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TDS PROVISIONS
Legal Provisions: Section 194 of Income Tax
Act
Type of interest: On Term Deposits excluding
RD
Amount: Where Interest paid/payable is above Rs 10,000 (wef 1-6-2007) in financial year
Tax Rates: Resldents-l0% + surcharge (10.25% ) .. Corporate -20% (No surcharge) NRO (No surcharge)
Minor Account: To be clubbed with guardian
Joint Account: Deduction in the name of 1st I account
holder
NRI Account: TDS applicable only on NRO account
TDS Certificate: TDS certificate to be Issued on Form No 16-A within 1 month from end of
month during which deduction made, or within 30 days from date of close of financial year
Exemption from Deduction: Declaration on form NO 15-G For Senior Citizen ( 60 years and
above) the declaration IS on Form No. 15-H.
Submission: To Income Tax Deptt. within 7 days of the following month and within two month
If deduction is made on last day of the accounting year
Payments to Contractors: Where amt of single payment exceeds Rs 30,000 or total amount
exceeds Rs 75.000 during financial year
Rent payments: Where amount exceeds Rs 1,80,000 In a financial year
Professional Fee: Where payment exceeds Rs 30,000 In a financial year
Penalty: Interest @ 1.5% pm Penalty equal to amount of tax, Imprlsonment-3 mts to 7 yrs

INSURANCE BUSINESS
Insurance business can be:
(a) Bancassurance (selling policies of other companies for commission as corporate agent -
called without risk)
(b) underwriting (risk based).
Licence from IRDA required for both. RBI permission not required for Bancassurance.
Underwriting business: (with risk insurance business).:
1. Business can be done through a separate subsidiary company as a joint venture.
2. Maximum investment of the bank can be 50% of the capital of the company.
3. Permission to be obtained from RBI, if following parameters are complied with.
(a) Net worth: 500 cr
(b) Profits: 3 years
(c) Net NPAs: Reasonable
(d) Capital adequacy ratio: 10%
(e) Performance of subsidiaries: Satisfactory
In the 2013-14 budget , Bank can be agent for various insurance companies .

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RIGHT TO INFORMATION ACT

1. Information can be obtained by Indian Citizen only. Reasons for obtaining information,
are not required to be given.
2. Information can be obtained from Public Information Officer, appointed by each
organization for that purpose.
3. Time for providing information : 30 days
4. Fine for delay in providing information: Per day Rs.250 and total maximum fine Rs.25000
5. Record preservation time : 5 to 8 years as fixed by Central Govt.
6. Fee is Rs.10.
Top of Form

Bottom of Form

COMPULSORY ELECTRONIC TRANSACTION SIZE:

1. Effective April 1, 2008 all payment transactions of Rs. 1 cr and above (Rs.10 lac and above
from 1.8.2008) in the money, Government securities and foreign exchange markets and the
regulated entities (banks, PDs and NBFCs) have been made mandatory to be routed through
the electronic payment mechanism.
2. E-PAYMENT OF TAXES MANDATORY: The Central Board of Direct Taxes (CBDT) has made
E-Payment of taxes mandatory for all deductors effective April 1, 2009. Accordingly all
categories of non-corporate tax payers with turnover less than Rs.40 Lakh or gross receipts
less than Rs.10 Lakh will have to make electronic payment to the exchequer the income tax
that they deduct at source.

TERMS RELATING TO MONEY MARKET

CALL MONEY: Money lent for one day (RoI market determined)
NOTICE MONEY: Money lent for a period of 2-14 days (RoI market determined)
TERM MONEY : Money lent for 15 days or more in Inter-bank market (RoI market
determined)
HELD TILL MATURITY (HTM): Govt. securities which are not meant for sale and shall be kept
till maturity by the banks.
HELD FOR TRADING (HFT): Govt. securities acquired by the banks with the intention to trade
by taking advantage of the short-term price/ interest rate movements.
AVAILABLE FOR SALE (AFS): Govt. securities which do not fall within the above two
categories i.e. HTM or HFT.
YIELD TO MATURITY : Expected rate of return on a security during the period, it is held by an
investor which may include capital gains and losses also.
COUPON RATE: Specified interest rate on a fixed maturity security, fixed at the time of issue.
TREASURY OPERATIONS :Investment and trading decisions of a bank in government

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securities in the market including deployment of surplus funds.

GILT EDGED SECURITY : Government security. It is a secured financial instrument which
guarantees certainty of both capital and interest. These securities are free of default risk or
credit risk, which leads to low market risk and high liquidity.
DATED SECURITIES : Instruments which have tenure over one year. The returns on dated
securities are based on fixed coupon rates akin to corporate bonds. These are considered
risk free.
TREASURY BILLS : These are instruments for borrowing by Govt. with a maturity period of 91
days, 182 days and 364 days. The minimum amount is Rs.1 lac. The interest rates are as per
market conditions.
CASH MANAGEMENT BILLS: These are similar to Treasury Bills issued with the objective of
cash management by Govt. The maturity period could be less than 91 days and interest rate
as per market conditions.

PRUDENTIAL LIMITS FOR CALL & NOTICE MONEY :

(a) Borrowing : On a fortnightly basis, maximum 100% of capital fund of latest audited
balance sheet. It can go up to 125% on any particular day during a fortnight period.
(b) Lending: On a fortnightly basis, maximum 25% of capital fund of latest audited balance
sheet. It can go up to 50% on any particular day during a fortnight period.
SHORT SELLING: Short Sale is the sale of securities which a bank does not own i.e. a bank
sells to another bank, a govt. security (say treasury bill or dated securities) which the selling
bank does not own presently, with the understanding to deliver the security on a fixed future
date. The facility is to enhance the liquidity in the G-sec markets and to provide participants
with a tool to express two-way view on interest rate.

WHEN AS AND IF ISSUED SECURITIES : Commonly known as 'when-issued' security refers to

a security that has been authorized for issuance but not yet actually issued. When issued
trading takes place between the time a new issue is announced and the time it is actually
issued. All 'when issued' transactions are on an 'if' basis, to be settled if and when the actual
security is issued.
MERCHANT BANKING
Merchant banking stands for providing various services relating to capital market and finance
to corporate sector.
FOREIGN INSTITUTIONAL INVESTORS:
FIIs are corporates/funds/trust who propose to invest their proprietary funds or on behalf of
funds or on of foreign corporate and individuals. They require registration with SEBI.
GDR / ADR:
A GDR or ADR means any instrument in the form of a Depository receipt or certificate
created by the Overseas Depository Bank (ODB) outside India and issued to non-resident
investors against the issue of ordinary shares or foreign currency convertible bonds of issuing

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company in India. These are negotiable instruments denominated in US $.

While ADRs are listed on the US stock exchanges, the GDRs are usually listed on a European
stock exchange.
INDIAN DEPOSIT RECEIPTS:
IDR is an instrument in the form of a Depository Receipt created by the Indian depository in
India against the underlying equity shares of the issuing company. The foreign companies
issue shares, to an Indian Depository, which in turn issues depository receipts to investors in
India. The actual shares underlying the IDRs are held by an Overseas Custodian.
IDRs can be listed on Indian stock exchanges and would be freely transferable.
DEMATERIALISATION:
It is a process by which the paper certificates of an investor are taken back by the
company/registrar and actually destroyed and an equivalent number of securities are
credited in electronic holdings of that investor. Depository is like a bank, where securities 
are held in electronic form, scrips are collected  and receipts and record of the account are
given, to the investor.
Banks are Depository Participant.
BOOK BUILDING:
Book building is the process to assess demand for a particular public issue at within a range
of prices, based on which the issue is priced and sold to the investors. The book runner (lead
manager) collects orders from various investors through other participating members.
Thereafter he decided the yields to be offered based on the orders received and the yields
quoted for them.
DERIVATIVES PRODUCTS
DERIVATIVE:
A derivative is a financial contract that derives its value from another financial
product/commodity (say spot rate) called underlying (that may be a stock, stock index, a
foreign currency, a commodity). Forward contract in forex, a simple form of a derivative.
OPTION: It is contract that provides a right but does not impose any obligation to buy or sell
a financial instrument, say a share or security. It can be exercised by the owner. Options
offer the buyers, profits from favourable movement of prices say of shares or foreign
exchange.
VARIANTS OF OPTIONS: There are two variants of options i.e. (a) EUROPEAN OPTION
(where the holder can exercise his right on the expiry date) and
(b) AMERICAN OPTION (where the holder can exercise the right, anytime between purchase
date and the expiry date).
COMPONENTS: Options have 2 components i.e. call option and put option. Owner's liability
is restricted to the premium he is to pay.
(a) CALL OPTION : Owner (buyer), has the right to purchase and the seller has the obligation
to sell, a specified no. of instruments (say shares) at a specified rate during the time prior to
expiry date.

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(b) PUT OPTION : Owner or the buyer has the right to sell and the seller has the obligation
to buy during a particular period.
IN THE MONEY UNDER AN OPTION : Where exercising the option provides gain to the
buyer, it is called in the money. It happens when the strike price is below the spot price, in
case of a call option OR the strike price is above the spot price, in case of a put option.
AT THE MONEY: Where exercising the option provides no gain or loss to the buyer, it is
called at the money.
OUT OF THE MONEY: Where exercising the option results into loss to the buyer, it is called
out of the money. It is better to let the option expire.
FUTURES:
The futures are the contracts between sellers and buyers under which the sellers (termed
'short') have to deliver, a pre-fixed quantity, at a pre-fixed time in future, at a pre-fixed
price, to the buyers (known as 'long').
The main features of a futures contract are that these are traded in organised exchanges,
regulated by institutions such as SEBI, they need only margin payment on a daily basis.
Futures contract are made primarily for hedging, speculation, price determination and
allocation of resources.
FORWARDS:
The forward on the other hand is a contract that is traded off-the-stock exchange, is self
regulatory and has certain flexibility unlike future which are traded at stock exchange only,
do not have flexibility of quantity and quality of commodity to be delivered and these are
regulated by SEBI, RBI or other agencies.
SWAPS :
It stands for simultaneous sale of foreign currency in spot and purchase of foreign currency
forward OR purchase of foreign currency in spot and sale of foreign currency forward. In
other words, it is exchange of foreign currency flows taking place at different times.

INCOME RECOGNITION , ASSET CLASSIFICATION , NPA MANAGEMENT &

RECOVERY (IRAC norms)

CLASSIFICATION OF LOAN A/Cs

Assets are classified into 4 categories namely Standard (including Special Mention category),
sub-standard, doubtful and loss. But NPAs are classified into 3 categories i.e. Sub-standard,
Doubtful and Loss.

ASSETS CLASSIFICATION

INITIATION OF NPA SYSTEM The process of prudent guidelines on NPA was initiated by RBI
in the year 1992-93, on recommendations of Narasimham Committee.
WHEN ACCOUNT BECOMES NPA DUE TO PROBLEM IN RECOVERY / REPAYMENT :

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1. Term Loan : interest and/or instalment of principal remain overdue for a period of more
than 90 days (Due date of instalment payment was Dec 12, 2009 which borrower failed to
pay. Account becomes irregular from Dec 13 and NPA after 90 days (i.e. 19+31+28+12) on
Mar 13, 2010.
2. Bills account: Bill remains overdue for a period of more than 90 days (Due date of bill was
Dec 12, 2009. The drawee failed to pay. Bill becomes overdue on Dec 13 and NPA after 90
days (i.e. 19+31+28+12) on Mar 13, 2010.
3. Other loans : Any amount to be received remains overdue for a period of more than 90
days
4. Cash credit / Over draft : The account remains out of order for a period of more than 90
days. (Account became out of order as balance exceeded the sanctioned limit wef Dec 12,
2009. Account becomes NPA after 90 days (i.e. 20+31+28+11) on Mar 12, 2010.
5. Out of order is an account
(a) where the balance is more than sanctioned limit or drawing power (Balance exceeded
the limit on Dec 12, 2009. Account became out of order on Dec 12, 2009). OR
(b) balance is within limit or drawing power but
(i) where as on date of balance sheet, there is no credit in the account for 90 days or
(ii) credit is less than interest debited or
(iii) where stock report has not been received for 3 months or more.
Further, if the sanction of limit is not renewed on due date, the account becomes sub-
standard after 6 months (Date of sanction - Jan 10, 2008. Due date of renewal - Jan 09,
2009. If limit not renewed for 6 months, account becomes NPA on Jul 10, 2009).
6. Special mention account (SMA): During period of irregularity up to 90 days, before
becoming NPA, the account is called SMA, which is part of Standard account.

GROUP DEFINITION
STANDARD Accounts which are in order
SUB Accounts which have been classified as NPAs for a period not exceeding 12
STANDARD months
DOUBTFUL Sub standard accounts, which have remained NPAs for a period exceeding
12 months
LOSS ASSETS Accounts which have become unrealizable, where losses have been
identified by the bank / internal / external auditor / RBI Inspectors.
SMA Special mentioned assets: RBI has instructed banks to identify a/cs which
are overdue/out of order but not NPA & maintain a special watch.
CATEGORY PROVISION REQUIREMENTS
STANDARD Direct Agri & SME All other loans & Commercial Teaser Rate –
ASSETS sectors Advances Real Estate Housing Loan
0.25% 0.40% 0.75% 2%
Residential)

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1%
( Commercial)
SUB- Secured Sub-standard Unsecured Sub-standard : Where the value of
STANDARD security is not more than 10% right from the
ASSETS beginning i.e. ab-initio
15% of outstanding 25% of outstanding dues*
dues *20% for Infrastructure Loans with escrow
arrangement
DOUBTFUL D1 D2 D3
ASSETS First 12 months Next 24 months Over 36 months
RVS Shortfall in RVS Shortfall in 100% Uniformly
Security Security
25% 100% 40% 100%
LOSS ASSETS The entire assets should be written off. If permitted to remain in the books
for any reason, 100% of the outstanding should be provided for.

PERIOD OF CLASSIFICATION IN DIFFERENT CATEGORIES:

The time period of their classification is restricted as under:
1. Standard - Regular : No restriction on the time period
1a. Standard - Irregular (called Special Mention Account,SMA) : 90 days (If account became
SMA on Dec 12, 2009, it will remain SMA up to Mar 11, 2010).
2. Sub-Standard : 12 months (This account becomes sub-standard on Mar 12, 2010 and
remains sub-standard up to Mar 11, 2011).
3a.Doubtful- up to one year : 12 months (This account becomes D-1 on Mar 12, 2011 and
remains D-1 up to Mar 11, 2012)
3b. Doubtful - above one year but up to 3 years : 24 months (This account becomes D-2 on
Mar 12, 2012 and remains D-2 up to Mar 11, 2014)
3c. Doubtful - above three years : Uncertain period (This account becomes D-3 on Mar 12,
2014 and remains D-3 for uncertain period)
4. Loss: Account is a loss account when security loss is 90% or more. The period is uncertain.

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