CAIIB – GENERAL INFORMATION
Consists of 3 papers :
I. Compulsory Paper
1. Advanced Bank Management
2. Bank Financial Management
II. Elective Papers (Candidates to choose any one of their Choice)
1. Corporate Banking
2. Rural Banking
3. International Banking
4. Retail Banking
5. Co-operative Banking
6. Financial Advising
7. Human Resources Management
8. Information Technology
9. Risk Management
10. Central Banking
11. Treasury Management
Only existing employees of banks and cleared JAIIB can appear for CAIIB Exam.
CAIIB exams are conducted in on-line mode only.
The examination will be conducted normally twice a year in May / June and November /
December on Sundays.
The duration of the examination will be of 2 hours.
Examination Pattern : (i) Question Paper will contain 100 objective type multiple choice
questions for 100 marks including questions based on case studies. The Institute may however
vary the number of questions to be asked for a subject. Generally 60-65% theory based and
35-40% case study / problem solving/Analytical /Logical exposition. There is no negative
marking for wrong answers.
Passing Criteria - Minimum 150 in total and minimum 45 in each subject in any single attempt
(not required to be the 1st attempt) is considered as pass. Else 50 in each subject. Passed
subject gets carried forward to 4 continuous attempts (whether you appear for the exam or
not) from the 1st attempt. If not passed in 4 continuous attempts, you need to appear in all 3
papers.
First Class : 60% or more marks in aggregate and pass in all the subjects in the FIRST
PHYSICAL ATTEMPT.
First Class with Distinction : 70% or more marks in aggregate and 60% or more marks in
each subject in the FIRST PHYSICAL ATTEMPT.
Candidates who have been granted exemption in the subject/s will be given "Pass Class"
only.
Cut-off Date of Guidelines /Important Developments for Examinations - The Institute has a
practice of asking some questions in each exam about the recent developments/ guidelines
issued by the regulator(s) in order to test if the candidates keep themselves abreast of the
current developments. But, there could be changes in the developments / guidelines from the
date the question papers are prepared and the dates of the actual examinations. In order to
address these issues effectively, it has been decided that:
In respect of the exams to be conducted by the Institute for the Period from February
2018 to July 2018, instructions/guidelines issued by the regulator(s) and important
developments in banking and finance up to 31st December, 2017 will only be considered
for the purpose of inclusion in the question papers.
In respect of the exams to be conducted by the Institute for the period from August 2018
to January 2019, instructions/guidelines issued by the regulator(s) and important
developments in banking and finance up to 30th June, 2018 will only be considered for the
purpose of inclusion in the question papers.
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Exam Fees
JAIIB
First attempt fee - 2,400*
Second attempt fee - 1,000*
Third attempt fee - 1,000*
Fourth attempt fee - 1,000*
DBF
First attempt fee - 3,200*
Second attempt fee - 1,000*
Third attempt fee - 1,000*
Fourth attempt fee - 1,000*
CAIIB
First attempt fee - 2,700*
Second attempt fee - 1,000*
Third attempt fee - 1,000*
Fourth attempt fee - 1,000*
* Plus convenience charges and Taxes as applicable
SYLLABUS
The details of the prescribed syllabus which is indicative are furnished below. However, keeping in
view the professional nature of examinations, all matters falling within the realm of the subject
concerned will have to be studied by the candidate as questions can be asked on all relevant matters
under the subject. Candidates should particularly prepare themselves for answering questions that
may be asked on the latest developments taking place under the various subject/s although those
topics may not have been specifically included in the syllabus. Any alterations made will be notified
from time to time. Further, questions based on current developments in banking and finance may be
asked.
Candidates are advised to refer to financial news papers / periodicals more particularly “IIBF
VISION” and “BANK QUEST” published by IIBF.
MODULE - A: Economic Analysis
The fundamentals of Economics : Scarcity and Efficiency - Microeconomics & Macroeconomics in
brief - Types of economies - Market, Command and Mixed Economies - Macroeconomics : Business
cycles - Money and banking - Unemployment & inflation - Interest rate determination and various
types of interest rates.
Indian Economy (a) Overview of the Indian economy including recent reforms (b) Interaction
between fiscal, monetary & exchange rate policies in India - Financial Markets (i) Money Market
Capital Market (iii) Foreign Exchange Market - globalisation and its impact - Challenges ahead -
Banking & Finance - current issues
MODULE - B : Business Mathematics
Concept of time Value of Money - Net Present Value - Discounted Cash Flow - Sampling methods -
presentation of data - analysis and interpretation of sample data - hypothesis testing - Time series
analysis - mean / standard deviation - co-relation - Regression - covariance and volatility - Probability
distribution - Confidence interval analysis - estimating parameters of distribution - Bond valuation -
duration - modified duration.
Linear programming - decision making-simulation - Statistical analysis using spreadsheets. Features
of Spread sheet - Macros, pivot table, statistical and mathematical formulae.
MODULE - C : HRM in banks
Fundamentals of HRM, development of HRM in India, Relationship between HRM and HRD, Structure
and functions of HRD, Role of HR professional, Human implications of organizations; training and
development, attitude and soft skills development, role and impact of training, career path planning
and counseling, employee behaviour, theories of motivation and their practical implications, role
concepts and analysis, self development., Performance Management and appraisal systems; Reward /
punishment and compensation systems., HRM and Information Technology, information and data
management, knowledge management.
MODULE - D : Credit Management
Principles of Credit Management Credit Appraisal Analyzing Financial Performance - Relationship
between items in Balance Sheet and Profit and Loss Account. Trend Analysis, Comparative Statement
- Common size Statement, Preparation of projected Financial Statements. - Ratio analysis -
Interpretation and analysis of different Ratios, Limitation of the use of ratios. Statement of Sources
and Applications of Funds.
Structuring a Credit Proposal - Working Capital Concept and Management Appraisal techniques for
different constituents - trade cycle - credit rating - Technical and economic feasibility studies - Credit
Rating - Rating Methodology - Objectives and benefits of rating - Term Lending - Debt Service
Coverage Ratio - Cash Flow Analysis - Cash Budget - Bill Finance - Deferred Payment Guarantee -
Credit Scoring - Credit Delivery System - Documentation - Post sanction supervision, Control and
monitoring of credit - Consortium finance, Multiple banking, Syndication of loans. Infrastructure
financing.
Dealing with credit defaults, Stressed assets, Corporate Debt restructuring, SARFAESI, NPAs, recovery
options, write-off. Disclosure of the list of defaulters: objectives and procedure. Appraisal
methodology for different type of clients / products.
MODULE - A - ECONOMIC ANALYSIS
UNIT - 1 - Fundamentals of Economics, Microeconomics & Macro Economics and Types of
Economies
1) Economics is “The science which studies human behavior as a relationship between ends and
scarce means which have alternative uses. “
2) The essence of Economics is to acknowledge the reality of scarcity and then figure out how to
organize society in a way which produces the most efficient use of resources.
3) Adam Smith is the Father of Modern Economics.
4) An Enquiry into the Nature and Causes of the Wealth of Nations (published in 1776) is written by
Adam Smith.
5) Economics is the study of how wealth is produced and consumed.
6) Smith’s definition is known as Wealth Definition. It gave more importance to wealth than to man
for whose use wealth is produced.
7) Welfare Definition is coined by Prof. Alfred Marshal. He described Economics as a science of
human welfare.
8) Scarcity Definition is coined by Prof. Lionel Robbins.
9) Prof. Lionel Robbins defines Economics as study of “means” and “Ends”.
a. Man has unlimited wants
b. The means to satisfy human wants are limited
c. Resources are not only limited but have alternative uses
d. Man has to make a choice.
10) Adam Smith is considered to be the Founder of the field Micro Economics.
11) Micro Economics is concerned with the behaviour of individual entities such as markets, firms,
and households.
12) Macro Economics is a branch of Economics that deals with the performance, structure and
behaviour of a national or regional economy as a whole and concerned with the overall performance
of the Economy.
13) Founder of the field of Macro Economics is John Maynard Kenes.
14) John Maynard Kenes wrote the book “General Theory of Employment, Interest and Money”.
15) An analysis of causes of Business cycles is developed by Mr. Kenes.
16) A market Economy/ Capitalistic Economy is one in which individuals and private firms make the
major decisions about production and consumption. E.g.: United Kingdom.
17) A Command Economy/Socialistic Economy is one in which the government makes all important
decisions about production and distribution.
18) Mixed Economy is where public sector, private sector and joint sector coexist and complement
each other. E.g.: India
19) Laissez – faire Economy is the extreme case of a Market Economy.
Unit – 2 : SUPPLY & DEMAND
1) Theory of Supply and Demand shows how consumer preferences determine consumer demand
for commodities, while business costs determine the supply of commodities.
2) The relationship that exists between price and quantity bought is called as the Demand Schedule
or the Demand Curve. The quantity demanded increases with the fall in price.
3) Quantity and Price are inversely related.
4) The graphical representation of the demand schedule is called as the Demand Curve.
5) Law of Downward – sloping demand: When the Price of a commodity is raised (and other things
being constant), buyers tend to buy less of the commodity. Similarly, when the price is lowered, other
things being constant, quantity demanded increases.
6) Market Demand curve obey the Law of Downward- Slopping demand
7) A Down ward slopping Demand Curve relates Quantity Demanded to Price
8) Factors influences the Demand Curve
- Average levels of income - The size of market/population
- The prices and availability of related goods- Tastes or Preferences - Special Influences
9) The Supply Schedule relates the quantity supplied of a good to its market price, other things being
constant.
10) Shifts in Supply Means when changes in factors other than goods own price affect the quantity
supplied.
11) The Supply Schedule (or Supply Curve) for a commodity shows the relationship between its
market price and the amount of that commodity those producers is willing to produce and sell,
other things being constant.
12) Forces behind the supply Curve:
- Cost of Production - Prices of inputs and technological advances - Government Policy
- Prices of related goods - Special Factors like weather influence on farming and agro-industry
13) Supply increases (or Decreases) when the amount supplied increases (or Decreases) at each
market price.
14) Supply and demand interacts to produce equilibrium price and quantity or market equilibrium.
15) The Market Equilibrium comes at that price and quantity where the forces of supply and demand
are in balance.
16) At the Equilibrium price, the amount that buyers want to buy is just equal to the amount that
sellers want to sell.
17) A Market equilibrium comes at the price at which quantity demanded equals quantity supplied.
18) The Equilibrium Price is also called as the Market Clearing Price.
Unit – 3 : MONEY SUPPLY & INFLATION
1) Money is anything which performs the following four functions:
- Medium of Exchange - A measure of value
- A store of value over time - Standard for deferred payments
2) Medium of Exchange: Individual goods and services and other physical assets, are “priced” in
terms of money and are exchanged using money.
3) A Measure of Value: Money is used to measure and record the value of goods or services.
4) A Store of value over time: Money can be held over a period of time and used to finance future
payments.
5) Standard for Deferred Payments: Money is used as an agreed measure of future receipts and
payments in contracts.
6) Money supply refers to the stock of money in circulation in the economy at a given point of time.
This is partly exogenous (Decided by the Govt and the RBI) and partly endogenous.
7) There are four common measures of Money supply, commonly used in India:
- Narrow Money (M1)= Currency with Public Demand Deposits with Banking System + ‘Other”
Deposits with the RBI
- M2 = M1+ Savings deposits of Post Office Savings Banks
- M3 = M1+ Time Deposits with the Banking System
- M4 = M3+ All Deposits with post office savings banks ( Excluding NSCs)
8) Currency with Public = Currency in circulation - Cash held by banks.
9) Demand Deposits = All liabilities which are payable on demand and they include current Deposits,
demand liabilities portion of saving Banks Deposits, margins held Against LC/BG, Balance in OD FDs,
Cash Certificates and Cumulative/RDs etc.
10) “Time Deposits”= which are payable otherwise than on demand and they include fixed Deposits,
Cash Certificates, Cumulative and recurring Deposits, time Liabilities portion of savings bank deposits,
etc.
11) The concept of Inflation refers to a sustained rise in the general level of prices of goods and
services in an economy over a period of time.
12) Inflation leads to fall in purchasing power.
13) Causes of Inflation:
- Demand-pull inflation - Cost – Push Inflation
14) Demand – pull Inflation is a rise in general prices caused by increasing aggregate demand for
goods and services.
15) Cost- Push Inflation is a type of inflation caused by substantial increases in the cost of production
of important goods of services, where no suitable alternative is available.
16) Measure of Inflation: - Calculating inflation with Price Indexes
17) Inflation = (Price Index in Current Year–Price index in Base Year) X 100/Price index in Base Year
18) There are 4 Important Price Indexes
- Wholesale Price Index (WPI) - Food Inflation Index (FII)
- Consumer Price Index (CPI) - GDP Deflator
19) Wholesale Price Index: The WPI reflects the change in the level of prices of a basket of goods at
the wholesale level. WPI focuses on the price of goods traded between corporations at the wholesale
stage, rather than goods bought by consumers.
20) In India WPI (Headline Inflation) is the official inflation index used for policy decisions.
21) WPI announced in Monthly frequency.
22) The different components along with their weightage in Wholesale Price Index (WPI).
Primary Articles
Food Articles 15.4025
Non Food Articles 6.1381
Minerals 0.4847
Sub Total 22.0253
Fuel, Power, Light & Lubricants
Coal Mining 1.7529
Mineral Oils 6.9896
Electricity 5.4837
Sub Total 14.2262
Manufactured Products
Food Products 11.5378
Beverages, Tobacco and Tobacco Products 1.3391
Textiles 9.7999
Wood and Wood Products 0.1731
Paper and Paper Products 2.0440
Leather and Leather Products 1.0193
Rubber and Plastic Products 2.3882
Chemicals and Chemical Products 11.9312
Non-Metallic Mineral Products 2.5159
Machinery and Machine Tools 8.3633
Transport Equipment and Parts 4.2948
Basic Metals and Alloys 8.3419
Sub Total 63.7485
Grand Total 100.00
23) The Base year for WPI is 1993-94.
24) From August 2010 onwards, Base Year for WPI is changed to 2004-05. And the weightage are as
follows: (Source: Business Line 15-09-10)
25) The Indices for the Food Group and fuel group will be announced on weekly basis.
26) Consumer Price Index (CPI): The CPI reflects the change in the level of prices of a basket of Goods
and services purchased/consumed by the households.
27) CPI is the cost of living index popularly known as Core Inflation.
28) There are four measures of CPI,
- The CPI for Industrial Workers (IW) has a broader coverage than the others
- The CPIs for Agricultural Labourers (AL),
- Rural Labourers (RL) - And Urban Non-Manual Employees (UNME).
29) In the organized sector, CPI-IW is used as a cost of living index.
30) Among the four measures of CPI, the CPI for Industrial Workers (IW) has a broader coverage
than the others.
31) Why do the WPI and the CPIs differ?
They differ in terms of their weighting pattern. First, food has a larger weight in CPIs - ranging from
46 per cent in CPI-IW to 69 per cent in CPI-AL, whereas it has a weight of only 27 per cent in the
WPI. The CPIs are, therefore, more sensitive to changes in prices of food items.
32) CPI in India is released by Labour Bureau, Ministry of Labour and Employment, Government of
India.
33) Since 1943 the Central Government took upon itself the job of compilation and maintenance of
Consumer Price Index Numbers in pursuance of the recommendations of the Rau Court of Enquiry.
34) The Consumer Price Index Numbers for Industrial Workers (CPI-IW) for 50 centers and All-India
weighted index on base 1960=100 was started on the basis of the Weighting Diagram drawn by
conducting the Family Living Survey (FLS) in 1958-59.
35) The current series (1982=100) replaced the old (1960=100) series with effect from October, 88.
36) GDP Deflator: it is measure of the level of prices of all new, domestically produced, final Goods
and services in an economy.
37) GDP deflator is not based in a fixed basket of Goods and services
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Unit – 4 : Theories of Interest
1) Interest is a payment made by a borrower for the use of a sum of money for a period of time.
2) Three elements can be distinguished in interest:
- Payment for the risk involved in making the loan
- Payment for the trouble involved
- Pure interest, i.e. a payment for the use of money.
3) J M Keynes in his book “The General Theory of Employment, Interest and Money” views that the
rate of interest is purely monetary phenomenon and is determined by Demand for money and
supply of money.
4) J M Keynes theory is known as “Liquidity Preference Theory”
5) Rate of interest and bond prices are inversely related.
6) Money Demand curve follows from above that quantity of money demanded increases with the
fall in the rate of interest or with the increase in level of nominal income.
7) The rate of interest is determined by demand for money (Liquidity Preference) and supply of
money – JM Kenes.
8) The position of money demand curve depends upon two factors: 1) The level of nominal income
and 2) the expectation about the changes in bond prices in the future which implies change in rate
of interest in future.
9) IS and LM curves Theory promulgated by Sir Hon Richard Hicks and Alvin Hansen.
10) The IS curve and the LM curve relate the two variables a) Income and b) the rate of interest. The
intersection point of the two curves is the equilibrium rate of interest.
11) LM= Liquidity preference and Money supply equilibrium. LM curve is derived from Kenes
Liquidity preference theory of interest.
12) IS = Classical Theory
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Unit – 5 : Business Cycles
1) The term Business cycle refers to economy-wide fluctuations in production or economic activity
over several months or years.
2) Business Cycle is also known as Economic Cycle.
3) Business Cycle simply means the whole course of business activity which passes through the
phases of prosperity and depression.
4) A business Cycle is not a regular, predictable, or repetitive phenomenon like the swing of the
pendulum of a clock. Its timing is random and, to a large degree, unpredictable.
5) Characteristics of a Business Cycle:
A business cycle is synchronic ii. A business cycle show a wave like movement
iii. Cyclical fluctuations are recurring in nature
iv. There can be no indefinite depression or eternal boom period
v. Business cycles are pervasive in their effects. vi. The up and down movements are not symmetrical
6) Phases of Business Cycle:
Boom Recession Depression Recovery
7) Boom:
- During the Boom phase production capacity is fully utilized and also products fetch an above normal
price which gives higher profit.
- In Boom period, consumption will be decreased as prices are going up.
- The Demand is more or less stagnant or it even decreases.
8) Recession:
- A downward tendency in demand is observed. The supply exceeds demand
- Desire for liquidity increases all around.
- Producers are compelled to reduce price so that they can find money to meet their obligations.
- This Phase of the business cycle is known as the Crisis.
9) Depression:
- Underemployment of both men and materials is a characteristic of this phase. General Demand falls
faster than production
- Volume of Production will be reduced.
- The demand for the bank credit is at its lowest which results in idle funds.
- The interest rates are decline regime.
10) Recovery:
- Depression phase done not continue indefinitely.
- Wages will be paid low.
- Prices are at the lowest, the consumers, who postponed their consumption expecting a still further
fall in price, now start consuming.
- As demand increases, the stocks of goods become insufficient.
Unit – 6 : Indian Economy and Various Sectors of the Economy
1) The average growth rate of the Indian Economy over a period of 25 Years since 1980-81 was about
6.00%.
2) During 2000-01 to 2007-08, the growth rate is 7.20% when compared with 2003-04 to 2007-08.
3) Various sectors of Indian economy:
i. Agriculture ii. Industry
iii. Micro and Small Enterprises (MSEs) iv. Services
4) The average growth rate of the Indian Economy over a period of 25 Years since 1980-81 was about
6.00%.
5) Agriculture Sector is one of the most important sectors of Indian economy.
6) Agriculture Sector accounted for 17% of GDP in 2008-09.
7) Industry Sector accounts for 19% of GDP in 2008-09. About 1/3rd of the industrial labour force is
engaged in simple household manufacturing only.
8) Central Statistical Organisation (CSO) classifies the industrial sector into 3 segments
i. Mining and Quarrying ii. Manufacturing and Electricity iii. Gas and Water Supply.
9) The Sector of MSME is accounted for around 39 % of total industrial production, 34% of the
exports in the industrial sector and around 35% if total Employment among units engaged in
manufacturing and services.
10) The MSMED Act, 2006 classifies enterprises broadly into two categories
i. Manufacturing enterprises ii) Service Enterprises.
11) These broad categories are further classified into Micro Enterprises, Small Enterprises and
medium enterprises, depending up on the level of investment in plant and machinery and
equipment as the case may be.
12) The Service Sector accounts for about 2/3rd of India’s GDP i.e. 64% in 2008-09.
13) Service Sector is also called as Tertiary Sector.
Unit – 7 : Economic Reforms
1) The economic Reforms started in 1991.
2) Real Sector Policy measures mainly focused on the manufacturing sector in the early stages of
reform process.
3) MRTP Act Monopolies and Restrictive Trade Practices Act, 1969
4) APMC Act (Agricultural Produce Market Committee Act )
5) The primary objective of The APMC Act in each state of India requires all agricultural products to
be sold only in government - regulated markets. This was amended and permitting the farmers to
bypass the mandatory requirement of regulated market.
6) Essential Commodities Act, 1955
7) Financial Sector reforms have been arrived out in accordance with the recommendations made by
basically three committees:
i. Narasimham Committee report on financial sector Reforms (1992)
ii. Narasimham Committee report on Banking sector Reforms (1998)
iii. S H Khan Report (1998) of the working group for harmonize the role and operations of
Development Financial Institutions and Banks reforms in financial Sector
8) IRS- Interest Rate Swaps
9) FRA - Forward Rate Agreements
10) Collateralized Borrowings and Lending Obligation – CBLO
11) CDs (Certificate of Deposits) are short-term borrowings in the form of Usance Promissory Notes
having a maturity of not less than 15 days up to a maximum of one year.
12) Commercial Paper (CP) is an unsecured money market instrument issued in the form of a
promissory note.
13) Who can issue Commercial Paper (CP)?
a. Highly rated corporate borrowers, primary dealers (PDs) and satellite dealers (SDs) and all-India
financial institutions (FIs)
14) Futures and options represent two of the most common form of "Derivatives".
15) Derivatives are financial instruments that derive their value from an 'underlying'. The underlying
can be a stock issued by a company, a currency, Gold etc.
16) The derivative instrument can be traded independently of the underlying asset.
17) The value of the derivative instrument changes according to the changes in the value of the
underlying.
18) Derivatives are of two types –
i. Exchange-traded and
ii. Over the counter.
19) Exchange traded derivatives, as the name signifies are traded through organized exchanges
around the world. These instruments can be bought and sold through these exchanges, just like the
stock market.
20) Some of the common exchange traded derivative instruments are futures and options.
21) Over the counter (popularly known as OTC) derivatives are not traded through the exchanges.
They are not standardized and have varied features.
22) Some of the popular OTC instruments are forwards, swaps, swaptions etc.
23) Futures
24) A 'Future' is a contract to buy or sell the underlying asset for a specific price at a predetermined
time. If you buy a futures contract, it means that you promise to pay the price of the asset at a
specified time. If you sell a future, you effectively make a promise to transfer the asset to the buyer
of the future at a specified price at a particular time. Every futures contract has the following
features:
- Buyer - Seller - Price - Expiry
25) Some of the most popular assets on which futures contracts are available are equity stocks,
indices, commodities and currency.
26) The difference between the price of the underlying asset in the spot market and the futures
market is called 'Basis'. (As 'spot market' is a market for immediate delivery)
27) Options
Options contracts are instruments that give the holder of the instrument the right to buy or sell the
underlying asset at a predetermined price.
28) An option can be a 'call' option or a 'put' option.
29) A call option gives the buyer, the right to buy the asset at a given price. This 'given price' is called
'strike price'. It should be noted that while the holder of the call option has a right to demand sale of
asset from the seller, the seller has only the obligation and not the right. For e.g.: if the buyer wants
to buy the asset, the seller has to sell it. He does not have a right.
30) A 'put' option gives the buyer a right to sell the asset at the 'strike price' to the buyer. Here the
buyer has the right to sell and the seller has the obligation to buy.
31) The Payment and Settlement Systems Act, 2007 empowering the RBI to regulate and supervise
payments and settlement system.
32) Cheque Truncation System(CTS)has been introduced in cheque clearing July 08 in New Delhi.
33) G Sec is market auction related instruments and they are paid by Ways and Means Advances,
automatic monetization.
34) Foreign investment is of two kinds – (i) Foreign Direct Investment (FDI) and (ii) Foreign Portfolio
Investment.
35) ‘FDI’ means investment by non-resident entity/person resident outside India in the capital of the
Indian company under Schedule 1 of FEM (Transfer or Issue of Security by a Person Resident outside
India) Regulations 2000.
36) Portfolio investment in both primary and secondary market by FII was opened up in 1992
37) ECB:
i. Source of funds for corporate from abroad with advantage of
ii. lower rates of interest prevailing in the international financial markets
iii. longer maturity period
iv. for financing expansion of existing capacity as well as for fresh investment
38) ECB is Defined as to include commercial loans [in the form of bank loans, buyers’ credit, suppliers’
credit, securitized instruments (e.g. floating rate notes and fixed rate bonds, CP)] availed from non-
resident lenders with minimum average maturity of 3 years
39) Poverty is measured by Gini Coefficient, a standard measure of Income/Expenditure in equality
40) The Gini coefficient, invented by the Italian statistician Corado Gini, is a number between zero
and one that measures the degree of inequality in the distribution of income in a given society. The
coefficient would register zero (0.0 = minimum inequality) for a society in which each member
received exactly the same income and it would register a coefficient of one (1.0= maximum
inequality) if one member got all the income and the rest got nothing
41) Human Development Index (HDI) a widely used indicator of Socio- Economic Conditions has
place India at 132 out of 189 countries in the world in the year 2006.
42) The Human Development Index (HDI) is a comparative measure of life expectancy, literacy,
education and standards of living for countries worldwide. It is a standard means of measuring well-
being, especially child welfare. It is used to distinguish whether the country is a developed, a
developing or an under-developed country, and also to measure the impact of economic policies on
quality of life. The index was developed in 1990 by Pakistani economist Mahbub ul Haq and Indian
economist Amartya Sen.
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Unit – 8 : Monetary Policy and Fiscal Policy
1) Monetary Policy is the process by which the Government, Central Bank controls
i. The money supply ii. Availability of money and iii. Cost of money or rate of interest
In order to attain a set of objective oriented towards the growth and stability of the economy.
2) Monetary policy is referred to as either being expansionary policy or a contractionary policy.
3) An expansionary policy increases the total supply of money in the economy. This is used to
combat unemployment in a recession by lowering interest rates.
4) A contractionary policy decreases the total money supply. This is used to combat inflation by
raising the interest rates.
5) Tools of Monetary policy:
i. Bank Rate ii. Cash Reserve Ratio iii. Statutory Liquidity Ratio
iv. Market Stabilization Scheme v. Repo Rate vi. Reverse Repo Rate
vii. Open Market Operations
6) Bank Rate: It is also referred as Discount rate, is the rate of interest which a central bank charges
on the loans and advances that it extends to commercial banks and other financial intermediaries.
7) Changes in the Bank Rate are often used by Central bank to control the money supply.
8) The structure of interest rates is administered by RBI.
9) Cash Reserve Ratio (CRR): The present banking system is called a “Fractional Reserve Banking
System, as the banks are required to keep only a fraction of their deposit liabilities in the form of
liquid cash with the central bank for ensuring Safety and liquidity of deposits.
10) CRR was introduced in 1950 primarily as a measure to ensure safety and liquidity of bank
deposits.
11) Statutory Liquidity Ration (SLR): SLR refers to the amount that all banks requires maintaining in
cash or in the form of Gold or approved securities.
12) Approved securities mean dated securities, government bonds, and share of different
companies.
13) The SLR is determined as % of Total Demand and Time Liabilities
14) Demand Liabilities
Demand Liabilities' include all liabilities which are payable on demand and they include current
deposits, demand liabilities portion of savings bank deposits, margins held against letters of
credit/guarantees, balances in overdue fixed deposits, cash certificates and cumulative/recurring
deposits, outstanding Telegraphic Transfers (TTs), Mail Transfer (MTs), Demand Drafts (DDs),
unclaimed deposits, credit balances in the Cash Credit account and deposits held as security for
advances which are payable on demand. Money at Call and Short Notice from outside the Banking
System should be shown against liability to others.
15) Time Liabilities.
Time Liabilities are those which are payable otherwise than on demand and they include fixed
deposits, cash certificates, cumulative and recurring deposits, time liabilities portion of savings bank
deposits, staff security deposits, margin held against letters of credit if not payable on demand,
deposits held as securities for advances which are not payable on demand and Gold Deposits.
16) Market Stabilization Scheme:
RBI introduced Market Stabilization Scheme after consulting GOI for mopping up liquidity of a more
enduring nature. Under this scheme, the GOI issue existing instrument, such as Treasury Bills/ and or
dated securities by way of auctions under the MSS, in addition to the normal borrowing
requirements, for absorbing liquidity form the system.
17) Repo Rate :
Repo (Repurchase) rate is the rate at which RBI lends short-term money to the banks. Bank lending
rates are determined by the movement of Repo Rate.
18) Reverse Repo Rate :
Reverse Repo Rate is the rate at which banks park their short term excess liquidity with the RBI. The
RBI uses this tool when it feels there is too much money floating in the Banking System.
19) An Increase in Reverse Repo means that the RBI will borrow money from the Banks at a higher
rate of interest, so banks would prefer to keep their money with the RBI.
20) Open Market Operations :
Under this, RBI buys or sells government bonds in the secondary market.
21) By absorbing bonds, it drives up bond yields and injects money into the market. When it sells
the bonds, it done so to such the money out of the system.
22) RBI’s monetary policy ‘s objectives:
- Monitor the global and domestic economic conditions and respond swiftly as required.
- Ensure higher bank credit expansion to achieve higher growth but at the same time protect the
credit quality
- Maintain price stability and financial stability
- Give thrust on Interest Rate Management, Inflation Management and Liquidity Management.
23) Fiscal Policy :
Fiscal Policy is the use of government spending and revenue collection the economy.
Fiscal Policy refers to the overall effect of the budget outcome on economic activity.
24) FRMB Act : Fiscal Responsibility and Budget Management Act – 2003
25) Dr E A S Sharma Committee January, 2000 recommended draft legislation on fiscal responsibility.
26) FRBM requirements are
- The Government to place before Parliament 3 statement each year along with Budgets, Covering
Medium Term Fiscal Policy, Fiscal Policy Strategy and Macroeconomic Framework
- Center to reduce the fiscal deficit (Generally 3% of GDP) and more categorically to “Eliminate
revenue deficit’ by 31-03-2008. Government to set a ceiling on guarantee (0.5% o GDP)
- Act prohibits the Center form borrowing from the RBI, i.e. it bans ‘Deficit financing’ through money
creation. The RBI is also barred from subscribing to primary issues of Central Government Securities.
- The Finance Minister is required to keep Parliament informed through quarterly review on the
implementation, and to take corrective measure.
- The main theme of the FRBM Act is to reduce the dependence of the Government on borrowings
and help to reduce the fiscal deficit in a phased manner.
....................................................................................................................................
Unit – 9 : GDP Concepts
1) Gross Domestic Product (GDP): It is the total market value of all the final goods and services
produced within the territorial boundary of a country, using domestic resources, during a given
period of time, usually 1 year.
2) Gross national Income at Market Price = GDP at Market Price + Taxes less subsidies on production
and imports (net receivable from abroad + Compensation of Employees (Net Receivables from
abroad) + Property income (Net receivables from abroad)
3) Gross National Product (GNP) = GDP + Total Capital gains from overseas investment (-) income
earned by foreign nationals domestically
4) According to the National Income Accounting, there are three ways to complete GDP:
i. Expenditure wise ii. Income wise iii. Product wise
5) Expenditure Method : GDP= Consumption + Gross Investment + Government Spending +
(Exports- Imports) GDP = C+I+G+(X-M)
a. Consumption : This included personal expenditures pertaining to food, households, medical
expenses, rent, etc
b. Gross Investment : Business Investment as capital which includes construction of a new mine,
purchase of machinery and equipments for a factory, purchase of software, expenditure on new
houses, buying goods and services but investments on financial products is not included as it falls
under savings.
Government spending: It is the sum of government expenditures on final goods and services.
d. Exports: This includes all goods and services produced for overseas consumptions.
e. Imports: This includes any goods or services imported for consumption and it should be deducted
to prevent from calculating foreign supply as domestic supply.
6) Income Approach : GDP from the income is the sum of the following major components:
i. Compensation of employees ii. Property income iii. Production taxes and depreciation on capital
7) Compensation of Employees: It represents wages, salaries and other employee supplements
8) Property Income: It constitutes corporate profits, proprietor’s income, interests and rents
9) GDP at market price measures the value of output at market prices after adjusting for the effect of
indirect taxes and subsidies on the prices.
10) Market price is the economic price for which a good or service is offered in the market place.
11) GDP at factor cost measures the value of output in terms of the price of factors used in its
production.
12) GDP at factor cost = GDP at Market Price – (Indirect taxes – Subsidies)
13) Product Approach
In India we have getting GDP product wise belongs to 8 sectors.
14) Real GDP or GDP at constant price: It means the value of today’s output at yesterday price. Real
GDP is calculated by tracking the volume or quantity of production after removing the influence of
changing prices or inflation.
15) Normal GDP or GDP at Current prices: It represents the total money value of final goods and
services produced in a given year, where the values are expressed in terms of the market prices of
each year.
16) Factors of production are : Land, Labour, Capital and Entrepreneur
Unit – 10 : Union Budget
1) Net Tax Revenue = Gross Tax Revenue (-) NCCD transferred to the National Calamity Contingency
fund (-) States’ share
2) Total Revenue Receipts = Net Tax Revenue + Total Non- Tax revenue
3) Capital Receipts = Non- debt receipts + Debt Receipts
4) Total Receipts = Total Revenue Receipts + Capital Receipts+ Drawdown of Cash Balance
5) Financing of Fiscal Deficit : Debt Receipts + Draw-down of cash balance
6) Non- Plan Expenditure = Revenue Non- Plan Expenditure + Capital Non-plan Expenditure
7) Plan Expenditure = Revenue Expenditure + Capital Expenditure
8) Total Expenditure = Total Non-plan Expenditure + Total Plan Expenditure
9) Revenue Deficit = Revenue expenditure (-) Revenue receipts
10) Gross Fiscal Deficit is the excess of total expenditure including loans, net of recoveries over
revenue receipts (including external grants) and non- debt receipts
11) Net Fiscal deficit = The gross fiscal deficit (-) interest payments
12) Net Primary deficit = Net fiscal deficit (– ) net interest payments
13) NCCD: National Council on Crime and Delinquency.
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Unit – 11 : Challenges Facing Indian Economy
1) Unique features of Indian Economy:
a. India’s growth is driven by domestic demand – both consumption and investment.
b. Twin Deficit – Fiscal & Current Account
c. Supply constrained economy
MODULE - B - BUSINESS MATHEMATICS
Unit – 12 : Time Value of Money
Present Value
Present value describes how much a future sum of money is worth today. Three most influential
components of present value are : time, expected rate of return, and the size of the future cash
flow. The concept of present value is one of the most fundamental and pervasive in the world of
finance. It is the basis for stock pricing, bond pricing, financial modeling, banking, insurance,
pension fund valuation. It accounts for the fact that money we receive today can be invested
today to earn a return. In other words, present value accounts for the time value of money.
The formula for present value is:
PV = CF/(1+r)n
Where:
CF = cash flow in future period
r = the periodic rate of return or interest (also called the discount rate or the required rate of
return)
n = number of periods
Example :
Assume that you would like to put money in an account today to make sure your child has enough
money in 10 years to buy a car. If you would like to give your child 10,00,000 in 10 years, and you
know you can get 5% interest per year from a savings account during that time, how much should
you put in the account now?
PV = 10,00,000/ (1 + .05)10 = 6,13,913/-
Thus, 6,13,913 will be worth 10,00,000 in 10 years if you can earn 5% each year. In other words,
the present value of 10,00,000 in this scenario is 6,13,913.
....................................................................................................................................
Future Value
The value of an asset or cash at a specified date in the future that is equivalent in value to a
specified sum today. It refers to a method of calculating how much the present value (PV) of
an asset or cash will be worth at a specific time in the future. There are two ways to calculate FV:
1) For an asset with simple annual interest: = Original Investment x (1+(interest rate*number of
years))
2) For an asset with interest compounded annually: = Original Investment x ((1+interest
rate)^number of years)
Example:
1) 10,000 invested for 5 years with simple annual interest of 10% would have a future value of
FV = 10000(1+(0.10*5))
= 10000(1+0.50)
= 10000*1.5
= 15000
2) 10,000 invested for 5 years at 10%, compounded annually has a future value of :
FV = 10000(1+0.10)^5)
= 10000(1.10)^5
= 10000*1.61051
= 16105.10
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Annuities
Annuities are essentially a series of fixed payments required from you or paid to you at a specified
frequency over the course of a fixed time period. The most common payment frequencies are
yearly, semi-annually (twice a year), quarterly and monthly. There are two basic types of
annuities: ordinary annuities and annuities due.
Ordinary Annuity: Payments are required at the end of each period. For example, straight bonds
usually pay coupon payments at the end of every six months until the bond's maturity date.
Annuity Due: Payments are required at the beginning of each period. Rent is an example of
annuity due. You are usually required to pay rent when you first move in at the beginning of the
month, and then on the first of each month thereafter.
Present Value of an Annuity
The present value an annuity is the sum of the periodic payments each discounted at the given
rate of interest to reflect the time value of money.
PV of an Ordinary Annuity = R (1 − (1 + i)^-n)/i
PV of an Annuity Due = R (1 − (1 + i)^-n)/i × (1 + i)
Where,
i is the interest rate per compounding period;
n are the number of compounding periods; and
R is the fixed periodic payment.
Example :
1. Calculate the present value on Jan 1, 2015 of an annuity of 5,000 paid at the end of each month
of the calendar year 2015. The annual interest rate is 12%.
Solution
We have,
Periodic Payment R = 5,000
Number of Periods n = 12
Interest Rate i = 12%/12 = 1%
Present Value
PV = 5000 × (1-(1+1%)^(-12))/1%
= 5000 × (1-1.01^-12)/1%
= 5000 × (1-0.88745)/1%
= 5000 × 0.11255/1%
= 5000 × 11.255
= 56,275.40
2. A certain amount was invested on Jan 1, 2015 such that it generated a periodic payment of
10,000 at the beginning of each month of the calendar year 2015. The interest rate on the
investment was 13.2%. Calculate the original investment and the interest earned.
Solution
Periodic Payment R = 10,000
Number of Periods n = 12
Interest Rate i = 13.2%/12 = 1.1%
Original Investment = PV of annuity due on Jan 1, 2015
= 10,000 × (1-(1+1.1%)^(-12))/1.1% × (1+1.1%)
= 10,000 × (1-1.011^-12)/0.011 × 1.011
= 10,000 × (1-0.876973)/0.011 × 1.011
= 10,000 × 0.123027/0.011 × 1.011
= 10,000 × 11.184289 × 1.011
= 1,13,073.20
Interest Earned = 10,000 × 12 − 1,13,073.20
= 1,20,000 – 1,13,073.20
= 6926.80
..........................................................................................................................................
Net Present Value
Net present value is the difference between the present value of cash inflows and the present value
of cash outflows that occur as a result of undertaking an investment project. It may be positive, zero
or negative. These three possibilities of net present value are briefly explained below:
Positive NPV:
If present value of cash inflows is greater than the present value of the cash outflows, the net present
value is said to be positive and the investment proposal is considered to be acceptable.
Zero NPV:
If present value of cash inflow is equal to present value of cash outflow, the net present value is said
to be zero and the investment proposal is considered to be acceptable.
Negative NPV:
If present value of cash inflow is less than present value of cash outflow, the net present value is said
to be negative and the investment proposal is rejected.
Net present value method (also known as discounted cash flow method) is a popular capital
budgeting technique that takes into account the time value of money. It uses net present value of
the investment project as the base to accept or reject a proposed investment in projects like
purchase of new equipment, purchase of inventory, expansion or addition of existing plant assets and
the installation of new plants etc.
To be at Net Present Value you also need to subtract money that went out (the money you invested
or spent):
Add the Present Values you receive
Subtract the Present Values you pay
1. Company A is considering a new piece of equipment. It will cost Rs. 6,000 and will produce a cash
flow of Rs. 1,000 every year for the next 12 years (the first cash flow will be exactly one year from
today).
(a) What is the NPV if the appropriate discount rate is 10%?
You can either discount each individual cash flow or recognise that the Rs. 1,000 cash flows are just a
twelve year annuity. So,
PV = a/i[l -1/(1 +i)n]
PV= 1,000/0.1 [1 - 1/(1.1)12]
PV = Rs. 6,814
Adding this to the original investment gives an NPV of
NPV = Rs. 6,814 - Rs. 6,000
NPV =Rs. 814
................................................................................................
(b) What is the NPV if the appropriate discount rate is 12%?
PV= 1,000/0.12 [1 -1/(1.12)12]
PV = Rs. 6,194
Adding this to the original investment gives an NPV of
NPV = Rs. 6,194-Rs. 6,000
NPV=Rs. 194
(c) What is the NPV if the appropriate discount rate is 15%?
PV= 1,000/0.15 [1-1/(1.15)12]
PV = Rs. 5,421
Adding this to the original investment gives an NPV of
NPV = Rs. 5,421-Rs. 6,000
Unit -13 : Sampling Methods
Sampling
A process used in statistical analysis in which a predetermined number of observations will be
taken from a larger population. When taking a sample from a larger population, it is important to
consider how the sample will be drawn. To get a representative sample, the sample must be
drawn randomly and encompass the entire population.
For example, a lottery system could be used to determine the average age of students in a
University by sampling 10% of the student body, taking an equal number of students from each
faculty.
There are three types of sampling:
1. Probability sampling: it is the one in which each sample has the same probability of being
chosen.
2. Purposive sampling: it is the one in which the person who is selecting the sample is who tries to
make the sample representative, depending on his opinion or purpose, thus being the
representation subjective.
3. No-rule sampling: we take a sample without any rule, being the sample representative if the
population is homogeneous and we have no selection bias.
We will always make probability sampling, because in case we choose the appropriate technique,
it assures us that the sample is representative and we can estimate the errors for the sampling.
There are different types of probability sampling:
• Random sampling with and without replacement.
• Systematic sampling.
• Stratified sampling.
• Cluster sampling.
• Other types of sampling techniques
Random sampling with and without replacement
When a certain element is selected and we have measured the variables needed in a certain study
and it can be selected again, we say that we make sampling with replacement. This sampling
technique is usually called simple random sampling.
In the case that the element cannot be selected again after being selected once, we say that we
have obtained the sample through a random sampling without replacement.
Systematic Sampling
In systematic sampling, elements are selected from the population at a uniform level that is
measured in time, order, or space. If we wanted to interview every twentieth student on a college
campus, we would choose a random starting point in the first twenty names in the student
directory and then pick every twentieth name thereafter.
Stratified Sampling
To use stratified sampling, we divide the population into relatively homogenous groups, called
strata. Then we use one of two approaches. Either we select at random from each stratum a
specified number of elements corresponding to the proportion of that stratum in the population
as a whole or we draw an equal number of elements from each stratum and give weight to the
results according to the stratum's proportion of total population.
Cluster Sampling
In cluster sampling, we divide the population into groups or clusters and then select a random
sample of these clusters. We assume that these individual clusters are representative of the
population as a whole. If a market Research team is attempting to determine by sampling the
average number of television sets per household in a large city, they could use a city map and
divide the territory into blocks and then choose a certain number of blocks (clusters) for
interviewing. Every household in each of these blocks would be interviewed. A well designed
cluster sampling procedure can produce a more precise sample at considerably less cost than that
of simple random sampling.
Sampling distribution
Sampling distribution is the distribution of all possible values of a statistic from all possible
samples of a particular size drawn from the population.
Standard Error
Standard deviation of the distribution of the sample means is called the standard error of the
mean.
Numerical on Sampling
A jar contains 3 red marbles, 7 green marbles and 10 white marbles. If a marble is drawn at
random, what is the probability that marble drawn is white?
a. 2/5
b. 1/2
c. 3/8
d. 10/13
Ans – b
Solution :
Here Red = 3
Green = 7
White = 10
Hence total sample space is (3+7+10)= 20
Out of 20 one ball is drawn n(S) = {c(20,a.} = 20
To find the probability of occurrence of one White marble out of 10 white ball
n(R)={c(10,a.} = 10
Hence P(R) = n(R)/n(S)
= 10/20 = 1/2
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A sack contains 4 black balls 5 red balls. What is probability to draw 1 black ball and 2 red balls in
one draw?
a. 12/21
b. 9/20
c. 10/21
d. 11/20
Ans – c
Solution :
Out of 9, 3 (1 black & 2 red) are expected to be drawn)
Hence sample space
n(S) = 9c3
= 9!/(6!×3!)
= 362880/4320
= 84
SHORT NOTES FOR
CAIIB
ADVANCED BANK MANAGEMENT
Short Notes For
Advanced Bank Management
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