished goods then finished goods into sales dattors and finally you will receive the cash yes it's the part of ABFM also all right next is all about the working capital so working capital is for it is for a short period of time. Okay, short period means less than a year. Less than a year. So, positive working and negative working capital. Positive working capital is when your current assets are greater than current liabilities. It means your company is healthy. You have a positive working capital. You can meet your short-term uh obligations. Well, negative working capital. If your current liabilities are greater than current assets, it means the company is overlevered company and the company is not having assets to repay those obligations. the company is in financial trouble. Now this is all about working capital cycle. Okay, working capital cycle means when you get cash, you will purchase raw material from that. Raw material will be converted into work in progress. Okay, work in progress or we can say stock in progress. Conversion of raw material to finished goods in the process is known as work in progress.
Then the goods are converted into finished goods. These are stores stored for some period of time. After that you will sell to the uh dattors. Okay. Then you will receive the receivables that is BR receivables and when the repayment date comes then you will uh collect the money from the buyer and again you will buy raw material from that cash. So this cycle will goes on repeating. So it's a working capital cycle.
Now next topic that is important is projected turnover method of assessment.
So projected turnover method of assessment it is called the part meth method and it is also called the NY committee method. What does this method says that this method says that normally the companies okay they need for their working capital uh assessment for working capital limit they need how much 25%. So this is said by the bank RB that normally company needs 25% of their annual gross uh annual turnover as gross working capital. But how much bank will provide to the company? Bank will provide 20% and rest of the 5% the enterprise has to bring and this is only for those enterprise who want working capital up to rupees 5 cr.
See so uh the bank will provide the bank will give 20% rest of the 5% the enterprise has to bring and banks are advised to grant working capital computed on the minimum of 20% and rest five rest 5% the the enterprise will bring and it is given to those companies whose annual turnover whose credit limit is up to rupees 5 cr. So this is mainly first it is checked if the working capital cycle is more than 3 months then in that case the part turnover method of assessment is analyzed and accordingly that the 20% is given by bank rest of the 5% the company will bring.
Now next is what all about trades that is trade receivable electronic electronic discounting system. Now why this system is for whom this system is what it is done in system C. One party is known as seller another party is known as buyer. Who is the seller in this traits? The seller is MSME. Suppose MSME has sold goods to the buyer and the buyer party is very large. Okay. ABC limited let's take it. And this company has said certain protocols and certain uh you can say uh uh yes uh certain rules are there in this company. So this company says that I will give you no up to 5 cr if the working capital if the companies they are requiring up to 5 cr then in that case the 20% bank will provide and rest of the 5% the company has to bring this is only for up to 5 cr both the methods will be calculated and the higher of the value will be given.
All right. So, uh seller, buyer and where were we?
Yes. Seller is MSME buyer. Okay. Suppose this company ABC limited company is what the buyers company. Okay. If ABC limited company says, "Okay, I'm purchasing goods from you, but I will give you the payment after 6 month." But what if if the seller needs urgent money before 6 month? So where this seller will go from where this MSME would arrange money various option that MSME can reach to the bank also but in bank uh many different different documentations are there then it will take a lot of time everything you have to submit whether you are taking secured unsecured so many things are there in bank. So that is why to uh uh to avoid such kind of problem the RBI has made one platform that is called traits trade receivable electronic discounting system. This is the platform where the MSME can sell their unpaid okay unpaid bills to the financials. And who are the financials?
Any bank, any bank can p purchase those bill? Any NBFC can purchase those bill?
Any other solo company sle proprietorship can purchase those bill.
All right. This is made by the whom?
Made by the RPH and in this the while discounting suppose the value of goods are 10 lakh rupees.
Now ABC limited has given the invoice of 10 lakh. Okay. Value is what? 10 lakh rupees. So if this is uh applied okay if this is applied on the platform all the bills uh the bills are uh uh uh means the bills are given in this platform. So then what happens if any any of the financial bank or NBFC is buying those bills so the full amount will not be paid. So bidding is done like bank is saying that I will purchase the bill at 9.5 lakh. NBFC is saying I will purchase a bill at 9.8 lakh. Any other uh lending organization any other lending institution is saying that I will purchase the bill of 8 lakh. So the one who has done the highest bidding that will purchase the bill and rest of the money will be given to the sale.
One thing that is important and when the repayment date comes this particular financial will ask money from the ABC limited company from the bank. There is one thing important what is this print transactions are without recourse.
Without recourse means if in if in case on the repayment date if ABC says if ABC denies to give the money to the NBFC or to bank then in that case the NBFC or bank or any of the financials is cannot go back to the seller for for asking their own money. So this is without recourse. So seller would not be liable to repay the amount in the case when it is without recourse. All right. So MSME sellers are there. Three participants are there need quick payment. The buyers, the corporates and buyers, they will buy the bill. And who will do the bidding on the bill? These are the people who will do the bidding on the bill.
Okay. The uh these are what debentures are for the companies. Deventures the company will issue the debentures and the one who purchase those deentures will become the debenture holder. It is not here the discounting is done. Here the financials will purchase the bill.
They will do the discounting and later on if the repayment date comes they will arrange all the funds. They will take the money from the ABC limited company that is buy. If in case the buyer denies the payment then the financials are not in a position that they can go back to the seller for their money. That is why it is called without reports.
So first the bills will be uploaded.
Yes. MSM seller will upload the bill.
Then acceptance will be there. All the things will be analyzed. Acceptance is there. Then bidding is done and then finally the settlement is there. So MSME receives immediate payment and financial will collect the bar on the due date.
All right. Now next is what that is the letter of credit. This is very very important. So letter of credit is what?
See it mainly happens in the international transaction. Now there are two parties. One is the seller. Okay.
One is the buyer that is importer and exporter. Okay. So the seller will always be in a fair both the both the parties they don't know each other and they want to do the international transaction. So seller will always be in a fear that what happen if I'm sending the goods and I will not receive the money. On the other hand buyer will feel that what happen if I have paid the money and I have not received the goods.
So to sort out this problem the letter of credit is issued by the bank. So here the bank is act bank will act as a trusted intermediary between the seller and buyer between the importer and exporter bridging the gap and providing the assurance to both the parties that so bar the uh the bank will okay the bank will issue the letter of credit and bank will give the assurance that if all the after all the documents are being submitted if the payment is not done on the time then bank bank is liable for that. So this is a type of nonfund based transaction.
So rule one that is it is issued on the request of the buy that is the applicant. So the buyer bank will issue the LC on behalf of the seller. Rule two payment is made against the documents.
Okay. So payment is made and the payment are checked analyzed. So documentation is properly done and it is governed by UC PDC 600.
So what is the appraisal of letter of credit? So for that bank needs to assess how many LC's the bank has to issue. How many LC's the company needs using three key points. The one is average amount of each LC. How much value the LC is needed for in when the LC is being issued. So what is the value in that one LC? So it depends on two things. One it depends how much the company is buying. If the company is buying in more amount then more LC is issued. If the company is buying less quantity less order is there then the less LC will be issued like suppose if a company needs six cr worth of goods in a year company wants to purchase goods of rupees 6 cr and normally company is playing order 1 cr.
So it means how many orders the company will play? How many orders the company will has to place? What is the economic order quantity in this case? So 6 upon 1 that is what a six. So 6 EOQ will be placed at 1 EOQ is of how much value that is 1 K. So economic order quantity is what? 1 K will be placed at a time.
So it normally places order of 1 K each time. So EOQ becomes what? 1 K. And the LC amount is what? 1 cr but six times it has to issue.
So what is economic order quantity?
Economic order quantity means the idle quantity. See if if I'm uh if I'm ordering more at once. If I'm ordering more so amount more goods means I have to arrange those goods. I have to arrange the warehouse to keep for keeping those goods. Yes. If I'm arranging more goods at a time then the highest uh storage cost will become very high. All right. If I'm ordering less at a time. So if I'm ordering less means I have to order more times. Okay. If I'm adding if I'm ordering like 10 units good 10 20 units good. So it means every time I have to order it. So now here the ordering cost will be high. So in both the cases the problem is that so I have to find a balanced way where my storage cost is not not also high and the ordering cost is not also high. So I'm ordering a shop sells like 1200 units in a year. If the shop orders 100 unit so the ordering cost will be high means 12 times the shop has to order. If the shop is ordering 600 means shop has to order two times. 6 into 2 two times but again the 600 600 the quantity of 600 units have to be put in the warehouse and again the warehouse costing will be high. So to find the best balance how many units will be issued how many units will be ordered not issued that is EOQ will be 300. So it is the best balance.
So it means 300 300 four times if the order will be placed. Okay. So 300 order will be placed how many times? Four times. So EOQ is what? That is 300 unit.
Now what is the frequency of LC opening?
So what the formula for this frequency means in how many interval one LC will be opened. So how to calculate this? The formula is annual consumption divided by EOQ. So annual consumption was how much?
Annual consumption was 6 K. Yes. And EOQ was ordered at once 1 K EOQ economic order quantity for 1 K was ordered. So 6 K okay 6 K is ordered one that is what?
Six.
So six LC's will be opened over here.
Now six LC's means what? Total we have 12 months and six LC's have to be opened. The frequency of LC means in every 2 months one LC will be opened then only it will come 12. Now 6 into 2 that is what 12. So in every 2 months one LC will be there like January, February, March, April, May, June, July, August, September, October, November, December.
Next is next important is how many LC's will be outstanding at a particular time. Outstanding means how many LC's are yet to be settled. They are not yet settled and they are at the they have to be settled at a given point of time. So letter of credit remains alive means these I get to settle. So how to calculate this? So this will be calculated with the help of it depends on three four things. One is the lead time.
Lead time means the when the first LC is opened and when the shipment of goods is there that is LC is what? 1st January and the goods shipped on 14th of January that is L time. Transit time goods are shipped on 14th of January but goods have been reached uh goods have been reached to the buyer on 30th of January. So this is what the transit time and usage period so how much time the credit period is given for the payment. So this is also calculated.
So total time is lead time transit and users time. So lead time okay we have just taken a example suppose late time is 10 days transit time is 20 days and users means credit period is allowed 6 month 6 month means 6 into 30 that is 180 days so total how many days are there total 210 days are there if in every 2 month LC is open in every 2 month LC is open 2 month is what 2 into 30 that is what 60 days this is 210 days. It means what?
210 divided by 60.
So it is 3.5. 3.5 we can take means in means four LC's will outstanding are the 3.5 we can take four LC. We cannot take now three and a half LC. So we will take four LC's will be outstanding and at a time 1 K quantity are being ordered. So four LC's are there. So 4 into 1 that is four. So so what is the total LC limit needed that is four.
Now next is what next is all about the commercial paper. So what is commercial paper? These are the short-term market instrument. Okay. These are the short-term instrument. These are issued by a company. All right. And market instrument. These are the market instrument who is the regulator of money market. money market instrument that is RBI is a regulator. So commercial paper are issued by those companies who have their tangible net worth of 4 cr and more. Okay. So if their net worth is 4 K and more, if they have a sanctioned working capital limit from the bank, if their account is healthy, no NPA is there, all accounts are safe and healthy. And if the commercial paper they have the minimum credit rating of A3, then only the then only the company can issue commercial paper.
And what is the it is a short-term money market instrument. So it means it matures the minimum time is 7 days and maximum is 365 days. So 7 days to 1 year.
Next is all about the credit appraisal.
So credit appraisal when the bank wants to do the credit appraisal. So in that bank will see different different things of the borrower company. So primacy first is prime facy acceptability.
Primal Facy means bank will see the first level check of the borrower company whether this company is healthy enough or not. If this company is not healthy then we will filter out this weak company and we will find another company. So filter out all the weak or non-s serious applications before detailed evaluation that is what that is the prime of AC acceptability means the first level check and in next is what the managerial appraisal economic market commercial technical environmental financial break even so let's do now managerial appraisal is what first is the prime you will see whether the company is healthy or not next what you will do you will do the managerial appraisal means evaluating the people you will see that whether the manager of that company to which company the bank is dispersing load whether that company is having good managers or not. So for that we will check the five C's of the manager. Five C's of the manager is what that is the condition under what condition uh the loan is taken. So the situation under which the loan is taken the condition of the company collateral what type of loan whether the secured loan the company is taking unsecured loan the company is taking what is the character of the manager whether the manager is trustworthy or not the capacity ability to repay the loan. So whether the company is capable enough to repay the loan or not in future and the capital means how much capital the company is having right now. So these are what these are the five C's of the managerial appraisal to evaluate the borrower company. If the borrower is healthy then only the bank will sanction the loan and some more steps are there.
The interview the borrower inspect the business and ensure that whether the borrower company have KYC compliance or not. What face value?
Next is what that is the project feasibility. Project feasibility means whether the project is feasible or not.
So for that the technical appraisal will be checked the operational viability.
Technical appraisal means whether the company is using updated technology or not. Whether where the factory of that company is located, what is the production process for what type of loan the company is taking for infrastructure for non- infrastructure all these things. Economic appraisal is done. Here the company will see all about the long-term investments of the company. So whether the company is having good economy or not, what is the u ROI of the company? Whether the company have invested on any uh like on any of the traditional or modern methods of capital budgeting. So how much return the company has expected that is the economic appraisal. So ROI, NPV, break even analysis. Market and commercial appraisal is what that is uh market if the if the market is fluctuating. So company is accepting, company is uh pervasive or not, company is dynamic or not. That is what it needs to check. So demand evaluation, competition, target customers. So who are their customers? Uh what uh the company has done the segmentation the company has done the positioning or not all this and environmental appraisal is what that is for what purpose the company the borrower is taking the money. If the borrower is using that money in the economic appraisal projects, in the infrastructure projects, in the green financing, sustainable financing, so how much healthy it is, what is the impact of project on the environment? That is what the environmental appraisal is.
Now financial appraisal is all about the financial. So the uh bank will analyze the result of the past working result of the company. The bank will check the history of the company. Bank will determine how much is the project cost.
If the bank if the company is taking loan in the name of infrastructure, what is the project cost? Where the what is the sources and moves of funds with this? How much there is change in the working capital, the balance sheet, the cash project uh projections, all the things will be checked in financial equity.
Then we have break even point. So break even point this is the formula of break even point. Okay. If you have to calculate break even point in units then you have the formula fixed cost upon contribution per unit.
If you need to find the break even in rupees then what is the formula fixed cost upon PV ratio? How to calculate PV ratio?
Contribution upon sales into 100.
DSCR we have seen it is debt upon all the principle and interest upon all the principle and interest. So net operating income upon principle and interest and IRRa is what it is a discounting rate where the NPV is zero where the net present value of all the future cash flows if NPV is equal to zero that particular position that discounting rate is known as the internal rate of return. So this will be more clear when we will study ABFMP.
All right. So, break even analysis is very important. Break even analysis is what a point where uh where no profit no loss situation arises means the revenue is equal to cost. So there are two components of cost. Fixed cost and variable cost.
Fixed cost is the cost that will not going to change even if you are increasing your production level or decreasing your production level. It will be constant like the rent. Okay, rent is what? It is constant. the salary that you always have to pay to employees. Variable cost is the cost that will change according to to the production level that like cost of raw material. So if you are doing more production more raw material is required. If you're doing less production less raw material is required. Total cost is the composition of fixed and variable cost. And how the profit will start generating? Profit will start generating up to a level of point. After that level of point the first unit or the first rupee will give the first profit to the company. So only up to production of certain number of units the profit will start generating and break even point analysis it helps to find out what is that magic number.
Suppose question is given. Okay see this is the formula in units the question is fixed cost is 2,000 peranom variable cost is 7. Selling price is 12. Now sales minus variable cost we know it is what? It is contribution. So 12 minus 7 is what? Five is the contribution. All right. How to calculate break even point in units? Contribution is five. Uh fixed cost is how much? 2,000.
All right. And contribution is what?
Five. It means 400. It means the company has to produce till 400 units. Uh till 400 units the company is just covering its cost. After 400 unit the 400 first unit will give the first profit to the company. That is what the break even point is. This is what the magic number is. And this is very very important. Break even point if it is less than equal to 50% it is very healthy. 51 to 65 lower risk 66 to 70 medium risk 71 to 85 more risk beyond 85 very high risk. It means till 85% you have not achieved the break even situation. Means uh um beyond 85% if you have achieved the break even position at 85% it means you are only left with 15% you have used your machines labors a lot then only you have achieved at this position. So as soon as the company achieves a break even point that is healthy for the company. It means company has achieved the break even position at 50%. Means 50% is still in left in the company to generate their profit to make more and more revenues.
All right. Next is all about the see when the com when the bank they are providing funds they are giving money for the infrastructure. Uh the name of infrastructure okay what comes under infrastructure project transport energy water communication. So different different types of funds are provided.
First is take out financing. So take out financing is what it is the type of financing when bank says that suppose uh you have to make okay 20 floor building.
So bank will say that if you will make till three floor of building third floor if you will make it by your own with your own funds then only I will pay the money for rest of the 17th floor. That is what the takeout financing is. So here one bank is giving for a short period of time and another bank takes that finance and lends for a long period of time. Inter institutional guarantees what here one institution will give the guarantee of another institution.
Suppose the lender uh lender um okay the borrower reaches the bank okay for asking let's take it uh 40 lakh rupees okay from bank A. So what bank A will say? Bank A will say that I am I will not going to give you 40 lakh rupees but I'm giving the assurance that bank B will lend you 40 lakh rupees. So in this what RBI says RBI rule says that if you are giving the guarantee of any other financial institution before giving the guarant first you have to give the 5% of the project cost. So bank must take a funded share of at least 5%. So if bank A will give the 5% of project cost to this borrower then only the rest of the money the other bank will get. This is what said by the R under RBI guidelines.
Next is financing promoter equity. So if company they need money to promote the uh to finance the promoters equity to buy the shares to buy the equity shares of the company then in that case the bank says that for this you have to arrange your money. So generally it is discouraged by the bank but certain conditions are there in that the bank will end. What are the conditions? It is given for the infrastructure company only maximum 50% of finance can be acquired for promoter stay. time period is 7 years and the ceiling limit is for capital exposure is only 40%. So not more than 40% the exposure is for the company. So these are certain conditions.
Next is the partial credit enhancement.
So what is partial credit enhancement?
See enhancement means increasing credit means loan. Partial means not full amount uh sum of the amount or half of the amount. So partial credit enhancement it is what it is basically it is the guarantee given by a bank okay to to the company so that they can improve the creditworthiness of a borrower. Suppose let's take an example instead of taking loan from the bank company is issuing bonds company wants to raise money from the public and for that company has issued bonds instead of taking money from the bank. In this case what happens in this case the the bank will give the guarantee the partial credit guarantee. What guarantee? Bank will give the guarantee to the investors.
Okay. Bank will give the guarantee to the investors. Suppose a company is issuing 100 K worth of bonds. Bank gives a partial credit guarantee of 20 K. 20 K means if this company makes any kind of default. Okay. Company has issued the bonds. investor has invested money in this company. If this company makes any kind of default, so bank will cover bank will cover 20% okay or 20 K of the 100 K. So this is not fixed. It is not 20% it is fixed. Bank will cover some of the guarantee of the company. Okay. On behalf of the investor. So why this is done? So that the company can get the investors. Okay. investors can be attracted to the company and investors will also feel safe that yes my entire money will not uh I will not going to lose my entire money. Still some of the guarantee is given by RBA.
So it it is it given it gives the uh assurance but only up to a limited extent not the full amount. And why it is used to help companies infrastructure firms or NVFCs it reduce the risk of our investors. So investors may also feel uh like uh they may also feel safe that okay if I'm giving money to this company and if company makes any kind of default so RBI is covering my uh default amount not full amount but some of the amount RBI is covering so that is what it reduce the risk of investors and it improve the market confidence.
Okay. So if company makes default the bank will cover only 20% not full 100%.
So this is what a partial credit enhancement.
Next is all about the credit management.
So credit management is what first is the in credit management the credit delivery is done. The credit monitoring and credit control is done. So when doing the credit delivery the documentation is important. The STP is important straight through processing and shared lending how the money is being shared to different different companies and post dispersement means after giving the loan. So after giving the loan what bank will do? Bank will do credit monitoring. Bank will see whether the company is following the compliances or not.
So STP is what that is straight through processing. See normally what happens when the borrower approaches for the loan. So it takes a lot of time for getting the loan to sanction. Okay.
Banks take a lot of time a lot of time for sanctioning the loan. So that is why the STP is a automated process. In this process the documentation everything is done in a seamless process. So it is straight through processing where uh it is the efficient process. All the transactions are done in the real time.
The diverse loan types are there. It provides the specific requirements to each and every lender.
Next is all about the consortium multiple and loan syndication. So what is consortium? What is multiple banking?
See when a single borrower is taking benefit from different different banks that is known as multiple banking like for uh for savings account bank A is using for investment account bank B he's using for uh his family member's account is in bank C. So when single customer is taking benefit from multiple banking from different different banks that is the multiple banking concept. Consortium is what consortium and loans indication uh it is u it is a bit similar but one is done for a short period of time one is done for a long period of time. So consortium is for the shortterm purpose that is for fulfilling the working capital requirements and loan syndication is for the infrastructure project for the large project. So here all the banks will participate. Okay. So the borrower reaches the bank. Okay. And bank says that I alone will not give you the huge amount because you are not having good credit history. So to diversify the risk the lead bank or the lead arranger bank will arrange all the rest of the bank.
So all other participating banks they will together lend money to this single beneficiary single individual. So it is given for a infrastructure it is given for a short term. Now in this in loan syndication the loan syndication fees is charged from the borrower but fees is charged from the borrower but in consortium there is no such fees is charged. The all the other banks they have to follow the rules and regulations of the lead banking in loan syndication as well as the consortium banking.
This is the difference. So multiple banking separate loans from multiple banks. Here the joint financing agreement is there. So all the banks will join with the lead bank and then they will provide loan to this single individual. Why it is done? So that the risk can be shared, risk can be diversified and the control is also in the hand of one bank.
Now next is what next is all about the term loans. So what it says see we have seen the bank if they are providing loans for financing the promoter's equity. So there it is different different methods are there how the bank will provide the loan uh to the promoter's equity. So bank will adopt any one method from this. First the promoters bring the entire contribution up front before the bank start disposing. So what bank says that first promoter will bring the money then bank will give the money. This is the first method. Second is what the bank says the promoters can bring their money uh 40 to 50% in first stage and then all the rest of the money in different different stages. So they have to bring certain percentage of this equity 40 to 50% up front and the balance is brought in stages. Third is promoters will agree.
Uh the bank says that okay the amount will be brought by me and the promoters in the proportion amount.
Proportion means like promoters they are they are bringing they are giving 2,000 so bank will also give 2,000. If promoters are giving 5,000 bank will also give 5,000. So this is app initi funds proportionately as the bank finance the debt portion. So this is all about the term loans.
No inter institutional lending is here one institutional is giving the favoring another institution. All right. So in that the RBA says that if one you are favoring then you have to give 5% of the project cost but in consortium banking it is not that you have to give the all the all will bring the equal equal money like the 20 k is to be provided. Okay.
To a single uh to individual. So lead bank and plus all other bank they will give how much? Like four banks are there. So every one of them will give 55 per.
Okay. So this is the difference.
Consortium there is the formal arrangement. It is for working capital needs arranges meeting assesses documents creates monitors and it also see standard shared fees. In this consortium banking there is not any kind of written that specific fees are taken.
If the if you wish if the banks wish then they can take otherwise uh you can neglect this. Okay. The fees are not in this consortium banking. In multiple banking no formal arrangement is there.
No lead bank is there. The individual bank fees is there. And loans syndication the formal mandate given to a lead bank. So every all the banks will follow what the lead bank is saying.
Lead long-term loans are shared. Okay.
arranges the license work. Everything is arranged by the lead bank and here the syndication fees charged from the borrower.
Next is all about unit number 22 credit control and monitoring. So credit control is what controlling the credit that in how much how much credit is to be given to which sector. So all the different different sectors are there and bank decides that this sector is to be given 20% this sector 25%. That is what that is credit control and credit monitoring is what after giving the loan the bank will monitor bank will track the uh bank will track and review the activities of the borrower for what purpose the borrower has taken the loan now the borrower is using the loan in that same purpose or not that is what monitoring is. So close supervision is done after giving the loan and credit control is here you are here the bank will decide how much credit has to be extended to a borrower.
So what RB says RB advises that the bank they should not depend on the certificates issued by chartered accountants or the borrower statements.
Why? Because the chartered accountants or the certificates that are issued by the auditors they are not 100% authentic. So it's better the RBI says banks that they can appoint one nominee in the company's board to check all the internal functions. So that is why it says bank should not depend entirely on the certificates issued by chartered accountant. In case of incorrect certification bank must take initiate prompt action including withdrawal sanction facilities and legal reviews.
Next is all about the scope and coverage of the loan. See and this is what this is a part of loan review mechanism. So a bank always says that it is important to review the loan. After giving the loan still you have to review the loan that whether your money is in the safe hands or not. So one is the portfolio review.
Second is loan review. Portfolio review is done on the macro level. So entire portfolio will be uh entire all the sectors will be checked. Okay. that in which which sector how much loan is given? It is done at the it is done from the over side means not in depth it is done but in loan review we have to see each and every loan portfolio but again RB says that it is difficult to see you have given the loan in sectors A B C D.
Now in A also we have different different subsectors suppose A1 A2 then in A1 also sub subsectors. So it is difficult to go each and every sector and do the load review. So RV says that to check the proposed process of loan approval different uh conditions are there different different categories are made.
How you can check the loan review. So first you if you have given loan the fresh loans first you will check the fresh loans the loans which you have given for a period up to 6 3 to 6 months. Okay. Second, you can make a certain criteria that you can decide okay u I will review the loan of above 5 K or above 10 K that is review large loans those above a certain size or randomly you can pick from the portfolio 5 to 10%. Or you can check loans from the related company from the subsidiary company from the parent company means if the companies they are having the transactions related party transaction then in this case. So four different different methods are there.
So how the frequency of review frequency of review of loan is to be done. If high risk loans are there it is reviewed every 3 months. Average risk loan reviewed every 6 months and lowrisk loan are reviewed every year.
Then next is all about the credit rating. So in credit rating we have different different types of risk.
Operational risk arises when it ar when it comes from people process or both. So if the employees are not working good in the bank. If the process are very delayed process then operational risk arises or it arises from any natural calamities. Market risk is the risk that arises from the market fluctuation or market movement like interest rate exchange rate. and credit risk arises when the borrower has done the default when there is non repayment of the principal and interest amount.
So some external and internal factors are there for credit risk. So what are the external factors? External factors are those factors which are uncontrollable. You cannot control them and with just the credit risk the different types of risk arises like exchange rate, interest rate, government policies, protectionist policies, political risk. So these are all the part of pestl which you cannot control it but internal factors are those factors that you can control them well.
So deficiencies in the bank's own lending strategy if you have done the overconent registration if you have lend if excessive lending is you have lent to any single sector huge amount you have not checked the proper loan criteria given faulty loan you have done the credit appraisal in a poor manner credit monitoring is also not done and there is lack of efficient recovery so all these are the all these will come under internal factors Then different different types of risk are there. Six types of transaction risk are there. First is concentration risk means if bank has given much more loan to any single sector that is concentration risk. Industry risk. If only uh single industry is facing or the only one market is facing the risk or the entire industry is facing the risk that is industry risk. If entire market or entire industry faces the risk default risk it arises from the borrower when the money is not repaid spread risk arises when there's a difference between interest rate market risk suddenly with the market fluctuation the rates have been changed then spread risk arises.
Downgrade risk means you have given the loan to borrower. After giving the loan you are seeing that now the borrower credit rating is dropped down. So that is known as downgrade risk. when borrower's credit rating goes down and recovery risk is what when NP arises still you have a chance that you can recover the money but you have not recovered the money what you have expected you have recovered very less money so bank may not get the full money after a loan goes back so different different evaluators are there for checking the credit risk okay the uh credit rating agencies are there and credit information companies are So credit rating agencies they will decide they will make they will fix the rate okay the credit score they will give you so that the lending institution the lenders may get to know that whether this borrower is healthy or not and credit information company will provide all the information related to the borrower to the different different banks and financial institutions. So it assigns a simple score grade to show how an entity is repay whether entity or company will repay or not. It is a forward-looking credit ratings and here the uh specific debt instruments or large corporate entities are being created.
Credit information will provide the all types of historical credit related data on individuals and business. So it gives the civil score and it helps to analyze the creditworthiness of the company.
So different different types of credit rating agencies are said. So domestically we have all these credit rating agencies. care the full form is very very important okay so don't miss the full form care crystal IC India rating brick work equationally we have pitch this is important Moody's standard and fourth total credit information companies are how much so global we have experian equifax union and in India there are total four CIC's so earlier there were only three CIC's but now there are four CIC's what is TransUnion Civil it is set up by SBI and in association which HDFC in 2001 first it was the first CIC in India and RB has mandated that all credit institutions must be the member of all these four CIC's second is Equifax and okay TransUnion civil the earlier name was civil now this has name name has been changed to TransUnion civil then Experian India and CF high mark and this is important that is krillic.
Krillic is what? Central repository of information on large credit. So if any borrower has taken a big amount has taken a loan of 5 K or more than that then in that case bank will provide the reporting to whom? The credit central repository of information on large credits. So kic it is the system created by RBI to collect and share information about big loans. So large credit information is so if it is 5 K or more.
So if a person or company has taken loan of total loan of 5 K or more then in that case the bank will provide reporting to whom? Really? Okay. What are exempt in this case? The what is not reported? Crop loans are not required.
Banks do not need to report if they have taken any kind of intercorporate uh loans like from Labad, Sidway exam, interbank loans and other agricultural loans are included. So only these two are exempt. Rest others are included in credit.
Okay. Except crop loans. So all should be reported as per RA instruction.
So what is the risk management scope in macro and micro? So macro we have seen it is done overall portfolio is that. So here we will pro if the bank has provided loan and borrower has done any kind of default. So different different courses of action are provided and in micro it is for individual proposal like it is focusing on specific needs on specific borrower specific company obtaining collateral security giving personal guarantees financial guarantees credit ratings credit scorings central repository information on large credit wait it was written now central this central repository of information on large credit.
Clear?
Next is all about the stress assets. See stress assets are those st those assets when the borrower has given the early warning signals. Okay? or borrower has given the early signs early signals that now they are not in a position to repay the debt to repay the amount to the bank. So now the borrowers are at a risk of default that is why the stress assets they have shown the early signals the borrower is showing signs of financial distress.
So when NP arrives so first the first the bank will wait for 90 days of a non-payment or interest overdue for a period of 90 days or more then it will be considered substandard it will be considered okay substandard that is 90 days and less than 12 months more than 12 months doubtful and when the bank or f bank bank's auditor a bank's director feel that the now the money will not be recovered then it will be considered as loss assets. So this we have seen standard assets means healthy stress assets are divided into three categories. SMA 0, SMA 1, SMA 2 and 90 days delay means red zone that is the NPA has already arrived.
Next is what provisioning coverage ratio. So provisioning coverage ratio what it says how much money the bank has kept aside to cover their all the losses. So bank must build a provisioning buffers to absorb their losses. So if bank is keeping money aside to absorb all their losses that is known as provisioning coverage ratio. So what is the formula that is total provisioning upon gross NP into 100. All right. Suppose the bank portfolios let's take an example 500 K. Okay. And what how much provisions the bank is making?
Bank is making the provision of uh let's take it okay 50 K uh 5 K so portfolio is portfolio is suppose uh 5 K bank portfolio NPA has arrived how much NPA has arrived 50 K and let's take bank has made the provision of 5 K now how to calculate total provisioning so total provisioning upon gross NP total provisioning is how much five NP is of 50 into 100 so five it means 10% bank has made the PCR out of the bank portfolio how much 500 current so that is what it indicates that how much bank has kept aside to cover their all losses now next question would be in your mind that who is a willful departter So a willful depaulter is a person who has done the default willfully intentionally. Intentionally means like you have money but still you are not repaying to the bank. That is what it is called intentional default. I have money in my pocket but still I'm not repaying to the bank. So I'm a willful defaulter.
Okay. So willful defaulter is a person who has done the default not genuinely but intentionally and deliberately.
And who are non-ooperative borrowers? So non-ooperative borrowers are those borrowers who are standing like a wall between the bank and their effort.
Suppose okay I'm a willful defaulter.
All right. I'm um I have not given the money to the bank. I have not repaid the money to the bank. But still bank is trying to recover their money with different different courses of action.
And when bank is trying to put all the efforts to recover their money. So I'm standing like a wall between the bank and their effort. It means what I'm standing like deliberately standing like a stone walls and legitimate effort. So bank is bank wants from my company my records my financial statements okay my collateral my documents estate documents but still I'm not giving I'm denying the access of the bank. So that is what I'm a non-ooperative board.
So banks, financial institutions will be required to report information on nonpoperative borrowers to credit that is central repository on information information on large credit within how many days within 21 days from the close of the relevant water. So this is important.
Okay. So bank so what are the different different uh how the how the borrower will be identified as non-ooperative borrower all the all together the fund based and non non-f fund based credit facilities if the if the borrower has taken 5 k or more then it will be provided information to the credit we have seen okay if company is not cooperating with the bank company is hiding information not repaying or refusing the financial details it means the company is not cooperating with the bank so In in case of the label of non-ooperative so it is not just for the company see if the label of non-ooperative is there so it is not only for the company it is the people who are working in their company so it also includes the promoters of the company the owners of the company the directors of the company now who does who it not include the independent director because they are not directly part of the company they have just they are just assigned they are just working in an independent manner they are not related in their daily operation And the nominee director nominee director means if bank has appointed a nominee or or the government has appointed a nominee or person to check the details of the company. So these two are not be included under the name of nonoperative only promoters and directors are included.
Next is all about the restructuring rehabilitation of stress assets. So when when the borrower has done the default okay now bank will use three different different courses of action to recover their money. The first is rectification.
Rectification means bank will give the chance to the borrower to rectify their mistakes. Second is what that is restructuring. Bank will provide the restructuring method. And third is if from these two the bank is not recovering their money then bank will take the help of court debt recovery tribulance RPC act all these things.
So who is willful default and non-ooperative so willful who has done the default intentionally a deliberate action is there instead he has the capacity to repay but still that person is not repaying the money that is willful default. Now what action he can do that is diversion of funds siffening of funds. So we will see what is diversion and stiffening of funds and non-ooperative borrower is who is standing like a wall and they are not providing the efforts to help the bank so that they can access the data or the information of the company. So cut off limit is what that is 5% and independent and nominees director are not included in the label of non-ooperative borrow.
What is diversion of funds? What is stiffening of funds? Diversion of funds means when business is misusing the funds means you have taken money in the name of working capital and you are using that money for infrastructure project. You have taken the money u okay uh from one bank and from another bank also you have taken the money and you have not informed to the previous bank or the new bank that I have already taken money from rest of the bank. So all these are what diversion of funds.
Now diversion of funds is still acceptable but stiffening of funds are not acceptable. These are not acceptable. So here is using short-term working capital for long-term. Okay. Routing of funds without uh permission. Transferring the borrowed money. So money you have taken and you are transferring it in the subsidiary companies or the money you have taken but the accounts in accounts you have not mentioned that money. You have taken the money of 10 lakh but only in your accounts eight lakh is showing.
So where that two lakh is? So that is where that nonaccounting is done where that two lakh has gone. That is all about diversion of funds.
Now siping of funds it is a more harmful act. It is not acceptable. It means you have used the money in any illegal purpose. You have used the money for buying your personal belongings. you have used the money for in uh speculation, okay, in hedging, in arbitrage. So all these are the things that includes the sening of funds.
Okay. So what is the process for declaring the borrower as non-ooperative? So first the committee checker will be there. See we cannot uh say that this borrower is a non-ooperative borrower or this borrower is having the status non-ooperative. So first committee checker will be there.
So internal bank committee will review all the things. Then show notice is given. Show cause notice means the borrower will given the chance to tell their side of the story. Why we why we cannot uh consider that borrower as non-cooperative. After that a written response will be there. Okay. Whatever the details are there after hearing the borrower. Then next the formal hearing will be done. So when the borrower has given the written notice then the formal uh notice formal hearing will be done a meeting will be conducted virtually and it will be asked from the borrower what is your concern what what you want to tell and then the final order is there.
So final order is final declaration that whether the borrower is a cooperative or non-ooperative. If the borrower is cooperative after cop if the borrower is non-ooperative and later on if this borrower non-cooperative borrower becomes a cooperative again then what will happen? So when new loans are given to that non-poperative borrowers so every in every six months the loans would be rechecked it will be reviewed if the classification is done from non-poperative to cooperative again then in restructuring so I have told you that in restructuring what are the things that bank will allow bank will give the repayment period bank will extend the repayment period that okay you have done the default the default was genuine so I'm giving you some more time period to recover my money. So elongation of time period installment will be reduced more capital will be given moratorium grace period will be given extended the pricing cut will be there interest rate will be reduced so come bank says that okay where you have to pay the re where you have to repay the amount on 10% now I'm deducting this to 9% or 8% or some extra money is given to the borrower this is only done when the borrower is considered as when The borrower is considered as the genuine borrower not willful defaulter. This is important.
Okay. So see this might happen. This is the normal companies can do the default but MSME can also do the default. So stressed MSME account if the loan is up to 25 K including the consortium and multiple banking then in that case the resolution plan has to be made. So for that how what is the period? what is the tenure or what is the process how the resolution plan will be decided. So first branch will send the flagged accounts to the committee for resolution plan within 5 days after after identifying the account as the stress account. Okay. Once it is sent for the committee once the committee has reviewed now after reviewing after accepting within 5 days the borrower will be notified that we are making a resolution plan of your company. Now borrower will give the response after getting the notice after reading it after checking all the details borrower will respond and make a representation within 15 days. Okay. If everything is sorted then either the rectification will apply, restructuring will apply or recovery will apply. If the rectification is applied so it will be applied it will be implemented in 30 days. So remember the one which includes C in rectification C is there in recovery C is there. So C is what? C is the third letter of alphabet. Yes. So make it 30.
So resolution plan will be implemented within 30 days. Within 30 days recovery 30 days also immediately but it is not less. It is not more than 30 days. And what is left? Restructuring. So it is 90 days. It must be implemented within 90 days.
Then last option is what that is recovery. So recovery how it is done? So either the with the help of help of legal action the civil court sue of recovery banks can be filed before civil court when the recoverable amount is less than 20 lakh. All right. If it is in the favor of the bank then a preliminary dy decrees provided means it will be notice will be given to the borrower that will have to pay the amount within 6 months. If the borrower has not yet repaid the warm within 6 months, then the bank will apply for another final uh decree. All right. And it is based on which the 12 years time period is given that in 12 years the recovery must be completed.
Debt recovery tribunal is when the case recovery case is amount rupees 20 lakh and above. When the recovery case see here it is less than 20 lakh and debt recovery tribunal when the amount or is of 20 lakh and more than that then DRT will be applied. Loadal is what when it is for the see it is for those institutions whose the loadal dues are up to 20 lakh and it is convened under the civil judiciary. So for localat again it the due is up to the amount due is up to rupees 20 lakh.
The insolveny and bankruptcy we have next chapter we will study there in detail. Now surface act the fullform is important. This act came in year 2002 and what this act says this act basically recovers the loans of the bank without going to the court. So borrower is not repaying the loan then bank has the right that bank can take the possession of the assets. So take the possession of the property sell the property. So before selling the property before taking possession of the property the bank has to provide the information to the borrower. So 60 days notice is given. So before taking action bank will give 60 days notice. If the borrower is not repaying on that time then bank can go ahead. But if the borrower needs the uh the dispute or this to be completed early then in that case the fast process is needed. So the bank can go for DRT will handle all this.
Now next is what next is the credit evaluations are there. See the lenders see they have because the credit evaluation the credit rating agencies who will check the who will check the credit score the civil. So basically the lender is is needed for that. Yes. So this rule is for the lenders not borrowers. So lenders will have to hire and they have to pay credit rating agencies if they are evaluating the large loans. So if the loan amount is between 1 K to 499 K in that case one IC is required.
If the loan amount is 5 K and above then two ICE are required. IC means independent credit evaluation and the rating should be either it should be RP4 or less than that means RP1 is good, RP2 is good, RP3 is good, RP4 is okay, it is acceptable but beyond that it is not acceptable. So RP4 or better RP4 or better means it could be RP3, it could be RP2, it could be RP1.
Now next is all about unit number 25 that is definition of insolveny and bankruptcy. This is all about the resolution of stress assets under IBC code 2016. So what is insolveny and bankruptcy? Insolveny means when liabilities are greater than asset plus unwillingness is there to repay the amount that is insolveny. The company is not in a position to repay their debts.
Bankruptcy is what? When liabilities are greater than assets, unwillingness, is there no obligation? Uh um unable to pay obligation. Plus when bank when code gives the when court gives the certificate of insolveny that is known as the bankruptcy.
This is the difference between insolveny and bankruptcy.
So in IBC code when any corporate data corporate data is what? This is the defaulting company. This company has done the default and what is what should be the amount why okay why IBC code 2016 is applied on this corporate data it will be applied only when the amount is more than 1 cr and above then only the creditors can apply that they can apply for CRP PP process for the corporate data under IBC code 2016.
So IBC code like RBI is the regulator of all the banks. Similarly IBBI is the regulator of IBC code 2016 mean insolveny in bankruptcy code 2016 who is the regulator of IBC IBI. In IBBI we have insolveny professional agencies.
These are the agencies under which any CA is there. CA is CA is there. CS is there. CMA is there who will conduct the CP process.
Insolveny professionals are there. So interim resolution professionals are there and resolution professionals and the liquidators are or are are also there. If the company has not made a good resolution plan, it is not acceptable then the last option that is left is to liquidate the company. So all the companies who has done the default of 1 K and above they can be placed over here under IBC 2016 for their resolution process. And in this resolution process the process is PIP will be there or PP will be there. PP is for MSME companies and CP is for other than MSME.
What is the defaulting amount? 1 K plus 1 K and above for MSME up to 1 K.
Then we have utilities information utilities all the information of the corporate stored at one place. Creditors are their financial operational committee. Financial creditors are those creditors like any bank, financial institution, those are financial creditors and operational traitors means if the company has taken uh company has bought purchased the goods from the creditor but company has not repeat the money. So those will become under operational citor then all these creditors will make their own committee that is known as committee of creditors.
So corporate is there and the judiciary the uh adjudicating authority is there that is NCT, NCAT, DRT, DR. So see the first the application will be submitted to NCT who will submit any financial creditor any operational citor can apply or any even the corporate detor can also apply. Once NCT will approve then only the process will start. If the creditors are not satisfied with the decisions not satisfied the decisions with NCT then they can move to the upper head that is NCL national company appate law.
So professionals are these are experts who help to carry out the I IC process.
Okay. These are the licensed IBBI of India and they what they they make the different different act. Okay. the rights, how to proceed the process, how to make a plan, how to move with this, how to move with this plan, how to proceed the plan, how the money will be distributed, who will collect the money, which uh the money will be given first to which party. So, all are decided by insolveny professionals.
Each financial citor, they have the voting power. See, financial creditors are given voting right, but operational creditors are not given voting right.
They are only given the observatory role. Cororum of committee of creditors is 33 by 33% by value. Cororum means the minimum number of participants that are required to present in the meeting.
Okay. They hold at least 33% of total B.
If any critical matters are there then how much voting is required? So 66% majority votings are required. So if 66% committee of creators will say yes then only it will proceed. If they will say no then it will not be proceed. And on routine matters 51% majority is required. Similarly, if any creditors they want to withdraw from the case, okay, once they have applied for the CP process under IBC, after replying the creditor is thinking that it's just just a wastage of time. We will not going to recover money from this data. So if the citor if any bank wants to withdraw the case then in that case how much majority is required? 90% of the majority of the committees is required that is by value.
All right. So what is by value? Suppose bank A okay bank A is how much owed? 40 K bank B has to recover 35 cr. Bank C 25 K. So total is 100 K. Voting share is 40 35 25. So cororum is 33% by value means 33% of the uh voting is required 66%. So 100 into 66% means 66 K it is 33 K and it is 51 K. So all these are by value.
So these are what these are by value.
So how IBC process will start. So first the default will happen. So individual has or the company has failed to repay the loan on time. So minimum default amount should be 1 K. Then the application will be submitted to NCT. If NCT approves the application then only the further process will start. So there who can file any creditor financial operational and corporate data itself.
Once NCT checks the application if default is proven then the NCT will admit the case within 14 days and the moratorium period gets start. So grace period is given to the creditors sorry dattors grace period will be given to the dattor and is appointed because we want any persona who can start this process. So that is why interim resolution professional is appointed.
Then after appointment of the public announcement that okay we are starting the IBC process of this company. If any of the creditors they want to recover their money they can join this process. So that is what the public announcement is made. Then every creditor will come they will submit their claims. Proof of claims formation of COC. So IRP verifies the claims. Then appointment of resolution professional is done. So COC will confirm that whether this will proceed or we have to hire any other person. So resolution professional will proceed. Then a resolution plan is made. So RP invites potential investors to submit plans for the revival of company and at least 66% voting is required. So once it is approved by NCT okay see after the resolution plan when it when the resolution plan is finalized CO will check first. If COC will approve then NCT will check final NCT will approve then only the resolution plan is implemented. If any one of them has rejected then the company will goes into liquidation.
So resolution plan is what? It is the plan that is made to make the company okay uh work again so that the company can uh resolve from the financial distress. The company can recover or pay the debts to the other uh banks or the company can make their activities again so that they can continue their operation again. So development is there a applicant is decided who will develop the plan. The plan should be made in such a way that it can uh it can include all the things that how what is the value of the company how the amount will be repaid then approval will be there.
So first the COC will approve if COC will approve then it will be then it will be submitted to NCLT. If NCT approves the plan then only it is implemented. So what are the content of resolution plan? So how the creditors will be paid? What are the steps how to restore the financial health of a company or what are the steps to ensure that company can resume their operations?
Then submission of proof of claims is given during liquidation. So the company who wants to the the banks or any financial creditor any operational citor who wants to recover their money they have to submit the proof of claim to the liquidator. How to submit? Financial citors have to submit electronically only whereas other payments means the operational creditors they can submit it in by person by post or by electronic means.
This is the difference between financial citor and operational creditor. A person who has linked money to the company that is financial cer it can be bank any NBFC and operational trader means a person who has supplied goods or services to the company.
So evidence what is the evidence? The loan agreement is the evidence.
Financial contract what is the evidence over here? Invoices, purchase orders who are like any vendor, supplier, landlords. Voting NC yes financial creditors are allowed. Operational creditors are not allowed. If financial creditors are not present then only they are allowed otherwise not.
Filing of CP corporate insolveny resolution process under section 7 here under section 9. Proof of claim they have to submit it electronically. They have to submit it in person by post or electronically.
And now if the liquidation has to start so the liquidator has to submit the preliminary report to the NCT within how many days? Within 75 days when the liquidation process starts.
And next is the PP. So PP is for the MSM. So this is only when the value is up to 1 K because beyond 1 K it will go for CP only. So if any MSME has done the default then in that case the PP will apply.
So what PP can be contemplated? See PP and CP if both see any PP can start if there is gap of 3 years from the previous PP like one PP started on 1st January 2020. So another PP will start on 1st January 2023 not before that. So there should be the gap of okay 24 there should be the gap of 3 years.
Okay. Now if any PP has been recently filed then if PP is filed within 14 days so in that case the PP will apply. So see what happens sometimes both process may be filed around the same time. So if PP is filed within 14 days of the CP filing so PP will continue. All right.
If more than 14 days have passed since the CP was filed so CP will continue. So PP is special. It is faster insolvency process for MSME with a default up to value 1 C. It can be used only once every 3 years and both normal IBC and prepack are filed close together then the one which is filed within 14 days that will process that process will go ahead.
Okay. Yes. CP is what? It is creditor in control CP and PP is data in control. So means the uh defaulting company will take all the action all the decisions but in CP the committee of creditors and NCT will take all the action.
What is the timeline? So CP timeline is maximum 180 days but it can extend up to 330 days.
and PIRP is P IP is it is only 120 days.
See amount if see already if the amount is less than 1 K. So the PP will not going to proceed uh the sorry the CP will not going to proceed the PP will only proceed in that case if the amount is less than 1 K.
See it basically says that if both are okay if both see or at one time only one company can file for one thing now PP or for CP one company cannot file for both of the uh process at the same time. It can only file either PP or CIP not at the same time. Uh at the same time not the both process will not going to apply for one single company.
Okay. And see resolution plan is what this is important. So MSME defaulter who is under PP it has to within 2 days of PP commencement. Well, once the PP starts, it's within 2 days they have to submit a base resolution plan. And this is the difference between PP and CIP. So PP is for MSME. It is up to rupees 1 K initiated by corporate data. Timeline is 90 days for resolution plan and 120 days is the maximum period. Management control is corporate in data. Corporate data info session. CP it is for corporate over one one cr plus more than that anyone can initiate it 180 days maximum time it can extend up to 330 days creditor in control expression of in uh interests are invited applicable in both section 29 and termination so they can terminate with minimum 66% is required but here 90% of the voting is required All right. So this is the small small things that I have given. So 90 days trigger point for NPA. Then 12 months is for NPA to move from standard to doubtful. 5 K is for aggregate facility as classified as non-ooperative borrowers. 60 days is for surface given notice to the borrower. 25 K is for the uh MSME restructuring maximum loan limit. 10 lakh is for the mandatory committee review under MSME. RP4 is the minimum acceptable rating and 50 30 90 days that is for rectification implementation. Okay. So this is the timeline for MSME response rectification and implementation and restructuring methods.
Now let's start module day but for that okay let's uh take break for okay 10 minutes then we will proceed with our module D All right. So, shall I resume the session?
Okay. So let's start module D. So module D is all about compliances in bank.
Compliances means the rules, the regulation, guidelines that are to be followed by each and every bank who are working okay in India. So banking compliance and audit framework. So what is the core of compliance? Banking compliance means that is matching adhering to all relevant laws means what are the laws? what are the regulations that has been uh made by the RBI or different different regulatory bodies that have to be followed with 100% accuracy as well. So regulations, standards and ethical practices that are working in local, national and international levels. So compliances it ensures financial integrity. So if you maintain the compliances what will happen your financial integrity will be high then the risk will be less. you can mitigate the risk, you can protect the customers, you can protect the uh depositors, you can shareholders and the entire system as well.
So different different key areas of regulatory compliance are AML anti-money laundering laws, KYC, loaner customer, basel and fact foreign act tracks compliance act. So it is international tax reporting act like what happens the US they are opening account in different countries and they are doing the u like they are transferring the money or they are doing the illegal purpose. So that is why this is made to report any kind of such issues or happenings that are happening in the other countries. So international tax reporting act is this.
Now why compliance matter? Because it is the orderly conduct. Orderly conduct means if any compliances are made, rules are made so that everyone has to follow.
So a uniformity is there. It will bring the stability in the system the errors will be less the correction will be more. Correction means any kind of violations or early warning signals are so quick action will be taken for that and it ultimately elevates and improves the overall governance of the bank. What is compliance risk? So compliance risk definition is given by BCBS. So this is the compliance risk definition. So compliance risk is the risk of legal regulatory sanction means if the laws are not followed any kind of financial loss the bank has suffered or it's a negative publicity the bank has suffered means the reputation of the bank is very low or the bank has not followed completely laws regulations. So all this will increase what compliance risk. This is the definition given by BCBs. So if the failure to comply with laws and codes are what like regulatory sanctions if one has not followed material financial loss is there or bank has the loss bank has a negative reputation. So these three are the ways by which the compliance risk arises.
Okay. Now different different types of risk are there operational, legal, reputational. So operational we have studied. So it is it happens because of the people process or both. Okay. If any kind of natural calamities are there like drought, flood or any war. So that will also bring operational risk. Legal risk when the laws are not followed then legal risk is there. Okay. Uninforcable contracts are there. Unfavorable judgments are there. Negative publicity of the bank. It will lack to the public confidence. The customers will have no the customers will not going to rely more on the banks. They will have a negative feeling with the banks.
Business risk. It impacts your current earnings of the business whereas strategic risk will impact your current plus future earning because strategic means the strategies are formulated and strategies and plans that are formulated for the long-term purpose. So not only our current scenario but it will affect the future scenario as well.
So scope of compliance function external or internal. So in external we have listing agreements that is if any entity wants to or if any bank wants to list their securities on the stock market they have to sign one agreement that is known as listing agreement and with whom with the stock exchange. Internal means when the banks they have every bank they have their internal policies. If the banks are not following the internal policies the internal manuals circulars so that will affect the compliance function. So compliance policy policy is what policy are the guidelines the principles that everyone has to follow.
So RBI has said that when RBI released the master circular. So RBI has advised all the banks that they have to formulate and implement the compliance policy within how many months? Within 6 months from the date of the circular when it is released. What is included in this compliance policy? The four elements are included very important.
First is what is the objective of compliance policy? Why this policy is made? What is the motive behind this policy? Second, what is the scope of this policy? Means everyone has to follow or only few people has to follow, few departments have to follow. The compliance function at the office zonal branches, subsidiaries and what are the role and responsibilities of CCO. This is very very important. Then the policy, the compliance policy must have reviewed at least once a year. Means it can be reviewed more than once a year but it should not be less than a year. And the comp the quality assurance and improvement program that has to be reviewed at least once in every 3 years.
So what are the roles and responsibilities of CCO? So for checking the compliances in bank, one officer has to be appointed and that officer is known as CCO. So what is the time period of the appointment? The CCO should be appointed for a minimum period of not less than 3 years. Transfer or removal.
So if any CO is to be transferred or is to be removed to before completing his tenure then it is possible it can be done but only in exceptional cases and that to the prior approval of the board is required. What is the rank? The CO shall be a senior executive of the bank.
The CO should not be below two levels of the CCO means CEO first level two level.
The CCO cannot work at this level. The CCO can work maximum two levels.
So he should be at the general manager position or not below two levels from CCO. Age should not be more than 55 years. Experience total experience is of 15 years required and in that 15 years five years experience are required in the field of audit, finance, compliance, legal risk management. Should have good level of high skills should have high level of respect means the CCO can take independent decisions for the company.
He should have the freedom and sufficient authority that he can interact with any person to maintain the compliances.
Others means no any kind of pending vigilance skills should be on the CCO.
The CCO should have a fit and proper criteria for working at this post.
Selection process. Selection of candidate CCO can be done with the help of selection process and it is based on the recommendation of senior executive level selection committee. Reporting requirement. So when any CO is appointed or CCO is removed or CO is transferred.
So for that prior information is provided to the department of supervision reserve bank of India central office Mumbai that the CO is appointed or it is removed reporting line. This is very important.
The CCO has to report to three people.
One is MD, CEO and uh one is MD and CEO and the audit committee of the board.
Now if the CO is reporting to MD and CEO then in that case the ACB will conduct one toone meeting quarterly with the CCO and in that meeting no any second third fourth persons are present present is there. So they no no any other person should be present. So CO shall have direct reporting lines to MDNCU and ACB.
If in case the CCO is reporting to MD and CEO, the audit committee of the board will conduct onetoone meeting with the CCO quarterly without the presence of senior management MD and CU authority. So CCO has the right CCO can uh access all the files, all the folders, all the records to maintain the compliances and dual hearting means dual hearting means to heart. The CSU should not be given two hats at the same time. Means the CSU should not be given two tasks at the same time where it it brings a conflict of interest. If the what are the roles that do not attract a conflict of interest? So only one role CO can perform where there is no conflict of interest. What is that role? That role is AML anti-money laundering officer.
The CSO shall not be a member of any committee. Okay, which is bringing the conflict of interest. If the CISO is a member of any committee in that case the CISO can only give advisory role. The CISO is not allowed to participate in the matter. CSO can only give advis.
Now next is what that is risk based internal audit. So RBI A this is the short form risk based internal audit. So it is what it is an audit approach where the internal audit function it focuses more on the areas of highest risk in an organization. Instead of checking every every activity equally more focus is on the risk in banks and financial institutions. The RBI it helps to ensure uh what are the major risk uh how uh controls are working properly or not resources are efficiently used or not.
So are rules and procedures being followed in the bank or not? So which activities create the greatest risk for the organization and how these are controlled that is the work of RBI. The main objective to focus is identifying the high risk areas evaluating the effectiveness of internal control then improving risk management system helping management um to achieve their objectives identifying different different risk in different different departments. So this is the work of risk based internal audit. So ultimate goal is not only seeing the risk not only uh linking the internal audit but also the manage management of the risk is very important. So it it is not about auditing the risk themselves but also managing the risk so that the risk may not arise in future again.
Okay not auditing the risk but also the management of risk. So what are the objectives of internal audit? So it examines the control environment. Okay.
measures any kind of risk is there. If yes, so it mitigates the risk. Ensures all the legal regulations are followed properly or not. Any kind of deficiencies are there or not. If yes, then uh take um uh take actions for that. Provide a risk assurance directly.
strengthening all the controls, ensuring strict adherence to the internal rules, internal guidelines and verify that if any kind of employees are doing non-compliances or not. If they are doing non-compliances then take strict action on so head that is head of internal audit. So internal audit means checking the advanced level of all the books of accounts all the internal checks, internal regulations, okay internal control. So HIA is what it is the head of internal audit means a top level officer who ensures internal controls, risk management and governance the governance process are fully operational or not. So this head of internal audit will report to whom that is they will report the CEO and CFO and directly to the ACB audit committee of the board.
What are what is the work of head of internal audit? Head of internal audit will maintain internal checks, internal control, manages risk. Okay. Check all the non-compliances. All the reporting is provided to the ACB and conducts all the audit work.
Now one is most important that is reporting framework and monitoring compliances. So how the reporting framework is done how the compliances is monitored? See any kind of non breaches any kind of non-compliances any kind of breaches is done from the branch level only. So first branch will report to roto regional office zonal office. All right. Then roto will report to CDCO that is central office at compliance department compliance department at central office and one copy and one copy will also be provided to risk officer.
One copy is provided to risk officer. Okay. Then functional department will report to compliance department. Overseas branch will also report to compliance department and audit department will also report to the compliance department. So these are all the reporting frameworks and monitoring of compliances. RO one copy is provided to the risk office or FGMO functional department. Okay. FGM that is field general manager office.
field general manager office. It refers to what a senior level administrative office that oversees all the several regions or zones in a uh bank or in the large organization.
Okay. So this is what we have studied.
So how should breaches be reported?
Reporting framework is what for compliance to work effectively banks they need to clear a reporting system.
It tells that who should report to whom it will be reported when it will be reported what is the tenure how the reporting is done everything. So what needs to be reported that is whether the branch is following rules or policies or not or if any kind of non uh compliances are there if any kind of breaches are done means any rules are break or the internal policies are not followed. So branches to RO and Zo R and Zo to CDCO and one and one cop is given to risk officer also providing the FGMO and other ways breaches can be reported that is overseas will also provide the reporting to CDCO or department will also provide reporting to CDCO. Next important topic is what that is listing of securities. So listing of securities is what this we have studied just earlier also.
What is and please one import uh one request from you all that those who are watching this session right now say you are watching from a very long time. So if you feel it is beneficial to you then do like the session share it others to others also and don't forget to subscribe this YouTube channel. So all CIB CIB English medium YouTube channel.
All right. Listing of securities means if any company, if any entity, if any bank, if they want to list their securities to the stock market, stock exchange, then they have to sign one agreement and that agreement is known as the listing agreement. Who will sign the entity? The company bank with the stock exchange that now we have listed our securities. Our company is now public.
So whatever changes we will do so all the changes all the information will be given to the stock exchange. So certain disclosures have to be maintained when the company securities are listed in the market.
So first regulation is what that is 29 CV regulation 29. Okay. So new amendment was came in the 2024. So previously some was for 5 years some was for 2 days. So not 5 years uh 2 days 5 days 11 days but now it has been removed. So notice period has been removed and now it has been uniform notice period that is two working days. So if any changes or if any board of meeting has to be conducted then for that within two uh two working days okay prior two working days in advance have to be provided to the stock exchange. It means suppose uh the meeting has to be conducted on 25th of May 2026.
Okay, this is the date where you have to you want to conduct the meeting. Now for conducting this on this date you want to conduct the meeting. So you have to inform two days prior 2 days in advance.
So 24th 23 and two working day those days should be working days and 22 means you have to inform it by 22 when you have to conduct a meeting on 25th of May to the stock exchange. So in this the intimation date that is when you are informing that date is not included and when the meeting date is there that is not included. So two working days in advance.
Then say B regulation 30. So material event disclosures are this in regulation 32 categories are there. Par a parab.
Now para A events are those events which needs to be mandatorily disclosure means no matter what changes you are making it needs to be it needs to be disclosed mandatorily to the stock exchange. So there must be disclosed immediately without applying any kind of materiality test. But in parab the materiality test is applied. After materiality test if it is uh bank will feel bank feels or any company any entity feels that these are important to disclose then only these will be disclosed otherwise not. So it is a conditional disclosure means if materiality test is applied after that if certain things are very important then only those will be disclosed.
All right. So question is what comes under par A? What comes under par B? So this is the par A and parab B. So disclosure if material. So in all these things the materiality test will be applied. If bank feels that these are important then only they will be disclosed. So par a no materiality test this have to be disclosed like issue for feature consolidation buyback of securities revision and rating board meetings if any fraud or default done by the KMP listed entity change in directors appointment discontinuation.
So all these are the points that is included in par A. So if the proceedings are there in annual general uh meeting EGM extraordinary general meeting one-time settlement is there corporate if restructuring is there so all these will come under par A these are mandatorily these are disclosure and parab disclosure means disclosure means you have to state it you have to show it you have to inform it if it is material if it is important what comes under B if any commencement of Commercial operation, change in general character, nature of business, capacity addition.
Okay. Awarding, rewarding, loan agreement, disruption of operations due to any kind of natural calamities.
Then fraud default done by director. See here fraud default done by KMP any promoter or listed entity. But fraud default done by director other than KMPs are included over here giving guarantees. All these are par.
Now certain things are that has to be displayed on the website that comes under regulation 46. So these are all the things that needs to be displayed.
Just go through once information to be displayed on the website.
Then we have some more points. So take Q we have all these points. These are all the information that on website it must be uploaded.
Okay. Now next is what that is regulation 47 C. Before amendment there was the structured format that in only two languages it will be published in regional language and in English language. After amendment there is no such format. See language is still it exists but there is no such format over there and one thing is added that is everything is done digital. So previously it was to be printed in the newspaper. Now everything is done digital. All right. Regulation 46 is all about the previous requirement that is limited set of disclosures are there. No specific digital tools are required but now the QR code is there. So if anyone wants to search any kind of information they will just uh scan the QR code and all the information will be over there.
So that is balance sheet cash flow QR code optional in certain formats.
Now next is all about the how the governance structure is there. See the compliance officer because anything starts from the branches branches to RO and ZO. So compliance officer at RO and Zo and functional department at central and head office both will report to whom? CCO. Then CO will report to we have seen managing director we have seen uh ACB audit committee of the board and CEO. So managing director, CEO, board of directors and audit committee of the board the CC will report to them.
So what is the uh how the CCO is selected? How the CCO is evaluated? So chief compliance officer why it is appointed to check the compliances.
Okay. To maintain uh to see whether the banks they are following the compliances or not. If not then all the non-compliances will be reported to the ACB. Who evaluates the CCO? The board of directors or audit committee will evaluate the CCO. The CCO performance is not evaluated by other senior management. Total independence of the compliance function. So all of them total all of them they will ensure they will check the non-compliances or any kind of breaches. So its performance is measured by the AC.
Next we have next topic that is compliance governance structure. So compliance governance structure is what?
See structure we have seen the organizational structure means who reports to whom who will do the reporting. So governance structure is what the people in the uh bank the people in that entity who are maintaining who are following what checking the compliances and how they have to report what is the structure what is the reporting hierarchy. So field general RO ZO branches will report to compliance function at corporate office CDCO. CDCO will report by the CCO the head office of the CCO. Then CCO will report to the ACB and MD and CEO and MDNCO will report to the board of directors.
The chief compliance officer appointment how it is appointed what is the internal process? So candidates will have to will be selected by with a well- definfined process and it is based on the recommendation of which committee that is senior executive level selection committee. Just now we have done this.
Okay. There is one strict mandate that before appointment of CCO notice has to be provided information has to be provided to whom? The RBI department of supervision Mumbai. Okay. before appointment, premature and transfer. And second thing is to be checked that whether this TCO is uh eligible under the fit and proper criteria or not.
Whether this person can perform all the work, all the compliances of the banks, they can check it well or not. So all these things will be evaluated then only the officer is appointed.
Now next is okay this we have done. So compliance officer, zoner office, then functional departments will uh report to CCO. Then board of directors, ACB, managing director and CCO they will report to all these three people.
Okay. Next topic is what that is managing overseas operations. See in India you can manage the compliances you can see okay with the local officers with the zonal offices the branches. But if the banks are located outside India in the host country okay then how you can check the compliances. So for that you have to hire okay one person who can manage effectively well because in other countries okay uh the entire uh the laws rules regulation everything is different in overseas country. So how you will going to see whether what are the laws prevailing in that country. So for that independent compliance department is headed by any local or India based officer. So any India local based officer will be appointed as nominee over there under scale three and four and that person must be aware about all the statutory regulatory rules or internal guidelines of the overseas operation. Okay. He can report to the head of a CCO and monthly reports he monthly reports will be submitted to these people.
So dedicated overseas compliance desk case. So all the uh things all the uh overseas whatever the proceedings are over there rules are prevailing over there. So everything has to be provided at compliance test like what help desk is there. So help desk you can get all every type of knowledge related to all the information. uh similarly compliance desk is you will get the knowledge of related to compliances non-compliances of overseas operation with the help of those the India based officer and it ensures the timely reporting to top management ACB and RP okay so what are the categories of non-compliances yes you will be given PDF what are the categories of non-compliances non-compliances means when the compliances are not followed it means the violation is Data holding is a data holding means you have hold the data. Okay, the data is very important.
Okay, this data needs to be circulated to everyone. Now you have hold this data. You're not sharing with other people the important data, the important information. That is what that is the data holding. Data mismanagement or uh something negligence is done with the data. The uh alteration is done in the data. That is what data mismanagement and inadequate supervision means when the management has not done proper supervision on the people who are not following the protocols of the company the rules and regulations of the regulatory bodies internal guidelines internal rules that is what the categories of non-compliances.
So in categories of non-compliances so how what is the how the compliance failure happens? So it happens in two ways in level one level two. So level one is all about external compliance means when the banks when the institutions they are not following the regulatory authority of RBI the regulations of SEB the IRDA and IBA FIMMDA FBI these are mandatory rules and these are not followed then it comes external compliance. Internal compliance means when banks are not following their internal rules and regulations, their manuals, their policies, their directions that is internal compliances.
So remember level one is external, level two is internal.
Now so what are the five basic rights given to bank customer? See comp the only if you're not following the rules then only the non-compliances will not occur. If you're not treating your customers well, if you are not helping your customers, so that is also a part of non-compliance. So what are the five basic rights that is given to the bank customer? So first is right to fair treatment. So we have you have to treat your customers fairly. No matter whether that customer is uh uh like having less income, he's earning less income, more income, whatever his age is, the gender bias is it should not be done. So bank should offer the same loan terms to all the eligible customers not favoring anyone.
Right to transparency means you have to be transparent. You have to disclose everything properly with the to the customers that these are the risk associated with this product. These are the charges on this particular loan. So the bank clearly explain all the loan charges and interest rate. Right to suitability means the product should match according to the customer's need.
customer is demanding anything else, you are selling anything else just for the sake of your benefit. So it is not correct. So you have to sell suitable products to the customers. Right to privacy means their privacy has to be maintained. The data should not be leaked. You don't have the right to share the account details of the customers without their consent and right to grievance repressor compensation is if the customers are having any problem try to listen them.
If not if they reporting to the banking ombbertsman then banking ombbertsman should take the action for it.
Next topic comes that is what that is the control versus audit. So control versus audit means internal control means the frameworks that the bank is using like system policies procedures processes these are implemented by the top leaders the senior management the board management and internal audit means it is the examining each and every detail of the bank. So objectives it is examining if the procedures are made. So whether what MC internal audit is measuring what is used in internal control what we have to check in internal control all the things are in the proper and correct manner or not that is what the internal audit does. So internal control the frameworks are there and all the frameworks are in the correct way are they are they being followed properly or not that is what the internal audit will check implemented by board management. It is an independent audit function. It is the uh it controls all the risk to achieve organizational objectives. It it in uh it manages the adequacy and effectiveness of internal controls. So whatever internal controls are applied in the bank or company are they working well in a proper manner or not.
Now sixth aspect of internal control is what? So first is information system. So six aspect of internal control important information system means the system should be secure enough. The system should have the privacy of information.
Okay. No data leakage should be there that it should ensure the proper integrity of the customer. Segregation of duties means everyone should be everyone should know their responsibilities well. It's not that one person should be given all the task you know every person should be given equal equal task according to their caliber.
Audit program means audit function should be there. It should be independent. The reporting should be done to the board of members without any kind of interference of any other people. It helps in determining the compliances with policies. Record keeping is what that all the accounts are to be maintained according to the accounting principles. So proper accounting principles are to be followed when recording everything. Protection of physical assets means whatever physical assets are present in the bank, its access should be given to only limited people. Okay. No other people should have the unauthorized access of those.
The physical security of the computer is very important. And education of staff means the people who are working in the entity in the bank they should be skilled enough. They should be uh they should have got a good training so that they can handle any type of task. if it uh if it comes with respect to non-compliances.
Okay. So we have done this the five basic rights.
All right. Next is all about the framework for identification of compliance issues and compliance risk.
So what are the compliance issues? Again compliance issues are what? When rules are not followed, regulations are not followed, the mandatory approaches are not done. that is what the compliance issues arises. So different different types of compliance risk are there.
Compliance risk means the risk of legal regulatory sanction the risk of financial loss reputation loss due to the failure of comply with loss. So if the negative reputation of the bank is so that will also come compliance risk control risk is what see you know that risk is there risk will never be eliminated. We can mitigate the risk. We can less keep the risk low but we cannot completely eliminate. So different different controls are control measures are applying so to so to control that risk. Now after applying the internal controls okay to prevent the errors fail leading to undetected financial mistake.
Still some type of risk will be left in the company and that makes that brings what? Control risk. Inherent risk is what? Inherent risk. It includes many different different types of risk. So credit risk, market risk, interest risk, all the types of risk will be included in inherent risk. Liquidity risk is what? Liquidity risk when the uh the borrower has not sorry borrower not when liquidity risk arises when the cash convertibility is very difficult in the system. So if the company is running short of funds in that case the liquidity risk arises when the assets are not completely convertible into cash. When the liquid assets are not in a position that they can be converted into cash quickly. So convertibility uh is difficult then liquidity risk arises.
Operational risk is what it arises when the it happens with the person process or both.
Now how to find the compliance risk score? So compliance risk score is that is uh confirm me that am I audible I guess the charge is please confirm me everyone okay let's see how much I can take the classes okay so compliance risk score is what so We have to find the risk score.
Compliance risk score means a score is made in order to check that whether the compliances are high or less. The non-compliances are high or less. So 1 to three compliance risk is is between 1 to three. It means it is well controlled. Well controlled means that the compliances risk the compliance risk is very less less in the bank in the company. 3.1 to 5 means little bit risk is there. It meets requirement. 5.1 to7 means it needs improvement. It needs to improve quickly and 7.1 to 10 means the entire the environment the entire uh bank or the system is facing a huge compliance risk. So it needs significant improvement. So this is the compliance risk score and according to this compliance risk level.
Yes. Actually the earbuds are they charge is I guess that's the minute we audit and inspection. Now what is audit?
What is inspection? See audit and inspection. Inspection is done for any immediate action like if I if I say that uh the in I want to do the inspection it means I want to take quick action for that I want to take immediate action for that. So inspection is always it focus on the immediate action immediate focus is there. So here the p the individual will u uh go personally okay they will inspect the different different department different uh you can say the heads and then they will make the decision for that. So it is immediate compliance obligation and audit is what audit it helps to find the root cause of the problem if anything happened bad in inspection. Inspection means checking the details okay inspecting that what happened uh what happened wrong or right in the company. So if anything happened wrong then why it happened try to find the root cause of the problem. So audit is what it investigates the root cause of the problem and inspection is to find the problem. Okay find the problem and take immediate action for that.
Okay this is very very important reporting system I should have cover it there only. Okay.
Okay. So just now we have done the topic of branches to who will report first branches will report to RO and Zo and Zo will report to CDCO. One copy will be given to risk officer then it will be also provided to FGMO. Then functional department will provide uh report to CDCO. Yes, this this we have done. I guess you have remember. Now gist of the reporting system is who will who will report.
Okay, who will report and to whom the report will be submitted? To whom the report will be submitted and this is the pery this is very very important. So certificate see there are end number of branches in any state okay in any uh region. So it's impossible to go and collect from each and every branches. So the branch officer the head of all the branches officer they will collect the consolidated certificates. Okay. So other operating units. So now the branches will provide to roto and will also provide one copy of the certificate available to risk officer. So based on the certificates from branches a consolidated certificate will be provided by ro and zo.
Next RO Z will provide one copy of to the certificate officer. RO Z will report to compliance department at central office. Similarly, functional department will report to compliance department at central office and overseas branches will also report to the compliance department. chief executive of the center with the copy.
All right. Now confirm me. Am I audible?
>> All right. Now, >> all right. I can uh continue. Okay. So see January, February, March we have taken. Okay. So 31st March is the last working day. Now it's within 5 days of the closure of water bills. 1st April, 2nd April, 3rd April, 4th April, 5th. So by 5th of April, the branches will have to report to RO and ZU. Similarly, it is within 10 days. So 6 7 8 9 10. So within 10 days, the RO and ZO will have to report to the CDCO. This is again 10 days. But because in overseas branches the risk is very high because the u the banks they are located outside host country. So that is why it is reported monthly and within 5 days of the completion of month. So it means monthly means suppose uh April is there. So uh after 30 April 1st 2nd 3rd fourth fifth so by fifth May then by fifth June.
Okay. So this will be reported monthly.
Okay. So what is credit audit cycle that is LRM all about. So in in loan review mechanism once you have given the loan it's not that you have to review the loan after giving. So you have to review the loan before giving also. So that is front end control before loan. So what what you will check before giving the loan the credit history of the borrower borrowers repayment capacity financial condition. Post dispersement means after you have given the loan. So you will check the portfolio help whether the borrower is using your money in in correct direction for correct purpose or not and credit audit loan review is done that is proper use of funds are used done or not if there is any early warning of signals or not. So this you will check for your benefit so that you can make provisions early as soon as loan review mechanism first the initiation is there. Okay, the initiation is the first step the eligibility how the loan will be reviewed. Then what are the terms? What are the repayment structure that will be checked? How the loan has to be approved to the borrower? All the written policies is there that has to be reviewed. Then fourth is documentation.
So what documents the borrower has submitted? Secured loans are there unsecured. If secured to if secured then the security uh documents which should also be there. Then the verification of the monitoring process, verification of the loan portfolio and finally work out management. So action plans if the borrower has done any kind of uh illegal things then action would be taken.
So portfolio and loan review I guess this is uh this we have done this this is the repeated slide. So portfolio is done macro loan review is done micro. So what RB says that first check loans up to 3 to 6 month or 5 to 10% regardless of their size or the related party transaction the parent subsidiary company and high risk loan are evaluated every 3 months average risk loan are evaluated every 6 months and lowrisk loans are evaluated every year now every 6 months can I say quarterly also yes every 3 months every 6 months can I say half yearly also and every one year can I say annually also Yes.
Now next is compliance culture and GRC frame. So compliance culture means culture is what that is having a good environment following the compliances properly managing everything well. Okay.
Uh the structures are properly the structures are properly made. It is followed properly and all the rules and regulations are also followed. So sign of poor culture is what? When the bank is focusing only on their short-term profitability, they are ignoring long-term health. When some individuals have the dominant power, they are taking decisions on behalf of every person. If subcultures are people of different different cultures, they are not cooperating well and incentives are not being effective in the company. So this these are the signs of poor culture.
Benefit of strong culture is what that is transparency for better decision. If there is good relation between the regulators, stakeholders and investors, they are having higher valuation. Okay, they have invested in your bank, they have invested in your company and they have become good investors, their value is very high in the market. And if the bank company is following the proper code of conduct, proper ethics that is benefit of strong culture.
Now compliance culture India scenario what it says that Reserve Bank of India has introduced a designated compliance officer in bank in August 1992.
Okay. And this is uh based on the recommendation of committee on fraud and malpractices in bank that is known as the ghost committee.
So see committee uh compliance officer is appointed when uh the compliance officer in August 1992 and it is based on the recommendation of committee of fraud and malpractices in bank and this is also known as the go committee. So this go committee is also called committee on fraud and malpractices in bank. So it works in the area of KYC AML suitability appropriateness of banking product. When the financial crisis came then more focus was on KYC and AML then GRC integration framework is what GRC stands for governance risk and compliance. So governance it what it includes it includes the framework framework what rules are what rules and regulation should be there. Compliance is all about following those rules and regulations. Following rules and regulation is compliances and risk is what? Risk is it is the uncertaintities that arises in the bank.
So governance its focus is on leadership direction. It main goal is to make take make right decisions for the bank and outcome is effective management. Risk is uncertainity reducing all the threats and compliances is how rules are followed. So here following rules are important and here rules are made. Rules are made in governance and rules are followed in compliances. Follow the rules. No penalty or violation. Outcome is when the rules are followed. If rules are not followed then penalty and violation is there.
All right. So GRC framework one integrated framework it came integrated means web based through web- based technology all the things will be integrated in this GRC. So if anyone wants to find anything they don't have to look separate each and every department. So in GRC integrated framework you can get incident management if you want to look anything about what incident took place previously how to control risk what are the key risk indicators from which you can protect your company you can anticipate risk earlier what are the issues and plan how to manage compliance as well government or governance audit management and all the types of report.
So in this integrated and web based technology, web- based platform all the things will be provided at once. So it is the holistic review.
Now 10 attributes of compliance culture.
So normally RB says that every bank have to follow these 10 characteristics.
These will show a good sign of compliance culture. What are the 10 attributes that leadership should be there? So tone at the top means the managers should follow the rules and regulation first. If managers are following then only the rest of the people will follow. If managers are not following then how other people will follow. Integration means company should work the banks the departments they should work in the integrated manner.
Risk and reward. So focus on reward and try to mitigate risk. Employee buy means all the people should believe in the rules and regulations. They don't have to go for any other thing. Means they don't have to go for the shortcuts. They have to believe in rules. Power of the team means the chief compliance officer is the part of the top management. No sillos means there should be no isolation. Everyone should work together in a teams. Proper resources should be distributed among each and every individual. Okay. So there should be no uh like no one should be in dilemma that I'm getting more he's getting less.
Living program means that updated policies should be there. Old policies, old uh old uh you can say uh policies or rules and regulations should not be followed. Updated things should be there and technology means updated technology should be there fully automated technology with AI tools, statistical tools and techniques.
Next is what that is very very important whistleblower policy. So what is what does this policy say? whistleblower mechanism. It says that if any person in the company, in the bank or in entity, anywhere, if that person has seen something happening wrong in the company, any kind of misconduct is happening, any kind of illegal work is happening, any kind of unethical or immoral values are there, then that person has to report to the senior management to the top level. That is what the whistleblower policies.
Whistleblower means by blowing a whistle the person has to make aware to the entire company to the senior management.
So objectives are what it gives employees investors contractors platform they can raise their concern against any kind of wrongdoing to protect the employees against retaliation. So no revenge is to be taken against the whistleblower. The company is committed to do the work in ethical ways. If you have seen the person is doing anything wrong and you have not complained it to the top management. So it means you are also a part of that uh unethical team.
So whistlebl policy is crucial policy which gives stakeholders the liberty and concern to raise against any kind of illegal activity.
Now so what are the whistleblowing policy in India? So in India uh not much protection is given to whistleblowers but still under the company's act 2013 it lays down the special provisions.
they have to maintain established vigil mechanism and section 26 to 229 it says that certain companies uh under section 177 and subsection 9 it says it makes compulsory for the listed company one is listed company second is companies who have accepted deposit from public and the companies who have borrowed more than 50 cr so these three companies they have to mandatorily they up to maintain whistleblower mechanism in their company. If they are not maintaining then strict action will be taken.
So what type of protection is given according to PDP resolution? PDP is what? That is public interest disclosure and protection of informers. Informers means what? The one who is giving information to somebody else that is inform. So whistle door is a person who reports wrongdoing in a government office or organization. So three types of protection is given under different different paragraph.
Paragraph six says that if someone is being harassed or treated unfairly then in that case they can report to the central vigilance commission and central vigilance commission will take spec action on that to help the whistleblowers. Par 7 says that if the CBC is giving it can give orders to protect the whistleblower. If if CBC thinks that the protection is very less now we need more protection from the government. So it can tell right government department to provide that protection. And paragraph 11 says that the one who has revealed the identity of whistleblower identity should not be revealed unless and until the court demands. But if the person any person who has revealed who has leaked the identity of the whistleblower even though the CBC said not to then the CBC can take strict action against the person who has revealed the identity.
So what is the scope of whistleblower policy? So harassment, breach of privacy. So they can report if any harassment is there, any breach of privacy is there. Sharing in confidential information, fraud, theft, financial misrepresentation.
All right. Illegal sales activity, corruption, invalid promotion. Invalid promotion means like in the company.
Okay. Two people are there, one post is there, one post is there, two people are there. Now in these two people, the one who is fit, they have to work in that particular working position. Suppose the manager is the good uh rel manager is having good relation with employee B. So even if the employee B is not fit for this position but manager has posted employee B to this to this vacant position. So this is a type of invalid promotion. So this is also needs to be reported conflict of interest insider trading. So these are all the scope of whistleblower policy.
Now next is what that is NBFC non-banking financial companies. So non-banking financial companies now these are the biggest competitor of bank. So in non-banking financial companies we have total four layer that is B base layer, middle layer, upper layer and top layer. So as in when you increase the risk will also increase the uncertaintities will also increase the more regulation will also increase the strict action the stringent rules and regulation will also increase. So base layer comprises of non deposit taking NBFCs below asset size of less than 1,000 cr and those non NBFCs who are working in peer-to-peer lending platform account aggregator financial holding company and those NBFCs who do not have direct connection with the public fund or no having direct customer interference. Middle layer is the layer that consists of two things. One is deposit taking and non deposit taking.
So deposit taking NBFCs no matter what their size are if their size are 800 80 1,000 2,000 no matter what their size are all will be included in middle year we non-deposit NBFCs if their asset size is 1,000 K 1,000 and K see it is less than 1,000 even not 1,000 is also not included in base layer 1,000 K is included in non-deposite taking NBFCs in middle layer and those NBFCs who are indulge in all these activities standalone primary dealers uh then CIC's F HFC's IFC's and upper year NBFCs these are included on the basis of certain parameters what is the parameters 70% and 30%. So 70% is given for numerical parameters weight is given for numbers and 30% weight is given in for expert evaluation. So what it says its identification is based on specific criteria including both numbers and expert judgment. So top 10 NBFCs will be included by the size. Okay, the having more size they will be included in this upper layer no matter what other NBFCs will be included following 70% 30% weight and the if top 50 NBFCs are also more included in this but in this top 50 the top 10 NBFCs are not included. These are rest of the top 50 NBFCs and other additions are if NVFC sees that this particular NVFC should be put in upper layer then that will be included and uh and top layer is what top layer is remain it is still empty why because if NB if RB feels that if the systemic risk is increasing in any NBFC then only they will put in the top layer otherwise all the NBFCs are till base layer middle layer and upper layer.
Okay. So this is the difference between base, middle, upper base basic governance. They have to follow follow stringent rules and regulation, basic level of regulation, some stronger control and the strictest regulation. So it requires the risk management committee here rules are there and the strict board policies are there.
Okay, this is the important that see earlier the NBC's their net own funds were 2 K but RB said that you have to increase from 2 K to 10 K. So there was one question NBC they says that how I can increase suddenly from 2 K to 10 K.
So RB says that don't worry I'm giving you the glide path. Glide path means the gradual increment. So you can increase this 10 K but with a gradual way. So first you have to current means that was at the time 2023 24. So it was having 2 cr mfi 5 cr ICC investment core companies okay micro financial institutions factor 5 cr 5 cr 2 cr in northeastern region by at the end of March 31 2025 ICC have to make it 5 cr 7 cr 7 cr and by March 31st 2007 everyone have to make it 10 cr but 2 cr is still same for those NBFCs who are working in the base lay because they are having less rules and regulations they have to follow less rules and regulation. So if they are maintaining 2 k that is also still fine and those NBFCs who are not following these criteria at the stipulated within the stipulated period they will not be eligible to hold the certificate of registration.
Similarly, NP classification is also so previously the the classification for NBFC in NP was 180 days and more. Then it became 150 days overdue by March 31st 2004. Then 120 days overdue March 31st 2025. And now it is just the same like bank. So bank they have to follow overdue for a period of 90 days and more then they will classify all assets as NPA. So this is same for the bank as well. for NBSC's also it is now same okay sealing on IPO funding okay one thing if I'm not audible please do remind me uh instantly all right sealing on IPO funding IPO funding ceiling means see if any borrower they wants uh if any borrower wants to finance okay for the subscription for the IPO funding then in that case how much NBFC will lend NBFC will lend one cr to one borrower so this is what this is the ceiling limit Limit ceiling means a maximum limit. If NBFC wants, they Okay. Now confirm me. Am I audible?
Quickly. Quickly.
Okay. Now confirm.
>> Okay. I'm not. Okay. So I guess this is done. the 1 K maximum limit.
Now next is the transition path.
Transition path means how one NBFC can move to another layer. If any NBFC is under middle layer, how it will move to the upper layer? That is what the transition path is.
So transition plan in NBFC it is the step-by-step process designed by RBI to help NBFC so that they can move from old regulatory pattern to the new one. So see if you are moving from base to middle from middle to upper it means you have to follow new regulation new uh strictness is there new categories are made so everything is new. So that is why step by step pattern step by step is time period is given so that you can follow the new regulatory pattern. So it gives NBFC time to adjust ensure a stable and safe shift and it focuses on better risk management.
So what is the transition plan? So once any NBFC is identified to be included in upper layer category then in that case RBI will advise NBFC first. The time is given to prepare itself that see now you are moving in the upper layer. So I'm giving you time to prepare yourself. So within 3 months of being advised by RB when RB has given the advice regarding the inclusion in the upper layer the NBFC will have to give put a board approved policy and in that policy everything will be discussed written the RBA will review that policy and finally the implementation plan is given to follow new regulation. Now maximum time period is given how much? 24 month to follow new compliances. Remember one thing this 3 month is included in this 24 month. It is not separately 3 months 3 month is included in 24 month. All right. So it is subsumed within 24 months. This 3 months.
So when an NBFC is classified as UL. So first RB notification is there will inform the NBFC that now it is classified as UL. Planning time is given 3 months. Planning means preparation time that NBSC will create a policy and step-by-step plan to follow the new strict rules and regulation within 3 months. So for preparation 3 month time period is given and to follow entire compliances total 24 months time period is given. The implementation time the NBFC must fully follow the new rules within 24 months. The three months used for planning is it is included in this 24 months. Remember it is not separately. Three months are included in 24 months. So all together how many time how many months are there 24 months and then the NBFC will send the plan to RBI for further review.
All right. So there must be one question suppose if NBFC has moved from middle layer to upper layer. Okay. Now if NBFC move wants to move back from middle layer is it possible? Can it can it be happen? Yes it can happen. But in which case once an NBFC is in category in ru it must follow the enhanced rule. It can only move back out it can only move back to the middle layer or middle to base layer when it has not followed the rules up to 5 years. So it can only move out of five years if no longer meets the criteria.
NBFC can take uh NBFC can move before 5 years also but in certain condition. In that case, RB says that you have to list down your operation. You have to reduce your size. You have to change your operation by choice. It's not that your business is not going good, the uh uh financial distress is there or the lack of uh money is there, lack of funds are there, that is why you are shrinking.
No, if you are doing it by your own, then only it is possible. So, if it is voluntarily, you are reducing the size, you are reducing the risk, then you can move back to the middle layer otherwise not.
Now NBFC near the threshold near the threshold means if if any NBFC is on the edge of the middle layer or upper layer.
So RBI will give the hint to that NBFC.
See you are on the edge of the upper layer. I'm giving you two options.
Reduce your operation, reduce your size, reduce your risk or get ready for the upper regulation. Get ready for accepting the strict regulation under upper lift. So if an NVFC is close to being classified as UL, RBI will warn them in advance. This gives them a chance to adjust their operations.
All right. And roles and responsibilities we have already done in our previous earlier chapters and with this we have completed our NVMC.
So I hope till now you all have enrolled in the capsule batch and you have watched all the sessions. Only one last batch is left. So tomorrow 8:00 a.m. in the morning we are having session. We will be doing probability in that. Okay.
Now what we will do tomorrow? Tomorrow also 6 p.m. session will start. We will complete module A. All right. We will complete one more topic that is fraud and vigilance in bank. Okay. Last unit number 30 of module D. And then we will be doing we will be practicing MCQs as well. So we will be doing questions as well. So 30 questions will be there in all the models means round about 120 to 150 questions we will be practicing.
All right. So one request from you all that do like the session share it with others and subscribe the channel. If you feel session was helpful do like the session. So tomorrow let's meet at 6:00 p.m. in the evening same time. All right.
Okay. Ch. So, I'm ending the session. I hope you have a great session.
Everything is clear to you so far. Let's meet tomorrow. Bye-bye everyone. Good night. Don't forget to like, share, and subscribe the channel.
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