SBI MM Special Guide For MM II Confirmation (Screening Test for POs / TOs / JMGs) / MM III & Gr (A & B) / MM II - Ass. Banks. G. Subraroanian Jan 2017 J. S. INSTITUTE OF BANKING AND FINANCE PVT. LTD. BANGALORE ilL © G. Subramanian JAN' 17 16th Edition ... (Revised and Updated) „ , , , ( , Published by : J. S. Institute of Banking and Finance Pvt. Ltd. P. B. No. 4126 No-19, 3rd Floor, Sneha Centre, Opp BHS College, 12th Main, 30th Cross, Jayanagar, 4th Block, Bangalore - 560011. Phone : 080-41307114. Emails: [email protected] /, [email protected] Website: www.jsinstitute.co.in IPrinted at: Raja Printers Bangalore-560 027, Ph.: 22234066 CONTENTS Pages From To PART -1 Rationale 1-1 1-91 PART - 2 Banking Problems 2-1 2-71 PART - 3 Situational Analysis 3-1 3-31 PART - 4 Communication 4-1 4-38 PART - 5 Comprehension 5-1 5-78 PART - 6 Data Interpretation 6-1 6-8 PART - 7 For and Against Statements 7-1 7-30 PART - 8 Concept Briefs 8-1 8-149 PART - 9 Model Tests on Banking, Finance & Economy Areas (Jan 16 to Dec'16) 9-1 9-19 PART -10 Psychometric Tests 10-1 10-2 , PART -11 Very Latest Developments 11-1 11-3 Foreword to the 16th Edition We are happy to publish the 16th edition of the MM Special Guide There has been a overwhelming response to the first 15 editions of the book. The book has been redesigned to suit the revised exam pattern for MMII Confirmation Test for POs/ TOs/JMGs and MM H and MM III exams of SBI. The book is also essential for Gr A/B and MM II exams of Associate Banks and Gr A/B of Ass. Banks. Under Concept Briefs, various topics of importance such as Sovereign Gold Bond Scheme, Small Payment Banks, Inflation Indexed Bonds, Virtual Currency, Rupay Card, Basel-III, FATCA, Framework for Revitalizing Distressed Assets, GST, etc., have been included. Questions on Situational Analysis and Data Interpretation will be asked in MMIII exam, MM II Confirmation exam and Gr A/B and Gr A & B and MMII exams of Associates Banks. Needless to add, the Institute's Banking Guide is an essential reading primer for the exams. This book is to be read as a supplement to the Banking Guide. English Language Comprehension exercises have been devised to meet the requirements of MM II exams and MMII Confirmation exam for POs / TOs / JMGs of SBI & Ass. Banks as also MMII exam of SBI. Communication exercises have also been included. A brief note on psychometric tests has been given in a separate section. Also, model tests based on developments in banking and finance (Jan'16 to Dec'16) are included. I trust and hope that my endeavour to make the book meet the requirements of the new pattern of exams would really help the aspirants. I thank Mr. C. Paramasivan, Dean of the Institute, and Shri S. Gnanavinayagam for their valuable contribution in the preparation of the book. I also thank Mr.K.Prabhu for the DTP support. Wishing the readers success in the exam and progress in their career Bangalore G. Jan' 2017 RATIONALE A NEW SBI AND BPR I. Profitability planning is more important than business planning. R. The profitability of operations has been dwindling gradually. In the changed environment in the country, the public/International Banks attach prime importance to profits. Hence the profitability of operations has to be carefully planned for and achieved. International banks/institutions will not place business with our bank, accept our guarantees/LCs etc unless the profitability is high. 2. The Bank's objective is "profit with growth". R. Mere groivth in business does not lead to growth in profit. The new motto will act as a lode-star for the managers to increase profitability by getting suitable deposit-advances mix, non-fund based business, fee based services etc. This acts as a right signal to the staff that in the present competitive, almost de-regulated environment, "Profit" should be the chief objective combined with growth. 3. Importance is given for greater transparency in the operations of banks by RBI. R. a) This will put in place safe and sound banking practices and ensure against imprudent risk-taking by banks. b) To provide stability to the financial system by ensuring a systematic transparency of the operations of banks. It helps the investors and depositors in taking appropriate investment decisions. Also, it enables the banks to take timely and corrective steps as and when required. 4. Importance is given to the submission of 'P' Reports by branches. R. 'P' form which shows both the budgeted and actual business levels, income, expenses and profit will enable the branch as well as the controlling authorities to ascertain whether the predetermined objectives in regard to profits, business etc are being achieved. It will also help the branch as well as controllers to initiate appropriate corrective steps in the event of negative variance. 5. The comments on P Report are written by the AGM (Region). R. To provide ready and immediate comments/suggestions on the performance of the branch: this enables the BM to take prompt corrective action. The entire process will be fast so that quick action can be taken to tap business. Also, the BM will be happy that his performance has personally been seen by his Controller. 6. The branch has to budget for both "Operating result" and "Net result" R. Operating result is the actual profit earned by the branch through various business operations, whereas the net result is arrived at after adjustment of central office interest payable/receivable on advances/ deposits of the branch. Ideally the branch should make both operating profit and net profit. Hence, both should be budgeted. TDRs / Term Loans are reported in P report Maturity-wise and Interest rate wise This will help the Bank ascertain the extent of mismatches and plan ahead through better Asset Liability Management for achieving the desired liquidity and profitability. Importance is given to Relationship Banking. We can have close rapport and understanding with the high value customers; this will enable us to anticipate their needs in advance and meet them satisfactorily. To meet competition effectively. RMs can c ross-sell and up-sell products and improve business and profitability. Operational Risk has been given importance by banks. As per Basel-II guidelines. Due to significant growth and complexity in the banking transactions 'there is increase in operational risk' eg: inadequate/failed intemal processes, people, systems, external event etc. To strengthen the soundness and stability of banking system. It is an important component of risk management system. 1-1 MM Special Guide 10. The Bank has set up Asset Liability Management system. R. The bank faces many risks in its operations such as mismatch of assets and liabilities, interest rate risk, transaction risk etc. Under the de-regulated environment there is an imperative need to manage these risks in an integrated manner at the corporate level and improve profitability. 11. The Bank has entered credit card business. ( SBI through a subsidiry) R. Credit Card business offers considerable untapped potential which can be fully exploited with the help of the existing retail outlets. It will enhance customer satisfaction and coverage. It is highly profitable. To meet competition and provide essential services to high income earners. 12. SBI is promoting SBI card in a big way. R. a) Credit Card business has considerable unexploited potential. Card spending is expected to grow substantially in the coming years. b) With 22,000+ retail outlets in the State Bank Group to sell this product we are in an advantageous position vis-à-vis our competitors. c) The card market will provide an exciting opportunity to our Bank to improve the bottom line. 13. The bank has entered insurance sector. R. It is a profitable business in the long run. The Bank can leverage its brand equity and vast customer base to sell life and general insurance products. The skills/expertise of staff can be developed to cross- sell banking, insurance and other financial products. The customers' various needs can be satisfied. 14. Banks have entered Insurance business as a joint venture with foreign insurance companies. R. i) It is a profitable business diversification. ii) The wide net-work of their branches and their large clientele will place them in an advantageous position in marketing this product vis-à-vis their competitors. iii) Participation of foreign companies would provide not only equity but also latest technology coupled with products designed to meet global standards. 15. Cheque Drop Box facility has been introduced at branches. R. This facility is part of the BPR initiatives of the Bank. The customer can put the instruments to be credited to his account in the Drop Box even after the business hours; they will be processed without any loss of time. Also recommendation of the Committee on Procedures and Performance Audit on Public Services headed by SS Tarapore, former Dy Govemor, RBI. 16. Credit Audit has been introduced. R. a) To introduce quality in the area of credit appraisal systems in the commercial credit portfolio and to ensure a favourable impact on profitability and NPA management. b) To ensure a feed back mechanism in regard to compliances with RBI directives and Bank's loan policies. c) To ensure that the health of the credit portfolio is good. 17. Credit Committees have been set up on the recommendations of McKinsey & Co. R. Committee method of decision-making will be more objective; joint decision making will reduce the `pressure' on the individual executive; each can bring his experience/judgement to the process.